Seacoast Financial Services (SCFS) 10-Q 2001 Q3 Quarterly report

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

FOR THE QUARTER ENDED SEPTEMBER 30, 2001

or

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

COMMISSION FILE NUMBER: 000-25077

SEACOAST FINANCIAL SERVICES CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

Massachusetts	04-1659040
(State of Incorporation)	(IRS Employer Identification No.)
One Compass Place, New Bedford, Massachusetts	02740
(Address of Principal Executive Offices)	(Zip code)
(508) 984-6000
(Registrant’s Telephone Number)
N/A
Former Name, Former Address and Former Fiscal Year if Changed Since Last Report

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

At November 9, 2001, the Company had 24,625,136 shares of common stock outstanding.

SEACOAST FINANCIAL SERVICES CORPORATION

INDEX

PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Consolidated Balance Sheets at September 30, 2001 and December 31, 2000
	Consolidated Statements of Income for the three months and nine months ended September 30, 2001 and 2000
	Consolidated Statements of Changes in Stockholders’ Equity for the nine months ended September 30, 2001 and 2000
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2001 and 2000
	Notes to Unaudited Consolidated Financial Statements
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Liquidity and Capital Resources
Item 3.	Quantitative and Qualitative Disclosures about Market Risk
PART II - OTHER INFORMATION
Item 1.		Legal Proceedings
Item 2.		Changes in Securities and Use of Proceeds
Item 3.		Defaults upon Senior Securities
Item 4.		Submission of Matters to a Vote of Security Holders
Item 5.		Other Information
Item 6.		Exhibits and Reports on Form 8-K
SIGNATURES

SEACOAST FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share amounts)

	September 30,			December 31,
	2001			2000
ASSETS:
Cash and due from banks	$	104,265		$	101,665
Federal funds sold	107,313			5,848
Short-term investment	10,000			—
Total cash and cash equivalents	221,578			107,513
Investment securities—
Available-for-sale, at fair value	338,032			248,855
Held-to-maturity, at amortized cost	22,730			29,728
Restricted equity securities	40,837			28,974
Loans held-for-sale	32,235			13,666
Loans, net (Note 3)	2,557,603			2,338,251
Accrued interest receivable	14,725			14,927
Banking premises and equipment, net	51,797			50,878
Other real estate owned, net	358			86
Net deferred tax asset	9,984			11,247
Intangible assets, net (Note 2)	35,457			38,800
Other assets	10,590			7,840
Total assets	$	3,335,926		$	2,890,765
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Deposits (Note 4)	$	2,182,845		$	1,989,630
Short-term borrowings	36,820			31,427
Federal Home Loan Bank advances	782,682			556,958
Other borrowings	1,838			1,881
Mortgagors’ escrow payments	5,543			4,428
Accrued expenses and other liabilities	22,174			18,253
Total liabilities	3,031,902			2,602,577
COMMITMENTS AND CONTINGENCIES
Stockholders’ equity (Notes 7 and 8):
Preferred stock, par value $.01 per share; authorized 10,000,000 shares; none issued	—			—
Common stock, par value $.01 per share; authorized 100,000,000 shares; 26,758,136 shares issued	268			268
Additional paid-in capital	153,127			152,795
Treasury stock, at cost, 2,129,000 shares in 2001 and 1,799,775 shares in 2000	(22,961		)	(17,990		)
Retained earnings	182,666			166,865
Accumulated other comprehensive income	4,219			791
Unearned compensation - ESOP and restricted stock	(13,027		)	(14,384		)
Shares held in employee trust	(268		)	(157		)
Total stockholders’ equity	304,024			288,188
Total liabilities and stockholders’ equity	$	3,335,926		$	2,890,765

See accompanying notes to the unaudited consolidated financial statements.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share amounts)

	Three Months Ended September 30,				Nine Months  Ended September 30,
	2001		2000		2001		2000
INTEREST AND DIVIDEND INCOME:
Interest on loans	$	49,190	$	38,803	$	144,902	$	107,893
Interest and dividends on investment securities	4,732		4,235		14,445		12,704
Interest on federal funds sold and short-term investments	1,427		266		2,624		300
Total interest and dividend income	55,349		43,304		161,971		120,897
INTEREST EXPENSE:
Interest on deposits	18,221		16,965		55,995		45,667
Interest on borrowed funds	10,839		5,979		30,545		16,082
Total interest expense	29,060		22,944		86,540		61,749
Net interest income	26,289		20,360		75,431		59,148
PROVISION FOR LOAN LOSSES	1,550		1,250		4,425		3,500
Net interest income after provision for loan losses	24,739		19,110		71,006		55,648
NONINTEREST INCOME:
Deposit and other banking fees	2,471		1,819		6,488		4,704
Loan servicing fees, net	246		158		775		502
Merchant card fee income, net	239		205		526		421
Other loan fees	299		179		1,019		602
Gain on sales of investment securities, net	57		—		71		4
Gain on sales of loans, net	107		27		328		28
Other income	267		540		1,042		1,147
Total noninterest income	3,686		2,928		10,249		7,408
NONINTEREST EXPENSE:
Salaries and employee benefits	8,230		6,549		24,281		19,705
Occupancy and equipment expenses	2,116		1,867		6,484		4,714
Data processing expenses	1,566		1,309		4,610		3,631
Marketing expenses	665		844		2,197		2,012
Professional services expenses	719		431		2,202		1,235
Amortization of intangibles (Notes 2 and 9)	732		148		2,202		452
Other operating expenses	1,963		1,612		5,889		4,299
Total noninterest expense	15,991		12,760		47,865		36,048
Income before provision for income taxes	12,434		9,278		33,390		27,008
PROVISION FOR INCOME TAXES	4,400		3,183		11,624		9,486
Net income	$	8,034	$	6,095	$	21,766	$	17,522
EARNINGS PER SHARE (Note 5):
Basic	$	0.34	$	0.26	$	0.93	$	0.74
Diluted	$	0.34	$	0.26	$	0.92	$	0.74

