BOSTON PRIVATE FINANCIAL HOLDINGS INC - 10-K Annual Report

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $1.00 Per Share
(Title of class)

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ý No o

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, computed by reference to the last reported sales price on the Nasdaq national market on June 28, 2002 was $554,097,945.

The number of shares of the registrant's common stock outstanding on March 3, 2003 was 22,653,756.

Portions of the registrant's proxy statement for the Company's 2003 Annual Meeting of Shareholders are incorporated by reference in Items 10, 11, 12 and 13 of Part III.

The discussions set forth below and elsewhere herein contain certain statements that may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, without limitation, such statements as may be identified by words such as "want," "continue," "strategy," "believes," "expects," "will," "anticipates," "estimates," "growth," "intends," "plans," "trend," "chance," "objectives," "future," "prospects," "signs," "achieve," "pursues," "seeks," and similar expressions. All statements, other than statements of historical facts, including statements regarding our strategy, capabilities, effectiveness of investment programs, expectations as to growth in assets, deposits and results of operations, success of various acquisitions, future operations, market position, outlook on future market performance, financial position, sources and levels of funds and liquidity, expectations and beliefs regarding economic recovery, prospects, plans and objectives of management are forward-looking statements. The Company's 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 the Company operates, including ongoing economic uncertainty created by the September 11, 2001 terrorist attack on the World Trade Center and the Pentagon, the United States' war on terrorism, the possibility of war with Iraq, and other 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 in Part II, Item 7 under the headings "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors and Factors Affecting Forward-Looking Statements." Boston Private does not undertake any obligation to update any forward-looking statement to reflect circumstances or events that occur after the date the forward-looking statements are made.

Boston Private Financial Holdings, Inc. (the "Company" or "Boston Private"), organized on July 1, 1988, 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 ("Boston Private Bank"), a trust company chartered by The Commonwealth of Massachusetts insured by the Federal Deposit Insurance Corporation (the "FDIC"). The Company also owns all of the issued and outstanding shares of common stock of Borel Private Bank & Trust Company ("Borel"), a California state banking corporation insured by the FDIC; Westfield Capital Management Company, LLC ("Westfield"), Sand Hill Advisors, Inc. ("Sand Hill") and Boston Private Value Investors, Inc. ("BPVI"), each a registered investment advisor; and RINET Company, LLC ("RINET"), a registered investment advisor and financial planning firm. 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., ("Coldstream Capital") a registered investment advisor in Bellevue, Washington. The Company conducts substantially all of its business through its wholly-owned subsidiaries, Boston Private Bank and Borel, (together the "Banks"), Westfield, Sand Hill, BPVI and RINET.

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, in exchange for 765,697 newly issued shares of the Company's common stock.

On October 1, 2001, RINET acquired by merger Kanon Bloch Carré, a Boston-based independent mutual fund rating service and investment advisor, in exchange for 100,288 newly issued shares of the Company's common stock.

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, Borel's previously outstanding stock options were converted into options to acquire 300,000 shares of the Company's common stock. The number of the Company's shares was calculated using an exchange ratio of 1.8996 shares of the Company's stock for each share of Borel common stock. In connection with the Borel merger, the Company recorded approximately $12 million of merger expenses.

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

contingent upon performance using a combination of approximately 70% cash and 30% common stock for each payment. At closing, the Company issued 258,395 shares of its common stock in connection with the transaction. In the fourth quarters of 2001 and 2002, the Company issued a total of 24,986 additional shares of its common stock in connection with the first two annual contingent payments. 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.

On June 10, 2002, BPVI appointed Edward Goldberg ("Goldberg") as a senior vice president. In connection with this appointment, BPVI agreed to purchase Goldberg's business. The purchase price is to be paid in three annual installments commencing in September, 2002. The payments are based upon retained assets under management with 10% of the purchase price being satisfied by the issuance of additional common stock. At closing, 3,485 shares of BPFH stock were issued. The acquisition was accounted for as a "purchase of a business" and, accordingly, the Company's results of operations and financial position include Goldberg on a consolidated basis since the date of the acquisition.

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

Boston Private Bank pursues a "private banking" business strategy and is principally engaged in providing banking, investment and fiduciary products and services to high net worth individuals, their families and businesses. Boston Private Bank primarily operates in the greater Boston area and New England and seeks to anticipate and respond to the financial needs of its client base by offering high quality products, dedicated personal service and long-term banking relationships. Boston Private Bank offers its clients a broad range of basic deposit services, including checking and savings accounts, with automated teller machine ("ATM") access, and cash management services through sweep accounts and repurchase agreements. In addition, Boston Private Bank also offers commercial, residential mortgage, home equity and consumer loans as well as investment advisory and asset management services, securities custody and safekeeping services, and 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, home equity 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 specializes in separately managed domestic growth equity portfolios in all areas of the capitalization spectrum. All members of Westfield's Investment Committee conduct rigorous fundamental research in analyzing company growth prospects for investment. Westfield's clients consist of pension funds, endowments and foundations, and mutual funds as well as high net worth individuals. Westfield also acts as the investment manager of five limited partnerships.

Sand Hill has been providing wealth management services to high net worth investors and select institutions in Northern California for 20 years. 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 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 comprehensive fee-only financial planning and investment management services to high net worth individuals and their families. Its capabilities include tax planning and preparation, asset allocation, trust management, gift and estate planning, risk management, philanthropy and retirement planning. A division of RINET, Kanon Bloch Carré, offers a mutual fund advisory service to institutional clients.

The Company generates a significant amount of fee income from providing investment management and trust services to its clients at the Banks and from providing investment management services for clients at Westfield, Sand Hill, RINET, and BPVI. Investment management and trust fees are generally based upon the value of assets under management, and, therefore, can be significantly affected by fluctuations in the values of securities caused by changes in the capital markets and by investment performance of Boston Private Bank, Westfield, Borel, Sand Hill, BPVI, and RINET. Fees earned by Westfield as manager for limited partnerships are directly related to investment performance and, therefore, can be significantly affected by the investment performance of Westfield.

The Banks earn fees and other income from lending and cash management services. The net income of the Banks depends primarily on their net interest income, which is the difference between interest income and interest expense or "cost of money," and the quality of their assets. Interest income depends on the amount of interest-earning assets outstanding during the period and the interest rates earned thereon. The Banks' cost of money is a function of the average amount of deposits and borrowed money outstanding during the period and the interest rates paid thereon. The quality of their assets further influences the amount of interest income lost on nonaccrual loans and the amount of additions to the allowance for loan losses. RINET earns income on a fee-only basis from providing financial planning services to clients. RINET also earns fees for providing asset allocation services to clients that are based on the value of such assets.

The Company and its subsidiaries provide a broad range of investment management services to individuals, family groups, trusts, endowments and foundations, retirement plans and investment partnerships. These services include management of equity, fixed income, balanced and strategic cash management portfolios. Portfolios are managed based on the investment objectives of each client, and each portfolio is positioned to benefit from long-term market trends. Acting as fiduciaries, the Banks provide trust services to both individuals and institutions. Westfield, acting as a manager of limited partnerships, also earns fees based on the performance of these limited partnerships. For the years ended December 31, 2002 and 2001, respectively, the asset management business accounted for 73.4% and 74.3% of the Company's total fees and other income and 32.8% and 36.2% of the Company's total revenues, which is defined as net interest income plus fees and other income. At December 31, 2002, the Company had approximately $6.4 billion in assets under management. Of this total, $6.0 billion was in investment advisory accounts, and $439 million was invested and administered under trust arrangements.

General. The Banks specialize in lending to individuals, real estate investors, and middle market businesses, including corporations, partnerships, associations and non-profit organizations. Loans made by the Banks to individuals include residential mortgage loans and mortgage loans on investment and vacation properties to individuals, unsecured and secured personal lines of credit, home equity loans, and overdraft protection. Loans made by the Banks to businesses include commercial construction and mortgage loans, revolving lines of credit, working capital loans, equipment financing and letters of credit. At Boston Private Bank commercial loans over $1 million, with the exception of cash collateralized loans, are reviewed by the Credit Committee. Residential Mortgage loans over $3 million are reviewed by the Residential Mortgage Committee. Both committees consist of members of Boston

Private Bank's management and lending staff. Commercial and residential mortgage loans that exceed $5 million are reviewed by the Directors Loan Committee, which consists of five outside Directors of Boston Private Bank. At Borel all unsecured loans over $200,000 and loans secured by real estate over $1 million are reviewed by the Officers Loan Committee. The Directors Loan Committee reviews all unsecured loans over $300,000 and loans secured by real estate over $1.5 million.

At December 31, 2002, the Banks had loans outstanding of $1.3 billion which represented approximately 71.5% of the Company's total assets. Boston Private Bank had loans outstanding of $970.6 million, and Borel had loans outstanding of $331.1 million which represented approximately 53.3% and 18.2%, respectively, of the consolidated Company's total assets. The interest rates charged on these loans vary with the degree of risk, maturity and amount, and are further subject to competitive pressures, market rates, the availability of funds and legal and regulatory requirements. At December 31, 2002, approximately 78.1% of the Banks' outstanding loans had interest rates that were either floating or adjustable in nature. See Part II, Item 7A—"Quantitative and Qualitative Disclosures About Market Risk—Interest Rate Sensitivity and Market Risk." At December 31, 2002, approximately 98.7% of the Banks' outstanding loans were secured, and approximately 86.3% were secured, in whole or in part, by real estate.

At December 31, 2002, the statutory lending limit to any single borrower was approximately $17.3 million and $10.6 million, for Boston Private Bank and for Borel, respectively, subject to certain exceptions provided under applicable law. At December 31, 2002, neither Boston Private Bank nor Borel had any outstanding lending relationships in excess of the legal lending limit.

The Banks also have a policy regarding the extension of loans to Directors of the Company and its subsidiaries, and the aggregate principal amount of loans to all Directors of the Company and its subsidiaries is limited by law to 100% of capital. At December 31, 2002, the aggregate principal amount of all loans to Directors and related entities (including unused commitments under lines of credit) was $10.1 million, or 6.0% of capital.

Geographic concentration. Boston Private Bank serves primarily individuals and smaller businesses located in Eastern Massachusetts and adjoining areas, with a particular concentration in the Greater Boston Metropolitan Area. Borel has a similar customer base located in Northern California. A downturn in either of these local economies or real estate markets could negatively impact our banking business. As of December 31, 2002, $280.0 million or 41.4% of the commercial loans, $14.0 million or 2.6% of the residential mortgage loans and $37.1 million or 45.6% of the home equity and other consumer loans were held by Borel and as such are concentrated in Northern California. The remainder of the $1.3 billion in loans, or $970.6 million, were held by Boston Private Bank and are concentrated in Eastern Massachusetts.

Loan Portfolio Composition and Maturity. The following table sets forth the Banks' loan balances for certain loan categories at the dates indicated and the percent of each category to total gross loans.

The following table discloses the scheduled contractual maturities of loans in the Banks' portfolios at December 31, 2002. Loans having no stated maturity are reported as due in one year or less. The following table also sets forth the dollar amounts of loans that are scheduled to mature after one year which have fixed or adjustable interest rates.

Scheduled contractual maturities typically do not reflect the actual maturities of loans. The average maturity of loans is substantially less than their average contractual terms because of prepayments and, in the case of conventional mortgage loans, due-on-sale clauses, which generally give the Banks the right to declare a loan immediately due and payable in the event, among other things, that the borrower sells the real property subject to the mortgage. The average life of mortgage loans tends to increase when current market rates are substantially higher than rates on existing mortgage loans and decrease when current market rates are substantially lower than rates on existing mortgages (due to refinancing of adjustable-rate and fixed-rate loans at lower rates). Under the latter circumstances, the weighted average yield on loans decreases as higher yielding loans are repaid or refinanced at lower rates. In addition, due to the fact that the Banks will, consistent with industry practice, "rollover" a significant portion of commercial real estate and commercial loans at or immediately prior to their maturity by renewing credit on substantially similar or revised terms, the principal repayments actually received by the Banks are anticipated to be significantly less than the amounts contractually due in any particular period. A portion of such loans also may not be repaid due to the borrowers inability to satisfy the contractual obligations of the loan. See Part II, Item 7—"Management's Discussion and Analysis of Financial Condition and Results of Operations—Asset Quality."

Commercial Loans. Commercial loans include working capital loans, equipment financings, standby letters of credit, term loans, revolving lines of credit and commercial real estate and construction loans. Commercial loans to individuals include construction loans, secured and unsecured personal lines of credit and term loans.

At December 31, 2002, the Banks had outstanding commercial loans totaling $676.2 million, which represented 51.9% of total loans and 37.1% of total assets of the Company. Commercial loans increased $138.0 million, or 25.7%, during the year ended December 31, 2002, compared to an increase of $76.6 million, or 16.6%, during the year ended December 31, 2001. The growth in 2002 and 2001 reflects both an increase in market demand and the impact of initiatives to increase market share. Of the Banks' commercial loan portfolio, $205.2 million or 30.3% is due within one year and $471.0 million or 69.7% is due after one year. Loans are priced on a fixed rate or floating rate basis. Boston Private Bank's floating rate loans are priced at a margin over their base rate. Borel's floating rate loans are priced at a margin over the prime rate as published by the Wall Street Journal. Floating rate loans accounted for 65.9% of the Banks' commercial loan portfolio as of December 31, 2002. The

average outstanding balance of the Banks' outstanding commercial loans was approximately $529,000 at December 31, 2002.

Both of the Banks have an independent loan review process under which loans are reviewed for adherence to internal policies and underwriting guidelines, and risk ratings are confirmed or adjusted on all loans reviewed. A majority of loans are reviewed annually. The results of this independent loan review are presented to management and the Directors Loan Committee at each Bank. In addition, both Directors Loan Committees review loans on each Bank's classified loan report on a monthly basis. Each of these loans is required to have an action plan developed by the lending officer in charge of the credit.

Residential Mortgage Loans. At December 31, 2002, the Banks had outstanding residential mortgage loans of $544.2 million representing 41.8% of the Company's total loan portfolio and 29.9% of total assets of the Company. Residential mortgage loans increased $64.6 million, or 13.5%, during the year ended December 31, 2002, compared to an increase of $134.0 million, or 38.7%, during 2001. Residential lending in the New England area continued to experience growth in both the refinancing and purchase markets due to the low interest rate environment. The decline in the growth rate from 2001 to 2002 is due to the increased levels of loans sold on the secondary market. In 2002, Borel began offering residential mortgage loans to its customers. While the Company has no minimum size for its mortgage loans, it concentrates its origination activities in the "Jumbo" segment of the market. This segment consists of loans secured by single family properties in excess of the amount eligible for purchase by the Federal National Mortgage Association ("FNMA"), which was $300,700 at December 31, 2002. The average loan size of the Company's outstanding residential mortgage loans was approximately $559,000 at December 31, 2002.

In 2002, Boston Private Bank sold $252.0 million of residential mortgage loans compared to $99.9 million in 2001. Of the loans sold during 2002, $235.6 million were sold on a non-recourse basis without retaining servicing, and $16.4 million were sold with servicing retained by Boston Private Bank. Boston Private Bank generally holds adjustable rate mortgage loans ("ARM's") in its own portfolio and sells most fixed rate mortgage loans to outside investors. At December 31, 2002, $517.2 million, or 95.0%, of loans in Boston Private Bank's residential mortgage portfolio were floating rate loans.

Home Equity & Other Consumer Loans. Home equity and other consumer loans consist of balances outstanding on home equity loans, consumer loans, credit cards and loans arising from overdraft protection extended to individual customers. At December 31, 2002, the Banks had $81.4 million of such loans compared to $79.7 million at December 31, 2001, a $1.7 million, or 2.1%, increase. The amount of home equity loans and other consumer loans is typically dependent on client demand.

Allowance for Loan Losses. The following table is an analysis of the Banks' allowances for loan losses for the periods indicated:

The allowance for loan losses is established based to a significant extent on the judgment and experience of management of each Bank, who utilize historical experience, product types, economic trends, and industry benchmarks. The allowance is segregated into three components; "specific," "general" and "unallocated." The specific component is established by allocating a portion of the allowance for loan losses to individual impaired loans on the basis of specific circumstances and assessments. The general component is determined by applying coverage percentages to groups of loans based on risk ratings and product types. A system of periodic loan reviews is performed to individually assess the inherent risk and assign risk ratings to each loan. Coverage percentages applied are determined based on industry practice and management's judgment. The unallocated component supplements the first two components based on management's judgment of the effect of current and forecasted economic conditions on the 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.

The following table represents the allocation of the Banks' allowance for loan losses and the percent of loans in each category to total loans as of the dates indicated:

This allocation of the allowance for loan losses reflects management's judgment of the relative risks of the various categories of the Banks' loan portfolio. This allocation should not be considered an indication of the future amounts or types of possible loan charge-offs. See Part II, Item 8, "Financial Statements and Supplementary Data—Notes 8 to the Consolidated Financial Statements" for further information.

The investment activity of the Banks is an integral part of the overall asset/liability management of the Company. The Banks' investment policies establish a portfolio of securities which will provide liquidity necessary to facilitate funding of loans and to cover deposit fluctuations, and to hedge the Banks' overall balance sheet against interest rate risk, while at the same time achieve a satisfactory return on the funds invested. The securities in which the Banks may invest are subject to regulation and are generally limited to securities that are considered "investment grade" securities. In addition, the Banks have an internal investment policy which restricts investments to the following categories: U.S. Treasury securities, obligations of U.S. government agencies and corporations, mortgage-backed securities, including securities issued by FNMA, the Government National Mortgage Association ("GNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"), securities of states and political subdivisions and corporate debt, all of which must be considered investment grade by a recognized rating service. The credit rating of each security or obligation in the portfolio is monitored and reviewed by each Bank's portfolio manager and Asset/Liability Management Committee. See Part II, Item 8, "Financial Statements and Supplementary Data—Notes 6 to the Consolidated Financial Statements" for further information.

The following table summarizes the carrying value of investments at the dates indicated:

Deposits. Deposits are the principal source of the Banks' funds for use in lending and for other general business purposes. At December 31, 2002, the Banks had a total of approximately 13,500 checking accounts consisting of demand deposit and NOW accounts with an average account balance of approximately $33,500, approximately 3,800 savings accounts with an average account balance of approximately $6,000, and approximately 5,900 money market accounts with an average account balance of approximately $115,000. Certificates of deposit represented approximately 17.9% and 20.4% of total deposits at December 31, 2002 and 2001, respectively. See Part II, Item 8 "Financial Statements and Supplementary Data—Note 11 to the Consolidated Financial Statements" for further information.

The following table sets forth the average balances and interest rates paid on the Banks' deposits:

Time certificates of deposit in denominations of $100,000 or greater had the following schedule of maturities:

Borrowings. The Banks have established various borrowing arrangements to provide additional sources of liquidity and funding. Management believes that the Banks currently have adequate liquidity available to respond to current demands. Boston Private Bank is a member of the FHLB of Boston and Borel is a member of the FHLB of San Francisco and as such each has access to both short and long-term borrowings. As of December 31, 2002, Boston Private Bank had $145.3 million of borrowings outstanding with a weighted average interest rate of 4.88%, compared to $124.2 million of borrowings outstanding with a weighted average interest rate of 5.12% at December 31, 2001. In addition, Boston Private Bank had borrowings available of $272.5 million. Borel did not have any outstanding borrowings during 2002 and had borrowings available of $21.9 million as of December 31, 2002. See Part II, Item 8 "Financial Statements and Supplementary Data—Note 12 to the Consolidated Financial Statements" for further information.

Boston Private Bank also obtains funds from the sales of securities to institutional investors and deposit customers under repurchase agreements. In a repurchase agreement transaction, Boston Private Bank will generally sell an investment security, agreeing to repurchase either the same or a substantially identical security on a specified later date (generally not more than 90 days for institutional investors

and overnight for deposit customers) at a price slightly greater than the original sales price. The difference in the sale price and repurchase price is the cost of the use of the proceeds. The investment securities underlying these agreements may be delivered to securities dealers who arrange such transactions as collateral for the repurchase obligation. Repurchase agreements represent a cost competitive funding source for Boston Private Bank. However, Boston Private Bank is subject to the risk that the borrower of the securities may default at maturity and not return the collateral. In order to minimize this potential risk, Boston Private Bank generally deals with large, established investment brokerage firms when entering into such transactions with institutional investors, and deals with established deposit customers of Boston Private Bank on overnight transactions. Repurchase transactions are accounted for as financing arrangements rather than as sales of such securities, and the obligation to repurchase such securities is reflected as a liability in the Company's Consolidated Financial Statements. At December 31, 2002, the total amount of outstanding repurchase agreements was $73.1 million with a weighted average interest rate of 1.2%, compared to $61.2 million with a weighted average interest rate of 1.9% at December 31, 2001. See Part II, Item 8 "Financial Statements and Supplementary Data—Note 13 to the Consolidated Financial Statements" for further information.

From time to time Boston Private Bank purchases federal funds from the FHLB and other banking institutions to supplement its liquidity position. Boston Private Bank has negotiated federal fund lines of credit totaling $94.0 million with correspondent institutions to provide Boston Private Bank with immediate access to overnight borrowings. At December 31, 2002, Boston Private Bank did not have any borrowings outstanding under these federal funds lines. Boston Private Bank has also negotiated brokered deposit agreements with several institutions that have nationwide distribution capabilities. At December 31, 2002, Boston Private Bank had $9.2 million of brokered deposits outstanding under these agreements. See Part II, Item 7—"Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity."

