As filed with the Securities and Exchange Commission on March 1, 2001

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

(Mark One)

For the fiscal year ended December 31, 2000

OR

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:
Common Stock, Par Value $1.00 Per Share
(Title of class)

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

   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./ /

   The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing price of its common stock on the Nasdaq National Market System on February 20, 2001 was $225,046,248.

   15,654,696 shares of the registrant's common stock were outstanding on February 20, 2001.

Documents Incorporated by Reference

   Portions of the registrant's proxy statement for the Company's 2001 Annual Meeting of Shareholders are incorporated by reference in Items 10, 11, 12 and 13 of Part III.

TABLE OF CONTENTS

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    The discussions set forth below and elsewhere herein contain certain statements that may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, including statements regarding our strategy, effectiveness of investment programs, expectations as to growth in assets, deposits and results of operations, success of the acquisition of Taylor Investments, future operations, market position, financial position, and prospects, plans and objectives of management are forward-looking statements. The Company's actual results could differ materially from those projected in the forward-looking statements as the result of, among other factors, changes in interest rates, changes in the securities or financial markets, a deterioration in general economic conditions on a national basis or in the local markets in which the Company operates, including changes which adversely affect borrowers' ability to service and repay our loans, changes in loan defaults and charge-off rates, reduction in deposit levels necessitating increased borrowing to fund loans and investments, the risk that difficulties will arise in connection with the integration of the operations of acquired businesses with the operations of our banking or investment management businesses, the passing of adverse government regulation, changes in assumptions used in making such forward looking statements, as well as those factors set forth in Part II, Item 7 under the heading "Risk Factors and Factors Affecting Forward-Looking Statements."

PART I

ITEM 1. BUSINESS

General

    Boston Private Financial Holdings, Inc. (the "Company"), 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 (the "Bank"), a trust company chartered by the Commonwealth of Massachusetts and insured by the Federal Deposit Insurance Corporation (the "FDIC").

    On August 31, 2000, the Company acquired Sand Hill Advisors, Inc. ("Sand Hill"), an investment advisory firm servicing the wealth management market, primarily in Northern California. The estimated purchase price at closing was $16.5 million, with 70% paid at close, and the remainder paid in four annual payments contingent upon performance using a combination of approximately 73% cash and 27% common stock for each payment. At closing, the Company issued 258,395 shares of its common stock in connection with the transaction. This acquisition was accounted for as a "purchase of assets". Accordingly, the results of operations of the Company reflect the Company's financial position and the results of operations including Sand Hill on a consolidated basis since the date of the acquisition.

    On October 15, 1999, the Company merged with RINET Company, Inc. ("RINET"), a Massachusetts corporation engaged in providing financial planning services to high net worth individuals, in exchange for 765,697 newly issued shares of the Company's common stock. The acquisition was accounted for as a "pooling of interests." Accordingly, the results of operations of the Company have been restated to reflect the results of operations, including RINET, on a consolidated basis.

    On October 31, 1997, the Company merged with Westfield Capital Management Company, Inc. ("Westfield"), a Massachusetts corporation engaged in providing a range of investment management services to individual and institutional clients, in exchange for 3,918,367 newly issued shares of the Company's common stock. The acquisition was accounted for as a "pooling of interests." Accordingly, the results of operations of the Company have been restated to reflect the results of operations, including Westfield, on a consolidated basis.

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    On January 8, 2001, the Company announced a merger with of E.R. Taylor Investments, Inc. ("Taylor"), a value style investment advisory firm catering to the wealth management market. Upon completion of the merger, Taylor will change its name to Boston Private Value Investors and will operate as a wholly-owned subsidiary of the Company with offices in Concord, New Hampshire and Boston, Massachusetts. The value of the transaction is estimated to be $10.5 million payable in shares of the Company's common stock. The transaction will be accounted for under the "pooling of interests" method of accounting. The number of shares of common stock issued will be calculated using the 30 day average closing price prior to close, and is subject to a range between 538,737 and 728,660 shares. This transaction is expected to close during the first quarter of 2001.

    The Company conducts substantially all of its business through its wholly-owned subsidiaries, the Bank, Westfield, Sand Hill, and RINET. The Company's and the Bank's principal offices are located at Ten Post Office Square, Boston, Massachusetts, Westfield is located at One Financial Center, Boston, Massachusetts, Sand Hill is located at 3000 Sand Hill Road, Menlo Park, California, and RINET is located at 10 Post Office Square, Boston, Massachusetts. The Bank also has banking offices located in Wellesley, Massachusetts, and in the Back Bay area of Boston, Massachusetts.

    The Bank pursues a "private banking" business strategy and is principally engaged in providing banking, investment and fiduciary products and services to high net worth individuals, their families and businesses in the greater Boston area and New England and, to a lesser extent, Europe and Latin America. The Bank seeks to anticipate and respond to the financial needs of its client base by offering high quality products, dedicated personal service and long-term banking relationships. The Bank offers its clients a broad range of basic deposit services, including checking and savings accounts, with automated teller machine ("ATM") access, and cash management services. The Bank also offers commercial, residential mortgage, home equity and consumer loans. In addition, it provides investment advisory and asset management services, securities custody and safekeeping services, and trust and estate administration. In 1999, the Company invested $2.0 million of additional capital in the Bank from the proceeds of dividends received from Westfield. In 2000, the Company invested $18.0 million of additional capital in the Bank from the proceeds of a secondary offering of common stock to the public on September 29, 2000. See Part II, Item 7 under the heading "Capital Resources."

    Westfield is an investment management firm serving the investment needs of high net worth individuals, endowments, foundations, and retirement plans. The Westfield team seeks opportunities to purchase growth equities at a reasonable price, applying fundamental research techniques to identify prospective investments. Companies held in the portfolio typically have broad market opportunities, accelerating earnings growth, low financial leverage and sufficient cash flow to fund future growth. Westfield analysts visit companies to interview management, searching for unique, rapid growth companies that are not well known on Wall Street. Westfield believes that fundamental research can identify company specific situations that create a competitive edge. After making an investment, Westfield monitors performance against a systematic set of sell disciplines including: downside price limit reviews, a change in the investment case, valuation relative to its peer group and attractiveness versus alternative investments. Westfield primarily manages individually invested accounts and also acts as manager for seven limited partnerships, two invest in technology stocks, three invest in growth equities, and two invest in equities of companies involved with the life sciences.