See accompanying notes to the unaudited consolidated financial statements.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000

(Unaudited)

(In thousands, except per share amounts)

	Common Stock		Additional Paid-In Capital			Treasury Stock			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Unearned Compensation ESOP/Restricted Stock			Shares Held in Employee Trust			Total
Balance, December 31, 1999	$	268	$	152,702		$	(9,310	)	$	149,256		$	(2,430	)	$	(16,326	)	$	(139	)	$	274,021
Repurchase of common stock (Note 7)	—		—			(6,641		)	—			—			—			—			(6,641		)
Net income	—		—			—			17,522			—			—			—			17,522
Other comprehensive income — Change in unrealized loss on securities available for sale, net of taxes and reclassification adjustment	—		—			—			—			1,521			—			—			1,521
Comprehensive income																					19,043
Cash dividends - $.19 per share	—		—			—			(4,633		)	—			—			—			(4,633		)
Amortization of unearned compensation	—		(15		)	—			—			—			1,490			—			1,475
Other	—		102			—			—			—			—			(15		)	87
Balance, September 30, 2000	$	268	$	152,789		$	(15,951	)	$	162,145		$	(909	)	$	(14,836	)	$	(154	)	$	283,352
Balance, December 31, 2000	$	268	$	152,795		$	(17,990	)	$	166,865		$	791		$	(14,384	)	$	(157	)	$	288,188
Exercise of stock options	—		18			221			—			—			—			—			239
Repurchase of common stock (Note 7)	—		—			(5,192		)	—			—			—			—			(5,192		)
Net income	—		—			—			21,766			—			—			—			21,766
Other comprehensive income — Change in unrealized gain on securities available for sale, net of taxes and reclassification adjustment	—		—			—			—			3,428			—			—			3,428
Comprehensive income																					25,194
Cash dividends - $.25 per share	—		—			—			(5,965		)	—			—			—			(5,965		)
Amortization of unearned compensation	—		183			—			—			—			1,357			—			1,540
Other	—		131			—			—			—			—			(111		)	20
Balance, September 30, 2001	$	268	$	153,127		$	(22,961	)	$	182,666		$	4,219		$	(13,027	)	$	(268	)	$	304,024

See accompanying notes to the unaudited consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000

(Unaudited)

(In Thousands)

	2001				2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	21,766			$	17,522
Adjustments to reconcile net income to net cash provided by operating activities —
Depreciation	2,984				1,956
Amortization and accretion, net	43				54
Purchase accounting amortization, net	1,968				439
Stock-based compensation	1,540				1,475
Provision for loan losses	4,425				3,500
Gain on sales of investment securities, net	(71			)	(4			)
Gain on sale of fixed assets	(99			)	(252			)
Other real estate owned income	(47			)	—
Provision (benefit) for deferred taxes	(1,208			)	(776			)
Originations of loans held-for-sale	(23,974			)	(366			)
Proceeds from sales of loans originated for sale	29,534				1,150
Gain on sales of loans, net	(328			)	(28			)
Net (increase) decrease in accrued interest receivable	202				(2,295			)
Net increase in other assets	(2,460			)	(47			)
Net increase in accrued expenses and other liabilities	3,921				206
Net cash provided by operating activities	38,196				22,534
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in short-term investments, net	—				228
Purchase of securities classified as available-for-sale	(147,186			)	(41,547			)
Purchase of securities classified as held-to-maturity	(3,195			)	(1,000			)
Purchase of restricted equity securities	(11,959			)	(3,859			)
Proceeds from sales, calls, paydowns and maturities of securities classified as available-for-sale	63,334				56,536
Proceeds from calls, paydowns and maturities of securities classified as held-to-maturity	10,191				1,000
Proceeds from sale of restricted equity securities	96				—
Purchase of loans	(1,557			)	(14,106			)
Net increase in loans	(245,716			)	(269,024			)
Recoveries of loans previously charged off	458				297
Proceeds from sales of other real estate owned	540				467
Proceeds from sales of fixed assets	267				208
Purchase of premises and equipment	(4,099			)	(17,590			)
Net cash used in investing activities	(338,826			)	(288,390			)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in NOW, money market deposit and demand deposit accounts			166,831				52,053
Increase in passbook and other savings accounts	30,169				5,374
Increase (decrease) in certificates of deposit	(3,740			)	173,913
Advances from Federal Home Loan Bank	369,946				325,000
Repayments of Federal Home Loan Bank advances	(144,189			)	(251,917			)
Increase (decrease) in short-term and other borrowings	5,350				(7,046			)
Increase in mortgagors’ escrow payments	1,115				529
Exercise of stock options	239				—
Tax benefit of stock awards	131				—
Repurchase of common stock	(5,192			)	(6,641			)
Cash dividends	(5,965			)	(4,633			)
Net cash provided by financing activities	414,695				286,632
Net Increase in Cash and Cash Equivalents	114,065				20,776
Cash and Cash Equivalents, Beginning of Year	107,513				60,351
Cash and Cash Equivalents, End of Period	$		221,578		$		81,127
Supplemental Disclosure of Cash Flow Information:
Interest paid on deposits and borrowed funds	$		85,599		$		61,566
Income taxes paid	13,858				10,480
Supplemental Disclosure of Noncash Transactions:
Transfer from loans to loans held-for-sale	23,801				—
Transfers from loans to other real estate owned	833				684
Financed sales of other real estate owned	68				222