Other Sources of Funds. Other sources of funds include investment management fees, loan repayments, maturities of investment securities, and sales of securities from the available for sale portfolio.

The ability of the Banks to attract loans and deposits may be limited by their small size relative to their competitors. The Banks maintain a smaller staff and have fewer financial and other resources than larger institutions with which they compete in their market areas.

In particular, in attempting to attract deposits and originate loans, the Banks encounter competition from other institutions, including larger downtown and suburban-based commercial banking organizations, savings banks, credit unions, and other financial institutions and non-bank financial service companies. The principal methods of competition include the level of loan interest rates charged to borrowers, interest rates paid on deposits, range of services provided and the quality of these services. The Banks rely substantially on local promotional activity, personal contacts by officers, directors, and employees, personalized service and the companies' reputations in the communities they serve, to compete effectively.

In this competitive environment, the Banks may be unable to attract sufficient and high quality loans in order to continue their loan growth, which may adversely affect the Banks' results of operations and financial condition, including the level of their non-performing assets. 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. In particular, the Banks' current commercial borrowing customers may develop needs for credit facilities larger than they can accommodate. Moreover, under the Gramm-Leach-Bliley Act of 1999 (the "GLBA"), securities firms, insurance companies and other financial services providers that elect to become financial holding companies may acquire banks and

other financial institutions. The GLBA has significantly changed the competitive environment in which the Company and its subsidiaries conduct business. (See Bank Regulation and Supervision below.) The financial services industry is also likely to become more competitive as further technological advances enable more companies to provide financial services. These technological advances may diminish the importance of depository institutions and other financial intermediaries in the transfer of funds between parties.

In addition, the ability to attract investment management and trust business may be inhibited by the relatively short history and record of performance. With respect to investment management and trust services, the competitors are primarily commercial banks and trust companies, mutual fund companies, investment advisory firms, stock brokerage firms, other financial companies and law firms. Competition is especially keen in Boston Private Bank's and Westfield's market area because Boston has a well-established investment management industry. Many of Boston Private Bank's, Borel's and Westfield's competitors have greater resources than either Boston Private Bank, Borel, Westfield, or the Company on a consolidated basis. In addition to competing directly for clients, competition can impact the fee structures for this business. The Company believes that the ability to compete effectively with other firms is dependent upon the products, level of investment performance and client service, as well as the marketing and distribution of the investment products. Moreover, our ability to retain investment management clients may be impaired by the fact that our investment management contracts are typically short-term in nature, allowing our clients to withdraw funds from accounts under management, generally in their sole discretion. There can be no assurance that Boston Private Bank, Borel, Westfield, BPVI, and or Sand Hill will be able to achieve favorable investment performance and retain their existing clients.

RINET competes with a wide variety of firms including national and regional financial services firms, accounting firms, trust companies, and law firms. Many of these companies have greater resources and broader product lines, and may already have relationships with RINET's clients in related product areas. The Company believes that the ability of RINET to compete effectively with other firms is dependent upon the quality and level of service, personal relationships, price, and investment performance. There can be no assurance that RINET will be able to retain its existing clients, expand existing relationships, or add new clients.

At December 31, 2002, the Company had 391 employees. The Company's employees are not represented by a collective bargaining unit, and the Company believes its employee relations are good.

In addition to the generally applicable state and federal laws governing businesses and employers, we are further regulated by federal and state laws and regulations applicable to financial institutions and their parent companies. Virtually all aspects of our operations are subject to specific requirements or restrictions and general regulatory oversight. State and federal banking laws have as their principal objective either the maintenance of the safety and soundness of financial institutions and the federal deposit insurance system or the protection of consumers or classes of consumers, rather than the specific protection of stockholders of a bank or its parent company.

Set forth below is a brief description of certain laws and regulations that relate to the regulation of Boston Private and the Banks. To the extent the following material describes statutory or regulatory provisions, it is qualified in its entirety by reference to the particular statute or regulation.

Boston Private is a bank holding company (a "BHC") registered with the Board of Governors of the Federal Reserve System (the "FRB") under the Bank Holding Company Act of 1956, as amended (the "BHCA"). As such, Boston Private and its non-bank subsidiaries are subject to the supervision, examination, and reporting requirements of the BHCA and the regulations of the FRB. Boston Private is also considered a bank holding company for purposes of the laws of The Commonwealth of Massachusetts, and it is subject to the jurisdiction of the Massachusetts Board of Bank Incorporation (the "BBI") and the Massachusetts Commissioner of Banks (the "Commissioner"). Boston Private is also considered a bank holding company for purposes of the laws of the State of California, and it is subject to the jurisdiction of the California Department of Financial Institutions (the "DFI").

The FRB has the authority to issue orders to BHCs to cease and desist from unsound banking practices and violations of conditions imposed by, or violations of agreements with, the FRB. The FRB is also empowered to assess civil money penalties against companies or individuals who violate the BHCA or orders or regulations thereunder, to order termination of non-banking activities of non-banking subsidiaries of BHCs, and to order termination of ownership and control of a non-banking subsidiary by a BHC.

BHCA: Activities and Other Limitations. The BHCA prohibits a BHC from acquiring substantially all the assets of a bank or acquiring direct or indirect ownership or control of more than 5% of the voting shares of any bank, or increasing such ownership or control of any bank, or merging or consolidating with any BHC without prior approval of the FRB. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Act") generally authorizes BHCs to acquire banks located in any state, possibly subject to certain state-imposed age and deposit concentration limits, and also generally authorizes interstate mergers and to a lesser extent, interstate branching.

Unless a BHC becomes a "financial holding company" ("FHC") under the Gramm-Leach-Bliley Act of 1999 ("GLBA") (as discussed below), the BHCA also prohibits a BHC from acquiring a direct or indirect interest in or control of more than 5% of the voting shares of any company that is not a bank or a BHC and from engaging directly or indirectly in activities other than those of banking, managing or controlling banks or furnishing services to its subsidiary banks, except that it may engage in and may own shares of companies engaged in certain activities the FRB determined to be so closely related to banking or managing and controlling banks as to be a proper incident thereto. In making such determinations, the FRB is required to weigh the expected benefit to the public, such as greater convenience, increased competition or gains in efficiency, against the possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests or unsound banking practices. In addition, as discussed more fully below, Massachusetts law imposes certain approval requirements with respect to acquisitions by a BHC of certain banking institutions and to mergers of BHCs.

The GLBA established a comprehensive framework to permit affiliations among commercial banks, insurance companies, securities firms, and other financial service providers by revising and expanding the BHCA framework to permit BHCs that qualify and elect to be treated as FHCs to engage in a range of financial activities broader than would be permissible for traditional BHCs, such as Boston Private, that have not elected to be treated as FHCs. "Financial activities" is broadly defined to include not only banking, insurance and securities activities, but also merchant banking and additional activities that the FRB, in consultation with the Secretary of the Treasury, determines to be financial in nature, incidental to such financial activities, or complementary activities that do not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally. In sum, the GLBA permits a BHC that qualifies and elects to be treated as a FHC to engage in a significantly broader range of financial activities than BHCs, such as Boston Private, that have not elected FHC status.

In order to elect to become an FHC and thus engage in a broader range of financial activities, a BHC must meet certain tests and file an election form with the FRB. To qualify, all of a BHC's subsidiary banks must be well-capitalized (as discussed below under "Regulation of Boston Private's Banks—Capital Requirements") and well-managed, as measured by regulatory guidelines. In addition, to engage in the new activities, each of the BHC's banks must have been rated "satisfactory" or better in its most recent federal Community Reinvestment Act ("CRA") evaluation.

A BHC that elects to be treated as an FHC may face significant consequences if its banks fail to maintain the required capital and management ratings, including entering into an agreement with the FRB which imposes limitations on its operations and may even require divestitures. Such possible ramifications may limit the ability of a bank subsidiary to significantly expand or acquire less than well-capitalized and well-managed institutions. At this time, Boston Private has not elected to become an FHC.

Capital Requirements. The FRB has adopted capital adequacy guidelines which it uses in assessing the adequacy of capital in examining and supervising a BHC and in analyzing applications upon which it acts. The FRB's capital adequacy guidelines generally require BHCs to maintain total capital equal to 8% of total risk-adjusted assets and off-balance sheet items, with at least 50% of that amount consisting of Tier I or core capital and the remaining amount consisting of Tier II or supplementary capital. Tier I capital for BHCs generally consists of the sum of common stockholders' equity and perpetual preferred stock (subject in the case of the latter to limitations on the kind and amount of such stocks which may be included as Tier I capital), less goodwill and other non-qualifying intangible assets. Tier II capital generally consists of hybrid capital instruments, perpetual debt and mandatory convertible debt secturites; perpetual preferred stock, which is not eligible to be included as Tier I capital; term subordinated debt and intermediate-term preferred stock; and, subject to limitations, general allowances for loan losses. Assets are adjusted under the risk-based guidelines to take into account different risk characteristics.

In addition to the risk-based capital requirements, the FRB requires BHCs to maintain a minimum leverage capital ratio of Tier I capital (defined by reference to the risk-based capital guidelines) to its average total consolidated assets (the "Leverage Ratio") of 3.0%. Total consolidated average assets for this purpose does not include, for example, goodwill and any other intangible assets, unrealized gains or losses on investments and investments that the FRB determines should be deducted from Tier I capital. The FRB has announced that the 3.0% Leverage Ratio requirement is the minimum for the top-rated BHCs without any supervisory, financial or operational weaknesses or deficiencies or those which are not experiencing or anticipating significant growth. All other BHC's are required to maintain a Leverage Ratio of 4.0%. BHC's with supervisory financial, operational or managerial weaknesses, as well as BHC's that are anticipating or experiencing significant growth, are expected to maintain capital ratios above the minimum levels. Finally, the FRB has also imposed certain capital requirements applicable to certain non-banking activities, including adjustments in connection with off-balance sheet items.

U.S. bank regulatory authorities and international bank supervisory organizations, principally the Basel Committee on Banking Supervision, currently are considering changes to the risk-based capital adequacy framework which ultimately could affect the appropriate capital guidelines to which Boston Private and the Banks are subject.

Limitations on Acquisitions of Common Stock. The federal Change in Bank Control Act prohibits a person or group of persons from acquiring "control" of a BHC unless the FRB has been given at least 60 days to review and does not object to the proposal. Under a rebuttable presumption established by the FRB, the acquisition of 10% or more of a class of voting securities of a BHC, such as Boston Private, with a class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), would, under the circumstances set forth in the presumption, constitute the acquisition of control of a BHC. Massachusetts law and California law also

impose certain limitations on the ability of persons and entities to acquire control of banking institutions and their parent companies.

In addition, any company, as that term is broadly defined in the statute, would be required to obtain the approval of the FRB under the BHCA before acquiring 25% (5% in the case of an acquirer that is a BHC) or more, or otherwise obtaining control or a controlling influence over a BHC.

Cash Dividends. FRB policy provides that a bank or a BHC generally should not maintain its existing rate of cash dividends on common stock unless the organization's net income available to common shareholders over the past year has been sufficient to fully fund the dividends and the prospective rate of earnings retention appears consistent with the organization's capital needs, asset quality and overall financial condition. FRB policy further provides that a BHC should not maintain a level of cash dividends to its shareholders that places undue pressure on the capital of bank subsidiaries, or that can be funded only through additional borrowings or other arrangements that may undermine the BHC's ability to serve as a source of strength.

Support of Subsidiary Institutions and Liability of Commonly Controlled Depository Institutions. Under FRB policy, Boston Private is expected to act as a source of financial and managerial strength for, and commit its resources to, support its bank subsidiaries during periods of financial stress or adversity. This support may be required at times when Boston Private may not be inclined to provide it. In addition, any capital loans by a BHC to any of its bank subsidiaries are subordinate to the payment of deposits and to certain other indebtedness. In the event of a BHC's bankruptcy, any commitment by the BHC to a federal bank regulatory agency to maintain the capital of a bank subsidiary will be assumed by the bankruptcy trustee and entitled to a priority of payment.

A depository institution insured by the FDIC, such as Boston Private Bank or Borel, can be held liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC in connection with the default of a commonly controlled FDIC-insured depository institution or any assistance provided by the FDIC to any commonly controlled FDIC-insured depository institution "in danger of default." "Default" is defined generally as the appointment of a conservator or receiver, and "in danger of default" is defined generally as the existence of certain conditions indicating that a default is likely to occur in the absence of regulatory assistance. The FDIC's claim for damages is superior to claims of shareholders of the insured depository institution or its holding company, but is subordinate to claims of depositors, secured creditors, and holders of subordinated debt (other than affiliates) of the commonly controlled insured depository institution. The Banks are subject to these cross-guarantee provisions. As a result, any loss suffered by the FDIC in respect of either Boston Private Bank or Borel would likely result in assertion of the cross-guarantee provisions, the assessment of estimated losses against the other bank, and a potential loss of Boston Private's investments in Boston Private Bank or Borel.

Massachusetts Law. As a BHC for purposes of Massachusetts law, we have registered with the Commissioner and are obligated to make reports to the Commissioner. Further, as a Massachusetts BHC, Boston Private may not acquire all or substantially all of the assets of a banking institution, merge or consolidate with another BHC or acquire direct or indirect ownership or control of any voting stock in any other banking institution if it will own or control more than 50% thereof without the prior consent of the BBI. As a general matter, however, the Commissioner does not rule upon or regulate the activities in which BHCs or their non-bank subsidiaries engage.

California Law. Boston Private is also a BHC within the meaning of Section 3700 of the California Financial Code. As such, Boston Private and its subsidiaries are subject to examination by, and may be required to file reports with, the DFI.

The Banks are subject to the extensive regulation and examination of various federal and state authorities, which include the FDIC, the DFI and the Commissioner. Each of the Banks is subject to numerous state and federal statutes and regulations that affect its business, activities, and operations, and each is supervised and examined by one or more federal or state bank regulatory agencies.

As a Massachusetts-chartered bank, Boston Private Bank is subject to regulation and examination by the Commissioner and the FDIC. Borel is a California banking corporation that is subject to regulation by the DFI and the FDIC. Each of them is required to file reports with and obtain approvals from these various regulatory agencies prior to entering into certain transactions, including mergers with, or acquisitions of, other financial institutions. As FDIC-insured institutions, the Banks are also subject to certain requirements applicable to all insured depository institutions.

FDIC Insurance Premiums. The Banks pay deposit insurance premiums to the FDIC based on an assessment rate established by the FDIC for Bank Insurance Fund-member institutions. The FDIC has established a risk-based premium system under which the FDIC classifies institutions based on their capital ratios and on other relevant information and generally assesses higher rates on those institutions that tend to pose greater risks to the federal deposit insurance funds. The Federal Deposit Insurance Act ("FDIA") does not require the FDIC to charge all banks deposit insurance premiums when the ratio of deposit insurance reserves to insured deposits is maintained above specified levels. However, as a result of general economic conditions and recent bank failures, it is possible that the ratio of deposit insurance reserves to insured deposits could fall below the minimum ratio that FDIA requires, which would result in the FDIC setting deposit insurance assessment rates sufficient to increase deposit insurance reserves to the required ratio. We cannot predict whether the FDIC will be required to increase deposit insurance assessments above their current levels.

Capital Requirements. The FDIC has promulgated regulations and adopted a statement of policy regarding the capital adequacy of state-chartered banks, which, like the Banks, are not members of the Federal Reserve System. These requirements are substantially similar to those adopted by the FRB regarding BHCs, as described above.

Moreover, the federal banking agencies have promulgated substantially similar regulations to implement the system of prompt corrective action established by Section 38 of the FDIA. Under the regulations, a bank generally shall be deemed to be:

An institution generally must file a written capital restoration plan which meets specified requirements with an appropriate FDIC regional director within 45 days of the date that the institution receives notice or is deemed to have notice that it is undercapitalized, significantly undercapitalized or

critically undercapitalized. An institution, which is required to submit a capital restoration plan, must concurrently submit a performance guaranty by each company that controls the institution. A critically undercapitalized institution generally is to be placed in conservatorship or receivership within 90 days unless the FDIC formally determines that forbearance from such action would better protect the deposit insurance fund.

Immediately upon becoming undercapitalized, an institution becomes subject to the provisions of Section 38 of the FDIA, including for example, (i) restricting payment of capital distributions and management fees, (ii) requiring that the FDIC monitor the condition of the institution and its efforts to restore its capital, (iii) requiring submission of a capital restoration plan, (iv) restricting the growth of the institution's assets and (v) requiring prior approval of certain expansion proposals.

At December 31, 2002, each of the Banks was deemed to be a well capitalized institution for the above purposes. Regulators may raise capital requirements applicable to banking organizations beyond current levels. We are unable to predict whether higher capital requirements will be imposed and, if so, at what levels and on what schedules. Therefore, we cannot predict what effect such higher requirements may have on us. As is discussed above, the Banks would be required to remain well-capitalized institutions at all times if we elected to be treated as an FHC.

Brokered Deposits. Section 29 of the FDIA and FDIC regulations generally limited the ability of an insured depository institution to accept, renew or roll over any brokered deposit depending on the institution's capital category. These restrictions have not had a material impact on the operations of the Banks because each of the Banks historically has not relied upon brokered deposits as a source of funding.

Activities and Investments of Insured State-Chartered Banks. Section 24 of the FDIA generally limits the activities as principal and equity investments of FDIC-insured, state-chartered banks to those that are permissible for national banks. In 1999, the FDIC substantially revised its regulations implementing Section 24 of the FDIA to ease the ability of FDIC-insured state-chartered banks to engage in certain activities not permissible for national banks, and to expedite FDIC review of bank applications and notice to engage in such activities.

Further, the GLBA permits national banks and state banks, to the extent permitted under state law, to engage in certain new activities which are permissible for subsidiaries of an FHC. Further, it expressly preserves the ability of national banks and state banks to retain all existing subsidiaries. In order to form a financial subsidiary, a national bank or state bank must be well-capitalized, and such banks would be subject to certain capital deduction, risk management and affiliate transaction rules, among other things. Also, the FDIC's final rules governing the establishment of financial subsidiaries adopt the position that activities that a national bank could only engage in through a financial subsidiary, such as securities underwriting, only may be conducted in a financial subsidiary by a state nonmember bank. However, activities that a national bank could not engage in through a financial subsidiary, such as real estate development or investment, continue to be governed by the FDIC's standard activities rules. Moreover, to mirror the FRB's actions with respect to state member banks, the final rules provide that a state bank subsidiary that engages only in activities that the bank could engage in directly (regardless of the nature of the activities) will not be deemed to be a financial subsidiary.

Transactions with Affiliates. There are various legal restrictions on the extent to which a BHC, such as Boston Private, and its non-bank subsidiaries may borrow, obtain credit from or otherwise engage in "covered transactions" with its FDIC insured depository institution subsidiaries. Such

borrowings and other covered transactions by an insured depository institution subsidiary (and its subsidiaries) with its non-depository institution affiliates are limited to the following amounts:

"Covered transactions" are defined by statute for these purposes to include a loan or extension of credit to an affiliate, a purchase of or investment in securities issued by an affiliate, a purchase of assets from an affiliate unless exempted by the FRB, the acceptance of securities issued by an affiliate as collateral for a loan or extension of credit to any person or company, or the issuance of a guarantee, acceptance, or letter of credit on behalf of an affiliate. Covered transactions are also subject to certain collateral security requirements. Further, a BHC and its subsidiaries are prohibited from engaging in certain tying arrangements in connection with any extension of credit, lease or sale of property of any kind, or furnishing of any service. The GLBA requires the FRB to promulgate rules addressing as covered transactions credit exposure relating to derivatives transactions and intra-day extensions of credit between banks and their affiliates. In accordance with the GLBA, the FRB has recently adopted a final rule which will become effective April 1, 2003, to implement comprehensively Sections 23A and 23B of the Federal Reserve Act.

Community Reinvestment Act. The CRA requires the FDIC to evaluate the Banks performance in helping to meet the credit needs of their entire communities, including low-and-moderate-income neighborhoods, consistent with their safe and sound banking operations, and to take this record into consideration when evaluating certain applications. The CRA does not establish specific lending requirements or programs for financial institutions, nor does it limit an institution's discretion to develop the type of products and services that it believes are best suited to its particular community, consistent with the purposes of the CRA. Massachusetts has also enacted a similar statute that requires the Commissioner to evaluate Boston Private Bank's performance in helping to meet the credit needs of its entire community and to take that record into account in considering certain applications.

The FDIC's CRA regulations are based upon objective criteria of the performance of institutions under three key assessment tests: (i) a lending test, to evaluate the institution's record of making loans in its service areas; (ii) an investment test, to evaluate the institution's record of investing in community development projects, affordable housing, and programs benefiting low or moderate income individuals and businesses; and (iii) a service test, to evaluate the institution's delivery of services through its branches, ATMs, and other offices. As of the date of the most recent regulatory exam in May 2002, Boston Private Bank's CRA rating was "outstanding." As of the date of the most recent regulatory exam in July 2001, Borel's CRA rating was "satisfactory."

