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

FORM 10-K

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

For the transition period from                                  to                                 

Commission file number 0-17089

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

(Registrant's telephone number, including area code): (617) 912-1900

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:
None

        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 nonaffiliates of the registrant, computed by reference to the last reported sales price on the NASDAQ national market on June 30, 2004 was $633,393,368.

        The number of shares of the registrant's common stock outstanding on March 3, 2005 was 27,974,058.

Documents Incorporated by Reference

        Portions of the registrant's proxy statement for the Company's 2005 Annual Meeting of Stockholders are incorporated by reference in Items 10, 11, 12, 13 and 14 of Part III.

TABLE OF CONTENTS

        The discussions set forth below and elsewhere herein, may contain statements that may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements, other than statements of historical facts, including statements regarding our strategy, effectiveness of investment programs, evaluations of future interest rate trends and liquidity, expectations as to growth in assets, deposits and results of operations, receipt of regulatory approval for pending acquisitions, success of acquisitions, future operations, market position, financial position, and prospects, plans and objectives of management are forward-looking statements.

        Actual results, performance or achievements could differ materially from those contemplated, expressed or implied by the forward-looking statements contained or incorporated by reference in this document. Important factors that could cause actual results to differ materially from our forward-looking statements are 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." Forward-looking statements are based on the current assumptions and beliefs of management and are only expectations of future results. Our actual results could differ materially from those projected in the forward-looking statements as the result of, among other factors, changes in interest rates, changes in the securities or financial markets, a deterioration in general economic conditions on a national basis or in the local markets in which we operate, including changes which adversely affect borrowers' ability to service and repay our loans, changes in loan defaults and charge-off rates, reduction in deposit levels necessitating increased borrowing to fund loans and investments, our ability to consummate proposed acquisitions in a timely manner, 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, and changes in assumptions used in making such forward-looking statements. This is not an exhaustive list and as a result of variations in any of these factors actual results may differ materially from any forward-looking statements.

        Forward-looking statements speak only as of the date they are made. You should not place undue reliance on these forward-looking statements. We will not update forward-looking statements to reflect facts, assumptions, circumstances or events which have changed after a forward-looking statement was made.

PART I

ITEM 1. BUSINESS

I. General

        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 and insured by the Federal Deposit Insurance Corporation (the "FDIC"). The Company wholly-owns or majority-owns all of the issued and outstanding shares of common stock of Borel Private Bank & Trust Company ("Borel"), and First State Bank of California ("FSB"), California state banking corporations insured by the FDIC; Westfield Capital Management Company, LLC ("Westfield"), Sand Hill Advisors, Inc. ("Sand Hill"), Dalton, Greiner, Hartman, Maher & Co., LLC ("DGHM"), and Boston Private Value Investors, Inc. ("BPVI"), each a registered investment adviser; and KLS Professional Advisors Group, LLC ("KLS"), and RINET Company, LLC ("RINET"), both registered investment advisory and financial planning firms. In addition, the Company holds a 30% minority interest in Bingham, Osborn, & Scarborough, LLC ("BOS") a financial planning and investment firm located in San Francisco, California and an approximately 26.5% minority interest in Coldstream Holdings, Inc. ("Coldstream Holdings"). Coldstream Holdings is the parent of Coldstream Capital Management, Inc. ("Coldstream Capital"), a registered investment adviser in Bellevue, Washington and Coldstream Securities, Inc. The Company conducts substantially all of its business through its wholly-owned and majority-owned subsidiaries, Boston Private Bank, Borel, and FSB (together the "Banks"), Westfield, Sand Hill, BPVI, DGHM, KLS, and RINET.

        On February 28, 2001, the Company acquired by merger BPVI, formerly E.R. Taylor Investments, Inc., a corporation engaged in providing value style investment management services to the wealth management market, in exchange for 629,731 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 adviser, 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 230,000 shares of the Company's common stock.

        These mergers were initiated prior to June 30, 2001 and were accounted for as a "pooling of interests." Accordingly, the results of operations of the Company reflect the financial position and results of operations including RINET, BPVI, Kanon Bloch Carré, and Borel 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 closing, and the remainder paid in four annual payments that were contingent upon performance using a combination of approximately 70% cash and 30% common stock for each payment. 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.

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        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. Since the initial acquisition, the Company has increased its ownership to approximately 26.5%.

        On February 5, 2004, the Company acquired a 20% interest in BOS, a financial planning and investment advisory firm located in San Francisco, California. On August 11, 2004 the Company made an additional investment of 10% in BOS, for a total interest of 30% as of December 31, 2004. Over the next four years, the Company could acquire up to a 70% interest in the firm. This investment is accounted for using the equity method.

        On February 6, 2004 the Company acquired an 80% interest in DGHM, a value style investment manager specializing in small-cap equities. The purchase price was approximately $96.0 million, with approximately 86% payable in cash and the remainder paid in common stock. Approximately 20% of the purchase price was deferred and the payments are contingent upon operating results through a five-year earn-out period. This acquisition was accounted for as a "purchase of a business" and, accordingly, the Company's results of operations and financial position include DGHM on a consolidated basis since the date of the acquisition.

        On February 17, 2004, the Company acquired First State Bancorp, the holding company of FSB located in Los Angeles County. In the transaction, the Company acquired 100% of First State's common stock for a combination of 15% cash and 85% stock, with an aggregate transaction value of $27.5 million. This acquisition was accounted for as a "purchase of a business" and, accordingly, the Company's results of operations and financial position include FSB on a consolidated basis since the date of the acquisition.

        On October 1, 2004, the Company, through its subsidiary, FSB, acquired Encino State Bank ("Encino") located in Los Angeles County. Upon consummation of the acquisition, Encino was merged into FSB with FSB as the surviving entity. In the acquisition, the Company acquired 100% of Encino's common stock for cash for an aggregate transaction value of approximately $33.1 million. This acquisition was accounted for as a "purchase of a business" and, accordingly, the Company's results of operations and financial position include Encino on a consolidated basis since the date of the acquisition.

        On December 31, 2004, the Company acquired an 81% interest in KLS located in New York. The purchase price was approximately $30 million, with approximately 90% paid in cash and the remaining paid in common stock. This acquisition was accounted for as a "purchase of a business" and, accordingly, the Company's results of operations and financial position include KLS on a consolidated basis since the date of the acquisition.

II. Regional Clusters

        The Company has pursued a "cluster" approach to the wealth management market by delivering private banking, investment management and wealth advisory services through a platform of complementary affiliate companies on a regional basis.

The New England Region

Boston Private Bank & Trust Company

        Boston Private Bank is a Massachusetts-chartered trust company with $1.9 billion in balance sheet assets and $2.0 billion of assets under management as of December 31, 2004. 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 deposit and loan

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products. In addition, Boston Private Bank provides investment management and trust services to high net worth individuals and institutional clients. Boston Private Bank is headquartered in Boston and has wealth management offices in Post Office Square, Back Bay, Seaport, Cambridge, Newton, and Wellesley.

Westfield Capital Management Company, LLC

        Westfield is an investment management company based in Boston, Massachusetts serving clients domestically and abroad, with $7.7 billion of assets under management at December 31, 2004. Westfield specializes in separately managed growth equity portfolios with products across the capitalization spectrum. Additionally, Westfield acts as the general partner and/or investment manager to several limited partnerships that employ a long/short domestic growth equity strategy, with styles focusing on the life sciences sectors and micro capitalization area. The firm's experienced investment team conducts in-depth, fundamental research and analysis to attempt to uncover solid, rapidly growing companies that can be purchased at a reasonable price.

RINET Company, LLC

        RINET is an investment adviser with $1.1 billion of assets under advisory as of December 31, 2004. 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 United States. The firm offers tax planning and preparation, asset allocation, estate planning, charitable planning and planning for employment benefits, including 401(k) plans, alternative investment analysis and mutual fund investing. The firm is staffed with Certified Public Accountants and Certified Financial Planners who are trained in all of the foregoing planning and advisory disciplines. Through its Kanon Bloch Carré division, RINET provides an independent, nationally recognized mutual fund rating service.