    Sand Hill provides investment management services to high net worth individuals primarily in Silicon Valley and Northern California. Sand Hill specializes in balanced portfolios with an equity discipline, and also uses its expertise to plan and execute diversification programs for concentrated stock positions.

    RINET provides fee-only financial planning, tax planning and investment management services to high net worth individuals and their families in the greater Boston area, New England, and other areas of the U.S. Its capabilities include tax planning and preparation, asset allocation, estate planning,

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charitable planning, planning for employment benefits, including 401(k) plans, alternative investment analysis and mutual fund investing.

    The Company's operating results depend primarily on the operating results of the Bank, Westfield, Sand Hill, and RINET. The Company generates a significant amount of fee income from providing investment management and trust services to its clients at the Bank and from providing investment management services and acting as manager for limited partnerships for clients at Westfield and Sand Hill. Investment management and trust fees are generally based upon the value of assets under management, and, therefore, can be significantly affected by fluctuations in the values of securities caused by changes in the capital markets and by investment performance of the Bank, Westfield, Sand Hill and RINET. Fees earned as manager for limited partnerships are directly related to investment performance and, therefore, will be significantly affected by the investment performance of Westfield. The Bank also earns fees and other income from its lending and cash management services. The net income of the Bank depends primarily on its net interest income, which is the difference between interest income and interest expense or "cost of money," and the quality of its assets. Interest income depends on the amount of interest-earning assets outstanding during the period and the interest rates earned thereon. The Bank's 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 assets further influences the amount of interest income lost on nonaccrual loans and the amount of additions to the allowance for loan losses. RINET earns income on a fee-only basis from providing financial planning services to clients. RINET also earns fees for providing asset allocation services to clients that are based on the value of such assets.

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 fiduciary, the Bank also provides trust services to both individuals and institutions. Westfield, acting as the manager of seven limited partnerships, also earns fees based on the performance of these limited partnerships. For the year ended December 31, 2000, the asset management business accounted for 84.5% of the Company's total fees and other income and 46.3% of the Company's total revenues, which is defined as net interest income plus fees and other income. At December 31, 2000, the Company had approximately $5.7 billion in assets under management. Of this total, $5.6 billion was in investment advisory accounts, and $91.5 million was invested and administered under trust arrangements.

Lending Activities

    General.  The Bank specializes in lending to individuals, real estate investors, and middle market businesses, including corporations, partnerships, associations and non-profit organizations. Loans made by the Bank to individuals include residential mortgage loans, unsecured and secured personal lines of credit, home equity loans, mortgage loans on investment and vacation properties, and overdraft protection. Loans made by the Bank to businesses include commercial construction and mortgage loans, revolving lines of credit, working capital loans, equipment financing and letters of credit. Commercial loans over $500,000, with the exception of cash collateralized loans, are reviewed by the Credit Committee, and commercial loans over $2 million are reviewed by the Senior Credit Committee. Both committees consist of members of the Bank's management and lending staff. Commercial and residential mortgage loans that exceed 10% of the Bank's Tier I capital are reviewed by the Directors Loan Committee, which consists of four outside Directors of the Bank.

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    At December 31, 2000, the Bank had loans outstanding of $645.1 million, which represented approximately 70.0% of the Company's total assets. The interest rates charged on these loans vary with the degree of risk, maturity and amount, and are further subject to competitive pressures, market rates, the availability of funds and legal and regulatory requirements. At December 31, 2000, approximately 80.0% of the Bank's 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, 2000, approximately 98.9% of the Bank's outstanding loans were secured, and approximately 82.3% were secured, in whole or in part, by real estate. Within the commercial loan portfolio, $161 million, or 59.4% of the portfolio was secured, in whole or in part by real estate.

    At December 31, 2000, the Bank's statutory lending limit to any single borrower was approximately $11.5 million, subject to certain exceptions provided under applicable law. At December 31, 2000, the Bank had no outstanding lending relationships in excess of the legal lending limit. The Bank also has a policy of extending 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, 2000, the aggregate principal amount of all loans to Directors and related entities (including unused commitments under lines of credit) was $3.7 million, or 3.8% of capital.

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

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    The following table discloses the scheduled contractual maturities of loans in the Company's portfolio at December 31, 2000. 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 Bank 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 Bank 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 Bank 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 borrower's inability to satisfy the contractual obligations of the loan. See Part II, Item 7—"Management's Discussion and Analysis of Financial Condition and Results of Operations—Asset Quality."

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

    At December 31, 2000, the Bank had outstanding commercial loans totaling $271.8 million, which represented 42.1% of total loans and 29.5% of total assets of the Company. Commercial loans increased $81.0 million, or 42.4%, during the year ended December 31, 2000, compared to an increase of $35.9 million, or 23.2%, during the year ended December 31, 1999. The growth in 2000 and 1999 reflects both an increase in market demand and initiatives by the Bank to increase market share. Of the Bank's total commercial loan portfolio, $119.7 million or 44.0% is due within one year and $152.1 million or 56.0% is due after one year. Loans are typically priced on a fixed rate basis or at a margin over the Bank's base rate. Floating rate loans accounted for 72.4% of the Bank's commercial loan portfolio as of December 31, 2000. The average loan size of the Bank's outstanding commercial loans was approximately $375,000 at year end 2000.

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    The Bank has 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. In addition, the Directors Loan Committee reviews loans on the Bank's internal "watch list" and classified loan report on a monthly basis. Each of these loans is required to have an action plan developed by the lending officer in charge of the credit.

    Residential Mortgage and Home Equity Loans.  At December 31, 2000, the Bank had outstanding residential mortgage loans and home equity loans of $345.6 million and $27.1 million, respectively, together representing 57.8% of the Bank's total loan portfolio. Residential mortgage loans and home equity loans increased $113.5 million, or 30.5%, during the year ended December 31, 2000, compared to an increase of $65.5 million, or 33.8%, during 1999. The increases in both 2000 and 1999 were primarily due to a high level of market demand, as well as an increase in the resources allocated by the Company to the residential mortgage area. While the Bank 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 $252,700 at December 31, 2000. The average loan size of the Bank's outstanding residential mortgage loans was approximately $357,000 at year end 2000.