Customer Information Security. The FDIC and other bank regulatory agencies have adopted final guidelines for establishing standards for safeguarding nonpublic personal information about customers that implement provisions of the GLBA (the "Guidelines"). Among other things, the Guidelines require each financial institution, under the supervision and ongoing oversight of its Board of Directors or an appropriate committee thereof, to develop, implement and maintain a comprehensive written information security program designed to ensure the security and confidentiality of customer information, to protect against any anticipated threats or hazards to the security or integrity of such information; and to protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer.

Privacy. The GLBA requires financial institutions to implement policies and procedures regarding the disclosure of nonpublic personal information about consumers to nonaffiliated third parties. In

general, the statute requires us to explain to consumers our policies and procedures regarding the disclosure of such nonpublic personal information, and, except as otherwise required by law, we are prohibited from disclosing such information except as provided in our policies and procedures.

USA Patriot Act. The USA Patriot Act of 2001 (the "Patriot Act"), designed to deny terrorists and others the ability to obtain anonymous access to the United States financial system, has significant implications for depository institutions, brokers-dealers and other businesses involved in the transfer of money. The Patriot Act, together with the implementing regulations of various federal regulatory agencies, require financial institutions to implement additional or amend existing policies and procedures with respect to, among other things, anti-money laundering compliance; suspicious activities and currency transaction reporting; and due diligence on customers.

Massachusetts Law—Dividends. Under Massachusetts law, the board of directors of a trust company, such as Boston Private Bank, may declare from "net profits" cash dividends no more often than quarterly, provided that there is no impairment to the trust company's capital stock. Moreover, prior Commissioner approval is required if the total of all dividends declared by a trust company in any calendar year would exceed the total of its net profits for that year combined with its retained net profits for the previous two years, less any required transfer to surplus or a fund for the retirement of any preferred stock. These restrictions on the Boston Private Bank's ability to declare and to pay dividends may restrict Boston Private's ability to pay dividends to its stockholders. We cannot predict future dividend payments of Boston Private Bank at this time.

Regulatory Enforcement Authority. The enforcement powers available to federal banking regulators include, among other things, the ability to assess civil money penalties, to issue cease-and-desist or removal orders and to initiate injunctive actions against banking organizations and institution-affiliated parties, as defined. In general, these enforcement actions may be initiated for violations of law and regulations and unsafe or unsound practices. Other actions or inactions may provide the basis for enforcement action, including misleading or untimely reports filed with regulatory authorities. Under certain circumstances, federal and state law require public disclosure and reports of certain criminal offenses and also final enforcement actions by the federal banking agencies.

Securities Law Issues. The GLBA also amended the federal securities laws to eliminate the blanket exceptions that banks traditionally have had from the definition of "broker," "dealer" and "investment adviser." In February 2003, the SEC extended the temporary exemption from the definition of "dealer" for banks until September 30, 2003 and, in May 2002, it extended the temporary exemption from the definition of "broker" until May 12, 2003. In February 2003, the SEC also issued final rules that, among other things, adopt amendments to its rule granting an exemption to banks from dealer registration for a de minimis number of riskless principal transactions, and to its rule that defines terms used in the bank exception to dealer registration for asset-backed transactions, and it adopted a new exemption for banks from the definition of broker and dealer under the Exchange Act for certain securities lending transactions. Banks not falling within the specific exemptions provided by the new law may have to register with the SEC as a broker, a dealer or both and become subject to SEC jurisdiction. With respect to investment adviser registration, the GLBA requires a bank that acts as investment adviser to a registered investment company to register as an investment adviser or to conduct such advisory activities through a separately identifiable department or division of the bank so registered.

The operations of Boston Private Bank and Borel are generally affected by the economic, fiscal, and monetary policies of the United States and its agencies and regulatory authorities, particularly the FRB which regulates the money supply of the United States, reserve requirements against deposits, the discount rate on FRB borrowings and related matters, and which conducts open-market operations in U.S. government securities. The fiscal and economic policies of various governmental entities and the

monetary policies of the FRB have a direct effect on the availability, growth, and distribution of bank loans, investments, and deposits.

In addition, various proposals to change the laws and regulations governing the operations and taxation of, and deposit insurance premiums paid by, federally and state-chartered banks and other financial institutions are from time to time pending in Congress and in state legislatures as well as before the FRB, the FDIC, and other federal and state bank regulatory authorities. The likelihood of any major changes in the future, and the impact any such changes might have on Boston Private Bank and Borel, are not possible to determine.

Virtually all aspects of the Company's investment management business are subject to extensive regulation. Westfield, Sand Hill, RINET, and BPVI, are registered with the Securities and Exchange Commission (the "Commission") as investment advisers under the Investment Advisers Act of 1940, as amended (the "Investment Advisers Act"). As an investment adviser, each is subject to the provisions of the Investment Advisers Act and the Commission's regulations promulgated thereunder. The Investment Advisers Act imposes numerous obligations on registered investment advisers, including fiduciary, recordkeeping, operational, and disclosure obligations. Westfield, Sand Hill, RINET and BPVI are also subject to regulation under the securities laws and fiduciary laws of certain states. Each of the mutual funds for which Westfield and Sand Hill act as an adviser, or subadviser, is registered with the Commission under the Investment Company Act of 1940, as amended (the "1940 Act"). Shares of each such fund are registered with the Commission under the Securities Act, and the shares of each fund are qualified for sale (or exempt from such qualification) under the laws of each state and the District of Columbia to the extent such shares are sold in any of such jurisdictions. The Company is also subject to the Employee Retirement Income Security Act of 1974 ("ERISA"), and to regulations promulgated thereunder, insofar as it is a "fiduciary" under ERISA with respect to certain of its clients. ERISA and the applicable provisions of the Internal Revenue Code of 1986, as amended (the "Code"), impose certain duties on persons who are fiduciaries under ERISA, and prohibit certain transactions by the fiduciaries (and certain other related parties) to such plans.

As an adviser or subadviser to a registered investment company, Westfield and Sand Hill are subject to requirements under the 1940 Act and the Commission's regulations promulgated thereunder. Under the Investment Advisers Act, every investment advisory contract between a registered investment adviser and its clients must provide that it may not be assigned by the investment adviser without the consent of the client. In addition, under the 1940 Act, each contract with a registered investment company must provide that it terminates upon its assignment. Under both the Investment Advisers Act and the 1940 Act, an investment advisory contract is deemed to have been assigned in the case of a direct "assignment" of the contract as well as in the case of a sale, directly or indirectly, of a "controlling block" of the adviser's voting securities. Such an assignment may be deemed to take place when a firm is acquired by the Company.

The foregoing laws and regulations generally grant supervisory agencies and bodies broad administrative powers, including the power to limit or restrict either Westfield, Sand Hill, RINET or BPVI from conducting their business in the event that they fail to comply with such laws and regulations. Possible sanctions that may be imposed in the event of such noncompliance include the suspension of individual employees, limitations on the business activities for specified periods of time, revocation of registration as an investment adviser, commodity trading adviser and/or other registrations, and other censures and fines. Changes in these laws or regulations could have a material adverse impact on the profitability and mode of operations of the Company.

The Company, Boston Private Bank, Sand Hill, Borel, and BPVI are subject to those rules of federal income taxation generally applicable to corporations under the Code. Boston Private Bank and

Borel are also, under Subchapter H of the Code, subject to certain special rules applicable to banking institutions as to securities, reserves for loan losses, and any common trust funds. The Company, Boston Private Bank, Sand Hill, Borel and, BPVI, as members of an affiliated group of corporations within the meaning of Section 1504 of the Code, will file a consolidated federal income tax return, which has the effect of eliminating or deferring the tax consequences of inter-company distributions, including dividends, in the computation of consolidated taxable income for federal tax purposes. Westfield and RINET are limited liability companies and their taxable income is included as part of the Company's taxable income.

Boston Private Preferred Capital Corporation, a subsidiary of Boston Private Bank, qualifies as a Real Estate Investment Trust ("REIT"). It is not included in the affiliated group for tax filing purposes. However, substantially all of its income may be included in Boston Private Bank's taxable income as a result of the dividends it pays to its shareholders.

In addition to regular corporate income tax, corporations are subject to an alternative minimum tax, which generally is equal to 20% of alternative minimum taxable income (taxable income, increased by tax preference items and adjusted for certain regular tax items). The preference items, which are generally applicable, include an amount equal to 75% of the amount by which a bank's adjusted current earnings (generally alternative minimum taxable income computed without regard to this preference and prior to reduction for net operating losses) exceeds its alternative minimum taxable income without regard to this preference. Alternative minimum tax paid can be credited against regular tax due in later years.

Commonwealth of Massachusetts. Both the Company and its subsidiaries doing business in Massachusetts are subject to an annual Massachusetts excise tax. The tax rate is 10.50% on taxable income apportioned to Massachusetts. The definition of Massachusetts's taxable income is defined as federal taxable income subject to certain modifications. We believe these modifications allow for a deduction for 95% of dividends received from stock where the entity owns 15% or more of the voting stock of the institution paying the dividend (see Item 3 "Legal Proceedings") and to allow deductions from certain expenses allocated to federally tax exempt obligations. Combined reporting is not permitted under Massachusetts's statutes. The Governor of Massachusetts has recently signed into law legislation that amends existing law to provide expressly that the deduction discussed above for dividends received is not permitted with respect to dividends received from a REIT. The legislation takes effect retroactively and applies to tax years ending on or after December 31, 1999. See Note 22 under the caption "Notes to Consolidated Financial Statements" in this Annual Report on Form 10-K for further information regarding this legislation and its impact on Boston Private.

Certain of the Company's subsidiaries meeting certain definitional tests relating to investments are not subject to the corporate excise tax, but instead are taxed on their gross income at the rate of 1.32%.

Boston Private Preferred Capital Corporation is subject to the minimum corporate excise tax.

State of California. The Company and its subsidiaries are taxable in California as a result of the operations of Borel and Sand Hill. The definition of California's taxable income is gross income as defined under the Internal Revenue Code subject to certain exclusions, less deductions allowed by the state. The income from REIT's is excluded from the definition of gross income. The tax rate applicable to corporations is 8.84% of taxable income apportioned to California on a unitary basis. However, most of the income for 2002 was taxed at the 10.84% tax rate applicable to financial institutions. For 2001, Borel is not part of the unitary group and as such, is subject to the California corporate income/franchise tax at a tax rate of 10.84% applicable to financial institutions.

State of New Hampshire. The Company and its subsidiaries are taxable in New Hampshire as a result of the operations of Boston Private Value Investors. The tax rate on the business enterprise tax is 0.75% and the tax rate on the business profits tax is 8.5% with a credit allowed for the business enterprise tax calculated.

The Company's Internet address is www.bostonprivate.com, and the Company maintains a website at that address. The Company makes available on or through its Internet website, without charge, its annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the SEC. The Company's reports filed with, or furnished to, the SEC are also available at the SEC's website at www.sec.gov. The quarterly earnings release conference call can also be accessed from the Company's website. Press releases are also maintained on the Company's website.

The Company and its subsidiaries conduct operations in leased premises. The Company's and Boston Private Banks' headquarters are located at Ten Post Office Square, Boston, Massachusetts. The Boston Private Bank has six offices, three in Boston, Massachusetts, one in Wellesley, Massachusetts, one in Newton, Massachusetts and one in Cambridge, Massachusetts. Borel has two offices, one in San Mateo, California and another in Palo Alto, California. Westfield is located at One Financial Center, Boston, Massachusetts. Sand Hill is currently located in Menlo Park, California, and in December 2002, Sand Hill committed to lease space in Palo Alto adjacent to Borel's new Palo Alto office. Sand Hill intends to move to this space during 2003 and to sublease its existing facilities. The lease on the space to be vacated by Sand Hill expires in 2008 and the remaining payments total $4.4 million. RINET is located at Ten Post Office Square, which is adjacent to the Bank's headquarters. Boston Private Value Investors has two offices, one located at 10 Post Office Square, which is also adjacent to Boston Private Banks' headquarters, and one in Concord, New Hampshire.

Generally, the initial terms of the leases for these properties range from five to fifteen years. Most of the leases also include options to renew at fair market value for periods of five to ten years. In addition to minimum rentals, certain leases include escalation clauses based upon various price indices and include provisions for additional payments to cover taxes.

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. Notwithstanding that the fund managed by Westfield under the terms of the governing contract made significant gains above the Board's initial investment, the Board brought the action for an alleged opportunity loss. 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.

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. Briefs have not yet been filed and 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 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. The Disapproval Action has not been set for hearing, and no discovery has been taken to date.

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.

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 will establish 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.

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.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's common stock, par value $1.00 per share (the "Common Stock"), is traded on the Nasdaq National Market System ("Nasdaq") under the symbol "BPFH." At March 3, 2003 there were 22,653,756 shares of Common Stock outstanding, which were held by approximately 838 holders of record.

The following table sets forth the high and low closing sale prices for the Company's Common Stock for the periods indicated, as reported by Nasdaq:

The Company presently plans to pay cash dividends on its Common Stock on a quarterly basis dependent upon the results of operations of the immediately preceding quarters. However, declaration of dividends by the Board of Directors of the Company will depend on a number of factors, including capital requirements, regulatory limitations, the Company's operating results and financial condition and general economic conditions.

The Company is a legal entity separate and distinct from its banking and other subsidiaries. These subsidiaries are the principal assets of the Company, and as such, provide the only source of payment of dividends by the Company. As to the payment of dividends, as discussed below, each of the Banks is subject to the laws and regulations of its chartering jurisdiction and to the regulations of its primary federal regulator. If the federal banking regulator determines that a depository institution under its jurisdiction is engaged in or is about to engage in an unsafe or unsound practice, the regulator may require, after notice and hearing, that the institution cease and desist from such practice. Depending on the financial condition of the depository institution, an unsafe or unsound practice could include the payment of dividends. The federal banking agencies have indicated that paying dividends that deplete a depository institution's capital base to an inadequate level would be an unsafe and unsound banking practice. Under the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), a depository institution may not pay any dividend if payment would cause it to become undercapitalized or if it already is undercapitalized. The federal agencies have also issued policy statements that provide that bank holding companies and insured banks should generally only pay dividends out of current operating earnings.

Under Massachusetts law, trust companies, such as Boston Private Bank, may pay dividends only out of "net profits" and only to the extent that such payments will not impair Boston Private Bank's capital stock and surplus account. Although Massachusetts law does not define what constitutes "net

profits" it is generally assumed that the term includes a bank's retained earnings and does not include its additional paid-in capital account. Furthermore, trust companies may not pay dividends more often than on a quarterly basis. In addition, prior Commissioner approval is required if the total dividends for a calendar year would exceed net profits for that year combined with retained net profits for the previous two years. Likewise under California law, the DFI has the authority to prohibit Borel from paying dividends depending on Borel's financial condition, if such payment is deemed to constitute an unsafe or unsound practice.

These restrictions on the ability of the Banks to pay dividends to the Company restrict the ability of the Company to pay dividends to the holders of the Common Stock. The payment of dividends by Boston Private and the Banks may also be affected or limited by other factors, such as the requirement to maintain adequate capital above regulatory guidelines. There are no such comparable statutory restrictions on Westfield's, Sand Hill's, BPVI's or RINET's ability to pay dividends.

There have been no sales of unregistered securities of the Company during the fourth quarter of the fiscal year ended December 31, 2002.

The following table represents selected financial data for the five fiscal years ended December 31, 2002. The data set forth below does not purport to be complete. It should be read in conjunction with, and is qualified in its entirety by, the more detailed information, including the Company's Consolidated Financial Statements and related Notes, appearing elsewhere herein. This data has been restated to reflect the mergers described in Note 2 of the Notes to the consolidated financials statements.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management's discussion and analysis of financial condition and results of operations should be read in conjunction with the consolidated financial statements, their notes, and other statistical information included in this annual report.

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 Management's Discussion and Analysis of Financial Condition and Results of Operation.

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 result in goodwill and other intangible assets. Goodwill is subject to ongoing periodic impairment tests and is 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.

Management of the Company is required to make certain estimates and assumptions during the preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States. 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.

The Consolidated Financial Statements and related Notes thereto, presented in Part II, Item 8, "Financial Statements and Supplementary Data," have been prepared in accordance with accounting principles generally accepted in the United States of America, which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation.

Unlike many industrial companies, substantially all of the assets and liabilities of the Company are monetary in nature. As a result, interest rates have a more significant impact on the Company's performance than the general level of inflation. Over short periods of time, interest rates may not necessarily move in the same direction or in the same magnitude as inflation.

Liquidity is defined as the ability to meet current and future financial obligations of a short-term nature. The Company further defines liquidity as the ability to respond to the needs of depositors and borrowers as well as to earnings enhancement opportunities in a changing marketplace. Below are the schedules of the Company's contractual obligations and commercial commitments as of December 31, 2002.

Management is responsible for establishing and monitoring liquidity targets as well as strategies to meet these targets. In general, the Company maintains a relatively high degree of liquidity. At December 31, 2002, cash and cash equivalents, money market investments, and securities available for sale amounted to $420.3 million, or 23.1% of total assets of the Company. This compares to $342.6 million, or 22.7% of total assets, at December 31, 2001.

The Company's primary sources of funds are dividends from its subsidiaries, proceeds from the issuance of its common stock, a committed line of credit and access to the money and capital markets. The Company has executed a $15.0 million line of credit with a correspondent bank to provide short-term working capital to the Company and its subsidiaries, if necessary. As of December 31, 2002, there were no borrowings under this line of credit. The line of credit expired January 17, 2003 and is currently being renegotiated.

Dividends from the Banks are limited by various regulatory requirements relating to capital adequacy and retained earnings. See Item 5, "Dividends." Management believes that the Company has adequate liquidity to meet its commitments for the foreseeable future.

In general, Boston Private Bank maintains a liquidity target of 10% to 20% of total assets. Boston Private Bank is a member of the FHLB of Boston, and as such, had access to both short and long-term borrowings of up to $417.8 million at December 31, 2002. In addition, Boston Private Bank maintains a line of credit at the FHLB of Boston as well as other lines of credit and brokered deposit lines with

other correspondent banks. Liquid assets (i.e. cash and due from banks, federal funds sold, and investment securities) totaled $295.1 million, which equals 24.0% of Boston Private Bank's total liabilities. Management believes that Boston Private Bank has adequate liquidity to meet its commitments for the foreseeable future.

Borel maintains a minimum liquidity target of 20% of total assets. Borel is a member of the FHLB of San Francisco, and as such, has access to short and long term borrowings of up to $21.8 million. Borel manages its cash position in a way that avoids reliance on short-term borrowings or brokered deposits. Concentrations of deposits from any one source are also avoided. At December 31, 2002, liquid assets, i.e. cash and due from banks, federal funds sold, and investment securities, totaled $124.6 million, or 29.0% of Borel's total liabilities. Management believes that Borel has adequate liquidity to meet its commitments for the foreseeable future.

Total stockholders' equity of the Company at December 31, 2002 was $167.4 million, compared to $139.6 million at December 31, 2001. This increase of $27.8 million was primarily the result of earnings for the year. These increases were offset by dividends to common stockholders of $3.6 million. In addition $1.9 million was raised in connection with the exercise of stock options and stockholders' equity was increased $2.2 million from the issuance of 109,088 shares of common stock, mostly related to incentive compensation.

As a bank holding company, the Company is subject to a number of regulatory capital requirements that have been adopted by the Federal Reserve Board. At December 31, 2002, the Company's Tier I leverage capital ratio stood at 8.16%, compared to 8.05% at December 31, 2001. The Company is also subject to a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. According to these standards, the Company had a Tier I risk-based capital ratio of 11.69% and a Total risk-based capital ratio of 12.95% at December 31, 2002. This compares to a Tier I risk-based capital ratio of 12.18% and a Total risk-based capital ratio of 13.43% at December 31, 2001. The minimum Tier I leverage, Tier I risk-based, and Total risk-based capital ratios necessary to enable the Company to be classified for regulatory purposes as a "well capitalized" institution are 5.00%, 6.00% and 10.00%, respectively. The Company was considered to be "well capitalized" as of December 31, 2002 and 2001. See Part I, Item 1, "Business—Bank Regulatory Considerations—Certain Restrictions on Activitiies and Operations of Boston Private—Capital Requirements."

At December 31, 2002, Boston Private Bank's Tier I leverage capital ratio stood at 6.61%, compared to 6.30% at December 31, 2001. According to these standards, Boston Private Bank had a Tier I risk-based capital ratio of 10.11% and a Total risk-based capital ratio of 11.36% at December 31, 2002. This compares to a Tier I risk-based capital ratio of 10.31% and a Total risk-based capital ratio of 11.56% at December 31, 2001. Boston Private Bank was considered to be "well capitalized" as of December 31, 2002 and 2001. Boston Private is expected to remain well capitalized after recording the additional Massachusetts income taxes as described in Part I, Item 3 Legal Proceedings and Part II Item 8 Financial Statements and supplementary data—Note 22 of the Consolidated Financial Statements.