See accompanying notes to the unaudited consolidated financial statements.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2001 AND 2000

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

Basis of Presentation

The unaudited consolidated financial statements of Seacoast Financial Services Corporation and its wholly-owned subsidiaries, Compass Bank for Savings (“Compass”), Nantucket Bank and Lighthouse Securities Corporation (collectively referred to herein as “the Company”) presented herein should be read in conjunction with the consolidated financial statements of the Company as of and for the year ended December 31, 2000 included as part of its Form 10-K.

In the opinion of management, the accompanying unaudited financial statements reflect all adjustments (consisting of normal recurring adjustments) and disclosures necessary for a fair presentation.  Management is required to make estimates and assumptions that affect amounts reported in the financial statements.  Actual results could differ significantly from those estimates.

Summary of Significant Accounting Policies

The Company’s significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements included in its Form 10-K for the year ended December 31, 2000 filed with the Securities and Exchange Commission.  For interim reporting purposes, the Company follows the same significant accounting policies.

Reclassifications

Certain reclassifications have been made to the prior year financial statements to conform to the 2001 presentation.  Such reclassifications have no effect on previously reported net income.

(2)   ACQUISITION OF HOME PORT BANCORP, INC.

On December 31, 2000, the Company completed its acquisition of  Home Port Bancorp, Inc. (Home Port) for $68.2  million in cash, exclusive of transaction costs.  Home Port was the holding company for Nantucket Bank, a three branch savings bank located on Nantucket Island, Massachusetts.  This transaction has been accounted for using the purchase method of accounting and, accordingly, Home Port’s results of operations are included in the Company’s consolidated statements of income from the date of acquisition.

The Company’s pro forma summarized results of operations for the three months and nine months ended September 30, 2000, assuming Home Port had been acquired as of January 1, 1999, are as follows (in thousands):

	Three Months		Nine Months
	Ended September 30		Ended September 30
Interest income	$	49,832	$	139,923
Interest expense	26,762		73,002
Net interest income	23,070		66,921
Provision for loan losses	1,300		3,650
Noninterest income	3,371		8,688
Noninterest expense	15,748		44,031
Income before taxes	9,393		27,928
Provision for income taxes	3,563		10,627
Net income	$	5,830	$	17,301
Earnings per share - diluted	$	0.24	$	0.73

Included in noninterest expense in the pro forma results of operations for the three and nine month periods ended September 30, 2000, are certain costs incurred by Home Port in connection with its acquisition by the Company totaling $293,000 which reduced the pro forma earnings per share by $.01 in both periods.

The excess of the purchase price over the fair value of the net assets acquired was recorded as goodwill and amounted to $36.4 million.  Goodwill is being amortized on a straight-line basis over 15 years.  Amortization expense was $606,000 and $1.8 million for the three months and nine months ended September 30, 2001, respectively.  See Note 9 for a discussion of recent accounting pronouncements which will affect the amortization of goodwill beginning in 2002.

(3)   LOANS

The loan portfolio consisted of the following:

	September 30, 2001		December 31, 2000
	(In thousands)
Real estate loans:
Residential (one-to-four family)	$	1,313,995	$	1,212,595
Commercial	339,415		322,724
Home equity lines of credit	43,053		39,932
Construction	109,877		109,360
Total real estate loans	1,806,340		1,684,611
Commercial loans	120,798		100,789
Consumer loans:
Indirect auto loans	603,742		528,653
Less-unearned discount	2,472		6,781
Indirect auto loans, net	601,270		521,872
Other	57,932		56,060
Total consumer loans, net	659,202		577,932
Total loans	2,586,340		2,363,332
Less-allowance for loan losses	28,737		25,081
	$	2,557,603	$	2,338,251

Non-accrual loans amounted to $6,107,000 and $10,405,000 at December 31, 2000 and September 30, 2001, respectively.

(4)  DEPOSITS

A summary of deposit balances is as follows:

	September 30, 2001		December 31, 2000
	(In thousands)
Demand deposit accounts	$	197,512	$	159,740
NOW and money market deposit accounts	706,837		577,778
Passbook and other savings accounts	265,639		235,470
Total non-certificate accounts	1,169,988		972,988
Certificates of deposit -
Term certificates of $100,000 and over	274,153		265,583
Term certificates less than $100,000	738,704		751,059
Total certificates of deposit	1,012,857		1,016,642
	$	2,182,845	$	1,989,630

(5)  EARNINGS PER SHARE (EPS)

Basic EPS for the three months and nine months ended September 30, 2000 and 2001 was computed based on the weighted average number of shares outstanding during the periods using the following share balances:

	2001	2000
Three months ended	23,417,024	23,676,632
Nine months ended	23,436,616	23,805,809

Unallocated ESOP shares and unvested restricted stock awards are not considered outstanding for purposes of the computation of basic EPS and have been excluded from the shares presented above.  Diluted EPS reflects the potential dilution that could occur if certain agreements to issue common stock were exercised and has been computed after giving consideration to the dilutive effect of the Company’s stock options and unvested restricted stock awards.