Boston Private Value Investors, Inc.

        BPVI is an investment management firm with $860 million of assets under management as of December 31, 2004, primarily from high net worth individuals and select institutions in New England. BPVI is a large-cap style investor. Each value equity product it offers can be combined with high-quality fixed income products to create specialized balanced accounts to meet each client's goal in the context of risk tolerance, tax sensitivity and time frame. The firm has offices in Boston, Massachusetts and Concord, New Hampshire.

The New York Metro Region

Dalton, Greiner, Hartman, Maher & Co., LLC

        DGHM is a value driven investment manager specializing in smaller capitalization equities with $3.4 billion of assets under management as of December 31, 2004. The firm manages investments for institutional clients and high net worth individuals in mid, small, and micro cap portfolios. Founded in 1982, the firm is headquartered in New York City.

KLS Professional Advisors Group, LLC

        KLS is an investment adviser with $2.9 billion of assets under advisory as of December 31, 2004. KLS specializes in investment management, insurance, retirement planning, estate planning and income tax planning services. As a firm founded by experienced wealth management experts, KLS offers a comprehensive and objective approach to financial, tax, and estate planning. The firm offers advice and counsel on every aspect of their clients' financial affairs in pursuit of strategies designed to preserve and build their family's wealth. KLS was founded in 1989 and is located in midtown Manhattan.

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The Northern California Region

Borel Private Bank & Trust Company

        Borel is a California state banking corporation with $734 million in balance sheet assets and $568 million of trust assets under management as of December 31, 2004. Borel conducts a commercial banking business, which includes deposit and lending activities. Additionally, Borel offers trust services and provides a variety of other fiduciary services including investment management, advisory and administrative services to individuals. Headquartered in San Mateo, California, Borel has offices in Palo Alto and San Francisco California.

Sand Hill Advisors, Inc.

        Sand Hill is an investment management company serving clients in northern California with $1.1 billion of assets under management as of December 31, 2004, primarily from high net worth individuals (including $185 million of assets managed through a subadvisory relationship with Borel). The firm manages investments covering a wide range of asset classes for both taxable and tax exempt portfolios and has special expertise as transitional wealth counsel. Sand Hill seeks to both build and preserve the wealth of its clients through objective advice and a comprehensive approach to investing and delivers customized wealth management strategies to meet the diverse needs of its client base. Sand Hill is headquartered in Palo Alto, California.

Bingham, Osborn & Scarborough, LLC

        BOS is an independent, fee-only comprehensive wealth management firm with $1.2 billion in assets under advisory as of December 31, 2004. Founded in 1985, the firm specializes in strategies for retirement planning, estate planning, charitable giving, portfolio diversification, insurance programs and tax management. Initially, Boston Private acquired a 20% interest in BOS and increased its ownership to 30% in 2004. Over the next four years, Boston Private has the option to increase its investment interest an additional 10% per year, up to 70%. BOS has offices in San Francisco and Menlo Park, California. BOS provides the financial planning component to the northern California cluster and complements the existing private banking and investment management affiliates.

The Southern California Region

First State Bank of California

        FSB is a California state banking corporation with $427 million in balance sheet assets as of December 31, 2004. FSB provides a range of deposit and loan banking products and services to its customers. Its primary focus is on small and medium-sized businesses and professionals located in the Los Angeles and San Bernardino counties. FSB has its headquarters in Granada Hills and offices in Burbank, Rancho Cucamonga, Encino, Santa Monica and Westlake Village, California.

The Pacific Northwest Region

Coldstream Capital Management, Inc.

        Coldstream Holdings is the parent of Coldstream Capital, a multi-client family office providing comprehensive wealth management services to high net worth individuals and their families in the Pacific Northwest. Coldstream Capital had $600 million of assets under management as of December 31, 2004. Boston Private Financial Holdings, Inc. has a 26.5% investment in Coldstream Capital. Coldstream Capital has offices in Bellevue, Washington and Portland, Oregon.

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        For revenue, net income, assets, and other financial information for each of the Company's business segments, see Part II, Item 8—"Financial Statements and Supplementary Data—Note 5: Business Segments."

III. Revenue Generation

        The Company generates fee income from providing investment management and trust services to its clients at the Banks and from providing investment management and wealth advisory services for clients at Westfield, Sand Hill, RINET, DGHM, BPVI, and KLS. 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. Westfield and DGHM receive some performance-based fees. The amount of these fees is impacted directly by the investment performance of Westfield and DGHM.

        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 and KLS earn 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.

Investment Management and Trust Administration

        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, Boston Private Bank and Borel provide trust services to both individuals and institutions. Westfield and DGHM, acting as managers of limited partnerships, also earn fees based on the performance of these limited partnerships. For the years ended December 31, 2004 and 2003, respectively, the asset management and advisory businesses accounted for 85.2% and 75.0% of the Company's total fees and other income, and 46.8% and 37.0% of the Company's total revenues, which is defined as net interest income plus fees and other income. At December 31, 2004, the Company had approximately $21.1 billion in assets under management and advisory which includes the Company's unconsolidated affiliates.

Lending Activities

        General.    The Banks specialize in lending to individuals, real estate investors, and middle market businesses, including corporations, partnerships, associations and nonprofit 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

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$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 Borel's Officers Loan Committee. Borel's Directors Loan Committee reviews all unsecured loans over $300,000 and loans secured by real estate over $1.5 million. At FSB all loans over $1 million are reviewed by the Directors Loan Committee. This committee is comprised of eight directors, including the President and CEO of FSB.

        At December 31, 2004, the Banks had loans outstanding of $2.2 billion which represented approximately 68.8% of the Company's total assets. Boston Private Bank had loans outstanding of $1.4 billion, Borel had loans outstanding of $616.3 million, and FSB had loans outstanding of $266.5 million which represented approximately 41.8%, 18.8%, and 8.2%, respectively, of the consolidated Company's total assets. The interest rates charged on these loans vary with the degree of risk, maturity and amount of the loan, and are further subject to competitive pressures, market rates, the availability of funds and legal and regulatory requirements. At December 31, 2004, approximately 73.1% 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, 2004, the statutory lending limit to any single borrower was approximately $23.3 million, $14.9 million, and $8.4 million for Boston Private Bank, Borel, and FSB, respectively, subject to certain exceptions provided under applicable law. At December 31, 2004, none of the Banks had any outstanding lending relationships in excess of the legal lending limit. All loans to directors were made in the ordinary course of business under normal credit terms, including interest rates and collateral requirements prevailing at the time of origination for comparable transactions with other persons, and do not represent more than normal credit risk.

        The Banks also have policies 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, 2004, the aggregate principal amount of all loans to Directors of the Company and its subsidiaries (including unused commitments under lines of credit) was $19.1 million, or 5.9% of capital.

        Geographic concentration.    Boston Private Bank primarily serves 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. FSB primarily serves small and medium sized businesses and professionals in southern California. A downturn in any of these local economies or real estate markets could negatively impact the Company's banking business. As of December 31, 2004, $577.3 million or 42.5% of the commercial loans, $729.9 million or 91.6% of residential loans, and $58.4 million or 61.9% of consumer loans were held by Boston Private Bank and are concentrated in eastern Massachusetts. As of December 31, 2004, $530.3 million or 39.1% of the commercial loans, $57.2 million or 7.2% of the residential mortgage loans and $28.7 million or 30.4% of the home equity and other consumer loans were held by Borel and as such are concentrated in northern California. As of December 31, 2004, $249.4 million or 18.4% of the commercial loans, $9.8 million or 1.2% of the residential mortgage loans and $7.3 million or 7.7% of the home equity and other consumer loans were held by FSB and as such are concentrated in southern California.

        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 table does not include a loan from the Holding Company to certain principals of DGHM in the

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amount of $161,000 at December 31, 2004. The "Holding Company" is defined as Boston Private on an unconsolidated basis.