At December 31, 2002, Borel's Tier I leverage capital ratio stood at 8.20%, compared to 6.83% at December 31, 2001. According to these standards, Borel had a Tier I risk-based capital ratio of 10.10% and a Total risk-based capital ratio of 11.35% at December 31, 2002. This compares to a Tier I risk-based capital ratio of 8.50% and a Total risk-based capital ratio of 9.76% at December 31, 2001. Borel was considered to be "well capitalized" as of December 31, 2002 and "adequately capitalized" as of December 31, 2001. Borel did not meet the 10.00% Total risk-based capital ratio as of December 31,

2001 primarily due to a fourth quarter loss as a result of payment of nonrecurring merger expenses. The Company made capital contributions to Borel of $3.0 million in January 2002 and $1.0 million in April 2002 to increase its Total risk-based capital ratio.

Total Assets. Total assets increased $311.3 million, or 20.6%, to $1.8 billion at December 31, 2002 from $1.5 billion at December 31, 2001. This increase was primarily driven by deposit growth, which was used to fund new loans.

Investments. Total investments (consisting of cash, federal funds sold, commercial paper, money market investments, investment securities available for sale, and stock in the FHLB) were $428.4 million, or 23.5% of total assets, at December 31, 2002, compared to $349.5 million, or 23.2% of total assets, at December 31, 2001. The increase of $78.9 million was primarily due to the purchase of $310.8 million of municipal bonds, treasuries and agencies, and corporate bonds, as well as reinvestment of interest income within the investment portfolio. The increase was partially offset by $201.5 million of maturities, and $68.6 million of sales. As of December 31, 2002, all investments are classified as available for sale. The investment portfolio carried a total of $7.5 million of net unrealized gains at December 31, 2002, compared to $1.9 million of net unrealized gains at December 31, 2001.

Loans Held for Sale. Loans held for sale increased 23.3 million, or 303.06%, to $30.9 million at December 31, 2002 from $7.7 million at December 31, 2001. This increase was a result of increased demand for fixed rate mortgages. Boston Private Bank sells virtually all of its fixed rate mortgage loans.

Loans. Total portfolio loans increased $204.3 million, or 18.6% for the fiscal year 2002 to $1.3 billion, or 71.5% of total assets, at December 31, 2002, compared with $1.1 billion, or 72.7% of total assets, at December 31, 2001. Both the commercial and residential mortgage loan portfolios continued to experience growth due to the demand for financing. Residential lending in the New England area continued to experience growth both in the refinancing and purchase markets due to the low interest rate environment. Commercial loans increased $138.0 million, or 25.7%, to $676.2 million at December 31, 2002 from $538.1 million at December 31, 2001; residential mortgage loans increased $64.6 million, or 13.5%, to $544.2 million at December 31, 2002, from $479.6 million at December 31, 2001; home equity and other loans increased $1.7 million, or 2.1%, to $81.4 million at December 31, 2002 from $79.7 million at December 31, 2001.

Deposits. The Company experienced an increase of $255.0 million, or 22.3%, in deposits during 2002, to $1.4 billion, or 76.9% of total assets, at December 31, 2002 from $1.1 billion, or 75.9% of total assets, at December 31, 2001. This increase was due to higher average balances in existing client accounts, as well as a significant number of new accounts opened during 2002, which is partially attributable to the opening of new branches. In addition, we believe clients are seeking more stable investment opportunities in bank deposits due to the current uncertainty in the marketplace.

Borrowings. Total borrowings (consisting of federal funds purchased, securities sold under agreements to repurchase ("repurchase agreements"), and FHLB borrowings) increased $27.4 million, or 14.4%, during 2002 to $218.4 million from $191.0 million at December 31, 2001. To better manage interest rate risk and to help protect our net interest margin, we utilize borrowings to fund a portion of fixed rate assets.

The Company's non-performing assets include non-performing loans and other real estate owned ("OREO"). Non-performing loans include both nonaccrual loans and loans past due 90 days or more but still accruing. The following table sets forth information regarding non-performing loans, other real estate owned, and delinquent loans 30-89 days past due as to interest or principal, held by the Company at the dates indicated.

	December 31,
	2002			2001			2000			1999			1998
	(Dollars in thousands)
Loans accounted for on a nonaccrual basis	$	1,057		$	904		$	1,303		$	1,317		$	815
Loans past due 90 days or more, but still accruing		—			—			—			—			—

Total non-performing loans		1,057			904			1,303			1,317			815
Other real estate owned		—			—			—			—			—

Total non-performing assets	$	1,057		$	904		$	1,303		$	1,317		$	815

Delinquent loans 30-89 days past due	$	3,981		$	3,650		$	3,980		$	2,160		$	3,625
Non-performing loans as a % of total loans		0.08	%		0.08	%		0.15	%		0.19	%		0.16	%
Non-performing assets as a % of total assets		0.06	%		0.06	%		0.10	%		0.15	%		0.11	%
Delinquent loans 30-89 days past due as a % of total loans		0.31	%		0.33	%		0.45	%		0.32	%		0.70	%

The Banks discontinues 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 the value of the collateral securing the loan is sufficient to cover principal and interest and the loan is in the process of collection. OREO consists of real estate acquired through foreclosure proceedings and real estate acquired through acceptance of a deed in lieu of foreclosure. In addition, the Company may, under certain circumstances, restructure loans as a concession to a borrower.

Non-Performing Assets. At December 31, 2002, the Banks had non-performing assets of $1.1 million which were 0.06% of total assets, representing an increase of $153,000 or 16.9%, from $904,000 at December 31, 2001. As of December 31, 2002 and 2001, the Company's non-performing assets consisted entirely of nonaccruing loans. The Company continues to evaluate the underlying collateral of each non-performing loan and pursues the collection of interest and principal. Also see Part II, Item 8, "Financial Statements and Supplementary Data—Notes 7 and 8 of the Notes to Consolidated Financial Statements" for further information on non-performing assets.

Delinquencies. At December 31, 2002, $4.0 million of loans were 30 to 89 days past due, an increase of $331,000 or 9.1%, from the $3.65 million at December 31, 2001. Most of these loans are adequately secured and the payment performance of these borrowers varies from month to month.

Potential Problem Loans. The Banks' s management adversely classifies certain loans using an internal rating system based on criteria established by federal bank regulatory authorities. These loans evidence weakness or potential weakness related to repayment history, the borrower's financial condition, or other factors. Delinquent loans may or may not be adversely classified depending upon management's judgment with respect to each individual loan. Certain of these loans are non-performing or may become non-performing in future periods. At December 31, 2002, the Company had classified $5.1 million of loans as substandard or doubtful based on the rating system adopted by the Company, compared to $1.6 million at December 31, 2001. The increase was primarily attributable to one

commercial credit. The borrower's operating performance is below budget, however, all payments have been made as agreed and Boston Private Bank believes there is adequate collateral to cover its position.

Allowance for Loan Losses. The allowance for loan losses is established through provisions charged to operations. Assessing the adequacy of the allowance for loan losses involves substantial uncertainties and is based upon management's evaluation of the amounts required to meet estimated charge-offs in the loan portfolio after weighing various factors. Among these factors are the risk characteristics of the loan portfolio, the quality of specific loans, the level of nonaccruing loans, current economic conditions, trends in delinquencies and charge-offs, and the value of underlying collateral, all of which can change frequently. In connection with the determination of the allowance for loan losses, management obtains independent appraisals for significant properties.

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 and carrying amounts of other real estate owned. 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.

There are no off-balance sheet arrangements except as disclosed in Part II, Item 7 "Management's discussion and analysis of financial condition and results of operations—Liquidity" and in Part II, Item 8 "Financial Statements and Supplementary Data-Note 17 to the Consolidated Financial Statements."

The following table describes the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected the Company's interest income and interest expense during the periods indicated. Information is provided in each category with respect to (i) changes attributable to changes in volumes (changes in volume multiplied by prior rate) and (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume).

Changes attributable to the combined impact of volumes and rates have been allocated proportionately to separate volume and rate categories.

Net interest income represents the difference between interest earned, primarily on loans and investments, and interest paid on funding sources, primarily deposits and borrowings. Net interest margin is the amount of net interest income, on a fully taxable-equivalent basis, expressed as a percentage of average interest-earning assets. The average yield on interest earning assets is the amount of taxable equivalent interest income expressed as a percentage of average earnings assets. The average rate paid on funding sources is equal to interest expense as a percentage of average interest-earning assets. The following table sets forth the composition of the Company's net interest margin for the years ended December 31, 2002, 2001, and 2000.

Net Income. The Company reported net income of $23.7 million, or $1.02 per diluted share, for the year ended December 31, 2002, compared to net income of $11.5 million, or $0.50 per diluted share for the year ended December 31, 2001. Net income for 2001 included merger expenses, net of taxes of $9.7 million, or $0.42 per diluted share. These merger expenses were due to mergers with Borel, BPVI, Kanon Blok Carré. Adjusting for these merger expenses, 2002 net income would have increased 11.9% over the prior year.

Net Interest Income. For the year ended December 31, 2002, net interest income was $64.0 million, an increase of $9.9 million, or 18.2%, over the same period in 2001. This increase was due to an increase in interest rate spread, which was driven by an increase in the average balance of interest earning assets although at lower yields, offset by higher average interest bearing liabilities offset by a decrease in the average cost of funds. The net interest margin was 4.19% for the year ended December 31, 2002, virtually unchanged from 4.18% a year ago.

Interest and Dividend Income. Total interest and dividend income was $90.3 million for 2002 compared to $92.5 million for 2001, a $2.2 million decrease, or 2.36%. Income on commercial loans was $39.8 million for 2002 compared to $40.4 million for 2001, a decrease of $612,000, or 1.5%. Income from residential mortgage loans was $34.2 million compared to $28.9 million, an increase of $5.3 million, or 18.3%, and income from home equity and other consumer loans was $5.0 million compared to $5.7 million, a decrease of $769,000, or 13.4%, for the same periods, respectively. These changes in interest income are due to higher average balances offset by lower interest rates. The average balances of commercial loans and residential mortgage loans during 2002 increased $99.7 million, or 20.4%, and $132.9 million, or 32.0%, respectively, compared to 2001. The average balance of home equity and other consumer loans increased $6.3 million, or 8.5%. The yield on commercial loans decreased 151 basis points, or 18.3%, the yield on residential mortgage loans decreased 72 basis points, or 10.4%, and the yield on home equity and other consumer loans decreased 156 basis points, or 20.2%, compared to the prior year.

Total investment income (consisting of interest and dividend income from cash, federal funds sold and other, money market investments, investment securities, mortgage-backed securities, and stock in the FHLB) decreased to $11.3 million during 2002 compared to $17.4 million during 2001. This decrease is primarily attributable to a decrease in the average interest rate of 160 basis points on the investments. This represents a 30.1% decline to 3.72%. This decrease was compounded by a decrease in the average balance of $12.6 million, or 3.4% for the year ended December 31, 2002.

Interest Expense. Interest paid on deposits and borrowings decreased $12.1 million, or 31.5%, to $26.3 million for 2002, from $38.3 million for 2001. This decrease in the Company's interest expense was the result of a decrease in the average cost of interest-bearing liabilities of 145 basis points, or 41.3%, to 2.06%, offset by an increase in the average balance of interest-bearing liabilities of $184.4 million, or 16.9%.

Provision for Loan Losses. The provision for loan losses decreased $515,000 or 17.1%, to $2.5 million for 2002, from $3.0 million for 2001. These provisions reflect continued loan growth and a low level of non-performing assets. Management evaluates 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." Recoveries net of charge-offs were $34,000, compared to $11,000, for the same period in 2001.

Fees and Other Income. Total fees and other income increased $597,000, or 1.2%, to $51.9 million for 2002, from $51.3 million for 2001. The majority of fee income was attributable to

advisory fees earned on assets under management. These fees remained consistent with the prior year at $38.1 million as assets under management remained relatively flat at $6.4 billion as of December 31, 2002 compared to $6.5 billion as of December 31, 2001.

Financial planning fees increased $853,000, or 16.9%, to $5.9 million for 2002. This increase was due to special billings and new business.

Gains of $1.6 million were recognized from the sale of investment securities in 2002 compared to $3.4 million in 2001. The amount of security gains recorded in the portfolio are dependent on current market conditions and the status of the banks' balance sheet.

Gain on sale of loans increased $1.5 million, to $2.6 million from $1.1 million in 2001. Of the total gain, $2.3 million was due to individual fixed rate loans sold in the secondary market and $327,000 was a result of portfolio loans sold in the ordinary course of business. Boston Private Bank sells virtually all of its fixed rate loans and periodically sells loans out of portfolio to free up capital and adjust the balance sheet gap.

Other fee income and cash administration fees combined of $2.8 million for 2002, remained flat compared to the prior year at $2.8 million.

Operating Expenses. Total operating expenses for 2002 were $78.8 million compared to $83.2 million for 2001, a decrease of $4.4 million, or 5.3%. Of this decrease, $12.3 million was due to merger expenses in 2001 relating to the acquisitions by merger of BPVI, Kanon Bloch Carré and Borel.

Salaries and benefits, the largest component of operating expense, increased $6.5 million, or 14.2%, to $52.5 million for the year ended December 31, 2002, from $45.9 million for 2001. This increase was due to an 8.3% 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 increased $3.5 million, or 44.3%, to $11.5 million in 2002, from $7.9 million in 2001. 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 Cambridge, Massachusetts, Newton, Massachusetts and Palo Alto, California as well as our continued investments in technology. It is expected that in the first quarter of 2003, Sand Hill will move its offices to space adjacent to the Palo Alto offices of Borel. In connection with this move, we expect to record a charge in 2003 of approximately $2.0 million relating to the lease for the vacated space. The charge will be for the difference between the fair value of the remaining lease payments reduced by the fair value of the estimated sublease income when the space is vacated.

Professional services, which include such expenses as legal, consulting, and directors fees, audit and compliance services and other fees paid to external service providers, decreased $476,000, or 12.8%, to $3.3 million for 2002. This decrease is due to certain legal and consulting expenses incurred in the prior year that were one time in nature.

Marketing and business development expenses increased $336,000, or 10.2%, to $3.6 million for 2002. This increase is due to increased business development activity.

Contract services and processing, which represent fees paid to outside service providers for data processing, custody, and systems, increased $67,000, or 3.8% to $1.8 million for 2002. This increase was due primarily to continued investments in our data processing systems and due to increased transaction volumes and expansion of the Boston Private Bank ATM network.

Amortization of goodwill was eliminated in January 1, 2002 due to the adoption of FASB statement 142 on that date. Amortization was $1.4 million for the year ended December 31, 2001. Statement 142 eliminated the amortization of goodwill and the amortization of other indefinite life

intangibles. See Note 10 of the footnotes to the financial statements. "Excess of Cost Over Net Assets Acquired (Goodwill) and Intangible Assets".

Other expenses include supplies, insurance, telephone, postage, publications and subscriptions, employee training, and other miscellaneous business expenses. These expenses increased $409,000, or 7.3%, to $6.0 million for 2002 as a result of the Company's continued growth and expansion and increased insurance costs.

Income Tax Expense. The Company recorded income tax expense of $10.9 million in 2002 as compared to $7.7 million in 2001. The effective tax rate was 31.4% and 40.0% in 2002 and 2001, respectively. The effective tax rate went from 29.9% to 31.3% or up 1.4% when the non-deductible merger costs are excluded. This increase is due to a reduction in the amount of tax exempt interest income partially offset by a decrease in state income taxes. We have been notified by the Massachusetts Department of Revenue that they have challenged the deductibility of certain dividends associated with our real estate investment trust subsidiary in the 1999, 2000, and 2001 tax returns. Moreover, the legislature of The Commonwealth of Massachusetts has passed and the Governor has enacted statutes related to this matter which may have a significant effect on income tax expense of future periods. See Item 3 "Legal Proceedings" and Note 22(C) to the financial statements. Without giving effect to the dividend received deduction, the Company's income tax expense would have been approximately $11.8 million in 2002 and the effective tax rate would have been 34.1%.

Net Income. The Company reported net income of $11.5 million, or $0.50 per diluted share, for the year ended December 31, 2001, a decrease of 30.7% compared to net income for the year ended December 31, 2000 of $16.7 million, or $0.85 per diluted share. Results include the expenses described above of $9.7 million. Adjusted to exclude these expenses, net income would have been $21.2 million, an increase of 27.2% over 2000 results.

Net Interest Income. For the year ended December 31, 2001, net interest income was $54.2 million, an increase of $10.9 million, or 25.1%, over the same period in 2000. Average net earning assets were approximately $64.4 million higher than the comparable period a year earlier. The net interest margin decreased 25 basis points, or 5.6%, from 4.43% in 2000 to 4.18% in 2001 as yields on assets declined more quickly than the interest expense on liabilities in an overall declining interest rate environment.

Interest and Dividend Income. Total interest and dividend income was $92.5 million for 2001 compared to $79.2 million for 2000, an increase of $13.3 million, or 16.8%. Income on commercial loans was $40.4 million for 2001 compared to $39.1 million for 2000, an increase of $1.3 million, or 3.5%. Income from residential mortgage loans was $28.9 million compared to $19.7 million, an increase of $9.2 million, or 46.7%, and income from home equity and other loans was $5.7 million compared to $6.2 million, a decrease of $460,000, or 7.4%, for the same periods, respectively. These changes in interest income are due to higher average balances reduced by lower interest rates. The average balances of commercial loans and residential mortgage loans during 2001 increased $80.6 million, or 19.7%, and $135.0 million, or 48.2%, respectively, compared to 2000. The average balance of home equity and other loans increased $8.2 million, or 12.4%. The yield on commercial loans decreased 130 basis points, or 13.6%, the yield on residential mortgage loans decreased 8 basis points, or 1.1%, and the yield on home equity loans decreased 164 basis points, or 17.5%, compared to the prior year.

Interest and dividend income on cash and investments increased to $17.4 million during 2001 compared to $14.2 million during 2000. This increase in cash and investment income of $3.2 million, or 22.9%, was primarily attributable to a $120.7 million increase, or 48.8%, in the average balance of

interest-bearing cash and investments, reduced by an 87 basis point, or 14.1% decrease in the yield earned, on a tax equivalent basis.

Interest Expense. Interest paid on deposits and borrowings increased $2.5 million, or 6.9%, to $38.3 million for 2001, from $35.9 million for 2000. This increase in the Company's interest expense was due to an increase in the average balance of interest-bearing liabilities of $280.2 million, or 34.5%, offset by a decrease in the average cost of interest-bearing liabilities of 91 basis points, or 20.6%.

Provision for Loan Losses. The provision for loan losses increased $850,000, or 39.4%, to $3.0 million for 2001, from $2.2 million for 2000. Management evaluates several factors, including the risk characteristics of the loan portfolio, actual and estimated charge-offs, and new loan originations, when determining the provision for loan losses

Fees and Other Income. Total fees and other income increased $12.1 million, or 30.9%, to $51.3 million for 2001, from $39.2 million for 2000. The majority of fee income was attributable to advisory fees earned on assets under management. These fees increased $4.9 million, or 14.8% to $38.1 million for 2001, compared to $33.2 million for 2000. Of this increase, $2.7 million was due to the inclusion of a full year of advisory fees for Sand Hill. Sand Hill was purchased on August 31, 2000 so there were only four months of fees included in 2000. Advisory fees at Westfield increased $2.4 million over 2000 due to an increase in average assets under management and average fees.

Financial planning fees increased $941,000, or 23.0%, due to increased services provided as well as annual fee increases. Westfield earned performance fees of $84,000 in 2001 which partially offset losses of $129,000 from the equity in earnings of partnerships. There were no performance fees for 2000 and investment partnership losses were $378,000 for 2000. These losses are related to stock market performance in 2000 and 2001.

Gains of $3.4 million were recognized from the sale of investment securities in 2001 compared to $27,000 in 2000. The 2001 gains were recognized as part of a strategic repositioning of the balance sheet for Boston Private Bank. The loss of $1.2 million, on the early retirement of $15.5 million of FHLB debt is included in other operating expenses.

Gain on sale of loans increased $974,000, or 82.4%, as more mortgage loans were originated and sold during 2001 due to the large number of mortgage refinancings that occurred during 2001. Other fee income and cash administration fees combined increased to $2.8 million for 2001 from $1.4 million in 2000 due mostly to an increase in cash management fees.

Operating Expenses. Total operating expenses for 2001 were $83.2 million compared to $54.8 million for 2000, an increase of $28.4 million, or 51.8%. This increase of $12.3 million, or 45.2% was due to merger expenses related to the acquisitions by merger of BPVI, Kanon Bloch Carré and Borel in 2001. Operating expenses in 2001 at Sand Hill increased $3.6 million over 2000 to $5.1 million to reflect twelve months of operations for 2001 compared to four months for 2000.

Salaries and benefits, the largest component of operating expense, increased $9.9 million, or 27.3%, to $45.9 million for the year ended December 31, 2001, from $36.0 million for 2000. Of this increase, $1.9 million was due to the inclusion of twelve months of expenses for 2001 for Sand Hill compared to four months for 2000. The remaining increase was due to a 15.6% increase in the number of employees, salary increases, and increases in business driven variable compensation such as sales commissions and bonuses.