(6)  BUSINESS SEGMENT INFORMATION

The Company has identified its reportable operating business segment as “Community Banking.”  The community banking business segment consists of commercial and retail banking.  Banking services are provided within the framework of two full-service community banks which have similar economic characteristics, products and services, distribution channels and regulatory environments.  Accordingly, disaggregated segment information for each bank is not presented.  The community banking segment derives its revenues from a wide range of banking services, including investing and lending activities and acceptance of demand, savings and time deposits, merchant credit card services as well as servicing loans for investors.  There is no major customer, as defined, and the banks operate within a single geographic area (southeastern Massachusetts, including the islands of Martha’s Vineyard and Nantucket).

Non-reportable operating segments of the Company’s operations which do not have similar characteristics to the community banking operations and do not meet the quantitative thresholds requiring disclosure, are included in the Other category in the disclosure of business segments below.  These non-reportable segments include the Parent Company.

Reportable segment specific information and reconciliation to consolidated financial information as of

September 30, 2001 and 2000 and for the nine month periods then ended are as follows (in thousands):

September 30, 2001	Community Banking		Other		Other Adjustments and Eliminations			Consolidated
Investment securities	$	397,748	$	3,851	$	—		$	401,599
Net loans	2,557,603		10,368		(10,368		)	2,557,603
Total assets	3,331,667		304,838		(300,579		)	3,335,926
Total deposits	2,182,845		—		—			2,182,845
Total borrowings	821,340		—		—			821,340
Total liabilities	3,031,088		814		—			3,031,902
Net interest income	75,294		746		(609		)	75,431
Provision for loan losses	4,425		—		—			4,425
Noninterest income	10,249		—		—			10,249
Noninterest expense	46,893		972		—			47,865
Net income	21,925		21,766		(21,925		)	21,766

September 30, 2000	Community Banking		Other		Other Adjustments and Eliminations			Consolidated
Investment securities	$	260,853	$	3,339	$	—		$	264,192
Net loans	2,009,249		10,646		(10,646		)	2,009,249
Total assets	2,426,830		283,673		(279,979		)	2,430,524
Total deposits	1,746,962		—		—			1,746,962
Total borrowings	380,659		—		—			380,659
Total liabilities	2,146,850		322		—			2,147,172
Net interest income	59,049		724		(625		)	59,148
Provision for loan losses	3,500		—		—			3,500
Total noninterest income	7,408		—		—			7,408
Total noninterest expense	35,233		815		—			36,048
Net income	17,568		17,522		(17,568		)	17,522

(7)  STOCK REPURCHASE PROGRAMS

In July 1999, the Board of Directors authorized the Company to repurchase up to 1,000,000 shares in the open market to meet the anticipated needs of stock awards and stock options issued in connection with the 1999 Stock Incentive Plan.  In October 1999 and July 2000, the Board of Directors, with the approval of the Commissioner of Banks, authorized the Company to repurchase up to an additional 1,231,900 and 1,254,312 shares, respectively, in the open market.  The Board of Directors delegated to the discretion of senior management the authority to determine the timing of the repurchase programs’ commencement, the timing of subsequent repurchases and the prices at which repurchases will be made.

As of November 9, 2001, the Company had repurchased 2,717,000 shares of its common stock under these programs at a total cost of $29,908,409, of which 2,710,000 shares at a cost of $29,814,049 had been repurchased as of September 30, 2001.

(8)  QUARTERLY CASH DIVIDEND

On October 25, 2001, the Board of Directors voted the payment of a quarterly cash dividend of $.09 per share.  The dividend is payable on November 23, 2001 to stockholders of record on November 9, 2001.

(9)   RECENT ACCOUNTING PRONOUNCEMENTS

In June  2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141, “Business Combinations” which is effective for transactions initiated after June 30, 2001.  Under SFAS No. 141, all business combinations must be accounted for using the purchase method of accounting; use of the pooling-of-interests method is no longer permitted.  In addition, this Statement requires that certain intangible assets acquired in a business combination be recognized apart from goodwill.

Under the transition provisions of SFAS No. 141, no change in the amount of the purchase price assigned to the assets acquired and liabilities assumed in a business combination completed before July 1, 2001 and accounted for by the purchase method shall occur except for certain identified intangible assets which were separately recognized at the time of the transaction.  Based on information currently available, management does not believe that any reclassification of intangible assets recognized in connection with the Company’s acquisition of Home Port in December 2000 will be required as a result of the application of SFAS No. 141.

In June 2001, the FASB also issued SFAS No. 142, “Goodwill and Other Intangible Assets,” which is effective for fiscal years beginning after December 15, 2001.  Under current accounting standards, goodwill resulting from a business combination is amortized against income over its estimated useful life.  Under SFAS No. 142, goodwill is generally no longer amortized as an expense after 2001 but instead is reviewed and tested for impairment using a fair value methodology prescribed in this Statement.  Goodwill will be tested for impairment at least annually or more frequently as a result of an event or change in circumstances (e.g. recurring operating losses by the acquired entity) that would indicate an impairment adjustment may be necessary.  Based on its assessment of the current economic environment, management does not anticipate any realization issues related to the goodwill reflected in the accompanying consolidated balance sheet that would require an impairment adjustment upon adoption of SFAS No. 142.