        The following table discloses the scheduled contractual maturities of loans in the Banks' portfolios at December 31, 2004. 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."

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        Commercial Loans.    Commercial loans include working capital loans, equipment financings, standby letters of credit, term loans, revolving lines of credit, commercial real estate, and construction and land loans.

        At December 31, 2004, the Banks had outstanding commercial loans totaling $1.4 billion, which represented 60.4% of total loans and 41.5% of total assets of the Company. Of the Banks' commercial loan portfolio, $338.9 million or 25.0% is due within one year and $1.0 billion or 75.0% 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 based on the prime rate as published by the Wall Street Journal (WSJ). FSB's floating rate loans are priced based on various indices such as the WSJ prime rate, London inter bank offering rate (LIBOR), and their own prime rate. Floating rate loans accounted for 61.9% of the Banks' commercial loan portfolio as of December 31, 2004. The average balance of the Banks' outstanding commercial loans was approximately $1.1 billion for 2004, with an average loan size of approximately $608,000 at December 31, 2004.

        As noted above, all 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, each Banks' Directors Loan Committees review loans on each Bank's classified loan report on a quarterly 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, 2004, the Banks had outstanding residential mortgage loans of $797.0 million representing 35.4% of the Company's total loan portfolio and 24.4% of total assets of the Company. The majority of the Bank's residential lending is in the New England area. 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 $333,700 at December 31, 2004. The average loan size of the Company's outstanding residential mortgage loans was approximately $508,000 at December 31, 2004.

        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, 2004, the Banks had $94.4 million of such loans. The amount of home equity loans and other consumer loans typically depends on customer demand.

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        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 formulated based on the judgment and experience of the management at 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.

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        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 7 and 8 to the Consolidated Financial Statements" for further information.

Investment Activities

        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 achieving 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. The Company has determined that none of its investments are other than temporarily impaired at December 31, 2004 and 2003. See Part II, Item 8, "Financial Statements and Supplementary Data—Note 6 to the Consolidated Financial Statements" for further information.

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

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Sources of Funds

        Deposits.    Deposits are the principal source of the Banks' funds for use in lending, investments, and liquidity. At December 31, 2004, the Banks had a total of approximately 19,826 checking accounts consisting of demand deposit and NOW accounts with an average account balance of approximately $35,006, approximately 4,593 savings accounts with an average account balance of approximately $8,205, and approximately 7,954 money market accounts with an average account balance of approximately $144,140. Certificates of deposit represented approximately 21.9% and 15.1% of total deposits at December 31, 2004 and 2003, 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 and FSB are members of the FHLB of San Francisco and as such each has access to both short and long-term borrowings. As of December 31, 2004, the Banks had $275.2 million of FHLB borrowings outstanding with a weighted average interest rate of 4.1%, compared to $197.9 million of FHLB borrowings outstanding with a weighted average interest rate of 4.5% at December 31, 2003. In addition, the Banks had FHLB borrowings available of $344.8 million. See Part II, Item 8 "Financial Statements and Supplementary Data—Note 12 to the Consolidated Financial Statements" for further information.

        The Banks also obtain funds from the sales of securities to institutional investors and deposit customers under repurchase agreements. In a repurchase agreement transaction, the Banks 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

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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 the Banks. However, the Company 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, the Banks generally deal with large, established investment brokerage firms when entering into such transactions with institutional investors, and deal with established deposit customers 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, 2004, the total amount of outstanding repurchase agreements was $84.5 million with a weighted average interest rate of 1.0%, compared to $65.8 million with a weighted average interest rate of 1.1% at December 31, 2003. See Part II, Item 8 "Financial Statements and Supplementary Data—Note 13 to the Consolidated Financial Statements" for further information.

        From time to time the Banks purchase federal funds from the FHLB and other banking institutions to supplement their liquidity positions. The Banks have federal fund lines of credit totaling $155.0 million with correspondent institutions to provide them with immediate access to overnight borrowings. At December 31, 2004, the Banks 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, 2004, Boston Private Bank had $17.4 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.

Competition

        The Company operates in the highly competitive wealth management market place. The Company believes that by creating regional clusters of companies, it is favorably positioned to access diversified markets to expand its potential client base and mitigate regional economic risks. In addition, the Company believes its regional presence enables it to provide better access to decision makers and more customized personal service for its wealth management clients.

        In the Company's private banking business, 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 national, and suburban-based commercial banking organizations, savings banks, credit unions, and other financial institutions and nonbank 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. To compete effectively, the Banks rely substantially on local promotional activity, personal contacts by officers, directors, and employees, personalized service and their reputation within in the communities they serve.

        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 nonperforming assets. The Banks' competitors include several major financial companies whose greater resources may afford them a

12

marketplace advantage by enabling them to maintain numerous banking locations and mount extensive promotional and advertising campaigns. The Banks' current commercial borrowing customers may develop needs for credit facilities larger than the Banks 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 among parties.

        The ability of Boston Private's affiliates to attract investment management and trust business may be inhibited by the relatively short history and record of performance at each affiliate. The Company's principal competitors with respect to investment management and trust services are primarily commercial banks and trust companies, mutual fund companies, investment advisory firms, stock brokerage firms, other financial companies and law firms. Many of Boston Private's competitors have greater resources than its individual affiliates or the Company on a consolidated basis. Competition can impact revenue and current and future fee structures.

        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, Boston Private's ability to retain investment management clients may be impaired by the fact that investment management contracts are typically short-term in nature, allowing clients to withdraw funds from accounts under management, generally in their sole discretion. There can be no assurance that Boston Private will be able to achieve favorable investment performance and retain its existing clients.

        In the wealth advisory industry, Boston Private 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 Boston Private's clients in related product areas. The Company believes that the ability of its affiliates, most specifically RINET and KLS, to compete effectively with other firms is dependent upon the quality and level of service, personal relationships, and investment performance. There can be no assurance that RINET or KLS will be able to retain their existing clients, expand existing relationships, or add new clients.

Employees

        At December 31, 2004, the Company had 592 employees. The Company's employees are not subject to a collective bargaining agreement, and the Company believes its employee relations are good.

IV. Bank Regulatory Considerations

Supervision and Regulation

        In addition to the generally applicable state and federal laws governing businesses and employers, the Company is further subject to federal and state laws and regulations applicable to depository institutions and their parent companies. Virtually all aspects of the Company's operations are subject to specific requirements or restrictions and general regulatory oversight. State and federal banking laws have as their principal objective the safety and soundness of depository institutions, the federal deposit insurance system, and the protection of depositors, rather than the specific protection of stockholders of a bank or its parent company. Many of the Company's affiliates are also subject to regulation under

13

federal and state securities laws as described below under "Government Regulation of Other Activities."

        Set forth below is a brief description of certain laws and regulations that relate to the supervision and 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.

Certain Restrictions on Activities and Operations of Boston Private

        Boston Private is a bank holding company (a "BHC") registered with the Federal Reserve Board under the BHCA. As such, Boston Private and its nonbank subsidiaries are subject to the supervision, examination, and reporting requirements of the BHCA and the regulations of the Federal Reserve Board. Boston Private is also a bank holding company for purposes of the laws of The Commonwealth of Massachusetts, and 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 a bank holding company for purposes of the laws of the State of California, and is subject to the jurisdiction of the California Department of Financial Institutions (the "DFI"). As discussed below, Boston Private has not elected Financial Holding Company ("FHC") status under the BHCA.

        The Federal Reserve Board has the authority to issue orders to BHCs to cease and desist from unsafe or unsound banking practices and violations of conditions imposed by, or violations of agreements with, the Federal Reserve Board. The Federal Reserve Board is also empowered, among other things, to assess civil money penalties against companies or individuals who violate the BHCA orders or, among other things, regulations thereunder, to order termination of nonbanking activities of BHCs, and to order termination of ownership and control of a nonbanking 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 Federal Reserve Board. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Act") in general authorizes BHCs to acquire banks located in any state, subject to certain state-imposed age and deposit concentration limits, and also authorizes interstate mergers and to a lesser extent, interstate branching.