Occupancy and equipment expense increased $1.7 million, or 28.7%, to $7.9 million in 2001, from $6.2 million in 2000. Of this increase, $1.1 million was due to increases at Boston Private Bank due to the continued opening of new branch offices, the full year impact of the new office space at Ten Post Office Square in Boston, Massachusetts and increased equipment costs. Occupancy costs for Sand Hill increased $300,000 as 2000 only included four months of expenses. The remaining increase is mostly

due to increased occupancy costs for BPVI and RINET to reflect their costs to move all or part of their offices to 10 Post Office Square in Boston, Massachusetts, as well as the continued investments in technology.

Professional services, which include such expenses as legal, consulting, and directors fees, audit and compliance services and other fees paid to external service providers, increased $807,000, or 27.5%, to $3.7 million for 2001. This increase was primarily due to legal and consulting expenses incurred for strategic projects during 2001, as well as higher audit fees as a result of the Company's continued growth.

Marketing and business development expenses increased $594,000, or 22.1%, to $3.3 million for 2001. This increase was due to a $753,000 increase in image advertising designed to increase the visibility of the Company and its products and services, offset by a $159,000 decrease in business development spending.

Contract services and processing, which represent fees paid to outside service providers for data processing, custody, and systems, increased $343,000, or 24.6% to $1.7 million for 2001. Most of this increase was due to an increase in custody expense for client assets under management at Boston Private Bank. The remaining increase is a result of an increase in volume related charges for data processing and service charges.

In 2001, the Company incurred merger expenses of $12.3 million related to the pooling acquisitions of Kanon Bloch Carré, BPVI and Borel. There were no such expenses in 2000.

Other expenses include supplies, insurance, telephone, postage, publications and subscriptions, employee training, and other miscellaneous business expenses. These expenses increased $919,000, or 19.6%, to $5.6 million for 2001 as a result of the Company's continued growth and expansion.

Income Tax Expense. The Company recorded income tax expense of $7.7 million in 2001 as compared to $8.8 million in 2000. The effective tax rate was 40.0% and 34.7% in 2001 and 2000, respectively. This increase in the Company's effective tax rate was the result of non-deductible merger costs partially offset by an increase in tax exempt income.

In August 2001, the FASB issued Statement No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets". Statement No. 144 provides additional implementation guidance and supercedes Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" as well as other pronouncements. It is effective for financial statements issued for fiscal years beginning after December 15, 2001. Statement No. 144 was adopted on January 1, 2002 with no impact on our financial condition or results of operations.

In April 2002, the FASB issued Statement No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." Among it's provision this Statement rescinds Statement No. 4, "Reporting Gains and Losses from Extinguishment of Debt," and an amendment of that Statement, Statement No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements", and eliminates the extraordinary item treatment of reporting gains and losses from extinguishments of debt. The provisions of Statement No. 145 related to the rescission of Statement No. 4 apply in fiscal years beginning after May 15, 2002 with earlier application of this Statement encouraged. The Company adopted Statement No. 145 during 2002 at which time the extraordinary loss recognized in previous years from the early extinguishment of debt was reclassified as an operating expense.

In June 2002, the 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 will adopt the provisions of Statement No. 146 for all disposal activities initiated after December 31, 2002.

In October 2002, the FASB issued Statement No. 147, "Acquisitions of Certain Financial Institutions," which amends Statement No. 72, "Accounting for Certain Acquisitions of Banking or Thrift Institutions," Statement No.144, "Accounting for the Impairment or Disposal of Long-Lived Assets," and FASB Interpretation No. 9. Except for transactions between two or more mutual institutions, this Statement removes acquisitions of financial institutions from the scope of both Statement No. 72 and Interpretation 9 and requires that those transactions be accounted for in accordance with Statements No. 141, "Business Combinations," and No. 142, "Goodwill and Other Intangible Assets." With some exceptions, the requirements of Statement No. 147 are effective October 1, 2002. The Company does not expect the adoption of this Statement to have a material impact on its consolidated earnings, financial condition or equity.

In November 2002, the FASB issued FASB 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 December 31, 2002 the maximum potential amount of future payments was $17.5 million. Of this amount, $17.4 million was covered by collateral.

This Annual Report on Form 10-K, including the information incorporated herein by reference, contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. The Company's actual results could differ materially from those projected in the forward-looking statements set forth in this Annual Report on Form 10-K including the information incorporated herein by reference. Factors which may cause such a material difference include those set forth below. Investors in the Company's Common Stock should carefully consider the discussion of risk factors below, in addition to the other information contained in this Annual Report on Form 10-K.

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:

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. Also see Part I, Item 1, "Business—Competition" for further information.

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.

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 year ended December 31, 2002, approximately 32.9%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 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. Also see Part I, Item 1, "Business—Competition" for further information.

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 possibility of war with Iraq will likely continue to negatively impact 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:

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 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 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, 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.

Specifically, four of our subsidiaries, namely Westfield, Sand Hill, BPVI, and RINET 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 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 DFI.

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. See "Business-Bank Regulatory Concerns."

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 considered, and will in the future continue to consider, the acquisition of other banking and investment management companies. To the extent that we acquire other companies in the future, our business may be negatively impacted by certain risks inherent with such acquisitions.

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."

Management considers interest rate risk to be a significant market risk for the Company. Interest rate risk is the exposure to adverse changes in the net income of the Company as a result of changes in interest rates. Consistency in the Company's earnings is related to the effective management of interest rate sensitive assets and liabilities, and on the degree of fluctuation of investment management fee income due to changes in interest rates.

Fee income from investment management and trust services is not directly dependent on market interest rates and may provide the Company a relatively stable source of income in varying market interest rate environments. However, this fee income is generally based upon the value of assets under management and, therefore, can be significantly affected by changes in the values of equities and bonds. Furthermore, performance fees and partnership income earned by Westfield as manager of limited partnerships are directly dependent upon short-term investment performance that can fluctuate significantly with changes in the capital markets.

The principal objective of the Banks' asset and liability management is to maximize profit potential while minimizing the vulnerability of its operations to changes in interest rates by means of managing the ratio of interest rate sensitive assets to interest rate sensitive liabilities within specified maturities or repricing dates. Both Banks' actions in this regard are taken under the guidance of their respective

Asset/Liability Committee ("ALCO"), which is comprised of members of senior management. This committee is actively involved in formulating the economic assumptions that the Banks use in their respective financial planning and budgeting process and establishes policies which control and monitor the sources, uses and pricing of funds. Boston Private Bank evaluates hedging techniques to reduce interest rate risk where possible.

The ALCO uses both interest rate "gap" sensitivity and interest income simulation analysis to measure inherent risk in the Banks' balance sheets at a specific point in time. The simulations look forward at one and two year increments with immediate and sustained interest rate shocks of up to 200 basis points, and take into account the repricing, maturity, and prepayment characteristics of individual products and investments. The simulation results are reviewed to determine whether the exposure to net interest income and to the fair value of the available for sale investment portfolio is within the guidelines which are set and monitored at both the ALCO and Board levels. The ALCO committees review the results with regard to the established tolerance levels and recommends appropriate strategies to manage this exposure. As of December 31, 2002, net interest income simulation and fair market value simulation indicated that both Banks' exposure to changing interest rates was within the established tolerance levels. As can be seen in the following table, with interest rates at historically low levels, it becomes more difficult to reduce the cost of funds should interest rates decline even further. While the ALCO reviews simulation assumptions to ensure that they reflect historical experience, it should be noted that income simulation may not always prove to be an accurate indicator of interest rate risk because the actual repricing, maturity, and prepayment characteristics of individual products may differ from the estimates used in the simulations. The following table presents the impact of instantaneous and sustained interest rate shocks on pro forma net interest income for the Banks over a twelve month period:

	Twelve months beginning 1/1/03
	Dollar Change		Percent Change
	(Dollars in thousands)
Up 200 basis point shock	$	(528	)	(0.8%	)
Down 100 basis point shock	$	(678	)	(1.0%	)

The Banks also use interest rate sensitivity "gap" analysis to provide a general overview of their interest rate risk profile. The effect of interest rate changes on the assets and liabilities of a financial institution may be analyzed by examining the extent to which such assets and liabilities are "interest rate sensitive" and by monitoring an institution's interest rate sensitivity gap. An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within that time period. The interest rate sensitivity gap is defined as the difference between interest-earning assets and interest-bearing liabilities maturing or repricing within a given time period. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities. A gap is considered negative when the amount of interest rate sensitive liabilities exceeds interest rate sensitive assets. During a period of falling interest rates, a positive gap would tend to adversely affect net interest income, while a negative gap would tend to result in an increase in net income. During a period of rising interest rates, a positive gap would tend to result in an increase in net interest income while a negative gap would tend to affect net interest income adversely.

Boston Private Bank has historically sought to maintain a relatively narrow gap position and has, in some instances, foregone investment in higher yielding assets when such investment, in management's opinion, exposed Boston Private Bank to undue interest rate risk. Borel's balance sheet is asset sensitive and most of the $678,000 hypothetical decline from a 100 basis point interest rate shock is attributable to Borel. However, the Banks do not attempt to perfectly match interest rate sensitive assets and liabilities and will indeed selectively mismatch their assets and liabilities to a controlled degree when they consider such a mismatch both appropriate and prudent to do so. There are a

number of relevant time periods in which to measure the gap position, such as at the 30, 60, 90, or 180 day points in the maturity schedule. Management monitors the Banks' gap position at each of these maturity points, and also tends to focus closely on the gap at the one year point in making funding decisions, such as with respect to Boston Private Bank's adjustable rate mortgage loan portfolio. Assumptions based on the historical behavior of deposit rates and balances in relation to changes in interest rates are also incorporated into the repricing schedule. These assumptions are inherently uncertain and, as a result, the repricing schedule cannot precisely measure net interest income or predict the impact of fluctuations in interest rates on net interest income.

The repricing schedule for the Banks' interest-earning assets and interest-bearing liabilities is also measured on a cumulative basis. The simulation analysis is based on actual cash flows and repricing characteristics, and incorporates market-based assumptions regarding the impact of changing interest rates on the prepayment speeds of certain assets and liabilities. The model also includes senior management projections for activity levels in product lines offered by the Banks. Actual results will differ from simulated results due to timing, magnitude, and frequency of interest rate changes as well as changes in market conditions and management strategies. The following table presents the repricing schedule for the Company's interest-earning assets and interest-bearing liabilities at December 31, 2002:

The preceding table does not necessarily indicate the impact of general interest rate movements on the Banks' net interest income because the repricing of various assets and liabilities is discretionary and is subject to competitive and other factors. As a result, assets and liabilities indicated as repricing within the same period may in fact reprice at different times and at different rates.

Boston Private Financial Holdings, Inc. (the "Company") is a holding company which owns all of the issued and outstanding shares of common stock of Boston Private Bank & Trust Company (the "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 registered investment advisor and a financial planning firm. In addition, the Company holds a 26% minority interest in Coldstream Holdings, Inc. 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.

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, home equity and consumer loans. 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 US 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.

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.

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.

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, in exchange for 629,731 newly issued shares of the Company's common stock. On June 10, 2002, BPVI appointed Edward Goldberg as a senior vice president. In connection with this appointment, BPVI agreed to purchase Goldberg's business. The purchase price is to be paid in three annual installments commencing in September, 2002. The payments are based upon retained assets under management with 10% of the purchase price being satisfied by the issuance of additional stock. At closing, 3,485 shares of BPFH stock were issued. The acquisition was accounted for as a "purchase of a business" and, accordingly, the Company's results of operations and financial position include Goldberg's business on a consolidated basis since the date of the acquisition.

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. The number of the Company's shares was calculated using an exchange ratio of 1.8996 shares of the Company's stock for each share of Borel common stock. In connection with the Borel merger, the Company recorded approximately $12 million of merger expenses which are non-recurring operating expenses.

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 acquired Sand Hill, an investment advisory firm servicing the wealth management market, primarily in Northern California. The estimated purchase price at closing was $16.5 million, with 70% paid at close, and the remainder to be paid in four annual payments contingent upon performance using a combination of approximately 70% cash and 30% common stock for each payment. At closing, the Company issued 258,395 shares of its common stock in connection with the transaction. In the fourth quarters of 2001 and 2002 the Company issued a total of 24,986 additional shares of its common stock in connection with the first two annual contingent payments. 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.

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 accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America and to prevailing industry practices. The following is a

summary of the significant accounting and reporting policies used by management in preparing and presenting the consolidated financial statements.

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Boston Private Bank, Borel, Westfield, Sand Hill, BPVI and RINET. Boston Private Bank's consolidated financial statements include the accounts of its wholly-owned subsidiaries, BPB Securities Corporation, Boston Private Preferred Capital Corporation, and Boston Private Asset Management Corporation. All significant intercompany accounts and transactions have been eliminated in consolidation. The minority investment in Coldstream Holdings, Inc. is accounted for using the equity method and the net investment is included in Other assets.

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to change relate to the determination of the allowance for loan losses as well as the evaluation of goodwill and other intangibles. In connection with the determination of the allowance for loan losses, management obtains independent appraisals for significant properties.

Certain prior year amounts have been reclassified to conform to the current year's presentation.

For purposes of reporting cash flows, the Company considers cash and due from banks, fed funds sold, and other short term investments to be cash equivalents.

Boston Private Bank and Borel are required to maintain average reserve balances in a non-interest bearing account with the Federal Reserve Bank based upon a percentage of certain deposits. As of December 31, 2002, the daily amount required to be held for Boston Private Bank and Borel was $3.4 million and $7.5 million, respectively.

Investment and mortgage-backed securities are classified as held to maturity, available for sale or trading. Securities classified as held to maturity are carried at amortized cost only if the Company has a positive intent and the ability to hold these securities to maturity. Securities classified as trading are carried at fair value, with unrealized gains and losses included in earnings, if they are bought and held principally for the purpose of selling in the near term. Securities not classified as either held to maturity or trading are classified as available for sale and reported at fair value, with unrealized gains and losses excluded from earnings and reported as other comprehensive income, net of estimated income taxes. All of the Company's investment and mortgage-backed securities were classified as available for sale as of December 31, 2002.

Premiums and discounts on investment and mortgage-backed securities are amortized or accreted into income by a method that approximates the level-yield method. Actual prepayment experience is reviewed periodically and the timing of the accretion and amortization is adjusted accordingly. If a

decline in fair value below the amortized cost basis of an investment or mortgage-backed security is judged to be other than temporary, the cost basis of the investment is written down to fair value. The amount of the write down is included as a charge against gain on sale of investment and mortgage-backed securities. Gains and losses on the sale of investment and mortgage-backed securities are recognized at the time of sale on a specific identification basis.

Impaired loans are loans for which it is probable that the Company will not be able to collect all amounts due according to the contractual terms of the loan agreements. Impaired loans are accounted for at the present value of the expected future cash flows discounted at the loan's effective interest rate, except those loans that are accounted for at fair value or at the lower of cost or fair value. Accrual of interest income is discontinued and all interest previously accrued but not collected is reversed against current period income when a loan is initially classified as impaired. Interest received on impaired loans is either applied against principal or reported as income according to management's judgment as to the collectibility of principal. At December 31, 2002 and 2001 the amounts of impaired loans were immaterial.

Loans on which the accrual of interest has been discontinued are designated nonaccrual loans. Accrual of interest income on loans is discontinued when concern exists as to the collectibility of principal or interest. When a loan is placed on nonaccrual status, all interest previously accrued but not collected is reversed against current period income. Loans are removed from nonaccrual status when they become less than ninety days past due and when concern no longer exists as to the collectibility of principal or interest. Interest received on nonaccruing loans is either applied against principal or reported as income according to management's judgment as to the collectibility of principal.

Loan origination fees, net of related direct incremental loan origination costs, are deferred and recognized into income over the contractual lives of the related loans as an adjustment to the loan yield, using a method which approximates the level-yield method. When a loan is sold or paid off, the unamortized portion of net fees is recognized into interest income.

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 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.

Investment management fees are accrued as earned. Performance fee revenues are not recognized until any contingencies in the contract that could require the performance fee to be reduced have been eliminated.

Premises and equipment are carried at cost, less accumulated depreciation and amortization. Depreciation and amortization is computed primarily by the straight-line method over the estimated useful lives of the assets, or the terms of the leases if shorter.

On July 20, 2001, the Financial Accounting Standards Board ("FASB") issued Statement No. 141, Business Combinations, and Statement No. 142, Goodwill and Other Intangible Assets. Statement 141 requires that all business combinations consummated after June 30, 2001 be accounted for under a single accounting method—the purchase method. Use of the pooling-of-interests method for transactions initiated after June 30, 2001 is no longer permitted. On January 1, 2002 the Company adopted FASB 142. Statement 142 requires that goodwill no longer be amortized to earnings and that other indefinite life intangibles also not be amortized. This includes existing goodwill, i.e. goodwill already recorded in the financial statements, as well as goodwill and indefinite life intangibles arising from business combinations consummated subsequent to the effective date of the statement.

Prior to 2002, the excess of cost over net assets acquired was amortized using the straight-line method over 15 years. Management reviews the valuation and amortization of its intangible assets, taking into consideration any events and circumstances that might have diminished their value. At December 31, 2002 the company had $16.5 million of excess of cost over net assets acquired, or goodwill on the balance sheet.

Investment management and trust assets totalled $6.4 billion and $6.5 billion at December 31, 2002 and 2001, respectively. These assets are not included in the consolidated financial statements because they are held in a fiduciary or agency capacity and are not assets of the Company.

Profit Sharing Plan, the RINET Company, Inc. Salary Reduction Contribution Plan, the Sand Hill Advisors, Inc. Profit Sharing 401(k) Plan, the E.R. Taylor Investments, Inc. 401(k) Profit Sharing Plan and the Borel Bank Salary Deferral 401(k) Plan have been merged into this plan. Generally, employees that are at least twenty-one (21) years of age are eligible to participate in the plan on the first day of the calendar quarter following their date of hire. The Company and its subsidiaries match employee contributions based on a predetermined formula and may make additional discretionary contributions. Contributions to those plans are charged against earnings in the year they are made.

The Company maintains the Long-Term Incentive Plan to encourage and create ownership of the Company's common stock by employees, and maintains the Director Stock Option Plan to reward directors of the Company for their service. The Company accounts for those plans using the intrinsic value method. No stock-based employee compensation is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the company had applied the fair value recognition method.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants:

	2002	2001	2000
Expected life	7 yrs.	7 yrs.	7 yrs.
Expected volatility	30%	25%	28%
Risk-free interest rate	5.0%	5.0%	6.7%
Expected dividend yield	0.7%	0.8%	1.3%

The Company recognizes income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are established for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax

assets and liabilities of a change in tax rates is recognized in income during the period that includes the enactment date.

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 following table is a reconciliation of the numerators and denominators of basic and diluted EPS computations for the three years ended December 31.

In August 2001, the FASB issued Statement No. 144, Accounting for Impairment or Disposal of Long-Lived Assets. Statement No. 144 provides additional implementation guidance and supercedes Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of as well as other pronouncements. It is effective for financial statements issued for fiscal years beginning after December 15, 2001. Statement No. 144 was adopted on January 1, 2002 with no impact on our financial condition or results of operations.

In April 2002, the FASB issued Statement No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. Among it's provision this Statement rescinds Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt, and an amendment of that Statement, Statement No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements, and eliminates the extraordinary item treatment of reporting gains and losses from extinguishments of debt. The provisions of Statement No. 145 related to the rescission of Statement No. 4 apply in fiscal years beginning after May 15, 2002 with earlier application of this Statement encouraged. The Company adopted Statement No. 145 during 2002 at which time the extraordinary loss recognized in previous years from the early extinguishment of debt was reclassified as an operating expense.

In June 2002, the 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 will adopt the provisions of Statement No. 146 for all disposal activities initiated after December 31, 2002.

In October 2002, the FASB issued Statement No. 147, Acquisitions of Certain Financial Institutions, which amends Statement No. 72, Accounting for Certain Acquisitions of Banking or Thrift Institutions, Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, and FASB Interpretation No. 9. Except for transactions between two or more mutual institutions, this Statement removes acquisitions of financial institutions from the scope of both Statement No. 72 and Interpretation 9 and requires that those transactions be accounted for in accordance with Statements No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets. With some exceptions, the requirements of Statement No. 147 are effective October 1, 2002. The Company does not expect the adoption of this Statement to have a material impact on its consolidated earnings, financial condition or equity.

In November 2002, the FASB issued FASB 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.

Comprehensive income represents the change in equity of the Company during a period from transactions and other events and circumstances from non-shareholder sources. It includes all changes in equity during a period except those resulting from investments by shareholders and distributions to shareholders.

The Company's other comprehensive income and related tax effects for the years ended December 31, 2002, 2001, and 2000 is as follows:

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 as each business is a company with different clients, employees, systems, risks, and marketing strategies.

A description of each business segment is provided in Note 1 of the Notes to Consolidated Financial Statements.

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. In addition to direct expenses, each business segment was allocated a share of holding company expenses prior to 2002 based on the segment's percentage of consolidated net income.

The following tables are a reconciliation of the revenues, net income, assets, and other significant items of reportable segments as of and for the years ended December 31, 2002, 2001, and 2000:

The following table sets forth the maturities of investment securities available for sale at December 31, 2002 and the weighted average yields of such securities:

Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without prepayment penalties. The weighted average remaining life of investment securities available for sale at December 31, 2002 was 3.26 years. As of December 31, 2002, approximately $75.9 million of investment securities available for sale were callable before maturity.