    In 2000, the Bank sold $6.6 million of residential mortgage loans compared to $22.6 million in 1999. Of the loans sold during 2000, $2.9 million were sold on a non-recourse basis without retaining servicing, and $3.7 million were sold with servicing retained by the Bank. The Bank generally holds adjustable rate mortgage loans ("ARM's") in its own portfolio and sells most fixed rate mortgage loans to outside investors. At December 31, 2000, $314.0 million, or 91.0%, of loans in the Bank's residential mortgage portfolio were ARM's.

    Other Loans.  Other loans consist of balances outstanding on credit cards and loans arising from overdraft protection extended to individual customers. At December 31, 2000, aggregate outstanding balances on such loans were $518,000 compared to $347,000 at December 31, 1999. Other loans increased $171,000, or 49.3%, during the year ended December 31, 2000, compared to an increase of $12,000, or 3.6%, during 1999. The balance of other loans is primarily dependent on client demand.

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    Allowance for Loan Losses.  The following table is an analysis of the Bank's allowance for loan losses for the periods indicated:

    The allowance for loan losses is established based to a great extent on the judgement and experience of management, 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 classified loans on the basis of specific circumstances and assessments. A system of periodic loan reviews is performed to individually assess the inherent risk and assign risk ratings to each loan. The general component is determined by applying coverage percentages to groups of loans based on risk ratings and product types. Coverage percentages applied are determined based on industry practice and management's judgement. The unallocated component supplements the first two components based on management's judgement 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 Bank's 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 Bank's loan portfolio. This allocation should not be considered an indication of the future amounts or types of possible loan charge-offs.

Investment Activities

    The investment activity of the Bank is an integral part of the overall asset/liability management of the Company. The Bank's investment policy is to establish a portfolio of securities which will provide liquidity necessary to facilitate funding of loans and to cover deposit fluctuations, and to hedge the Bank's overall balance sheet against interest rate risk, while at the same time achieve a satisfactory return on the funds invested. The securities in which the Bank may invest are subject to regulation and are generally limited to securities that are considered "investment grade" securities. In addition, the Bank has 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 the portfolio manager and by the Asset/Liability Management Committee. See Part II, Item 8 "Financial Statements and Supplementary Data—Notes 5 and 6 to the Consolidated Financial Statements" for further information.

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

Sources of Funds

    Deposits.  Deposits are the principal source of the Bank's funds for use in lending and for other general business purposes. At December 31, 2000, the Bank had a total of approximately 5,200 checking accounts consisting of demand deposit and NOW accounts with an average account balance of approximately $37,000; 900 savings accounts with an average account balance of approximately $6,000;

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and 3,900 money market accounts with an average account balance of approximately $91,000. Certificates of deposit of $100,000 or greater and certificates of deposit under $100,000 represented approximately 17.0% and 19.9% of total deposits at December 31, 2000 and 1999, respectively. See Part II, Item 8 "Financial Statements and Supplementary Data—Note 10 to the Consolidated Financial Statements" for further information.

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

    Historically, the Bank has had a higher percentage of its time deposits in denominations of $100,000 or more than commercial banking averages. Within the banking industry, these deposits are generally considered to be volatile. However, a significant portion of the Bank's deposits in denominations of $100,000 or greater are maintained by individuals or entities with other relationships with the Company.

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

    Borrowings.  The Bank has established various borrowing arrangements to provide additional sources of liquidity and funding. Management believes that the Bank currently has adequate liquidity available to respond to current demands. The Bank is a member of the FHLB of Boston, and as such has access to both short and long-term borrowings of up to $285.9 million at December 31, 2000. At December 31, 2000, the Bank had $90.2 million in FHLB advances outstanding with a weighted average interest rate of 5.97%, compared to $80.7 million in FHLB advances outstanding with a weighted average interest rate of 5.85% at December 31, 1999. Of the advances outstanding at December 31, 2000, $4.0 million have variable rates that reprice at least annually to market rates. The Bank has the opportunity to repay variable rate advances on their respective anniversary dates. See Part II, Item 8 "Financial Statements and Supplementary Data—Note 11 to the Consolidated Financial Statements" for further information.

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    The Bank also obtains funds from the sales of securities to institutional investors and deposit customers under repurchase agreements. In a repurchase agreement transaction, the Bank will generally sell an investment security, agreeing to repurchase either the same or a substantially identical security on a specified later date (generally not more than 90 days for institutional investors and overnight for deposit customers) at a price slightly greater than the original sales price. The difference in the sale price and repurchase price is the cost of the use of the proceeds. The investment securities underlying these agreements may be delivered to securities dealers who arrange such transactions as collateral for the repurchase obligation. Repurchase agreements represent a cost competitive funding source for the Bank. However, the Bank is subject to the risk that the borrower of the securities may default at maturity and not return the collateral. In order to minimize this potential risk, the Bank generally deals with large, established investment brokerage firms when entering into such transactions with institutional investors, and deals with established deposit customers of the Bank on overnight transactions. Repurchase transactions are accounted for as financing arrangements rather than as sales of such securities, and the obligation to repurchase such securities is reflected as a liability in the Company's Consolidated Financial Statements. At December 31, 2000, the total amount of outstanding repurchase agreements was $49.7 million with a weighted average interest rate of 4.39%, compared to $16.6 million with a weighted average interest rate of 4.22% at December 31, 1999. See Part II, Item 8 "Financial Statements and Supplementary Data—Note 12 to the Consolidated Financial Statements" for further information.

    From time to time the Bank purchases federal funds from the FHLB and other banking institutions to supplement its liquidity position. The Bank has negotiated federal fund lines of credit totaling $71.0 million with correspondent institutions to provide the Bank with immediate access to overnight borrowings. At December 31, 2000, the Bank did not have any borrowings outstanding under these federal funds lines. The Bank has also negotiated brokered deposit agreements with several institutions that have nationwide distribution capabilities. At December 31, 2000, the Bank had $5.4 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 ability of the Bank to attract loans and deposits may be limited by its small size relative to its competitors. The Bank maintains a smaller staff and has fewer financial and other resources than larger institutions with which it competes in its market area.