        Unless a BHC becomes a FHC under the GLBA (as discussed below), the BHCA 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. In addition, it prohibits engaging directly or indirectly in activities other than those of banking, managing or controlling banks or furnishing services to its subsidiary banks. However, it may engage in and may own shares of companies engaged in certain activities the Federal Reserve Board determines to be so closely related to banking or managing and controlling banks so as to be a proper incident thereto. In making such determinations, the Federal Reserve Board is required to weigh the expected benefit to the public. This determination incorporates 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. As discussed more fully below, Massachusetts law imposes certain approval requirements with respect to acquisitions by a BHC of certain banking institutions and to the merger of BHCs.

        The GLBA established a comprehensive framework to permit affiliations among commercial banks, insurance companies, securities firms, and other financial service providers by expanding the BHCA framework to permit BHCs that 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 Federal

14

Reserve Board, 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 a FHC and thus engage in a broader range of financial activities, a BHC must meet certain tests and file an election form with the Federal Reserve Board. 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 Federal Reserve Board 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 Federal Reserve Board 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 Federal Reserve Board'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, perpetual preferred stock and trust preferred securities (both subject in the case of the latter to limitations on the kind and amount of such securities which may be included as Tier I capital), and minority interest in the equity accounts of consolidated subsidiaries, less goodwill and other nonqualifying intangible assets. Tier II capital generally consists of hybrid capital instruments, perpetual debt and mandatory convertible debt securities; 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 Federal Reserve Board 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 Federal Reserve Board determines should be deducted from Tier I capital. The 3% 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%. 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 Federal Reserve Board has also imposed certain capital requirements applicable to certain nonbanking 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, continue to consider 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.

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        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 Federal Reserve Board has been given at least 60 days to review and does not object to the proposal. Under a rebuttable presumption established by the Federal Reserve Board, 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 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 would be required to obtain the approval of the Federal Reserve Board 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.    Federal Reserve Board 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 stockholders 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. Federal Reserve Board policy further provides that a BHC should not maintain a level of cash dividends to its stockholders 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 to bank subsidiaries.

        Support of Subsidiary Institutions and Liability of Commonly Controlled Depository Institutions.    Under Federal Reserve Board policy, Boston Private is expected to act as a source of financial and managerial strength for, and commit its resources to, supporting the Banks 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, Borel, or FSB, 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 supervisory assistance. The FDIC's claim for damages is superior to claims of stockholders 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 any of the Banks would likely result in assertion of the cross-guarantee provisions, the assessment of estimated losses against the other Banks, and a potential loss of Boston Private's investments in the Banks.

        Massachusetts Law.    As a BHC for purposes of Massachusetts law, the Company has registered with the Commissioner and is 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

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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 nonbank 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.

Regulation of the Banks

        The Banks are subject to the extensive supervision and regulation 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 and FSB are California banking corporations that are 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 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 Federal Reserve Board 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:

•

"well capitalized" if it has a total risk based capital ratio of 10.0% or greater, has a Tier I risk based capital ratio of 6.0% or more, has a leverage ratio of 5.0% or greater and is not subject to any written agreement, order or capital directive or prompt corrective action directive;



•

"adequately capitalized" if it has a total risk based capital ratio of 8.0% or greater, a Tier I risk based capital ratio of 4.0% or more, and a leverage ratio of 4.0% or greater (3.0% under certain circumstances) and does not meet the definition of a "well capitalized bank;"



•

"undercapitalized" if it has a total risk based capital ratio that is less than 8.0%, a Tier I risk based capital ratio that is less than 4.0% or a leverage ratio that is less than 4.0% (3.0% under certain circumstances);

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•

"significantly undercapitalized" if it has a total risk based capital ratio that is less than 6.0%, a Tier I risk based capital ratio that is less than 3.0% or a leverage ratio that is less than 3.0%; and



•

"critically undercapitalized" if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%.

        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, 2004, 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 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 limit the ability of an insured depository institution to accept, renew or roll over any brokered deposit unless the institution's capital category is "well capitalized" or "adequately capitalized." 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 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 notices to engage in such activities.

        Further, the GLBA permits national banks and state banks, to the extent permitted under state law, to engage through "financial institutions" 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 engage in only through a financial subsidiary, such as securities underwriting, may be conducted only 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 Federal Reserve Board's actions with respect to state member banks, the final rules provide that a state bank subsidiary that

18

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.    Under Sections 23A and 23B of the Federal Reserve Act and Regulation W thereunder, there are various legal restrictions on the extent to which a BHC, such as Boston Private, and its nonbank 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 nondepository institution affiliates are limited to the following amounts:

•

in the case of one such affiliate, the aggregate amount of covered transactions of the insured depository institution and its subsidiaries cannot exceed ten percent (10%) of the capital stock and surplus of the insured depository institution; and



•

in the case of all affiliates, the aggregate amount of covered transactions of the insured depository institution and its subsidiaries cannot exceed twenty percent (20%) of the capital stock and surplus of the insured depository institution.

        "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 Federal Reserve Board, 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.

        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 currently 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. Boston Private Bank's current CRA rating is "outstanding", Borel's current CRA rating is "satisfactory", and FSB's current CRA rating is "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

19

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, broker-dealers and other businesses involved in the transfer of money. The PATRIOT Act, together with the implementing regulations of various federal regulatory agencies, has caused financial institutions such as Boston Private Bank, Borel, and FSB, to implement additional or amend existing policies and procedures with respect to, among other things, anti-money laundering compliance, suspicious activities, currency transaction reporting, customer identity verification and customer risk analysis. In evaluating an application under Section 3 of the BHCA to acquire a bank or an application under the Bank Merger Act to merge banks or effect a purchase of assets and assumption of deposits and other liabilities, the applicable federal banking regulator must consider the anti-money laundering compliance record of both the applicant and the target.

        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 requires 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" under the Exchange Act. The SEC's proposed Regulation B, among other things, would adopt amendments to its rule granting an exemption to banks from dealer registration (as well as from registration as a dealer) with respect to effecting 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 would include 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

20

register as an investment adviser or to conduct such advisory activities through a separately identifiable department or division of the bank so registered.

Government Policies and Legislative and Regulatory Proposals

        The operations of the Banks are generally affected by the economic, fiscal, and monetary policies of the United States and its agencies and regulatory authorities, particularly the Federal Reserve Bank which regulates the money supply of the United States, reserve requirements against deposits, the discount rate on Federal Reserve Bank 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 Federal Reserve Board 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 Federal Reserve Board, 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, Borel, and FSB are not possible to determine.

Government Regulation of Other Activities

        Virtually all aspects of the Company's investment management and wealth advisory businesses are subject to extensive regulation. Westfield, Sand Hill, RINET, DGHM, BPVI, and KLS 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, DGHM, BPVI, and KLS are also subject to regulation under the securities laws and fiduciary laws of certain states. Each of the mutual funds for which Westfield, Sand Hill, and DGHM 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, Sand Hill, and DGHM 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.

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        The foregoing laws and regulations generally grant supervisory agencies and bodies broad administrative powers, including the power to limit or restrict Westfield, Sand Hill, RINET, DGHM, BPVI, or KLS 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.

V. Risk Factors and Factors Affecting Forward-Looking Statements

        You should carefully review the information contained elsewhere or incorporated by reference and should carefully consider the following risk factors, as well as the factors listed under "Special Note Regarding Forward-Looking Statements".

Risks Relating to Our Business

Our business strategy contemplates significant growth and there are challenges and risks inherent in such a growth strategy.

        In recent years, we have experienced rapid growth, both due to the expansion of our existing businesses as well as acquisitions. Among the challenges facing us is the ongoing need to continue to maintain and develop an infrastructure appropriate to support such growth, including in the areas of management personnel, systems, compliance, and risk management, while taking steps to ensure that the related expense incurred is commensurate with the growth in revenues. Accordingly, there is risk inherent in our pursuit of a growth strategy that revenue will not be sufficient to support such expense and generate profitability at the levels we have historically achieved. A significant decrease in revenues or increases in costs may adversely affect our results of operations or financial condition.