The following table presents the sale of investment securities and mortgage-backed securities with the resulting realized gains, losses, and net proceeds from such sales:

The Banks' lending activities are conducted principally in New England and Northern California. The Banks originate single and multi-family residential loans, commercial real estate loans, commercial loans and consumer loans (principally home equity loans). Most loans made are secured by borrowers' personal or business assets. The ability of the Banks' single family residential and consumer borrowers to honor their repayment commitments is generally dependent on the level of overall economic activity within the lending area. Commercial borrowers' ability to repay is generally dependent upon the health of the economy and the real estate sector in particular. Accordingly, the ultimate collectibility of a substantial portion of the Banks' loan portfolio is susceptible to changing conditions in the New England and Northern California economies. As of December 31, 2002, the Banks had $285.6 million of fixed rate loans and $1,016.1 million of variable rate loans outstanding. Mortgage loans serviced for others totaled $36.1 million and $28.9 million at December 31, 2002 and 2001, respectively.

Loans outstanding to executive officers and directors of the Company aggregated $7.2 million and $5.7 million at December 31, 2002 and 2001, respectively. An analysis of the activity of these loans is as follows:

All loans included above were made in the ordinary course of business under normal credit terms, including interest rates and collateral prevailing at the time of origination for comparable transactions with other persons, and do not represent more than normal credit risk.

The following table presents a summary of risk elements within the loan portfolio:

Depreciation and amortization expense related to premises and equipment was $2.8 million, $2.1 million, and $1.6 million for the years ended December 31, 2002, 2001 and 2000, respectively. The estimated useful lives for leasehold improvements, buildings and vehicles are 5-20 years, 40 years and 5 years, respectively. The estimated useful life for furniture, fixtures and equipment is 5-6 years with the exception of computer equipment, which is 3-5 years.

The Company and its subsidiaries conduct operations in leased premises. The Company's and Boston Private Bank's headquarters are located at Ten Post Office Square, Boston, Massachusetts. Boston Private Bank has six offices, three in Boston, Massachusetts and one in Wellesley, Massachusetts, one in Newton, Massachusetts and one in Cambridge, Massachusetts. Borel has two offices, one in San Mateo, California and another in Palo Alto, California. Westfield is located at One Financial Center, Boston, Massachusetts.

Sand Hill is currently located in Menlo Park, California, and in December 2002, Sand Hill committed to lease space in Palo Alto adjacent to Borel's new Palo Alto office. Sand Hill intends to move to this space during 2003 and to sublease its existing facilities. The lease on the space to be vacated by Sand Hill expires in 2008 and the remaining payments total $4.4 million. RINET is located at 10 Post Office Square, which is adjacent to Boston Private Bank's headquarters. BPVI has two offices, one located at Ten Post Office Square, which is also adjacent to Boston Private Bank's headquarters, and one in Concord, New Hampshire. Generally, the initial terms of the leases for these properties range from five to fifteen years. Most of the leases also include options to renew at fair market value for periods of five to ten years. In addition to minimum rentals, certain leases include

escalation clauses based upon various price indices and include provisions for additional payments to cover taxes.

The Company is obligated for minimum rental payments under these noncancelable operating leases. In accordance with the terms of these leases, the Company is currently committed to minimum annual rent as follows:

Rent expense for the years ended December 31, 2002, 2001 and 2000 was $6.1 million, $4.3 million, and $3.4 million respectively.

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

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 next five years is $88,000 per year, an aggregate of $440,000 over five years. The goodwill is expected to be deductible for tax purposes.

The net income and earnings per share would have been as follows if there had been no amortization of goodwill in 2001 and 2000.

Interest expense on certificates of deposit greater than $100,000 was $4.7 million, $8.2 million, and $8.0 million for the years ended December 31, 2002, 2001, and 2000, respectively.

Boston Private Bank is a member of the Federal Home Loan Bank (FHLB) of Boston and Borel is a member of the FHLB of San Francisco and as such both have access to both short and long-term borrowings. As of December 31, 2002, Boston Private Bank had $145.3 million of borrowings outstanding and unused borrowings of $272.5 million. Boston Private Bank had additional short-term federal fund lines with the FHLB and correspondent banks of $94.0 million at December 31, 2002. Borrowings from the FHLB are secured by the Bank's stock in the FHLB and a blanket lien on "qualified collateral" defined principally as 75% of the carrying value of certain residential mortgage loans. Borel did not have any outstanding borrowings during 2002 or 2001 and had unused borrowings of $21.9 million as of December 31, 2002.

As members of the FHLB, the Banks are required to invest in the common stock of the FHLB in the amount of one percent of their outstanding loans secured by residential housing or five percent of their outstanding advances from the FHLB, whichever is higher. As and when such stock is redeemed, the Banks would receive from the FHLB an amount equal to the par value of the stock. As of December 31, 2002, the Bank's FHLB stock holdings totaled $8.1 million. The Banks' investment in FHLB stock is recorded at cost and is redeemable at par.

Boston Private Bank strategically repositioned its balance sheet during the fourth quarter of 2001 by retiring $15.5 million of FHLB borrowings early and by selling securities at a gain. As a result, Boston Private Bank recognized a $1.2 million loss related to the early extinguishment of debt which is included in operating expense.

The federal funds purchased and securities sold under the agreement to repurchase generally mature within 30 days of the transaction date. The Company enters into sales of securities under agreements to repurchase with clients and brokers. These agreements are treated as financings, and the obligations to repurchase securities sold are reflected as a liability in the Company's consolidated balance sheets. The securities underlying the agreements remain under the Company's control. Investment securities with a carrying value of $131,000, $78,000, and $50,000 were pledged as collateral for the securities sold under agreement to repurchase for the years ended December 31, 2002, 2001, 2000, respectively.

As of December 31, 2002, the Company had an unused line of credit from a bank which totaled $15 million. Borrowings under the facility would carry an interest rate slightly below prime. The Company pays fees for its revolving credit facility. The Company and its bank subsidiaries are required to maintain specified minimum capital requirements, loan ratios, etc. as stipulated in the credit agreement.

The difference between the statutory federal income tax rate and the effective federal income tax rate is as follows:

The components of gross deferred tax assets and gross deferred tax liabilities are as follows:

Management believes the existing net deductible temporary differences that give rise to the net deferred tax asset will reverse in periods the Company generates net taxable income. The Company would need to generate approximately $18.1 million of future net taxable income to realize the net deferred tax asset at December 31, 2002. Management believes that it is more likely than not that the net deferred tax asset will be realized based on the generation of future taxable income.

The Company established a corporate-wide 401(k) Profit Sharing plan for the benefit of the employees of the Company and its subsidiaries, which became effective on July 1, 2002. This Plan is a 401(k) savings and retirement plan that is designed to qualify as an ERISA section 404(c) plan. This plan is a continuation of the Boston Private Bank plan. As of July 1, 2002, the assets of the Westfield Profit Sharing Plan, the RINET Company, Inc. Salary Reduction Contribution Plan, the Sand Hill Advisors, Inc. Profit Sharing 401(k) Plan, the E.R. Taylor Investments, Inc. 401(k) Profit Sharing Plan and the Borel Bank Salary Deferral 401(k) Plan have been merged into this plan. Generally, employees that are at least twenty-one (21) years of age are eligible to participate in the plan on the first day of the calendar quarter following their date of hire. Employee contributions are matched based on a predetermined formula and additional discretionary contributions may be made. Previously, the Company and its subsidiaries maintained 401(k) plans for the benefits of employees of the Company, with the exception of the employees of Westfield, which maintained its own profit sharing plan. Employees that had completed a certain length of service, which varied by plan but was generally between one hour and one year, and were at least twenty-one (21) years of age were eligible to participate in the plans. Under the plan, the Company typically made a matching contribution, which also varied by plan. Consolidated expenses relating to the above mentioned plans were $1.2 million, $916,000, and $899,000 in 2002, 2001 and 2000, respectively.

The Company maintains an Employee Stock Purchase Plan under which eligible employees may purchase common stock of the Company at 85 percent of the lower of the closing price of the Company's common stock on the first or last day of a six month purchase period on the NASDAQ® stock exchange. Employees pay for their stock purchases through payroll deductions at a rate equal to any whole percentage from 1 percent to 15 percent. There were 45,433 shares issued under the plan during fiscal year 2002. As of December 31, 2002 there were 254,567 shares reserved for future issuance.

Borel maintains a discretionary salary continuation plan for certain officers. The officers become eligible for benefits under the salary continuation plan if they reach a defined retirement age while working for Borel. In December 1990, Borel implemented a discretionary deferred compensation plan for directors. The compensation expense relating to each contract is accounted for individually and on an accrual basis. The expense relating to these plans was $241,000, $234,000, and $329,000 for 2002, 2001 and 2000, respectively. The net amount recognized in other liabilities was $2.9 million and $2.8 million as of December 31, 2002 and 2001, respectively. Borel has purchased life insurance contracts to help fund these plans. Borel has single premium life insurance policies with cash surrender values totaling $5.1 million and $4.9 million, which are included in other assets on the accompanying balance sheets, as of December 31, 2002 and 2001, respectively.

Under the Long-Term Incentive Plan, the Company may grant options to its employees for an amount not to exceed 4% of the number of shares of common stock outstanding as of the previous year-end. Under the Directors Stock Option Plan, the Company may grant options to its non-employee directors for an amount not to exceed 1% of the number of shares of common stock outstanding as of the previous year-end. Under both plans, the exercise price of each option equals the market value of the stock on the date the options are granted, and all options expire ten years from the date granted. Generally, options vest over a three year period beginning on the grant date under the Long-Term Incentive Plan. Under the Directors Stock Option Plan, options generally vest one year after the grant date.

A summary of the status of the Company's two fixed stock option plans as of December 31, 2002, 2001, and 2000, and changes during the years then ended is presented below:

The following table summarizes information about fixed stock options outstanding at December 31, 2002:

The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to originate loans, unused lines of credit and standby letters of credit. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheet. The contract or notional amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for loan commitments and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

Commitments to originate loans and unused lines of credit are agreements to lend to a customer, provided there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since certain

commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the borrower.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance by a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

The estimated fair value amounts have been determined by using available quoted market information or other appropriate valuation methodologies. The aggregate fair value amounts presented do not represent the underlying value of the Company taken as a whole.

The fair value estimates provided are made at a specific point in time, based on relevant market information and the characteristics of the financial instrument. The estimates do not provide for any premiums or discounts that could result from concentrations of ownership of a financial instrument. Because no active market exists for some of the Company's financial instruments, certain fair value estimates are based on subjective judgments regarding current economic conditions, risk characteristics of the financial instruments, future expected loss experience, prepayment assumptions, and other factors. The resulting estimates involve uncertainties and therefore cannot be determined with

precision. Changes made to any of the underlying assumptions could significantly affect the estimates. The book values and fair values for the Company's financial instruments are as follows:

The carrying values reported in the balance sheet for cash and due from banks approximate the fair value because of the short maturity of these instruments.

The carrying values reported in the balance sheet for federal funds sold and other short term investments approximate the fair value because of the short maturity of these instruments.

The carrying values reported in the balance sheet for money market investments approximate the fair value.

The fair values presented for investment and mortgage-backed securities are based on quoted bid prices received from a third party pricing service.

The fair value of stock in the FHLB equals the carrying value reported in the balance sheet. This stock is redeemable at full par value only by the FHLB.

The carrying values reported in the balance sheet for loans held for sale approximate the fair value.

Fair value estimates are based on loans with similar financial characteristics. Loans have been segregated by homogenous groups into commercial, residential mortgage, home equity and other consumer loans. Fair values of commercial and residential mortgage loans are estimated by discounting contractual cash flows adjusted for prepayment estimates and using discount rates approximately equal to current market rates on loans with similar characteristics and maturities. The incremental credit risk for non-performing loans has been considered in the determination of the fair value of consumer loans. The fair value estimated for home equity and other loans equals their carrying value because of the floating rate nature of these loans.

The fair values reported for demand deposits, NOW, savings, and money market accounts are equal to their respective book values reported on the balance sheet. The fair values disclosed are, by definition, equal to the amount payable on demand at the reporting date. The fair values reported for certificates of deposit are based on the discounted value of contractual cash flows. The discount rates used are representative of approximate rates currently offered on certificates of deposit with similar remaining maturities.

The carrying values reported in the balance sheet for repurchase agreements approximate fair value because of the short-term nature of these instruments.

The fair value reported for FHLB borrowings is estimated based on the discounted value of contractual cash flows. The discount rate used is based on the Company's estimated current incremental borrowing rate for FHLB borrowings of similar maturities.

The carrying values for accrued interest and fees receivable and interest payable approximate fair value because of the short-term nature of these financial instruments.

The Company's commitments to originate loans, and for unused lines and outstanding letters of credit are primarily at market interest rates and therefore there is no fair value adjustment.

The Company's investment management business is highly regulated, primarily at the federal level by the Securities and Exchange Commission, National Association of Securities Dealers, and state regulatory agencies. Specifically, four of the Company's subsidiaries, including Westfield, Sand Hill, BPVI and RINET, are registered investment advisers under the Investment Advisers Act of 1940. 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 acts as a sub-advisor and Sand Hill acts as an advisor to mutual funds which are registered under the Investment Company Act of 1940 and are subject to that act's provisions and regulations. The Company's subsidiaries are also subject to the provisions and regulations of the Employee Retirement Income Security Act of 1974, ("ERISA") to the extent any such entities act as a "fiduciary" under ERISA with respect to certain of its clients. ERISA and the related 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, as well as certain transactions by the fiduciaries and certain other related parties to such plans.

The Company and its subsidiaries are also subject to extensive regulation and examination by the Federal Reserve Board, the Federal Deposit Insurance Corporation ("FDIC"), which insures the deposits of Boston Private Bank and Borel to the maximum extent permitted by law, by the Massachusetts Commissioner of Banks and the California Department of Financial Institutions. The federal and state laws and regulations which are applicable to banks regulate, among other things, the scope of their business, their investments, their reserves against deposits, the timing of the availability of deposited funds, and the nature and amount of collateral for certain loans. The laws and regulations governing the Banks generally have been promulgated to protect depositors and not for the purpose of protecting stockholders.

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 the Company's financial statements. For example, under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Banks, which are wholly-owned subsidiaries of the Company, must each meet specific capital guidelines that involve quantitative measures of each of the Banks' assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Banks' 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.

Current FDIC regulations regarding capital requirements of FDIC-insured institutions require banks to maintain a leverage capital ratio of at least 3% and a qualifying total capital to risk-weighted assets of at least 8%, of which at least 4% must be Tier I capital. Tier I capital is defined as common equity and retained earnings, less goodwill, and is compared to total risk-weighted assets. Assets and off-balance sheet items are assigned to four risk categories, each with appropriate weights. The resulting capital ratio represents Tier I capital as a percentage of risk-weighted assets and off-balance

sheet items. The risk-based capital rules are designed to make regulatory capital more sensitive to differences in risk profiles among banks and bank holding companies, to account for off-balance sheetexposure and to minimize disincentives for holding liquid assets. As of December 31, 2002, management believes that the Banks meet all capital adequacy requirements to which they are subject.

As of December 31, 2002, the Company meets the Federal Reserve Bank requirements to be categorized as well capitalized under the regulatory framework for prompt corrective action. As of December 31, 2002, Boston Private Bank and Borel meet the FDIC requirements under the regulatory framework for prompt corrective action to be categorized as well capitalized. To be categorized as well capitalized the Company and the Banks must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table. There are no conditions or events since December 31, 2002 that management believes have adversely changed the Company's or the Banks' categories.

Actual capital amounts and regulatory capital requirements as of December 31, 2002 and 2001 are presented in the tables below.

Bank regulatory authorities restrict the Banks from lending or advancing funds to, or investing in the securities of, the Company. Further, these authorities restrict the amounts available for the payment of dividends by the Banks to the Company.

alleged opportunity loss of approximately $4 million. Notwithstanding that the fund managed by Westfield under the terms of the governing contract made significant gains above the Board's initial investment, the Board brought the action for an alleged opportunity loss. 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.

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 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.

In connection with the relocation of its headquarters office, Borel entered into a ten-year lease during 1986 for office space located in the Borel Financial Center in San Mateo, California, which is owned by the Borel Estate Company, a limited partnership. Two of the general partners of Borel Estate Company are relatives of Borel's Vice Chairman and Director Harold A. Fick and of President and Chief Executive Officer and Director Ronald G. Fick. Harold A. Fick is also a director of Boston Private Financial Holdings, Inc. The Vice Chairman of the Board of Borel, Miller Ream, is a general partner in a limited partnership which is the other general partner. The limited partners of Borel Estate Company are Harold A. Fick, Ronald G. Fick and two of their relatives.

In February 1997, Borel exercised the first of five five-year options to extend the term of the lease commencing on March 12, 1997. As calculated pursuant to the terms of the lease, the base rent for the additional period was $2.65 per square foot per month. Payment of the base rent was abated for the first six months of the additional period, through September 11, 1997. During 2002 and 2001, respectively, Borel Estate Company received $944,074 and $734,073 in rental payments from Borel. In December 2001, Borel exercised its second option to extend the lease for an additional five-year term. The lease payments for this additional period, starting March 13, 2002 were calculated in accordance with the terms of the original lease. The lease calls for a rent adjustment equal to the lesser of: a) an adjustment for the change in the consumer price index (CPI) for the five year period, or b) an adjustment to make the rental payments equal to 90% of the agreed upon market rent. The cost would be $3.43 per square foot if based on the agreed upon fair market rent. The cost based on then current CPI was $3.33 per square foot. The lease was therefore extended for additional five years at $3.33 per square foot. In July 2002 Borel acquired an additional 2,957 square feet of rentable space within the building and negotiated inclusion of that space into its existing lease at the same cost of $3.33 per square foot. The lease extension of this additional space calls for renewals at 100% of fair market value.

In addition, certain of the executive officers and directors of the Company have loans outstanding with either Boston Private Bank or Borel, which are on substantially the same terms as those prevailing at the time for comparable transactions with other persons. For more information see Note 7.

We have audited the accompanying consolidated balance sheets of Boston Private Financial Holdings, Inc. and subsidiaries as of December 31, 2002 and 2001, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for each of the years in the three year period ended December 31, 2002. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Boston Private Financial Holdings, Inc. and subsidiaries as of December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the years in the three year period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Notes 3 and 10 to the Consolidated Financial Statements, effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets.

Boston, Massachusetts
January 16, 2003, except as to Note 22(C),
which is as of March 6, 2003

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

The information called for by Items 11 and 13 of Part III and certain information called for by Item 12 of Part III of Form 10-K is incorporated herein by reference to the Company's Definitive Proxy Statement for the 2003 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission no later than 120 days after December 31, 2002.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table provides information as of December 31, 2002 regarding shares of Common Stock of the Company that may be issued under our existing equity compensation plans, including the Company's 1997 Long-Term Incentive Plan (the "1997 Plan"), the Company's Directors' Stock Option Plan (the "Directors Plan"), and the Company's 2001 Employee Stock Purchase Plan (the "ESPP"). Footnote (3) to the table sets forth the total number of shares of Common Stock of the Company issuable upon the exercise of assumed options as of December 31, 2002, and the weighted average exercise price of these options.

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 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.