    In particular, in attempting to attract deposits and originate loans, the Bank encounters competition from other institutions, including larger downtown Boston and suburban-based commercial banking organizations, savings banks, credit unions, and other financial institutions and non-bank financial service companies serving Eastern Massachusetts and adjoining areas. 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.

    In this competitive environment, the Bank may be unable to attract sufficient and high-quality loans in order to continue its loan growth, which may adversely affect the Bank's results of operations and financial condition, including the level of its non-performing assets. The Bank's competitors include several major financial companies whose greater resources may afford them a marketplace advantage by enabling them to maintain numerous banking locations and mount extensive promotional and advertising campaigns. In particular, the Bank's current commercial borrowing customers may develop needs for credit facilities larger than it can accommodate. Moreover, under the Gramm-Leach-Bliley

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Act of 1999 (the "Gramm-Leach-Bliley Act"), securities firms, insurance companies and other financial services providers that elect to become financial holding companies may acquire banks and other financial institutions. The Gramm-Leach-Bliley Act may significantly change the competitive environment in which the Company and its subsidiaries conduct business. See "The Financial Services Modernization Legislation" below. The financial services industry is also likely to become more competitive as further technological advances enable more companies to provide financial services. These technological advances may diminish the importance of depository institutions and other financial intermediaries in the transfer of funds between parties.

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

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

Employees

    At December 31, 2000, the Company had 219 full-time and 8 part-time employees. The Company's employees are not represented by a collective bargaining unit, and the Company believes its employee relations are good.

Regulation

    Banks and bank holding companies are subject to extensive government regulation through federal and state statutes and regulations, which are subject to changes that significantly affect the way in which such entities conduct business. Recently enacted legislation, as well as recent changes in regulatory policy, has substantially increased the level of competition among commercial banks, thrift institutions and non-banking institutions, including insurance companies, brokerage firms, mutual funds and investment banks. The following summary is qualified in its entirety by the text of the relevant statutes and regulations.

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The Financial Services Modernization Legislation

    On November 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley Act. The Gramm-Leach-Bliley Act repeals provisions of the Glass-Steagall Act: Section 20, which restricted the affiliation of Federal Reserve member banks with firms "engaged principally" in specified securities activities; and Section 32, which restricts officer, director, or employee interlocks between a member bank and any company or person "primarily engaged" in specified securities activities. In addition, the Gramm-Leach-Bliley Act also contains provisions that expressly preempt any state law restricting the establishment of financial affiliations, primarily related to insurance. The general effect of the law is to establish a comprehensive framework to permit affiliations among commercial banks, insurance companies, securities firms, and other financial service providers by revising and expanding the BHCA framework to permit a holding company system, such as the Company, to engage in a full range of financial activities through a new entity known as a Financial Holding Company. "Financial activities" is broadly defined to include not only banking, insurance, and securities activities, but also merchant banking and additional activities that the Federal 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.

    Generally, the Gramm-Leach-Bliley Act:

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repeals historical restrictions on, and eliminates many federal and state law barriers to, affiliations among banks, securities firms, insurance companies, and other financial service providers;



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provides a uniform framework for the functional regulation of the activities of banks, savings institutions, and their holding companies;



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broadens the activities that may be conducted by national banks (and derivatively state banks), banking subsidiaries of bank holding companies, and their financial subsidiaries;



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provides an enhanced framework for protecting the privacy of consumer information;



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adopts a number of provisions related to the capitalization, membership, corporate governance, and other measures designed to modernize the Federal Home Loan Bank system;



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modifies the laws governing the implementation of the Community Reinvestment Act of 1977, as amended (the "CRA") (See "Community Reinvestment Act" below); and



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addresses a variety of other legal and regulatory issues affecting both day-to-day operations and long-term activities of financial institutions.

    In order to engage in the new activities, a bank holding company, such as the Company, must meet certain tests. Specifically, all of a bank holding company's banks must be well-capitalized and well-managed, as measured by regulatory guidelines, and all of the bank holding company's banks must have been rated "satisfactory" or better in the most recent CRA evaluation of each bank. See "Community Reinvestment Act" below. At this time, the Company has not determined whether it will become a financial holding company.

Regulation of the Company

    General.  The Company has been incorporated as a business corporation under Massachusetts law. Thus, the rights of the Company's stockholders are governed, in part, by Massachusetts corporate law. As a bank holding company, the Company is subject to regulation and supervision by the Federal Reserve Board pursuant to the BHCA.

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    BHCA—Activities and Other Limitations.  The BHCA prohibits a bank holding company from 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, without prior approval of the Federal Reserve Board.

    The BHCA also generally prohibits a bank holding company from engaging in any business other than banking or managing or controlling banks or from acquiring more than 5% of the voting shares of any company that is not a bank, unless the Federal Reserve Board has determined its activities to be so closely related to banking or to managing or controlling banks as to be a proper incident thereto.

    Capital Requirements.  The Federal Reserve Board has adopted capital adequacy guidelines that generally require bank holding companies to maintain total capital equal to 8% of total risk-weighted assets, with at least one-half of that amount consisting of Tier 1 capital. Tier 1 capital for bank holding companies generally consists of the sum of common stockholders' equity and perpetual preferred stock (subject in the case of the latter to limitations on the kind and amount of such stock which may be included as Tier 1 capital), less goodwill and other intangibles. Total capital consists of Tier 1 capital and supplementary capital, which includes: hybrid capital instruments and perpetual debt; perpetual preferred stock, which is not eligible to be included as Tier 1 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 levels of credit risk, with the categories ranging from 0% (requiring no additional capital) for assets such as cash to 100% for the bulk of assets which are typically held by a bank, including commercial real estate loans, commercial business loans and consumer loans. In addition to the risk-based capital requirements, the Federal Reserve Board requires bank holding companies to maintain a minimum ratio of Tier 1 capital to total assets of 3%, with most bank holding companies required to maintain a 4% ratio. Furthermore, the bank holding company rating system used by the Federal Reserve Board to analyze the adequacy of a bank holding company's management, operations, earnings and capital generally evaluates "primary capital" and "total capital," with the leverage ratios for "well capitalized" institutions being 5.5% and 6%, respectively. Finally, the Federal Reserve Board has also imposed certain capital requirements applicable to certain non-banking activities, including adjustments in connection with off-balance sheet items.