(10)     PENDING BRANCH ACQUISITION

On September 6, 2001, Compass entered into a Purchase and Assumption Agreement to assume all of the deposit liabilities of Charter Bank’s Hyannis, Massachusetts office for cash and an insignificant balance of deposit-related loans.  Compass will pay a premium of 5% of the stated balance of deposits, which are expected to be approximately $25 million at the time of closing.  Following completion of the transaction, which is expected to occur in December 2001, Charter Bank will close its Hyannis branch at which time customer accounts will be transferred to an existing Compass branch in Hyannis.

(11)     SUBSEQUENT EVENT - SETTLEMENT OF PENSION PLAN

On October 15, 2001, Compass settled its obligations under its defined benefit pension plan by distributing lump-sum payments and purchasing nonparticipating annuity contracts for all participants.  In connection with this settlement, Compass recognized a non-recurring gain of approximately $1.5 million in October 2001.

Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Form 10-Q contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  When used in this report, the words or phrases, “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “believe,” or similar expressions are intended to identify such forward-looking statements.  Actual events could differ materially from those anticipated in the forward-looking statements.  Important factors that might cause such a difference include, among other things, general economic conditions, particularly the real estate market, in the Company’s primary market area, potential increases in the Company’s nonperforming assets (as well as increases in the allowance for loan losses that might be necessary), concentrations of loans in a particular geographic area or with certain large borrowers, changes in government regulation and supervision, including increased deposit insurance premiums or capital or reserve requirements, changes in interest rates, and increased competition and bank consolidations in the Company’s market area.  These and other factors that might cause differences between actual and anticipated results, performance and achievements are discussed in greater detail in this Item 2.

Acquisition of Home Port

On December 31, 2000, the Company completed its acquisition of Home Port and its bank subsidiary, Nantucket Bank, in a transaction accounted for under the purchase method of accounting.  Accordingly, while the consolidated assets and liabilities of Home Port are reflected in the Company’s consolidated balance sheets at September 30, 2001 and December 31, 2000, the results of operations of Home Port for the three and nine month periods ended September 30, 2000 are not included in the Company’s consolidated statements of income for those periods.  The impact of this acquisition on the consolidated statements of income for the three and nine month periods ended September 30, 2001 has been segregated in the accompanying discussion of the comparison of operating results for 2001 and 2000.

Comparison of Financial Condition at September 30, 2001 and December 31, 2000

Total assets increased by $445.1 million from $2,890.8 million at December 31, 2000 to $3,335.9 million at September 30, 2001.  During the nine months ended September 30, 2001, the loan portfolio, excluding loans held-for-sale, increased by $223.0 million, or 9.4%, which was funded principally by additional Federal Home Loan Bank advances.  During the first half of 2001, the Company’s borrowings from the Federal Home Loan Bank (FHLB) exceeded its actual funding needs.  This was done for two reasons.  First, management considered the interest rates offered by the FHLB to be favorable.  In addition, these borrowings provided liquidity in the event of possible deposit outflows in 2001 due to the likely repricing of maturing certificates of deposit to substantially lower rates.  As a result of this strategy, at June 30, 2001, the Company held federal funds sold and other cash equivalents of $75 million in excess of its historical levels.

During the third quarter of 2001, the Company experienced core deposit growth of $126 million, or 12.1%.  This increase was partially attributable to seasonal factors but is believed by management to be primarily caused by the decline in the stock market in the wake of an economic slowdown and the acts of terrorism against the United States occurring in September 2001.  With this significant influx of deposits, the Company increased its investment portfolio by $94.0 million, or 30.7%, with most new investments maturing in 6-12 months.  With some moderation in loan growth during the third quarter of 2001, federal funds sold and other cash equivalents increased to approximately $110 million in excess of historical levels at September 30, 2001.

The increase in loans occurred primarily in the residential mortgage, indirect auto and commercial loan portfolios.  From December 31, 2000 to September 30, 2001, residential mortgage loans increased by $101.4 million, or 8.4%, indirect auto loans (net of unearned discounts) increased by $79.4 million, or 15.2% and commercial loans increased by $20.0 million, or 19.9%.  During the third quarter of 2001, management of Compass decided to begin to sell fixed rate residential mortgage loans having terms of 15 years or less, at which time $23.8 million of such loans were reclassified to held-for-sale status.  This decision will likely result in a reduction in the future rate of growth in residential mortgage loans compared to recent years as the majority of current originations of such loans have fixed rates due to the favorable interest rates currently available.  Compass has continued  to emphasize the origination of indirect auto loans through its network of automobile dealers which has been expanded to include dealers in communities contiguous to the metropolitan Boston area.  The growth in commercial loans was primarily with existing customers to fund business expansion and seasonal borrowing needs.

Total deposits at September 30, 2001 were $2,182.8 million, an increase of $193.2 million, or 9.7%, compared to $1,989.6 million at December 31, 2000.  Core deposit account balances increased by $197.0 million, or 20.2%, during the first nine months of 2001.  Certificates of deposit declined by $3.8 million reflecting the impact of the lower interest rates currently being offered.