Exhibit No.		Description
2.1		Agreement and Plan of Reorganization by and between Boston Private Financial Holdings, Inc. and Borel Bank & Trust Company, dated June 27, 2001 excluding schedules and exhibits which Boston Private Financial Holdings, Inc. agrees to furnish supplementary to the Commission upon request (incorporated by reference to Exhibit 99.2 to Boston Private Financial Holdings, Inc.'s Current Report on Form 8-K filed on July 3, 2001)
3.1		Restated Articles of Organization of Boston Private Financial Holdings, Inc. filed May 23, 1994 (incorporated by reference to Exhibit 3.1 to Boston Private Financial Holdings, Inc.'s Quarterly Report on Form 10-Q filed on August 14, 2001)
3.2		Articles of Amendment of Boston Private Financial Holdings, Inc. filed on April 22, 1998 (incorporated by reference to Exhibit 3.2 to Boston Private Financial Holdings, Inc.'s Quarterly Report on Form 10-Q filed on August 14, 2001)
3.3		Articles of Amendment of Boston Private Financial Holdings, Inc. filed on November 20, 2001 (incorporated by reference to Exhibit 4.3 to Boston Private Financial Holdings, Inc.'s Registration Statement on Form S-8 filed on November 28, 2000)
3.4		By-laws of Boston Private Financial Holdings, Inc., as amended (incorporated by reference to Exhibit 3.3 to Boston Private Financial Holdings, Inc.'s Annual Report on Form 10-K filed on March 6, 2000)
*3.5		Amendment to By-laws of Boston Private Financial Holdings, Inc. as of April 18, 2002, filed herewith.
4.1		Registration Rights Agreement dated as of February 28, 2001 by and between Boston Private Financial Holdings, Inc. and the stockholders named therein (incorporated by reference to Exhibit 4.1 to Boston Private Financial Holdings, Inc.'s Registration Statement on Form S-3 filed on November 6, 2000)

4.2		Registration Rights Agreement dated as of October 1, 2001 by and between Boston Private Financial Holdings, Inc. and the stockholders named therein (incorporated by reference to Exhibit 4.2 to Boston Private Financial Holdings, Inc.'s Registration Statement on Form S-3 filed on November 6, 2000)
10.1		Executive Salary Continuation Agreement by and between Borel Bank & Trust Company and Harold A. Fick, dated December 28, 1988 (incorporated by reference to Exhibit 10.1 to Boston Private Financial Holdings, Inc.'s Registration Statement on Form S-4 filed on August 16, 2001)
10.2		Amendment to Executive Salary Continuation Agreement by and between Borel Bank & Trust Company and Harold A. Fick, dated January 17, 1989 (incorporated by reference to Exhibit 10.2 to Boston Private Financial Holdings, Inc.'s Registration Statement on Form S-4 filed on August 16, 2001)
10.3		Executive Salary Continuation Agreement by and between Borel Bank & Trust Company and Ronald G. Fick, dated December 28, 1988 (incorporated by reference to exhibit 10.3 to Boston Private Financial Holdings, Inc. Annual Report on Form 10-K filed on March 13, 2002)
10.4		Amendment to Executive Salary Continuation Agreement by and between Borel Bank & Trust Company and Ronald G. Fick (incorporated by reference to exhibit 10.3 to Boston Private Financial Holdings, Inc. Annual Report on Form 10-K filed on March 13, 2002)
10.5		Second Amended and Restated Shareholders' Agreement by and among Boston Private Financial Holdings, Inc. and each of the shareholders who are signatories thereto, dated August 28, 2001(incorporated by reference to Annex F to Boston Private Financial Holdings, Inc.'s Registration Statement on Form S-4/A filed on October 12, 2001)
10.6		Stock Option Agreement by and between Borel Bank & Trust Company and Boston Private Financial Holdings, Inc. dated June 27, 2001 (incorporated by reference to Exhibit 99.3 to Boston Private Financial Holdings, Inc.'s Current Report on Form 8-K filed on July 3, 2001)
10.7		Employee Incentive Stock Option Plan of Boston Private Financial Holdings, Inc. (incorporated by reference to Exhibit 10.1 to Boston Private Financial Holdings, Inc.'s Registration Statement on Form S-1 filed April 1, 1991)
10.8		Employee Incentive Compensation Plan of Boston Private Financial Holdings, Inc. (incorporated by reference to Exhibit 10.2 to Boston Private Financial Holdings, Inc.'s Registration Statement on Form S-1 filed April 1, 1991)
10.9		Employment Agreement dated January 1, 1996 by and among Boston Private Bancorp, Inc. (predecessor Boston Private Financial Holdings, Inc.), Boston Private Bank & Trust Company and Timothy L. Vaill (incorporated by reference to Exhibit 10.1 to Boston Private Financial Holdings, Inc.'s Quarterly Report on Form 10-Q filed on August 14, 2001)

10.10		Commercial Lease dated October 31, 1994, by and between Boston Private Financial Holdings, Inc. and Leggat McCall Properties Management, Inc. (incorporated by reference to Exhibit 10.2 to Boston Private Financial Holdings, Inc.'s Quarterly Report on Form 10-Q filed on August 14, 2001)
*10.11		Schedule of Amendments to Commercial lease dated October 31, 1994 by and between Boston Private Financial Holdings, Inc. and Leggat McCall Properties Management, Inc.
10.12		Employment Agreement by and among Boston Private Financial Holdings, Inc. (f/k/a Boston Private Bancorp, Inc.), Westfield Capital Management Company, Inc. and Arthur J. Bauernfeind, dated August 13, 1997 (incorporated by reference to Exhibit 10.8 to Boston Private Financial Holdings, Inc.'s Annual Report on Form 10-KSB filed on February 27, 1998)
10.13		Employment Agreement by and among Boston Private Financial Holdings, Inc., RINET Company, Inc., and Richard N. Thielen, dated July 22, 1999 (incorporated by reference to Exhibit 10.10 to Boston Private Financial Holdings, Inc.'s Annual Report on Form 10-K filed on March 6, 2000)
10.14		Change in Control Protection Agreement, by and between Boston Private Financial Holdings, Inc. and Walter M. Pressey, effective as of March 19, 1997 (incorporated by reference to exhibit 10.3 to Boston Private Financial Holdings, Inc. Annual Report on Form 10-K filed on March 13, 2002)
10.15		Boston Private Financial Holdings, Inc. Deferred Compensation Plan (incorporated by reference to Exhibit 4.1 to Boston Private Financial Holdings, Inc.'s Registration Statement on Form S-8 filed on July 24, 2001)
10.16		Boston Private Financial Holdings, Inc. 2001 Employee Stock Purchase Plan (incorporated by reference to Exhibit 99.2 to Boston Private Financial Holdings, Inc.'s Registration Statement on Form S-8 filed on November 28, 2001)
10.17		Boston Private Financial Holdings, Inc. Amended and Restated 1997 Long-Term Incentive Plan (incorporated by reference to exhibit 10.3 to Boston Private Financial Holdings, Inc. Annual Report on Form 10-K filed on March 13, 2002)
10.18		Borel Bank & Trust Company 1989 Stock Option Plan (incorporated by reference to Exhibit 99.2 to Boston Private Financial Holdings, Inc.'s Registration Statement on Form S-8 filed on December 3, 2001)
10.19		Borel Bank & Trust Company 1998 Stock Option Plan (incorporated by reference to Exhibit 99.1 to Boston Private Financial Holdings, Inc.'s Registration Statement on Form S-8 filed on December 3, 2001)
10.20		1998 Amendment and Restatement of Directors' Stock Option Plan of Boston Private Financial Holdings, Inc. (incorporated by reference to Appendix A to Boston Private Financial Holdings, Inc.'s Proxy Statement filed March 9, 1998)

10.21		January 2000 Amendment to Boston Private Financial Holdings, Inc. Directors' Stock Option Plan (incorporated by reference to exhibit 10.3 to Boston Private Financial Holdings, Inc. Annual Report on Form 10-K filed on March 13, 2002)
*10.22		February 2003 Amendment to Boston Private Financial Holdings, Inc. Directors' Stock Option Plan
10.23		Supplemental Executive Retirement Agreement by and among Boston Private Financial Holdings, Inc. and Timothy L. Vaill, dated May 1, 2001 (incorporated by reference to exhibit 10.3 to Boston Private Financial Holdings, Inc. Annual Report on Form 10-K filed on March 13, 2002)
10.24		Boston Private Financial Holdings, Inc. 401(k) Profit-Sharing Plan (incorporated by reference to Boston Private Financial Holdings, Inc. Registration Statement on Form S-8 filed on June 28, 2002)
11.1		Statement regarding computation of per share earnings (set forth in the "Notes to Consolidated Financial Statements" herewith)
*21.1		List of Subsidiaries of Boston Private Financial Holdings, Inc.
*23.1		Consent of KPMG LLP

The Company did not file any reports on Form 8-K during the fourth quarter of 2002.

Pursuant to the requirements of Section 13 or 15 (d) 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 on this 7 day of March, 2003.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities indicated.

ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commonwealth of Massachusetts (State or other jurisdiction of incorporation or organization)		04-2976299 (I.R.S. Employer Identification Number)
Ten Post Office Square Boston, Massachusetts (Address of principal executive offices)		02109 (Zip Code)

Title of Each Class		Name of Each Exchange on Which Registered
None		NA

PART I
ITEM 1		BUSINESS
ITEM 2		PROPERTIES
ITEM 3		LEGAL PROCEEDINGS
ITEM 4		SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
ITEM 5		MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
ITEM 6		SELECTED FINANCIAL DATA
ITEM 7		MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 7A		QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
ITEM 8		FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9		CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
PART III
The information required by Items 10, 11 and 13 and certain information required by Item 12 of Part III of Form 10-K is incorporated herein by reference to the Company's Definitive Proxy Statement for the 2003 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission.
ITEM 12		SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
ITEM 14		CONTROLS AND PROCEDURES
PART IV
ITEM 15		EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
		SIGNATURES
		CERTIFICATIONS
		EXHIBITS

	December 31,
	2002					2001					2000					1999					1998
	Amount			Percent		Amount			Percent		Amount			Percent		Amount			Percent		Amount			Percent
	(Dollars in thousands)
Commercial	$	676,189		51.9	%	$	538,144		49.0	%	$	461,580		52.5	%	$	386,073		56.5	%	$	298,976		57.5	%
Residential mortgage		544,166		41.8	%		479,595		43.7	%		345,643		39.3	%		234,185		34.2	%		173,810		33.5	%
Home equity & other		81,371		6.3	%		79,678		7.3	%		71,709		8.2	%		63,677		9.3	%		46,806		9.0	%

		1,301,726		100.0	%		1,097,417		100.0	%		878,932		100.0	%		683,935		100.0	%		519,592		100.0	%
Allowance for loan losses		(17,050	)				(14,521	)				(11,500	)				(9,242	)				(7,547	)

Net loans	$	1,284,676				$	1,082,896				$	867,432				$	674,693				$	512,045

			Commercial		Residential Mortgage		Home Equity		Total
Amounts due:
	One year or less		$	205,190	$	—	$	13,303	$	218,493
	After one year through five years			186,096		395		8,156		194,647
	Beyond five years			284,903		543,771		59,912		888,586

		Total	$	676,189	$	544,166	$	81,371	$	1,301,726

Interest rate terms on amounts due after one year:
	Fixed		$	210,971	$	27,004	$	3,210	$	241,185
	Adjustable			260,028		517,162		64,858		842,048

		Total	$	470,999	$	544,166	$	68,068	$	1,083,233

			Year Ended December 31, 2002
			Average Balance		Average Rate
			(Dollars in thousands)
Non interest-bearing deposits:
	Checking accounts		$	219,774	—	%
Interest-bearing deposits:
	Savings and NOW accounts			172,606	0.29
	Money market accounts			654,546	1.71
	Certificates of deposit under $100,000			83,444	2.68
	Certificates of deposit of $100,000 or greater			170,727	2.78

		Total	$	1,301,097	1.43

		December 31,
		2002		2001
		(In thousands)
Less than 3 months remaining		$	86,695	$	85,447
3 to 6 months remaining			41,817		39,295
6 to 12 months remaining			25,617		20,051
More than 12 months remaining			15,053		5,835

	Total	$	169,182	$	150,628

	High		Low
Fiscal Year ended December 31, 2002
Fourth Quarter	$	22.00	$	17.27
Third Quarter		25.00		17.76
Second Quarter		27.69		23.58
First Quarter		26.75		21.05
Fiscal Year ended December 31, 2001
Fourth Quarter	$	23.45	$	16.85
Third Quarter		23.80		17.83
Second Quarter		22.40		16.17
First Quarter		20.25		14.94

	2002			2001			2000			1999			1998
	(Dollars in thousands, except share data)
At December 31:
Total balance sheet assets	$	1,820,741		$	1,509,479		$	1,294,564		$	884,389		$	746,626
Total loans (excluding loans held for sale)		1,301,726			1,097,417			878,932			683,935			519,592
Allowance for loan losses		17,050			14,521			11,500			9,242			7,547
Investment securities and money market investments		322,734			284,309			215,874			110,077			119,525
Cash and cash equivalents		97,529			58,281			110,767			41,567			79,608
Excess of cost over net assets acquired		18,007			17,207			18,371			3,563			4,154
Deposits		1,400,333			1,145,329			1,002,462			706,108			594,397
Borrowed funds		218,389			190,978			139,878			97,223			83,491
Stockholders' equity		167,382			139,631			128,625			65,512			56,770
Non-performing assets		1,057			904			1,303			1,317			815
Client assets under management	$	6,441,000		$	6,529,000		$	6,758,000		$	4,545,000		$	3,651,000
For The Year Ended December 31:
Interest and dividend income	$	90,293		$	92,479		$	79,152		$	57,875		$	48,882
Interest expense		26,265			38,321			35,863			25,068			22,672

Net interest income		64,028			54,158			43,289			32,807			26,210
Provision for loan losses		2,495			3,010			2,160			1,524			1,244

Net interest income after provision for loan losses		61,533			51,148			41,129			31,283			24,966
Fees and other income		51,868			51,271			39,174			33,469			26,951
Operating expense		78,763			83,181			54,790			43,861	(4)		36,913

Income before income taxes		34,638			19,238			25,513			20,891			15,004
Income tax expense (benefit)		10,893			7,692			8,843			7,671			5,389

Net income		23,745		$	11,546	(3)	$	16,670		$	13,220	(4)	$	9,615

Per Share Data:
Basic earnings per share	$	1.06		$	0.52		$	0.87		$	0.74		$	0.54
Diluted earnings per share	$	1.02		$	0.50	(3)	$	0.85		$	0.72	(4)	$	0.53
Average common shares outstanding		22,412,665			22,119,726			19,094,010			17,950,648			17,843,705
Average diluted shares outstanding		23,357,066			23,053,052			19,714,510			18,281,847			18,261,635
Cash dividends per share	$	0.16		$	0.14		$	0.12		$	—		$	—
Book value	$	7.42		$	6.28		$	5.87		$	3.64		$	3.18
Selected Operating Ratios:
Return on average assets		1.42	%		0.80	%(3)		1.55	%		1.63	%		1.44	%
Return on average equity		15.36	%		8.28	%(3)		19.48	%		22.05	%		18.72	%
Interest rate spread(1)		3.80	%		3.52	%		3.59	%		3.77	%		3.59	%
Net interest margin(1)		4.19	%		4.18	%		4.43	%		4.39	%		4.26	%
Total fees and other income/total revenue(2)		44.75	%		48.63	%		47.50	%		50.50	%		50.70	%
Asset Quality Ratios:
Non-performing loans to total loans		0.08	%		0.08	%		0.15	%		0.19	%		0.16	%
Non-performing assets to total assets		0.06	%		0.06	%		0.10	%		0.15	%		0.11	%
Allowance for loan losses to non-performing loans		1613.06	%		1606.31	%		882.58	%		701.75	%		926.01	%
Net loans recovered (charged-off) to average loans		0.00	%		0.00	%		0.01	%		0.03	%		(0.07	)%

	Payments Due by Period
Contractual Obligations	Total		Less than 1 Year		1-3 Years		4-5 Years		After 5 Years
	(Dollars in thousands)
Federal Home Loan Bank Borrowings	$	145,339	$	13,367	$	15,844	$	58,943	$	57,185
Capital Lease Obligations		31,250		6,675		11,318		7,726		5,531
Other Long-Term Obligations		2,606		1,327		1,279		—		—

Total Contractual Cash Obligations	$	179,195	$	21,369	$	28,441	$	66,669	$	62,716

	Payments Due by Period
Other Commercial Commitments	Total		Less than 1 Year		1-3 Years		4-5 Years		After 5 Years
	(Dollars in thousands)
Lines of Credit and Commitments to Originate Loans	$	399,615	$	209,012	$	69,120	$	22,968	$	98,515
Standby Letters of Credit		17,463		13,143		3,742		106		472
Standby Repurchase Obligations		73,050		73,050		—		—		—

Total Commercial Commitments	$	490,128	$	295,205	$	72,862	$	23,074	$	98,987

				2002 vs. 2001									2001 vs. 2000
				Change Due To									Change Due To
				Rate			Volume			Total			Rate			Volume			Total
				(In thousands)
INTEREST INCOME ON INTEREST-EARNING ASSETS:
	Cash and cash equivalents			$	(1,296	)	$	(891	)	$	(2,187	)	$	(1,224	)	$	(576	)	$	(1,800	)
	Investments				(4,591	)		690			(3,901	)		(1,422	)		6,467			5,045
	Loans:
		Commercial			(8,061	)		7,449			(612	)		(5,743	)		7,094			1,351
		Residential mortgage			(3,236	)		8,519			5,283			(203	)		9,394			9,191
		Home equity and other			(1,227	)		458			(769	)		(1,171	)		711			(460	)

			Total interest income		(18,411	)		16,225			(2,186	)		(9,763	)		23,090			13,327

INTEREST EXPENSE ON INTEREST-BEARING LIABILITIES:
	Deposits:
		Savings and NOW		$	(536	)	$	133		$	(403	)	$	(734	)	$	390		$	(344	)
		Money market			(9,825	)		3,697			(6,128	)		(4,568	)		5,562			994
		Certificates of deposit			(4,913	)		(212	)		(5,125	)		(1,846	)		1,728			(118	)
	Borrowed funds				(1,763	)		1,363			(400	)		(816	)		2,742			1,926

			Total interest expense		(17,037	)		4,981			(12,056	)		(7,964	)		10,422			2,458

NET INTEREST INCOME				$	(1,374	)	$	11,244		$	9,870		$	(1,799	)	$	12,668		$	10,869

			Within Three Months			Over Three to Six Months			Over Six to Twelve Months			Over One Year to Five Years			Over Five Years			Total
			(Dollars in thousands)
Interest earning assets(1):
	Cash and due from banks		$	861		$	—		$	—		$	—		$	—		$	861
	Federal funds sold and other			44,997			—			—			—			—			44,997
	Money Market Investments			35,000			—			—			200			—			35,200
	Investment securities			24,068			28,662			27,986			183,237			16,101			280,054
	FHLB stock			8,126			—			—			—			—			8,126
	Loans-fixed rate			41,705			9,906			27,374			175,151			53,824			307,960
	Loans-variable rate			570,760			45,909			77,748			329,075			1,197			1,024,689

		Total interest earning assets		725,517			84,477			133,108			687,663			71,122			1,701,887

Interest bearing liabilities (2):
	Savings and NOW accounts (3)			23,440			23,409			—			—			184,915			231,764
	Money market accounts			454,041			190,391			—			—			30,673			675,105
	Time certificates under $100,000			36,257			26,522			12,884			6,148			18			81,829
	Time certificates $100,000 or more			86,695			41,817			25,617			12,176			2,877			169,182
	Reverse repurchase agreements			73,050			—			—			—			—			73,050
	Borrowings			388			996			13,652			86,185			44,118			145,339

		Total interest bearing liabilities		673,871			283,135			52,153			104,509			262,601			1,376,269

		Net interest sensitivity gap during the period	$	51,646		$	(198,658	)	$	80,955		$	583,154		$	(191,479	)	$	325,618

		Cumulative gap	$	51,646		$	(147,012	)	$	(66,057	)	$	517,097		$	325,618

Interest-sensitive assets as a percent of interest-sensitive liabilities (cumulative)				107.66	%		84.64	%		93.45	%		146.43	%		123.66	%
Cumulative gap as a percent of total assets				2.84	%		(8.07	)%		(3.63	)%		28.40	%		17.88	%

(In thousands, except share data)				December 31, 2002			December 31, 2001
ASSETS:
	Cash and due from banks			$	52,532		$	43,581
	Federal funds sold and other short term investments				44,997			14,700

	Cash and cash equivalents				97,529			58,281
	Money market investments				35,200			44,151
	Investment securities available for sale (amortized cost of $280,054 and $238,220, respectively, Notes 6 and 13)				287,534			240,158
	Loans held for sale				30,923			7,672
	Loans receivable(Notes 7, 8 and 12):
		Commercial			676,189			538,144
		Residential mortgage			544,166			479,595
		Home equity and other consumer loans			81,371			79,678

			Total loans		1,301,726			1,097,417
	Less allowance for loan losses (Note 8)				(17,050	)		(14,521	)

			Net loans		1,284,676			1,082,896
	Stock in Federal Home Loan Banks (Note 12)				8,126			6,882
	Premises and equipment, net (Note 9)				13,528			10,365
	Goodwill (Note 10)				16,542			17,048
	Intangible Assets (Note 10)				1,465			159
	Fees receivable				6,890			7,198
	Accrued interest receivable				7,658			7,894
	Other assets				30,670			26,775

			Total assets	$	1,820,741		$	1,509,479

LIABILITIES:
	Deposits (Note 11)			$	1,400,333		$	1,145,329
	Federal funds purchased (Note 13)				—			5,500
	FHLB borrowings (Note 12)				145,339			124,217
	Securities sold under agreements to repurchase (Note 13)				73,050			61,261
	Accrued interest payable				2,171			2,574
	Other liabilities				32,466			30,967

			Total liabilities		1,653,359			1,369,848

	Commitments and contingencies (Notes 9, 17, 21, 22 and 23)
STOCKHOLDERS' EQUITY (NOTES 4, 15 AND 21):
	Common stock, $1.00 par value per share; authorized: 70,000,000 shares issued: 22,548,591 shares in 2002 and 22,240,575 shares in 2001				22,549			22,241
	Additional paid-in capital				74,342			70,611
	Retained earnings				65,725			45,562
	Accumulated other comprehensive income				4,766			1,217

			Total stockholders' equity		167,382			139,631

	Total liabilities and stockholders' equity			$	1,820,741		$	1,509,479

			December 31,
			2002		2001		2000
			(In thousands)
Available for sale:
	U.S. Government and agencies		$	168,120	$	106,017	$	111,294
	Municipal bonds			101,860		97,481		89,030
	Corporate bonds			16,166		34,368		12,243
	Mortgage-backed securities			1,388		2,292		3,267