    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 bank holding company unless the Federal Reserve Board has been given 60 days' prior written notice of such proposed acquisition and within that time period the Federal Reserve Board has not issued a notice disapproving the proposed acquisition or extending for up to another 30 days the period during which such a disapproval may be issued. An acquisition may be made prior to expiration of the disapproval period if the Federal Reserve Board issues written notice of its intent not to disapprove the action. The acquisition of 10% or more of a class of voting stock of a bank holding company with a class of securities registered under Section 12 of the Exchange Act, such as the Company, would, under certain circumstances, constitute the acquisition of control.

    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 acquiror that is a bank holding company) or more of the company's outstanding common stock, or such lesser number of shares of voting securities and other indications of control as constitute control over the Company. Such approval would be contingent upon, among other things, the acquiror (if not already registered) registering as a bank holding company, divesting all impermissible holdings and ceasing any activities not permissible for a bank holding company.

    Massachusetts Law.  Massachusetts law requires all bank holding companies to receive prior written approval of the Board of Bank Incorporation (the "BBI") to, among other things, acquire all or

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substantially all of the assets of a banking institution or to merge or consolidate with a Massachusetts bank holding company. The Company owns no voting stock in any banking institution other than the Bank. In addition, prior approval of the BBI is required before any bank holding company owning 25% or more of the stock of two banking institutions may acquire additional voting stock in those banking institutions, or acquire more than 5% of the voting stock of another banking institution.

Regulation of the Bank

    General.  The Bank is subject to extensive regulation and examination by the Commissioner of Banks of the Commonwealth of Massachusetts and by the FDIC, which insures its deposits to the maximum extent permitted by law, and to certain requirements established by the Federal Reserve Board. The federal and state laws and regulations which are applicable to banks regulate, among other things, the scope of their business, their investments, their reserves against deposits, the timing of the availability of deposited funds and the nature and amount of and collateral for certain loans.

    FDIC Insurance Premiums.  Pursuant to the FDIC's risk-based assessment system, an institution is assigned to one of three capital groups based solely on the level of the institution's capital—"well capitalized," "adequately capitalized" and "undercapitalized"—which would be defined in generally the same manner as the regulations establishing the prompt corrective action system under Section 38 of the Federal Deposit Insurance Act (the "FDIA"), as discussed below. The three capital groups are divided into three subgroups which reflect varying levels of supervisory concern, from those considered to be healthy to those considered to be of substantial supervisory concern. The matrix so created results in nine assessment risk classifications. At December 31, 2000, the Bank was considered "well capitalized" with regard to these regulations.

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

    Prompt Corrective Action.  The federal banking agencies have promulgated regulations to implement the system of prompt corrective action established by Section 38 of the FDIA. Under the regulations, a bank shall be deemed to be: (i) "well capitalized" if it has total risk-based capital of 10.0% or more, has a Tier I risk-based capital ratio of 6.0% or more, has a Tier I leverage capital ratio of 5.0% or more and is not subject to any written agreement, order or directive requiring the bank to maintain a specific capital level for any capital measure; (ii) "adequately capitalized" if it has a total risk-based capital ratio of 8.0% or more, a Tier I risk-based capital ratio of 4.0% or more and a Tier I leverage capital ratio of 4.0% or more (3.0% under certain circumstances) and does not meet the definition of "well capitalized;" (iii) "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 Tier I leverage capital ratio that is less than 4.0% (3.0% under certain circumstances); (iv) "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 Tier I leverage capital ratio that is less than 3.0%; and (v) "critically undercapitalized" if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%. Section 38 of the FDIA and the accompanying regulations also specify circumstances under which a federal banking agency may reclassify a well capitalized institution as adequately capitalized and may require an adequately capitalized institution or an undercapitalized institution to comply with supervisory actions as if it were in the next lower category (except that the FDIC may not reclassify a significantly undercapitalized institution as critically undercapitalized).

    Regulatory Consequences of Failing to Meet Capital Requirements.  A number of sanctions may be imposed on FDIC-insured banks that are not in compliance with the capital regulations, including, among other things, restrictions on asset growth and imposition of a capital directive that may require,

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among other things, an increase in regulatory capital, reduction of rates paid on savings accounts, cessation of or limitations on deposit-gathering, lending, purchasing loans, making specified investments, or issuing new accounts, limits on operational expenditures, an increase in liquidity and such other restrictions or corrective actions as the FDIC may deem necessary or appropriate. In addition, any FDIC-insured bank that is not meeting its capital requirements must provide the FDIC with prior notice before the addition of any new director or senior officer.

    Brokered Deposits and Pass-Through Deposit Insurance Limitations.  Well-capitalized institutions may accept brokered deposits. A depository institution that is adequately capitalized may not accept, renew or roll over any brokered deposit unless it obtains a waiver of statutory limitations from the FDIC. Even if an adequately capitalized institution receives such a waiver, it may offer yields on brokered deposits only within specified limits. An undercapitalized depository institution may not accept brokered deposits. The definitions of "well capitalized," "adequately capitalized," and "undercapitalized" generally conform to the definitions described above for prompt corrective action. In addition, "pass-through" insurance coverage may not be available for certain employee benefit accounts and eligible deferred compensation plans maintained by depository institutions that cannot accept brokered deposits.

    Activities and Investments of Insured State-Chartered Banks.  Section 24 of the FDIA, as amended by the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), generally limits the equity investments and activities of FDIC-insured, state non-member banks and their subsidiaries to those that are permissible for national banks. Under the FDIC's regulations dealing with equity investments, an insured state bank generally may not directly or indirectly acquire or retain any equity investment of a type, or in an amount, that is not permissible for a national bank. An insured state bank is not prohibited from, among other things, (i) acquiring or retaining a majority interest in a subsidiary that engages in activities permissible for subsidiaries of national banks, (ii) investing as a limited partner in a partnership the sole purpose of which is direct or indirect investment in the acquisition, rehabilitation or new construction of a qualified housing project, provided that such limited partnership investments may not exceed 2% of the Bank's total assets, (iii) for insured state banks located in certain states, including Massachusetts, retaining under certain circumstances and subject to certain limitations, listed common and preferred shares or registered investment company shares, (iv) acquiring up to 10% of the voting stock of a company that solely provides or reinsures directors', trustees', and officers' liability insurance coverage or bankers' blanket bond group insurance coverage for insured depository institutions, and (v) acquiring or retaining the voting shares of a depository institution if certain requirements are met.