The increase in stockholders’ equity of $15.8 million to $304.0 million at September 30, 2001 resulted from the net income of $21.8 million for the nine months ended September 30, 2001 and an increase of $3.4 million in the market value of investment securities available for sale, net of taxes, which were partially offset by cash dividends and stock repurchases totaling $11.2 million.  During 1999 and 2000, the Company announced three stock repurchase programs aggregating 3,486,212 shares.  As of November 9, 2001, 2,717,000 shares had been repurchased leaving up to 769,212 shares for repurchase.  Management expects to repurchase the remaining shares under these programs over the next six to nine months.

Comparison of Operating Results for the Quarters Ended September 30, 2001 and 2000

As previously noted, the acquisition of Home Port on December 31, 2000 had a significant impact on changes in the components of the Company’s consolidated statements of income between the quarters ended September 30, 2001 and 2000.  The following table segregates Nantucket Bank’s impact on such changes (in thousands):

	Quarter Ended September 30, 2001									Quarter Ended September 30, 2000
				Nantucket									Net
	Consolidated			Bank			Net						Changes
Interest income	$		55,349	$	6,705		$		48,644	$		43,304	$		5,340
Interest expense	29,060			3,793			25,267			22,944			2,323
Provision for loan losses	1,550			50			1,500			1,250			250
Noninterest income	3,686			675			3,011			2,928			83
Noninterest expense	15,991			2,467			13,524			12,760			764
Income before taxes	12,434			1,070			11,364			9,278			2,086
Provision for income taxes	4,400			588			3,812			3,183			629
Net income	$	8,034		$		482	$	7,552		$	6,095		$	1,457

The remaining discussion, unless otherwise indicated, addresses the net changes presented above, which excludes the impact due to the acquisition of Nantucket Bank.

Interest Income.  Interest income for the quarter ended September 30, 2001 was $48.6 million compared to $43.3 million for the quarter ended  September 30, 2000, an increase of $5.3 million, or 12.3%.  The increase in interest income resulted from growth in average interest-earning assets of $449.8 million, or 19.9%, partially offset by a decrease in the overall yield on interest-earning assets of 48 basis points in the 2001 period.  The principal areas of growth in average balances were related to real estate loans (up $168.9 million, or 12.4%) and indirect auto loans (up $90.7 million, or 18.3%).  Most of the real estate loan growth resulted from increased originations of one-to-four family residential mortgage loans caused by favorable interest rates.  The increase in indirect auto loans resulted from the continued geographic expansion of the network of participating dealers.

Interest Expense.  Interest expense for the quarter ended September 30, 2001 was $25.3 million compared to $22.9 million for the quarter ended September 30, 2000, an increase of $2.3 million, or 10.1%.  This increase resulted from a higher average balance of interest-bearing liabilities (up $407.8 million, or 21.0%), partially offset by a 42 basis points decrease in the cost of funds from 4.72% in 2000 to 4.30% in 2001.  Average interest-bearing deposit balances increased $150.5 million, or 9.6%, during the quarter ended September 30, 2001 compared to the same period in 2000.

Interest expense on borrowed funds increased $2.7 million in the quarter ended September 30, 2001 due to a $257.3 million  increase in the average balance of such funds, partially offset by an 89 basis points decrease in the average rate paid on borrowed funds to 5.44% in the 2001 period.

Provision for Loan Losses.  The Company provides for loan losses in order to maintain the allowance for loan losses at a level that management estimates is adequate to absorb future charge-offs of loans deemed uncollectible.  In determining the appropriate level of the allowance for loan losses, management considers past and anticipated loss experience, evaluations of underlying collateral, prevailing economic conditions, the nature and volume of the loan portfolio and the levels of nonperforming and other classified loans.  The amount of the allowance is based on estimates and  ultimate losses may vary from such estimates.  Management assesses the allowance for loan losses on a quarterly basis and provides for loan losses monthly in order to maintain the adequacy of the allowance.

Compass provided $1.55 million for loan losses in the quarter ended September 30, 2001 compared to $1.25 million in the quarter ended September 30, 2000.  The increase of $300,000 in 2001 was primarily attributable to  growth in the loan portfolio.  The total allowance (including Nantucket Bank) of $28.7 million at September 30, 2001 represented 1.11% of total loans compared to 1.06% at December 31, 2000.  At September 30, 2001, the allowance for loan losses as a percentage of non-performing loans was 276.2% compared to 410.7% at December 31, 2000.  The increase in non-performing loans in 2001 was  largely attributable to one commercial loan customer with an aggregate loan balance of $2.5 million.

Noninterest Income.  Total noninterest income was $3.0 million for the quarter ended September 30, 2001 compared to $2.9 million in the same period of 2000.  Exclusive of a non-recurring gain of $250,000 on the disposition of banking premises and equipment in 2000, noninterest income increased $333,000, or 11.4%, in 2001.  This increase was principally caused by checking account related income, ATM/Debit card usage and loan fee income.

Noninterest Expense.   Noninterest expense increased by $764,000, or 6.0%, from $12.8 million for the quarter ended September 30, 2000 to $13.5 million for the quarter ended September 30, 2001 resulting from increases in salaries and employee benefits ($635,000), professional services expenses ($204,000) and other noninterest expense ($151,000).  Such increases were partially offset by an aggregate decrease of $226,000 in all other categories of noninterest expenses, principally marketing.

Salaries and employee benefits increased $635,000, or 9.7%, during the quarter ended September 30, 2001, due to overall salary increases averaging 4.5% and increases in staffing necessitated by franchise expansion (two new branches) and the start-up of Compass’s private banking initiative.