		Total available for sale	$	287,534	$	240,158	$	215,834

				Years Ended December 31,
				2002							2001							2000
				Average Balance			Interest Earned/ Paid		Average Rate		Average Balance			Interest Earned/ Paid		Average Rate		Average Balance			Interest Earned/ Paid		Average Rate
				(Dollars in thousands)
ASSETS
Earning assets:
	Interest-bearing deposits			$	37,060		$	607	1.64	%	$	64,621		$	2,794	4.32	%	$	75,009		$	4,594	6.12	%
	Investments (1)				318,551			12,615	3.96	%		303,614			16,804	5.53	%		172,503			10,715	6.21	%
	Loans: (2)
		Commercial			588,754			39,808	6.76	%		489,031			40,420	8.27	%		408,398			39,070	9.57	%
		Residential mortgage			548,290			34,171	6.23	%		415,382			28,888	6.95	%		280,341			19,697	7.03	%
		Home equity and other			80,745			4,966	6.15	%		74,430			5,735	7.71	%		66,231			6,195	9.35	%

			Total earning assets		1,573,400			92,167	5.86	%		1,347,078			94,641	7.03	%		1,002,482			80,271	8.01	%

Allowance for loan losses					(15,751	)						(12,857	)						(10,186	)
Cash and due from banks					39,742							43,664							38,938
Other assets					74,976							66,267							44,331

			Total assets	$	1,672,367						$	1,444,152						$	1,075,565

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities:
	Deposits:
		Savings and NOW		$	172,606			493	0.29	%	$	147,566			897	0.61	%	$	105,179			1,241	1.18	%
		Money market			654,546			11,225	1.71	%		521,168			17,353	3.33	%		372,133			16,359	4.40	%
		Certificates of deposit			254,171			6,878	2.71	%		258,820			12,003	4.64	%		224,304			12,121	5.40	%
	Borrowed funds				194,687			7,669	3.94	%		164,024			8,068	4.92	%		109,742			6,142	5.60	%

			Total interest-bearing liabilities		1,276,010			26,265	2.06	%		1,091,578			38,321	3.51	%		811,358			35,863	4.42	%

Non-interest bearing demand deposits					219,774							187,440							162,003
Payables and other liabilities					21,979							25,764							16,627

			Total liabilities		1,517,763							1,304,782							989,988
Stockholders' equity					154,604							139,370							85,581

			Total liabilities and stockholders' equity	$	1,627,367						$	1,444,152						$	1,075,569

Net interest income							$	65,902						$	56,320						$	44,408

(In thousands)			Pre-Tax			Tax Expense (Benefit)			Net
2002
	Unrealized gains on securities:
	Unrealized holding gains arising during period		$	7,160		$	2,547		$	4,613
		Less: adjustment for realized gains		(1,619	)		(555	)		(1,064	)

	Other comprehensive income		$	5,541		$	1,992		$	3,549

2001
	Unrealized gains on securities:
	Unrealized holding gains arising during period		$	3,625		$	1,170		$	2,455
		Less: adjustment for realized gains		(3,431	)		(1,084	)		(2,347	)

	Other comprehensive income		$	194		$	86		$	108

2000
	Unrealized gains on securities:
	Unrealized holding gains arising during period		$	4,084		$	1,496		$	2,588
		Less: adjustment for realized gains		(27	)		(9	)		(18	)

	Other comprehensive income		$	4,057		$	1,487		$	2,570

			2002
(In thousands)			Boston Private Bank		Borel		Westfield		RINET			Sand Hill		BPVI		Other			Inter- segment			Total
Income Statement Data:
	Revenues from external customers:
		Net interest income	$	45,488	$	18,465	$	50	$	(11	)	$	14	$	6	$	16		$	—		$	64,028
		Non-interest income		15,641		3,891		18,460		5,915			4,091		3,963		(54	)		(39	)		51,868

	Total revenues			61,129		22,356		18,510		5,904			4,105		3,969		(38	)		(39	)		115,896
	Provision for loan losses			1,775		720		—		—			—		—		—			—			2,495
	Operating expense			35,506		11,131		12,223		4,972			3,868		3,054		8,048			(39	)		78,763
	Income tax expense			6,792		3,806		2,630		381			100		361		(3,177	)		—			10,893

	Segment profit		$	17,056	$	6,699	$	3,657	$	551		$	137	$	554	$	(4,909	)	$	—		$	23,745

Balance Sheet Data:
	Total segment assets		$	1,323,736	$	466,831	$	10,859	$	2,629		$	14,427	$	3,320	$	18,493		$	(19,554	)	$	1,820,741

(In thousands, except share data)			Year Ended December 31, 2002			Year Ended December 31, 2001			Year Ended December 31, 2000
INTEREST AND DIVIDEND INCOME:
	Loans		$	78,945		$	75,043		$	64,963
	Taxable investment securities			6,855			9,928			6,824
	Non-taxable investment securities			3,524			4,193			2,153
	Mortgage-backed securities			91			170			251
	FHLB stock dividends			271			351			367
	Federal funds sold and other			607			2,794			4,594

		Total interest and dividend income		90,293			92,479			79,152

INTEREST EXPENSE:
	Deposits			18,596			30,252			29,721
	FHLB borrowings			6,736			6,445			4,655
	Securities sold under agreements to repurchase			915			1,601			1,410
	Federal funds purchased and other			18			23			77

		Total interest expense		26,265			38,321			35,863

		Net interest income		64,028			54,158			43,289
	Provision for loan losses (Note 8)			2,495			3,010			2,160

		Net interest income after provision for loan losses		61,533			51,148			41,129

FEES AND OTHER INCOME:
	Investment management and trust fees			38,086			38,115			33,192
	Financial planning fees			5,893			5,040			4,099
	Equity in earnings (losses) of partnerships			(40	)		(45	)		(378	)
	Deposit account service charges			834			843			716
	Gain on sale of loans, net			2,609			1,092			118
	Gain on sale of investment securities, net (Note 6)			1,619			3,431			27
	Cash administration fees			833			1,118			—
	Other			2,034			1,677			1,400

		Total fees and other income		51,868			51,271			39,174

OPERATING EXPENSE:
	Salaries and employee benefits (Note 15)			52,494			45,952			36,087
	Occupancy and equipment (Note 9)			11,467			7,945			6,173
	Professional services			3,269			3,745			2,938
	Marketing and business development			3,618			3,282			2,688
	Contract services and processing			1,803			1,736			1,393
	Amortization of intangibles (Notes 3 and 10)			88			1,399			815
	Merger expenses			—			12,291			—
	Loss on early extinguishment of debt			—			1,216			—
	Other (Note 16)			6,024			5,615			4,696

		Total operating expense		78,763			83,181			54,790

		Income before income taxes		34,638			19,238			25,513
	Income tax expense (Note 14)			10,893			7,692			8,843

		Net income	$	23,745		$	11,546		$	16,670

Per share data (Note 3):
	Net Income:
		Basic earnings per share	$	1.06		$	0.52		$	0.87
		Diluted earnings per share	$	1.02		$	0.50		$	0.85

	Average basic common shares outstanding			22,412,665			22,119,726			19,094,010
	Average diluted common shares outstanding			23,357,066			23,053,052			19,714,510

(In thousands, except share data)			Common Stock		Additional Paid-in Capital		Retained Earnings			Stock Subscriptions Receivable			Accumulated Other Comprehensive Income (Loss)			Total
Balance at December 31, 1999			$	17,976	$	21,806	$	27,510		$	(320	)	$	(1,461	)	$	65,511
	Net income			—		—		16,670			—			—			16,670
	Other comprehensive income, net:
	Change in unrealized gain (loss) on securities available for sale, net			—		—		—			—			2,570			2,570

		Total comprehensive income, net															19,240
	Dividends paid:
	Boston Private Financial Holdings, Inc. $.12 per share			—		—		(1,520	)		—			—			(1,520	)
	Borel Private Bank $1.05 per share			—		—		(3,085	)		—			—			(3,085	)
	Proceeds from issuance of 3,788,389 shares of common stock			3,788		44,163		—			—			—			47,951
	Stock options exercised			177		567		—			—			—			744
	Stock subscription payments			—		—		—			174			—			174
	S-Corporation dividends paid			—		—		(390	)		—			—			(390	)

Balance at December 31, 2000				21,941		66,536		39,185			(146	)		1,109			128,625
	Net income			—		—		11,546			—			—			11,546
	Other comprehensive income, net:
	Change in unrealized gain (loss) on securities available for sale, net			—		—		—			—			108			108

		Total comprehensive income, net															11,654
	Dividends paid:
	Boston Private Financial Holdings, Inc. $.14 per share			—		—		(2,275	)		—			—			(2,275	)
	Borel Private Bank $.75 per share			—		—		(2,212	)		—			—			(2,212	)
	Proceeds from issuance of 113,148 shares of common stock			113		2,161		—			—			—			2,274
	Stock options exercised			187		1,914		—			—			—			2,101
	Stock subscription payments			—		—		—			146			—			146
	S-Corporation dividends paid			—		—		(682	)		—			—			(682	)

Balance at December 31, 2001				22,241		70,611		45,562			—			1,217			139,631
	Net income			—		—		23,745			—			—			23,745
	Other comprehensive income, net:
	Change in unrealized gain (loss) on securities available for sale, net			—		—		—			—			3,549			3,549

		Total comprehensive income, net															27,294
	Dividends paid: $.16 per share			—		—		(3,582	)		—			—			(3,582	)
	Proceeds from issuance of 109,088 shares of common stock			109		2,064		—			—			—			2,173
	Stock options exercised			199		1,667		—			—			—			1,866

Balance at December 31, 2002			$	22,549	$	74,342	$	65,725		$	—		$	4,766		$	167,382

(In thousands)					Year Ended December 31, 2002			Year Ended December 31, 2001			Year Ended December 31, 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net income				$	23,745		$	11,546		$	16,670
	Adjustments to reconcile net income to net cash from operating activities:
		Depreciation and amortization				2,818			5,116			1,682
		Gain on sale of securities				(1,619	)		(3,431	)		(27	)
		Gain on sale of loans				(2,609	)		(1,092	)		(118	)
		Distributed earnings of partnership investments				124			217			2,421
		Common shares issued as compensation				1,476			1,943			791
		Provision for loan losses				2,495			3,010			2,160
		Loans originated for sale				(248,731	)		(37,666	)		(2,804	)
		Proceeds from sale of loans held for sale				228,368			31,350			2,949
		(Increase) decrease in:
			Fees receivable			308			(310	)		(479	)
			Accrued interest receivable			236			438			(3,179	)
			Other assets			(5,237	)		(13,186	)		768
		Increase (decrease) in:
			Accrued interest payable			(403	)		(336	)		958
			Other liabilities			1,056			11,341			1,937

				Net cash provided by operating activities		2,027			8,940			23,729

CASH FLOWS FROM INVESTING ACTIVITIES:
	(Increase) decrease in money market investments					8,951			(4,151	)		(25,000	)
		Investment securities available for sale:
		Purchases				(310,784	)		(216,707	)		(162,614	)
		Sales				70,169			163,852			2,027
		Maturities				199,889			30,873			59,296
	Purchase of FHLB stock					(1,244	)		(2,052	)		—
	Net increase in portfolio loans					(230,375	)		(254,725	)		(198,405	)
	Proceeds from sale of loans					26,233			35,714			3,724
	Recoveries on loans previously charged-off					262			60			139
	Capital expenditures, net of sale proceeds					(5,995	)		(4,555	)		(3,547	)
	Acquisition of investment management businesses					(1,281	)		(780	)		(9,268	)

				Net cash used in investing activities		(244,175	)		(252,471	)		(333,648	)

(In thousands)			Year Ended December 31, 2002			Year Ended December 31, 2001			Year Ended December 31, 2000
CASH FLOWS FROM FINANCING ACTIVITIES:
	Net increase in deposits			255,004			142,867			296,353
	Net increase in repurchase agreements			11,789			11,555			33,155
	Net increase (decrease) in federal funds purchased			(5,500	)		5,500			—
	Proceeds from FHLB borrowings			49,880			65,450			28,000
	Repayments of FHLB borrowings			(28,758	)		(31,405	)		(18,500	)
	Dividends paid to stockholders			(3,582	)		(4,487	)		(4,605	)
	S-corporation dividends paid			—			(682	)		(390	)
	Proceeds from stock subscriptions receivable			—			146			174
	Proceeds from issuance of common stock, net			2,563			2,101			44,932

		Net cash provided by financing activities		281,396			191,045			379,119

	Net increase (decrease) in cash and due from banks			39,248			(52,486	)		69,200
Cash and cash equivalents at beginning of year				58,281			110,767			41,567

	Cash and due from banks at end of year		$	97,529		$	58,281		$	110,767

SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
	Cash paid for interest		$	26,668		$	38,657		$	34,904
	Cash paid for income taxes			12,385			12,539			9,267
	Change in unrealized gain (loss) on securities available for sale, net of estimated income taxes			3,549			108			2,570
The Company purchased investment advisory businesses in 2002 and 2000. In conjunction with the acquisitions, liabilities were assumed as follows:
	Fair value of assets acquired		$	1,992		$	—		$	16,124
	Less: estimated contingent deferred liability			1,157			—			3,884

	Cash and stock paid at close		$	835		$	—		$	12,240

(Dollars in thousands, except per share amounts)		Year Ended December 31, 2002		Year Ended December 31, 2001		Year Ended December 31, 2000
Net income:
	As reported	$	23,745	$	11,546	$	16,670
	Stock-based employee and director compensation expense, net of related tax effects		2,775		1,711		976

	Proforma	$	20,970	$	9,835	$	15,694

Basic earnings per share:
	As reported	$	1.06	$	0.52	$	0.87
	Proforma	$	0.94	$	0.44	$	0.82
Diluted earnings per share:
	As reported	$	1.02	$	0.50	$	0.85
	Proforma	$	0.90	$	0.43	$	0.80

		2002					2001					2000
(In thousands, except per share amounts)		Net Income		Shares	Per Share Amount		Net Income		Shares	Per Share Amount		Net Income		Shares	Per Share Amount
Basic EPS		$	23,745	22,413	$	1.06	$	11,546	22,120	$	0.52	$	16,670	19,094	$	0.87
Effect of Dilutive Securities
	Stock Options		—	944		0.04		—	933		0.02		—	621		0.02

	Diluted EPS	$	23,745	23,357	$	1.02	$	11,546	23,053	$	0.50	$	16,670	19,715	$	0.85

					Unrealized
(In thousands)			Amortized Cost		Unrealized					Market Value
(In thousands)			Amortized Cost		Gains		Losses			Market Value
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	$	280,054		7,504		(24	)	$	287,534

At December 31, 2001
	U.S. Government and agencies		$	105,273	$	1,493	$	(749	)	$	106,017
	Corporate bonds			33,854		556		(42	)		34,368
	Municipal bonds			96,830		1,123		(472	)		97,481
	Mortgage backed securities			2,263		29		—			2,292

		Total	$	238,220		3,201		(1,263	)	$	240,158

(In thousands)		Year Ended December 31, 2002		Year Ended December 31, 2001		Year Ended December 31, 2000
Amortized cost of securities sold		$	68,550	$	160,421	$	2,000
Gains realized on sales			1,619		3,431		27
Losses realized on sales			—		—		—

	Net proceeds from sales	$	70,169	$	163,852	$	2,027

(In thousands)		Year Ended December 31, 2002			Year Ended December 31, 2001
Balance at beginning of year		$	5,682		$	7,591
	Originations		5,936			3,688
	Repayments		(4,373	)		(5,597	)

Balance at end of year		$	7,245		$	5,682

(In thousands)		December 31, 2002		December 31, 2001		December 31, 2000
Nonaccrual loans		$	1,057	$	904	$	1,303
Loans past due 90 days or more, but still accruing			—		—		—

	Total non-performing loans	$	1,057	$	904	$	1,303

Loans past due 30-89 days		$	3,981	$	3,650	$	3,980

(In thousands)		Year Ended December 31, 2002			Year Ended December 31, 2001			Year Ended December 31, 2000
Balance at beginning of year		$	14,521		$	11,500		$	9,242
	Provision for loan losses		2,495			3,010			2,160
	Charge-offs		(228	)		(49	)		(41	)
	Recoveries		262			60			139

Balance at end of year		$	17,050		$	14,521		$	11,500

(In thousands)		December 31, 2002			December 31, 2001
Leasehold improvements		$	9,007		$	7,154
Furniture, fixtures, and equipment			14,308			11,606
Vehicles			46			74
Buildings			319			319

	Subtotal		23,680			19,153
Less accumulated depreciation and amortization			(10,152	)		(8,788	)

	Premises and equipment, net	$	13,528		$	10,365

(In thousands)		Minimum Lease Payments
2003		$	6,675
2004			6,803
2005			4,515
2006			3,970
2007			3,756
Thereafter			5,531

	Total	$	31,250

	Intangibles
				Boston Private Bank Other Intangibles						Goodwill
(In thousands)	Total Intangibles			Boston Private Bank Other Intangibles			BPVI Advisory Contracts			Total Goodwill			Boston Private Bank			Sand Hill			BPVI
Balance as of December 31, 2000	$	178		$	178			—		$	18,194		$	2,550		$	15,278		$	366
Amortization		(19	)		(19	)		—			(1,380	)		(264	)		(1,063	)		(53	)
Adjust net assets acquired		—			—			—			234			—			234			—

Balance as of December 31, 2001		159			159			—			17,048			2,286			14,449			313

Purchase of Goldberg business		—			—			—			598			—			—			598
Adjust estimated deferred purchase price		—			—			—			(1,104	)		—			(1,104	)		—
Advisory contracts acquired		1,394			—			1,394			—			—			—			—
Amortization		(88	)		(18	)		(70	)		—			—			—			—

Balance as of December 31, 2002	$	1,465		$	141		$	1,324		$	16,542		$	2,286		$	13,345		$	911

(In thousands)		Year Ended December 31, 2002		Year Ended December 31, 2001		Year Ended December 31, 2000
Reported net income		$	23,745	$	11,546	$	16,670
Add back: goodwill amortization (net of tax)			—		841		490

Adjusted net income		$	23,745	$	12,387	$	17,160

Basic earnings per share
	Reported net income	$	1.06	$	0.52	$	0.87
	Goodwill amortization (net of tax)		—	$	0.04	$	0.03

	Adjusted net income	$	1.06	$	0.56	$	0.90

Diluted earnings per share
	Reported net income	$	1.02	$	0.50	$	0.85
	Goodwill amortization (net of tax)		—	$	0.04	$	0.02

Adjusted net income		$	1.02	$	0.54	$	0.87

(In thousands)		December 31, 2002		December 31, 2001
Demand deposits		$	242,453	$	201,001
NOW			207,693		146,454
Savings			24,071		22,710
Money market			675,105		541,905
Certificates of deposit under $100,000			81,829		82,631
Certificates of deposit $100,000 or greater			169,182		150,628

	Total	$	1,400,333	$	1,145,329

(In thousands)		December 31, 2002		December 31, 2001
Less than 3 months remaining		$	122,951	$	126,066
3 to 6 months remaining			68,341		63,723
6 to 12 months remaining			38,501		34,152
More than 12 months remaining			21,218		9,318

	Total	$	251,011	$	233,259

		December 31, 2002			December 31, 2001
(Dollars in thousands) Maturity		Amount		Weighted Average Rate	Amount		Weighted Average Rate
Within 1 year		$	13,367	5.49%	$	27,310	5.10%
Over 1 year to 2 years			4,344	3.70%		15,770	4.83%
Over 2 years to 3 years			11,500	4.45%		3,000	3.58%
Over 3 years to 5 years			58,943	4.64%		30,740	4.92%
Over 5 years			57,185	5.15%		47,397	5.68%

	Total	$	145,339	4.88%	$	124,217	5.12%

(In thousands)		Federal Funds Purchased			Securities Sold Under Agreements to Repurchase
2002
	Outstanding at end of period	$	—		$	73,050
	Maximum outstanding at any month end		—			89,696
	Average balance for the year		922			64,907
	Weighted average rate at end of period		—			1.22	%
	Weighted average rate paid for the period		2.00	%		1.41	%
2001
	Outstanding at end of period	$	5,500		$	61,261
	Maximum outstanding at any month end		5,500			73,982
	Average balance for the year		970			53,005
	Weighted average rate at end of period		1.63	%		1.90	%
	Weighted average rate paid for the period		2.25	%		3.02	%
2000
	Outstanding at end of period	$	—		$	49,706
	Maximum outstanding at any month end		—			49,706
	Average balance for the year		137			31,803
	Weighted average rate at end of period		—			4.39	%
	Weighted average rate paid for the period		5.93	%		4.42	%

(In thousands)			Year Ended December 31, 2002			Year Ended December 31, 2001			Year Ended December 31, 2000
Current expense:
	Federal		$	12,698		$	7,641		$	7,877
	State			788			1,895			1,938

		Total current expense		13,486			9,536			9,815
Deferred expense (benefit):
	Federal			(2,350	)		(1,151	)		(837	)
	State			(236	)		(685	)		(127	)
	Change in valuation allowance			(7	)		(8	)		(8	)

		Total deferred expense (benefit)		(2,593	)		(1,844	)		(972	)

		Income tax expense	$	10,893		$	7,692		$	8,843