    With respect to the activities limitations, pursuant to FDIC regulation, FDIC insured state chartered banks must obtain prior consent from the FDIC before directly, or indirectly through a majority-owned subsidiary, engaging "as principal" in any activity that is not allowed for a national bank. This limitation generally does not apply, however, to activities which the Federal Reserve Board has approved, securities activities performed in accordance with FDIC regulations, and activities that the FDIC determines do not pose a significant risk to the deposit insurance fund.

    Further, the Gramm-Leach-Bliley Act includes a new section of the FDICIA governing subsidiaries of state banks that engage in "activities as principal that would only be permissible" for a national bank to conduct in a financial subsidiary. This provision will permit state banks, to the extent permitted under state law, to engage in certain new activities which are permissible for subsidiaries of a financial holding company. Further, it expressly preserves the ability of a state bank to retain all existing subsidiaries. In order to form a financial subsidiary, a state bank must be well-capitalized, and the state bank would be subject to certain capital deduction, risk management and affiliate transaction rules which are applicable to national banks.

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    Safety and Soundness Guidelines.  The federal banking agencies have adopted safety and soundness guidelines for all insured depository institutions and depository institution holding companies, prescribing in a general manner standards relating to internal controls, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation and other operational and managerial standards.

Community Reinvestment Act

    The CRA was enacted to encourage every financial institution to help meet the credit needs of its entire community, including low-and-moderate-income neighborhoods, consistent with its safe and sound operation. 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.

    The federal bank regulatory agencies jointly issued amendments to the regulations implementing the CRA that substantially revised the applicable CRA framework effective January 1, 1996. The amended CRA regulations are based upon objective criteria of the performance of institutions under three key assessment tests: (i) a lending test, to evaluate the institution's record of making loans in its service areas; (ii) an investment test, to evaluate the institution's record of investing in community development projects, affordable housing, and programs benefiting low or moderate income individuals and businesses; and (iii) a service test, to evaluate the institution's delivery of services through its branches, ATMs, and other offices. As of the date of the most recent regulatory exam in April 2000, the Bank's CRA rating was "high satisfactory."

Government Regulation of Other Activities

    Virtually all aspects of the Company's investment management business are subject to extensive regulation. Westfield, Sand Hill, RINET, and Boston Private Asset Management ("BPAM"), an investment management subsidiary of the Bank, are registered with the Securities and Exchange Commission (the "Commission") as investment advisers under the Investment Advisers Act of 1940, as amended (the "Investment Advisors Act"). As an investment adviser, each is subject to the provisions of the Investment Advisers Act and the Commission's regulations promulgated thereunder. The Investment Advisers Act imposes numerous obligations on registered investment advisers, including fiduciary, recordkeeping, operational, and disclosure obligations. Westfield, Sand Hill, RINET and BPAM are also subject to regulation under the securities laws and fiduciary laws of certain states. Each of the mutual funds for which Westfield acts as 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. As an adviser or subadviser to a registered investment company, Westfield is subject to requirements under the 1940 Act and the Commission's regulations promulgated thereunder. 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 client. 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.

    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

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case of a direct "assignment" of the contract as well as in the case of a sale, directly or indirectly, of a "controlling block" of the adviser's voting securities. Such an assignment may be deemed to take place when a firm is acquired by the Company.

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

Federal Taxation

    The Company, the Bank, Westfield, Sand Hill, and RINET are subject to those rules of federal income taxation generally applicable to corporations under the Code. The Bank is 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, the Bank, Westfield, Sand Hill, and RINET, as members of an affiliated group of corporations within the meaning of Section 1504 of the Code, will file a consolidated federal income tax return, which has the effect of eliminating or deferring the tax consequences of inter-company distributions, including dividends, in the computation of consolidated taxable income for federal tax purposes.

    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.  The Bank is subject to an annual Massachusetts excise tax. The tax rate applicable to financial institutions, including trust companies, was 10.50% during 2000 on net income apportioned to Massachusetts. The rate was 10.50% for 1999, 10.91% for 1998 and 11.32% for 1997. Net income for years beginning before January 1, 1999 includes gross income as defined under the provisions of the Code, plus interest from bonds, notes and evidences of indebtedness of any state, including Massachusetts, less the deductions, excluding the deductions for dividends received, state taxes, and net operating losses, but not the credits as defined under the provisions of the Code. For taxable years beginning on or after January 1, 1999, the definition of Massachusetts net income was modified to allow a deduction for 95% of dividends received from stock where the Bank 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. Finally, affiliated financial institutions are not permitted to file a combined tax return in Massachusetts under the new legislation.

    Bank holding companies and certain non-bank subsidiaries are subject to the Massachusetts corporate excise tax on business corporations provided they were subject to such tax in taxable years before 1995. Under the corporate excise tax, a corporation is taxed on its net income apportioned to Massachusetts at the rate of 9.5% plus a tax of .26% on either its apportioned net worth or tangible property. These grandfathered corporations may elect to file a combined Massachusetts excise tax

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return through 1998. For taxable years beginning in 1999, these corporations were taxed as a financial institution and taxed at a rate of 10.5% on their net income apportioned to Massachusetts. Certain of the Bank's subsidiaries meeting certain definitional tests relating to investments are not subject to either the corporate excise tax or the tax on financial institutions, but instead are taxed on their gross income at the rate of 1.32%.

    State of California.  Sand Hill is subject to the California corporate income/franchise tax on business corporations. The tax rate applicable to corporations is 8.84% of taxable income apportioned to California.