Professional services expenses increased $204,000, or 43.7%, during the quarter ended September 30, 2001.  This increase reflected consulting and legal fees associated with the start-up of Compass’s private banking initiative and other legal and consulting services.

Marketing expenses decreased $218,000, or 34.8%, during the quarter ended September 30, 2001.  This decrease was attributable to a planned reduction in the airing of recently produced television commercials during the summer months (which commercials began airing again in October) and higher than normal costs incurred in the third quarter of 2000 due to the grand opening of the Company’s new corporate offices and a program targeting potential customers impacted by the branch divestitures required by the Fleet/Bank Boston merger.

Other noninterest expense increased $151,000 during the quarter ended September 30, 2001.  Exclusive of a non-recurring item related to the acquisition of Sandwich Bancorp, Inc. recognized in the quarter ended September 30, 2000, noninterest expense increased by $26,000, or 1.6%, during the quarter ended September 30, 2001.

Income Taxes. The effective tax rate (including Nantucket Bank) for the quarter ended September 30, 2001 was 35.4% compared to 34.3% in the same period in 2000.  This increase reflected the impact of nondeductible goodwill amortization resulting from the Home Port acquisition.

Comparison of Operating Results for the Nine Months Ended September 30, 2001 and 2000

The following table segregates Nantucket Bank’s impact on changes in the components of the Company’s consolidated statements of income between the nine month periods ended September 30, 2001 and 2000 (in thousands):

	Nine Months Ended September 30, 2001						Nine Months Ended September 30, 2000		Net Changes
			Nantucket
	Consolidated		Bank		Net
Interest income	$	161,971	$	19,861	$	142,110	$	120,897	$	21,213
Interest expense	86,540		11,626		74,914		61,749		13,165
Provision for loan losses	4,425		150		4,275		3,500		775
Noninterest income	10,249		1,765		8,484		7,408		1,076
Noninterest expense	47,865		7,125		40,740		36,048		4,692
Income before taxes	33,390		2,725		30,665		27,008		3,657
Provision for income taxes	11,624		1,604		10,020		9,486		534
Net income	$	21,766	$	1,121	$	20,645	$	17,522	$	3,123

The remaining discussion, unless otherwise indicated, addresses the net changes presented above, which excludes the impact due to the acquisition of Nantucket Bank.

Interest Income.  Interest income for the nine months ended September 30, 2001 was $142.1 million compared to $120.9 million for the nine months ended September 30, 2000, an increase of $21.2 million, or 17.5%.  The increase in interest income resulted from growth in average interest-earning assets of $413.9 million, or 19.2%, partially offset by a decrease in the overall yield on interest-earning assets of 11 basis points in the 2001 period.  The principal areas of growth in average balances were related to real estate loans (up $190.1 million, or 14.6%) and indirect auto loans (up $95.1 million, or 20.4%).  Most of the real estate loan growth resulted from increased originations and retention in portfolio, until September 2001, of one-to-four family residential mortgage loans.  The increase in indirect auto loans resulted from the continued geographic expansion of the network of participating dealers.

Interest Expense.  Interest expense for the nine months ended September 30, 2001 was $74.9 million compared to $61.7 million for the nine months ended September 30, 2000, an increase of $13.2 million or 21.3%.  This increase resulted from a higher average balance of interest-bearing liabilities (up $379.1 million, or 20.5%) and a 3 basis points increase in the cost of all funds from 4.46% in 2000 to 4.49% in 2001.  Average interest-bearing deposit balances increased $172.5 million, or 11.6%, during the nine months ended September 30, 2001 compared to the same period in 2000.

Interest expense on borrowed funds increased $7.6 million in the nine months ended September 30, 2001 to $23.7 million due to a $206.6 million increase in the average balance of such funds, partially offset by a 43 basis points decrease in the average rate paid on borrowed funds to 5.63% in the 2001 period.

The small increase in the cost of funds in 2001 reflected the lingering effect of the series of rate increases initiated by the Federal Reserve Board beginning in September 1999 and continuing into 2000 as well as the greater utilization of certificates of deposit and FHLB advances as funding sources during that period.  With the series of rate reductions initiated by the Federal Reserve Board in 2001 and the scheduled maturity of $450 million of certificates of deposit in the fourth quarter of 2001, management expects Compass’s interest margin to improve in the fourth quarter.

Provision for Loan Losses.  Compass provided $4.3 million for loan losses in the nine months ended September 30, 2001 compared to $3.5 million in the comparable prior year period.  The increase of $775,000 in 2001 was primarily attributable to the growth in the loan portfolio.

Noninterest Income.  Total noninterest income was $8.5 million for the nine months ended September 30, 2001 compared to $7.4 million in the same period of 2000, an increase of $1.1 million, or 14.5%.  This increase was principally caused by increases in checking account related income, ATM/Debit card usage and, to a lesser extent, increases in loan fee income.

Noninterest Expense.  Noninterest expense increased by $4.7 million, or 13.0%, from $36.0 million for the nine months ended September 30, 2000 to $40.7 million for the nine months ended September 30, 2001.  This increase reflected increases in all areas of expense including salaries and employee benefits ($1.5 million), occupancy and equipment ($1.0 million), data processing ($392,000), marketing ($34,000), professional services ($782,000) and other noninterest expense ($1.0 million).