In connection with our recent acquisitions and to the extent that we acquire other companies in the future, our business may be negatively impacted by certain risks inherent in such acquisitions.

        We have in the past considered, and will in the future continue to consider, the acquisition of other banking, investment management, and wealth advisory companies. To the extent that we acquire other companies in the future, our business may be negatively impacted by certain risks inherent in such acquisitions. These risks include, but are not limited to the following:

•

the risk that we will incur substantial expenses in pursuing potential acquisitions without completing such acquisitions;



•

the risk that we may lose key clients of the acquired business as a result of the change of ownership to us;



•

the risk that the acquired business will not perform in accordance with our expectations;



•

the risk that difficulties will arise in connection with the integration of the operations of the acquired business with the operations of our private banking, investment management, or wealth advisory businesses, particularly to the extent we are entering new geographic markets;



•

the risk that we will need to make significant investments in infrastructure, controls, staff, emergency backup facilities or other critical business functions that become strained by our growth;



•

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



•

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

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•

the risk that unanticipated costs relating to potential acquisitions could reduce our earnings per share;



•

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



•

the risk that we may assume potential liabilities of the acquired company as a result of the acquisition; and



•

the risk that an acquisition will dilute our earnings per share, in both the short and long term, or that it will reduce our tangible capital ratios.

        As a result of these risks, any given acquisition, if and when consummated, may adversely affect our results of operations or financial condition. In addition, because the consideration for an acquisition may involve cash, debt or the issuance of shares of our stock and may involve the payment of a premium over book and market values, existing stockholders may experience dilution in connection with any acquisition, including our acquisitions.

Attractive acquisition opportunities may not be available to us in the future.

        We will continue to consider the acquisition of other businesses. However, we may not have the opportunity to make suitable acquisitions on favorable terms in the future, which could negatively impact the growth of our business. We expect that other banking and financial companies, many of which have significantly greater resources than we do, will compete with us to acquire compatible businesses. This competition could increase prices for acquisitions that we would likely pursue. Also, acquisitions of regulated businesses such as banks are subject to various regulatory approvals. If we fail to receive the appropriate regulatory approvals, we will not be able to consummate an acquisition that we believe is in our best interests.

If we are required to write down goodwill and other intangible assets, our financial condition and results of operations would be negatively affected.

        When we acquire a business, a substantial portion of the purchase price of the acquisition is allocated to goodwill and other identifiable intangible assets. The amount of the purchase price which is allocated to goodwill and other intangible assets is determined by the excess of the purchase price over the net identifiable assets acquired. At December 31, 2004, our goodwill and other identifiable intangible assets were approximately $187.2 million. Under current accounting standards, if we determine goodwill or intangible assets are impaired, we will be required to write down the value of these assets. We conduct an annual review to determine whether goodwill and other identifiable intangible assets are impaired. We cannot assure you that we will not be required to take an impairment charge in the future. Any impairment charge would have a negative effect on our stockholders' equity and financial results.

We may not be able to attract and retain banking customers at current levels.

        Competition in the local banking industry coupled with our relatively small size may limit the ability of our banking subsidiaries to attract and retain banking customers.

        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. Our Banks also face competition from

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out-of-state financial intermediaries which have opened low-end production offices or which solicit deposits in their respective market areas.

        Because our 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 our Banks can accommodate.

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

We may not be able to attract and retain investment management clients at current levels.

        Due to the intense local competition, and our relatively short history and limited record of performance in the investment management business, our investment management subsidiaries may not be able to attract and retain investment management clients at current levels. Competition is especially strong in our geographic market area, because there are numerous well-established and successful investment management firms in Boston, New York and northern California. Many of our competitors have greater resources than we have.

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

        For the year ended December 31, 2004, approximately 46.8% of our revenues was 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. Westfield, Sand Hill, BPVI, RINET, DGHM and KLS are our major investment management subsidiaries and their combined financial performance is a significant factor in our overall results of operations and financial condition.

        Moreover, Westfield and DGHM receive some performance-based fees. The amount of these fees depends on the investment performance of Westfield and DGHM. As a result, the future revenues and earnings from such fees may fluctuate and may be affected by conditions in the capital markets and other general economic conditions.

Our investment management business is highly dependent on people to produce investment returns and to solicit and retain clients.

        We rely on our investment managers to produce investment returns. We believe that investment performance is one of the most important factors for the growth of our assets under management. Poor investment performance could impair our revenues and growth because:

•

existing clients might withdraw funds in favor of better performing products, which would result in lower investment advisory fees; or



•

our ability to attract funds from existing and new clients might diminish.

        The market for investment managers is extremely competitive and is increasingly characterized by frequent movement of investment managers among different firms. In addition, our individual investment managers often have regular direct contact with particular clients, which can lead to a strong client relationship based on the client's trust in that individual manager. The loss of a key investment manager could jeopardize our relationships with our clients and lead to the loss of client

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accounts. Losses of such accounts could have a material adverse effect on our results of operations and financial condition.

        In addition to the loss of key investment managers, our investment management business is dependent on the integrity of our asset managers and our employees. If an asset manager or employee were to misappropriate any client funds, the reputation of our asset management business could be negatively affected, which may result in the loss of accounts and have a material adverse effect on our results of operations and financial condition.

We may not be able to attract and retain wealth advisory clients at current levels.

        Like our investment management business, our wealth advisory business is subject to intense competition, and our ability to attract and retain wealth advisory clients is dependent upon the delivery of planning and related services which are favorably perceived in the marketplace. Client contracts must typically be renewed on an annual basis and are terminable upon relatively short notice. If we are not successful in attracting or retaining our wealth advisory clients, our results of operations and financial condition may be negatively impacted.

Defaults in the repayment of loans may negatively impact our business.

        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, our Banks may have to write-off the loan in whole or in part. In such situations, the Banks may acquire 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.

        Our Banks' management periodically makes a determination of an allowance for loan losses based on available information, including the quality of their loan portfolio, certain economic conditions, and 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 will incur additional expenses.

        In addition, bank regulatory agencies periodically review our 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 our results of operations or financial condition.

A downturn in 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. Primarily, our Banks serve individuals and smaller businesses located in eastern Massachusetts and adjoining areas, with a particular concentration in the Greater Boston Metropolitan Area, as well as clients located in northern and southern California. The ability of the Banks' customers to repay their loans is impacted by the economic conditions in these areas.

        The Banks' commercial loans are generally concentrated in the following customer groups:

•

real estate developers and investors;



•

financial service providers;

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•

technology companies;



•

manufacturing and communications companies;



•

professional service providers;



•

general commercial and industrial companies; and



•

individuals.

        Our Banks' commercial loans, with limited exceptions, are secured by real estate (usually income producing residential and commercial properties), marketable securities or corporate assets (usually accounts receivable, equipment or inventory). Substantially all of our Banks' residential mortgage and home equity loans are secured by residential property in eastern Massachusetts, and northern and southern California. Consequently, our 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 ability of our 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, our Banks may 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 our Banks, 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 and could find it difficult or impossible to sell the affected properties. These events could have a material adverse effect on our business, results of operations and financial condition.

Fluctuations in interest rates may negatively impact our banking business.

        Fluctuations in interest rates may negatively impact the business of our Banks. Our 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 our control, including general economic conditions, both domestic and foreign, and the monetary and fiscal policies of various governmental and regulatory authorities. Our Banks' net interest income can be affected significantly by changes in market interest rates. Changes in relative interest rates may reduce our Banks' net interest income as the difference between interest income and interest expense decreases. As a result, our 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, a decrease in interest rates can impact our results of operations or financial condition.

        An increase in interest rates could also have a negative impact on our 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. Increases in interest rates, in certain circumstances, may also lead to high levels of loan prepayments, which may also have an adverse impact on our net interest income.

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Prepayments of loans may negatively impact our business.