ITEM 2. PROPERTIES

    The Company and its subsidiaries conduct operations in leased premises. The Company's and the Bank's headquarters are located at Ten Post Office Square, Boston, Massachusetts with banking offices in Wellesley, Massachusetts and in the Back Bay area of Boston, Massachusetts. Westfield is located at One Financial Center, Boston, Massachusetts, Sand Hill is located at 3000 Sand Hill Road, Menlo Park, California, and RINET is located at 10 Post Office Square, Boston, Massachusetts. Generally, the initial terms of the leases for these properties range from five to fifteen years. Most of the leases also include options to renew at fair market value for periods of five to ten years. In addition to minimum rentals, certain leases include escalation clauses based upon various price indices and include provisions for additional payments to cover taxes.

    The Company has from time to time also acquired properties through foreclosure, which are marketed by local real estate brokers or by its lending staff.

ITEM 3. LEGAL PROCEEDINGS

    On June 7, 2000, one of the Company's subsidiaries received correspondence on behalf of one of its former clients claiming that the subsidiary is responsible for underperformance of allegedly $5.1 million when compared to the former client's performance targets. On January 11, 2001, a pleading was filed in Pennsylvania state court on behalf of the client stating that an action has been commenced against the Company's subsidiary, but containing no allegations. We intend to defend this matter vigorously.

    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

    No matters were submitted to a vote of the stockholders of the Company during the fourth quarter of the fiscal year ended December 31, 2000.

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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 February 20, 2001 there were 15,654,696 shares of Common Stock outstanding, which were held by approximately 450 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 based on the results of operations of the applicable 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 Bank, Westfield, Sand Hill, and RINET are the principal assets of the Company, and as such, provide the only source of payment of dividends by the Company. Under Massachusetts law, trust companies such as the Bank may pay dividends only out of "net profits" and only to the extent that such payments will not impair the Bank's capital stock and surplus account. These restrictions on the ability of the Bank to pay dividends to the Company restrict the ability of the Company to pay dividends to the holders of the Common Stock. 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. There are no such comparable statutory restrictions on Westfield's, Sand Hill's, or RINET's ability to pay dividends.

Recent Sales of Unregistered Securities

    There have been no sales of unregistered securities of the Company during the fourth quarter of the fiscal year ended December 31, 2000.

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ITEM 6. SELECTED FINANCIAL DATA

    The following table represents selected financial data for the five fiscal years ended December 31, 2000. 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.

(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)

After deducting $1.2 million of non-recurring merger expenses, net income for the year ended December 31, 1997 was $4.7 million, or $0.40 per share, return on average assets was 1.52%, and return on average equity was 17.94%.

(3)

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

(4)

Includes the cumulative effect of a change in accounting principle, net of tax, of $125,000, or $0.01 per share.

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

Liquidity

    Liquidity is defined as the ability to meet current and future financial obligations of a short-term nature. The Company further defines liquidity as the ability to respond to the needs of depositors and borrowers as well as to earnings enhancement opportunities in a changing marketplace. Primary sources of liquidity consist of investment management fees, deposit inflows, loan repayments, borrowed funds, and maturity and sales of investment securities. These sources fund the Company's lending and investment activities.

    Management is responsible for establishing and monitoring liquidity targets as well as strategies to meet these targets. In general, the Company maintains a relatively high degree of liquidity. At December 31, 2000, cash, federal funds sold and securities available for sale amounted to $235.0 million, or 25.5% of total assets of the Company. This compares to $90.3 million, or 15.9% of total assets, at December 31, 1999.

    In general, the Bank maintains a liquidity target of 10% to 20% of total assets. The Bank is a member of the FHLB of Boston, and as such had access to both short and long-term borrowings of up to $285.9 million at December 31, 2000. In addition, the Bank maintains a line of credit at the FHLB of Boston as well as other lines of credit and brokered deposit lines with other correspondent banks. Management believes that the Bank has adequate liquidity to meet its commitments for the foreseeable future.

    Westfield's primary source of liquidity consists of investment management fees that are collected on a quarterly basis. At December 31, 2000, Westfield had working capital of approximately $3.5 million. Management believes that Westfield has adequate liquidity to meet its commitments for the foreseeable future.

    Sand Hill's primary source of liquidity consists of investment management fees that are collected on a quarterly basis. At December 31, 2000, Sand Hill had working capital of approximately $640,000. Management believes that Sand Hill has adequate liquidity to meet its commitments for the foreseeable future.

    RINET's primary source of liquidity consists of financial planning fees that are collected on a quarterly basis. At December 31, 2000, RINET had working capital of approximately $500,000. Management believes that RINET has adequate liquidity to meet its commitments for the foreseeable future.

    The Company's primary sources of funds are dividends from its subsidiaries, issuance of its common stock and borrowings. The Company has executed a $15.0 million line of credit with a correspondent bank to provide short-term working capital to the Company and its subsidiaries, if necessary. As of December 31, 2000, there were no borrowings under this line of credit. Management believes that the Company has adequate liquidity to meet its commitments for the foreseeable future.

Capital Resources

    Total stockholders' equity of the Company at December 31, 2000 was $98.5 million, compared to $39.1 million at December 31, 1999. This increase of $59.3 million was primarily the result of $44.2 million of net proceeds from the issuance of 3,450,000 of the Company's Common Stock on

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September 29, 2000 at a price of $13.75 per share. The Company used $9.5 million to repay debt incurred to finance the acquisition of Sand Hill. The remaining proceeds were made available for general corporate purposes. Also contributing to the increase was the Company's net income for 2000 of $9.7 million combined with common stock issued in connection with stock grants and proceeds from options exercised, plus the change in the unrealized gain on investment securities available for sale.

    As a bank holding company, the Company is subject to a number of regulatory capital requirements that have been adopted by the Federal Reserve Board. At December 31, 2000, the Company's Tier I leverage capital ratio stood at 9.02%, compared to 6.79% at December 31, 1999. The Company is also subject to a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. According to these standards, the Company had a Tier I risk-based capital ratio of 15.38% and a Total risk-based capital ratio of 16.63% at December 31, 2000. This compares to a Tier I risk-based capital ratio of 10.59% and a Total risk-based capital ratio of 11.84% at December 31, 1999. The minimum Tier I leverage, Tier I risk-based, and Total risk-based capital ratios necessary to enable the Company to be classified for regulatory purposes as a "well capitalized" institution are 5.00%, 6.00% and 10.00%, respectively. The Company was considered to be "well capitalized" as of December 31, 2000 and 1999. See Part I, Item 1, "Business—Regulation of the Company—Capital Requirements."