        Generally, our Banks' customers may prepay the principal amount of their outstanding loans at any time. The speed at which such prepayments occur, as well as the size of such prepayments, are within our customers' discretion. If customers prepay the principal amount of their loans, and we are unable to lend those funds to other borrowers or invest the funds at the same or higher interest rates, our interest income will be reduced. A significant reduction in interest income could have a negative impact on our results of operations and financial condition.

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. Our 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, our Banks have had a higher percentage of their 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 our Banks decreases relative to their overall banking operations, our 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. 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 that we manage.

        In addition, our 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 and DGHM's contracts also provide for the payment of fees based on investment performance in addition to a base fee. 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 and wealth advisory businesses are highly regulated, which could limit or restrict our activities and impose fines or suspensions on the conduct of our business.

        Our investment management and wealth advisory businesses are highly regulated, primarily at the federal level. The failure of any of our subsidiaries that provide investment management and wealth advisory services to comply with applicable laws or regulations could result in fines, suspensions of

27

individual employees or other sanctions including revocation of such subsidiary's registration as an investment adviser.

        All of our investment adviser and wealth advisory affiliates 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, Sand Hill, and DGHM act as sub-advisers to mutual funds which are registered under the Investment Company Act of 1940 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, 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 more than 60 days notice. Investment contracts with institutional and other clients are typically terminable by the client, also without penalty, upon 30 days notice.

        We do not directly manage investments for clients, do not directly provide any investment management services and, therefore, are not a registered investment adviser. The Banks are exempt from the regulatory requirements of the Investment Advisers Act, but are subject to extensive regulation by the FDIC, the Massachusetts Commissioner of Banks, and the California Department of Financial Institutions.

Our banking business is highly regulated which could limit or restrict our activities and impose financial requirements or limitations on the conduct of our business.

        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. We are subject to the Bank Holding Company Act and to regulation and supervision by the Board of Governors of the Federal Reserve System. 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 and FSB as California banking corporations, are subject to regulation and supervision by the California Department of Financial Institutions 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 nonbanking activities, the level of reserves against deposits and restrictions on dividend payments. The FDIC, the California Department of Financial Institutions 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 our Banks and we 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 Federal Reserve Board. Changes in monetary or legislative policies may affect the interest rates our Banks must offer to attract deposits and the interest rates they must charge on their loans, as well as the manner in which they offer deposits and make loans. These monetary

28

policies have had, and are expected to continue to have, significant effects on the operating results of depository institutions generally, including our Banks.

Adverse developments in our litigation could negatively impact our business.

        Since 1984, Borel has served as the trustee of a private family trust that has been the subject of protracted litigation. In the first action, initiated in 1994, certain beneficiaries of the trust sought removal of Borel as trustee, claiming that Borel had breached its fiduciary duties as trustee by its management and proposed sale of certain real property owned by the trust. Borel prevailed and obtained final judgment in that action. In the second action, initiated in 1995, Borel petitioned for court approval of its proposed sale of the property. Borel prevailed in that action in the trial court, but the Court of Appeal has recently remanded the case with orders that it be dismissed as moot, because the case referred to the terms for sale proposed in 1995, and the property was ultimately sold in 2002 under revised terms.

        In a third action, filed in 1996, the same group of beneficiaries sought damages against Borel for alleged mismanagement of the property and for negotiating the proposed sale of the property and settlement of potential claims against the lessee of the property. This action has been held in abeyance by the trial court since 1997 pending resolution of the appeals of the first two actions. In 2002, the same beneficiary group filed a new action seeking to enjoin the proposed sale of the property. Their motion for a preliminary injunction to block the transaction was denied, and the property was sold in July 2002. This action remains pending as the beneficiaries seek unspecified damages for disposition of the property.

        Adverse developments in these lawsuits could have a material adverse affect on Borel's business or the combined business of our Banks.

        In May of 2002, a complaint was filed against Westfield which alleges that Westfield failed to uphold its contractual and common law obligations to invest the plaintiff's funds with proper care and diligence. Although the unfair trade practices claim was dismissed, discovery on the remaining claims is now in progress and there can be no assurances that Westfield will be successful in defending these claims. Adverse developments in the Westfield litigation could have a material adverse effect on Westfield's business.

We are subject to regulatory capital adequacy guidelines, and if we fail to meet these guidelines our financial condition would be adversely affected.

        Under regulatory capital adequacy guidelines and other regulatory requirements, we and our subsidiary Banks must meet guidelines that include quantitative measures of assets, liabilities, and certain off-balance sheet items, subject to qualitative judgments by regulators about components, risk weightings and other factors. If we fail to meet these minimum capital guidelines and other regulatory requirements, our financial condition would be materially and adversely affected. The regulatory accords on international banking institutions to be reached by the Basel Committee on Banking Supervision may require us to meet additional capital adequacy measures. We cannot predict the final form of, or the effects of, the regulatory accords. Our failure to maintain the status of "well capitalized" under our regulatory framework could affect the confidence of our clients in us, thus compromising our competitive position. In addition, failure to maintain the status of "well capitalized" under our regulatory framework or "well managed" under regulatory examination procedures could compromise our status as a bank holding company and related eligibility for a streamlined review process for acquisition proposals.

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VI. Taxation

Federal Taxation

        The Company, Boston Private Bank, Sand Hill, Borel, FSB, DGHM, and BPVI are subject to those rules of federal income taxation generally applicable to corporations under the Code. Boston Private Bank, Borel, and FSB 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, FSB, 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 intercompany distributions, including dividends, in the computation of consolidated taxable income for federal tax purposes.Westfield, RINET, DGHM, and KLS are limited liability companies and their taxable income is included as part of the Company's taxable income.

        Prior to January 2004, both Boston Private Bank and Borel maintained REIT subsidiaries. While REITs were not included in the affiliated group for tax filing purposes, substantially all of their income was included in taxable income as a result of the dividends they paid to their stockholders. In 2003, Massachusetts changed its tax laws regarding the treatment of REITs. These changes eliminated the 95% dividends received deduction for dividends paid to Boston Private Bank by its REIT subsidiary for state tax purposes prospectively and did so retroactively for the tax years 2003, 2002, and 2001. The Company entered into a settlement agreement with the Commonwealth of Massachusetts regarding tax liabilities relating to the Company's having taken the deductions in those prior years and resolved these Massachusetts tax issues completely. In 2003, the Company recorded a charge of approximately $1.2 million for state taxes and $150,000 for interest, net of current and deferred federal tax savings for the retroactive portion of this tax. California has, to date, taken no action to change its tax laws to eliminate a parallel tax savings mechanism available under California law. The California Franchise Tax Board has, however, issued general guidance in which it concluded that, in its view, the foregoing tax-savings mechanism is unavailable to California REITs. Based on these developments and other business considerations, both of the REITs were dissolved.

        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.

State and Local Taxation

        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. Massachusetts taxable income is defined as federal taxable income subject to certain modifications. The Company believes 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 and to allow deductions from certain expenses allocated to federally tax exempt obligations. REIT dividends are no longer eligible for the 95% dividends received deduction. Combined reporting is not permitted under Massachusetts statutes. 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%.

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        State of California.    The Company and its subsidiaries are taxable in California as a result of the operations of the Company, Borel, FSB, and Sand Hill. 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 tax rate applicable to corporations is 8.84% of taxable income apportioned to California on a unitary basis. However, most of the income for 2004 was taxed at the 10.84% tax rate applicable to financial institutions.

        State of New Hampshire.    BPVI is taxable in New Hampshire and Massachusetts since it has offices in both states. The tax rate on the New Hampshire business enterprise tax is 0.75% and the tax rate on the New Hampshire business profits tax is 8.5% with a credit allowed for the business enterprise tax calculated.

        State of New York.    The Company and its LLC subsidiaries are taxable in New York as a result of the operations of DGHM and KLS. The tax rate in the state of New York is 7.5%.

        City of New York.    The Company and its LLC subsidiaries are taxable in New York City as a result of the operations of DGHM and KLS. The tax rate in New York City is 8.85%. In addition, DGHM and KLS must pay an unincorporated business tax on their taxable income at 4.0%. Amortization of purchased intangibles and certain payments to principals cannot be deducted. However, this tax is available to reduce the New York City tax assessed against the Company and its LLC subsidiaries.

VII. Internet Address

        The Company's Internet address is www.bostonprivate.com. 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. Information on our website is not incorporated by reference into this document and should not be considered part of this Report.

ITEM 2. PROPERTIES

        The Company and its subsidiaries conduct operations primarily in leased premises. The Company's and Boston Private Bank's headquarters are located at Ten Post Office Square, Boston, MA. Boston Private Bank has seven offices, four in Boston, MA, one in Wellesley, MA, one in Newton, MA, and one in Cambridge, MA. BPVI has two offices, one located in Boston, MA adjacent to the Company's headquarters, and one in Concord, NH. RINET is located in Boston, MA. Westfield is located in Boston, MA. Borel has three offices in California, one in San Mateo, one in Palo Alto and a third in San Francisco, CA. Sand Hill is located in Palo Alto, CA adjacent to Borel's Palo Alto office. FSB has five offices in California, their main office is in Granada Hills and the other offices are in Burbank, Santa Monica, Westlake Village, Encino, and Rancho Cucamonga. DGHM has offices in New York City, NY and Naples FL. KLS is located in New York City.

        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.

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ITEM 3. LEGAL PROCEEDINGS

Investment Management Litigation

        On May 3, 2002, the Retirement Board of Allegheny County filed a complaint in Pennsylvania state court against Westfield and Grant D. Kalson & Associates bringing breach of contract and other claims for an alleged "opportunity loss," notwithstanding that the Fund administered by the Retirement Board grew substantially under Westfield's and Kalson's management. Westfield and Kalson have defended the claim vigorously and will continue to do so. Summary judgment papers are scheduled to be served in spring 2005.

Trust Litigation

        Since 1984, Borel has served as the trustee of a private family trust (the "Family Trust"), which was a joint owner of certain real property known as the Guadalupe Oil Field. Litigation commenced in 1994. Certain beneficiaries of the Family Trust have claimed Borel 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, by negotiating, and later finalizing, a Settlement Agreement and Purchase and Sale Agreement conveying the property to Union Oil Company of California (d/b/a UNOCAL), the operator of the oil field. In the first of the lawsuits, in which the beneficiaries sought to remove Borel as trustee, Borel prevailed and obtained final judgment in its favor. In various related lawsuits, there have been numerous procedural decisions by the trial court and by the California Court of Appeal. Borel has prevailed on all material issues. In the several actions pending, the plaintiff beneficiaries seek the unwinding of the Settlement and Purchase and Sale Agreements, the return of the Guadalupe Oil Field to the Family Trusts, and unspecified damages against Borel for alleged mismanagement of the Guadalupe Oil Field and for sale of the property. In a 1998 trial of the action to remove Borel as trustee, the petitioning beneficiaries submitted expert testimony to the effect that Borel's actions had damaged the Family Trust in the amount of $102 million. The trial court found this testimony unpersuasive in that context; but neither the issue of damages nor the issue of Borel's liability has been finally determined. Borel will continue to litigate these 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 this matter is probable or that such liability can be reasonably estimated.

Other

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

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

        None.

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PART II

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

Market for Common Stock

        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, 2005 there were 27,974,058 shares of Common Stock outstanding, which were held by approximately 1,120 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:

Dividends

        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.

        The Company paid dividends on its common stock of $0.24 and $0.20 in 2004 and 2003, respectively.

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        Under Massachusetts law, trust companies, such as Boston Private Bank, may pay dividends only out of "net profits" provided there is no impairment to the trust company'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 of all dividends paid by a trust company in any calendar year would exceed net profits for that year combined with retained net profits for the previous two years, less any required transfer to surplus or a fund for the retirement of any preferred stock. Likewise under California law, the Department of Financial Institutions ("DFI") has the authority to prohibit Borel and FSB from paying dividends depending on Borel's and FSB's financial condition, respectively, if such payment is deemed to constitute an unsafe or unsound practice.

        These restrictions on the Banks' ability to pay dividends to the Company may 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, RINET's, DGHM's, and KLS's ability to pay dividends.

Recent Sales of Unregistered Securities

        See our Report on Form 8-K furnished to the SEC on October 12, 2004.

Securities Authorized for Issuance Under Equity Compensation Plans

        See Part III, Item 12 "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters."

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ITEM 6. SELECTED FINANCIAL DATA (Unaudited)

        The following table represents selected financial data for the five fiscal years ended December 31, 2004. 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 Part II, Item 8 "Financial Statements and Supplementary Data in Note 2, Mergers and Acquisitions of the Notes to the Consolidated Financials Statements."

(1)

Interest rate spread represents the difference between the weighted average yield on interest-earning assets on a fully-taxable equivalent basis, and the weighted average cost of interest-bearing liabilities, and net interest margin represents net interest income on a fully-taxable equivalent basis as a percent of average interest-earning assets.

(2)

Total revenue is defined as net interest income plus fees and other income.

(3)

Earnings for 2001 include $9.7 million of merger expenses, net of tax for the year ended December 31, 2001 which reduced our diluted earnings per share by $0.42, and reduced return on average assets and the return on average equity.

(4)

Net income for 2003 was reduced by $3.0 million, or $0.12 per diluted share, for the REIT tax adjustment and the lease accrual described in Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations." Return on average assets and return on average equity were also reduced.

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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, the notes thereto, and other statistical information included in this annual report.

I. Executive Summary

        Boston Private is a wealth management company that offers comprehensive financial services to high net worth individuals, families, businesses, and select institutions. This Executive Summary provides an overview of the most significant aspects of our operations in 2004. Details of the matters addressed in this summary are provided elsewhere in this document and, in particular, in the sections immediately following.

        The Company is a bank holding company and, through its operating subsidiaries, offers a full range of financial services through its three core businesses divisions, private banking, investment management and wealth advisory. In 2004, there were nine wholly-owned or majority-owned operating subsidiaries. In the private banking arenas, these were Boston Private Bank, Borel, and FSB. In the wealth advisory and investment management arenas, these were Westfield, RINET, Sand Hill, DGHM, BPVI, and KLS. The Company also holds a minority interest in Coldstream Holdings and BOS. Boston Private managed or advised approximately $19.3 billion in client investment assets and had balance sheet assets of approximately $3.3 billion as of December 31, 2004.

        Boston Private's strategy remains to strive for exceptional shareholder value by providing a full complement of wealth management services through diversified affiliated companies. In 2004, through growth in its organic business efforts and strong equity markets, Boston Private achieved operating revenues of $196.8 million, up 47.3% over revenues of $133.6 million in 2003. The Company reported net income for 2004 of $33.6 million, or $1.18 per diluted share. Earnings for 2003 were $21.8 million, or $0.92 per diluted share. For 2003, earnings were reduced by approximately $3.0 million (net of tax), or $0.12 per diluted share, for costs related to a retroactive state tax increase and an abandoned lease.

        Several factors contributed to earnings growth in 2004. The Company's business mix between private banking, wealth advisory and investment management continues to be more diversified and balanced. In 2004 the Company realized approximately 45.0% of its revenues from private banking net interest income versus approximately 50.7% in 2003. Investment management and trust fees continue to grow as a percentage of overall total revenues increasing to 46.8% in 2004 from 37.0% in 2003. Financial planning and other fees, while small relative to private banking and investment management, represented approximately 8.0% of total revenues in 2004 versus 12.3% in 2003. In addition, the Company experienced strong growth in each of its main business lines. Net interest income for private banking grew approximately 30.7% in 2004 from 2003, while financial planning and investment management and trust fees grew at 13.6% and 86.4%, respectively. The private banking segment continued to be impacted by the low interest rate environment and a decline in net interest margin to 3.61% in 2004 versus a net interest margin of 3.64% in 2003. With the recent increase in short term interest rates, the Company has seen a slight reversal in the net interest margin compression experienced throughout most of 2004. Management has positioned the Company's balance sheet for rate improvements by increasing the percentage of variable rate loans and by shortening maturities on certain other assets and extending liabilities. Management tracks net interest margin, deposit growth, loan growth and loan quality as important business metrics in evaluating the condition of its private banking business.