    The Bank is also subject to a number of regulatory capital measures. At December 31, 2000, the Bank's Tier I leverage capital ratio stood at 6.59%, compared to 5.99% at December 31, 1999. The Bank is also subject to a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. According to these standards, the Bank had a Tier I risk-based capital ratio of 11.30% and a Total risk-based capital ratio of 12.55% at December 31, 2000. This compares to a Tier I risk-based capital ratio of 9.46% and a Total risk-based capital ratio of 10.72% at December 31, 1999. The minimum Tier I leverage, Tier I risk-based, and Total risk-based capital ratios necessary to be classified for regulatory purposes as a "well capitalized" institution are 5.00%, 6.00% and 10.00%, respectively. The Bank was considered to be "well capitalized" as of December 31, 2000 and 1999. See Part I, Item 1, "Business—Regulation of the Company—Capital Requirements."

Financial Condition

    Total Assets.  Total assets increased $354.1 million, or 62.4%, to $921.5 million at December 31, 2000 from $567.4 million at December 31, 1999. This increase was mainly attributed to an increase in residential and commercial loan balances and was primarily funded by an increase in deposits.

    Investments.  Total investments (consisting of investment securities and mortgage-backed securities) were $178.2 million, or 19.3% of total assets, at December 31, 2000, compared to $79.1 million, or 13.9% of total assets, at December 31, 1999. This increase of $99.0 million was primarily due to the purchase of $144.2 million of municipal bonds, treasuries and agencies, and corporate bonds, as well as reinvestment of interest income within the investment portfolio. This increase was partially offset by $44.7 million of maturities, $2.0 million of sales, and $2.3 million of principal paydowns. As of December 31, 2000, all investments are classified as available for sale. The investment portfolio carried a total of $1.6 million of net unrealized gains at December 31, 2000, compared to $1.9 million of net unrealized losses at December 31, 1999.

    Loans.  Loans totaled $645.1 million, or 70.0% of total assets, at December 31, 2000, compared with $450.4 million, or 79.4% of total assets, at December 31, 1999. This increase of $194.7 million, or 43.2%, was due to a larger allocation of resources devoted to loan origination, as well as the combination of a healthy local economy and relatively strong loan demand. During 2000, commercial

24

loans increased $81.0 million, or 42.4%, to $271.8 million from $190.8 million at December 31, 1999; residential mortgage loans increased $111.5 million, or 47.6%, to $345.6 million from $234.2 million at December 31, 1999; and home equity and other loans increased $2.3 million, or 8.9%, to $27.6 million from $25.3 million at December 31, 1999.

    Deposits.  The Company experienced an increase of $244.5 million, or 58.1%, in deposits during 2000, from $420.5 million, or 74.1% of total assets, at December 31, 1999, to $665.0 million, or 72.2% of total assets, at December 31, 2000. This increase was due to higher average balances in existing client accounts, as well as a significant number of new accounts opened during 2000. In addition, the Company opened a new banking office in the Back Bay area of Boston during May 2000, which contributed approximately $28.9 million of deposits as of December 31, 2000.

    Borrowings.  Total borrowings (consisting of securities sold under agreements to repurchase ("repurchase agreements"), and FHLB borrowings) increased $42.7 million, or 43.9%, during 2000 to $139.9 million from $97.2 million at December 31, 1999. The increase was mainly attributable to an increase in the demand for overnight repurchase agreements with deposit clients. Management takes advantage of opportunities to fund asset growth with borrowings, but on a long-term basis, the Company intends to replace a portion of its borrowings with lower-cost core deposits.

Asset Quality

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

Risk Elements of the Loan Portfolio

    The Company discontinues the accrual of interest on a loan when the collectibility of principal or interest is in doubt. In certain instances, loans that have become 90 days past due may remain on accrual status if the value of the collateral securing the loan is sufficient to cover principal and interest and the loan is in the process of collection. OREO consists of real estate acquired through foreclosure proceedings and real estate acquired through acceptance of a deed in lieu of foreclosure. In addition, the Company may, under certain circumstances, restructure loans as a concession to a borrower.

    Non-Performing Assets.  At December 31, 2000, the Company had non-performing assets of $1.3 million, which were 0.14% of total assets, representing a decrease of $14,000, or 1.1%, from

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$1.3 million at December 31, 1999. As of December 31, 2000 and 1999, the Company's non-performing assets consisted entirely of nonaccruing loans. The Company continues to evaluate the underlying collateral of each non-performing loan and pursues the collection of interest and principal. Also see Part II, Item 8, "Financial Statements and Supplementary Data—Notes 7 and 8 to the Consolidated Financial Statements" for further information on non-performing assets.

    Delinquencies.  At December 31, 2000, $3.1 million of loans were 30 to 89 days past due, an increase of $1.1 million, or 51.4%, from the $2.0 million reported at December 31, 1999. Most of these loans are adequately secured and the payment performance of these borrowers varies from month to month.

    Potential Problem Loans.  The Company's management adversely classifies certain loans using an internal rating system based on criteria established by federal bank regulatory authorities. These loans evidence weakness or potential weakness related to repayment history, the borrower's financial condition, or other factors. Delinquent loans may or may not be adversely classified depending upon management's judgment with respect to each individual loan. Certain of these loans are non-performing or may become non-performing in future periods. At December 31, 2000, the Company had classified $2.1 million of loans as substandard or doubtful based on the rating system adopted by the Company, compared to $2.1 million at December 31, 1999.

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

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

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Net Interest Income and Margin

    Net interest income represents the difference between interest earned, primarily on loans and investments, and interest paid on funding sources, primarily deposits and borrowings. Net interest margin is the amount of net interest income, on a fully taxable-equivalent basis, expressed as a percentage of average interest-earning assets. The average yield on interest earning assets is the amount of taxable equivalent interest income expressed as a percentage of average earnings assets. The average rate paid on funding sources is equal to interest expense as a percentage of average interest-earning assets. The following table sets forth the composition of the Company's net interest margin for the years ended December 31, 2000, 1999, and 1998.