        The Company also benefited from the improvement in the equity markets in 2004 as well as strong organic growth in each of the investment management affiliates. Boston Private began the year with approximately $11.0 billion of assets under management and advisory and ended the year at

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approximately $19.4 billion, an increase of approximately $8.4 billion. Approximately $3.1 billion of this amount resulted from the acquisition of DGHM, $2.9 billion resulted from the acquisition of KLS, and $1.4 billion resulted from organic growth. Because of the strength in the equity markets, Boston Private realized an increase in AUM and advisory assets due to market value of approximately $1.6 billion in 2004. Boston Private's investment management affiliates benefit from strong equity markets because approximately 47.3% of assets under management are in the growth equity category.

        Boston Private segregates non-investment management fee revenues between recurring fees, which include financial planning fees, cash administration fees and private banking fees, and nonrecurring fees, which are comprised of mortgage loan sales, earnings from equity investments, and securities gains and losses. In 2004, recurring fees were up 21.8% to $13.3 million as compared to $10.9 million in the prior year. Financial planning fees increased 13.6%, to $7.9 million for the full year and nonrecurring fees decreased 49.4% to $2.8 million due to decreased gains from the sale of investments and decreased loan sales.

        The effective tax rate for 2004 was 35.2% and the related expense was $18.3 million. The effective tax rate for 2003 was 37.0% and the related expense was $12.8 million. Excluding the charge for the retroactive portion of the REIT tax increase, the effective rate for 2003 would have been 33.6%.

        The return on average assets increased 12 basis points to 1.18% for the year ended December 31, 2004, compared to 1.06% for the year ended December 31, 2003. The return on average assets for 2003 would have been 1.21% if the retroactive portion of the REIT tax adjustment and the lease accrual were excluded. Average assets increased $793.6 million, or 38.7% from $2.1 billion to $2.8 billion during 2004.

        The return on average equity was 11.42% for the year ended December 31, 2004, a decrease of 74 basis points from 12.16% for the year ended December 31, 2003. The return for 2003 improves to 13.83% if the costs of the retroactive portion of the REIT tax adjustment and the lease accrual are excluded. Average equity increased 64.1% during 2004 to $294.4 million.

        In 2004, Boston Private was very active in expanding into new markets. Management will continue to focus on identifying attractive acquisition candidates in areas where the Company can build regional platforms to best serve the targeted client base. Boston Private will continue to look at acquisition targets with an eye towards further business line diversification. By diversifying geographically, the Company mitigates the impact of regional economic risks. By diversifying by revenue stream between the three distinct lines of business, the Company can ensure more stable revenues and earnings as capital markets become more volatile. And lastly, with any acquisition, there will be consideration to the types of assets under management and the diversification impact on our existing investment category concentrations. As in 2004, the Company will continue to focus on further developing and refining the overall risk management discipline and compliance practices.

II. Key Business Lines

        The underlying drivers of revenue growth in the Company's business are growth in our private banking, investment management and wealth advisory business lines. The following analysis discusses the business by core competency to present the business metrics that management considers to be the most important indicators of the financial performance of the Company.

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Private Banking

        In 2004, the Company conducted its private banking business through three wholly-owned subsidiaries. The following table shows a summary of certain financial components of these three banks at December 31, 2004.

        The Company believes private banking is an attractive growth market and in 2004 realized 45.0% of its revenues from private banking net interest income. The Company believes net interest income, net interest margin, deposit growth, loan growth and loan quality are the important business metrics in evaluating the condition of its private banking business.

        Net Interest Income.    For 2004, Boston Private's net interest income increased $20.8 million to $88.6 million, a 30.7% increase. On a fully taxable equivalent ("FTE") basis net interest income increased by 31.6%, or $22.2 million to $92.7 million, compared to $70.5 million from 2003. This growth in net interest income was accomplished through growing the Company's loan and investment portfolio with proceeds from increased deposits and borrowings. The acquisitions of FSB and Encino contributed to this growth in 2004. This strong growth was offset in part by a decrease in the Company's net interest margin. The $20.8 million increase in net interest income in 2004 is the net result of $21.7 million in increased business volumes, partially offset by a decline in rates earned of $0.9 million.

        Net Interest Margin.    Net interest margin decreased 3 basis points to 3.61% for 2004 compared to 3.64% for 2003. This decrease was a result of the low interest rate environment as well as the interest expense on the Junior Subordinated Debentures which were issued in the fourth quarter of 2004. The Company anticipates that the recent and anticipated increases in short-term interest rates will benefit the Company's net interest margin.

        Deposits.    In 2004, Boston Private's deposits grew $728.9 million, or 43.9%, to $2.4 billion from $1.7 billion in 2003. Approximately $349.4 million of the increase was due to the acquisitions of FSB and Encino and the remaining increase was due to organic growth. The cost of deposits declined 6 basis points to 1.12% during 2004 due to the mix of deposits and the Banks not raising their rates on interest bearing deposit accounts and CD's in direct proportion to the rise in short-term interest rates. This strong organic growth is attributable to the strength of the banking markets in which the Banks compete and continue to grow their businesses.

        Loans.    In 2004, Boston Private's loan portfolio increased $636.0 million or 39.4% to $2.2 billion, as compared to $1.6 billion in 2003. Approximately $235.7 million of the increase was due to the acquisitions of FSB and Encino and the remaining increase was due to organic growth. The commercial portfolio grew 54.1%, to $1.4 billion, up from $880.6 million in 2003. Included in commercial loans is approximately $181.4 million of construction loans.

        The residential loan portfolio increased $145.7 million, or 22.4%, to $797.0 million. At December 31, 2004, home equity and other consumer loans totaled $94.5 million or 4.2% of the combined portfolio.

        Loan Quality.    Boston Private considers credit quality to be an extremely important priority in managing the Company's loan portfolio. At the end of 2004, the ratio of nonperforming loans to total

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loans was 0.05% and the allowance for loan losses to total loans was 1.24%. The total allowance for loan losses is $27.9 million, representing coverage of 25 times our nonperforming loans of $1.1 million. This reserve is in line with the Company's loan growth for the period and consistent with Boston Private's methodology. In 2004, Boston Private had net loan charge offs of $4,000.

Investment Management

        The Company wholly owns or majority owns four investment management firms: Westfield, BPVI, DGHM, and Sand Hill. In addition, Boston Private Bank and Borel have similar investment management divisions. RINET and KLS provide wealth advisory as well as investment management services. For 2004, the Company's revenues from investment management fees were 46.8% of total revenues.

        Investment Performance.    Investment performance is an important driver of new business growth and client retention. Each client has individual portfolio objectives. Assets under management ("AUM") at Boston Private are directly managed by our investment management firms.

        Boston Private's growth in AUM and advisory in 2004 was significant. The Company's AUM and advisory for 2004 was $19.3 billion, up 76.1% over 2003. The components of this growth and the impact of new business acquisitions on AUM and advisory can be seen in the table below:

        Net new business.    New assets under management, which include new investment management accounts and net new contributions to existing investment management accounts, less lost accounts, for 2004 were $862 million, a 7.9% increase over AUM at December 31, 2003.

        Market impact.    The table below highlights the composition of AUM from our six investment management firms, excluding assets under subadvisory at DGHM and Sand Hill as of December 31, 2004. This table does not reflect the assets under advisory for our two wealth advisory affiliates, KLS and RINET. Combined these affiliates have approximately $3.9 billion of assets under advisory, representing 20.4% of total consolidated AUM and advisory at year end.

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Boston Private Financial Holdings, Inc.
AUM—Asset Mix by Affiliate
December 31, 2004