Salaries and employee benefits increased $1.5 million, or 7.9%, during the nine months ended September 30, 2001, due to overall salary increases averaging 4.5% ($637,000), increases in staffing necessitated by three new branches and the start-up of Compass’s private banking initiative ($875,000) as well as increases in employee health insurance costs and the ESOP.

Occupancy and equipment expenses increased $1.0 million, or 20.9%, during the nine months ended September 30, 2001.  This increase was primarily due to higher costs associated with the new corporate offices which opened during the third quarter of 2000 and new branches in Dennis, Seekonk and Mattapoisett, as well as higher utility costs caused by increases in rates charged by service providers.

Data processing expenses increased $392,000, or 10.8%, during the nine months ended September 30, 2001 due primarily to volume-related services such as item processing, expanded branch and ATM networks and ATM/Debit card usage.  These increases were partially offset by a rate decrease received on certain services from the Company’s core processing service provider.

Marketing expenses increased $34,000, or 1.7%, during the nine months ended September 30, 2001.  This increase was attributable to production and media costs for television commercials, partially offset by costs incurred in 2000 related to the grand opening of the Company’s new corporate offices and a program targeting potential customers impacted by the branch divestitures required by the Fleet/Bank Boston merger.

Professional services expenses increased $782,000, or 63.3%, during the nine months  ended September 30, 2001.  This increase primarily reflected consulting and legal fees associated with the start-up of Compass’s private banking initiative, certain non-recurring costs for tax services, costs associated with an assessment of the risk management function and other legal and consulting services.

Other noninterest expense increased $1.0 million, or 23.6%, during the nine months ended September 30, 2001.  Exclusive of a non-recurring item related to the acquisition of Sandwich Bancorp, Inc. recognized in 2000, noninterest expense increased by 13.0% during 2001.  This increase reflects primarily volume-related items such as printing, postage, and telephone costs.

Income Taxes. The effective tax rate (including Nantucket Bank) for the nine months ended September 30, 2001 was 34.8% compared to 35.1% in the same period in 2000.  In 2001, the Company completed an analysis addressing the impact of a recent Tax Court decision on the deductibility of certain merger-related costs incurred in connection with the acquisition of Sandwich Bancorp, Inc. in 1998.  Based on this analysis, the provision for income taxes was reduced by $479,000 for the nine months ended September 30, 2001.  Exclusive of this non-recurring item, the effective tax rate in 2001 was 36.2%.  This increase from 2000 reflected the impact of nondeductible goodwill amortization resulting from the Home Port acquisition.

Liquidity and Capital Resources

Liquidity, represented by cash and cash equivalents and debt securities is a product of the Company’s operating, investing, and financing activities.  The Company’s primary sources of funds are deposits, borrowings, principal and interest payments on outstanding loans and mortgage-backed securities, maturities of investment securities and funds provided from operations.  While scheduled payments from the amortization of loans and mortgage related securities and maturing investment securities are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates and, in the case of deposits, other instruments available to the public such as mutual funds and annuities.

As voluntary members of the Federal Home Loan Bank of Boston (FHLB), Compass and Nantucket Bank are entitled to borrow up to the value of their qualified collateral that has not been pledged to others.  Qualified collateral generally consists of residential first mortgage loans, U.S. Government and agency securities and funds on deposit at the FHLB.  At September 30, 2001, Compass and Nantucket Bank had approximately $371.0 million and $86.9 million, respectively, in unused borrowing capacity that is contingent upon the purchase of additional FHLB stock.  Use of this borrowing capacity may also be impacted by regulatory capital requirements.

Liquidity management is both a daily and long-term function of business management.  The measure of a bank’s liquidity is its ability to meet its cash commitments at all times with available cash or by conversion of other assets to cash at a reasonable price.  At September 30, 2001, the Company maintained cash and due from banks, federal funds sold and debt securities maturing within one year of $313.3 million, or 9.39% of total assets.  The Company invests excess funds, if any, in federal funds sold which provides liquidity to meet lending requirements.  During 2001, the Company borrowed from the FHLB approximately $110 million more than was required to meet its immediate needs in order to take advantage of interest rates which management considered to be favorable. In addition, these borrowings provide liquidity in the event the Company experiences deposit outflows during the remainder of 2001.  This outflow will occur due to, among other things, certificate of deposit customers who, based on current rates, will experience a substantial reduction in their reinvestment rate. At September 30, 2001, these additional funds were invested in federal funds sold and short-term investments.

At September 30, 2001, the Company had commitments to originate loans, unused outstanding lines of credit, standby letters of credit and undisbursed proceeds of loans totaling $276.9 million.  The Company anticipates that it will have sufficient funds available to meet its current loan commitments.  Certificates of deposit maturing within one year from September 30, 2001 amounted to $846 million.  The Company expects that a significant portion of maturing certificate accounts will be retained as deposits at maturity.

The Company’s and the Banks’ capital ratios at September 30, 2001 were as follows:   

	Seacoast Financial		Compass		Nantucket Bank
Total Capital (to risk weighted assets)	13.18	%	12.02	%	16.72	%
Tier 1 Capital (to risk weighted assets)	11.91		10.80		15.14
Tier 1 Capital (to average assets)	8.22		7.48		9.35

These ratios placed the Company in excess of regulatory standards and the Banks in the “well capitalized” category as set forth by the FDIC.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

The chief market risk factor affecting the financial condition and operating results of the Company is interest rate risk.  This risk is managed by periodic evaluation of the interest risk inherent in certain balance sheet accounts, determination of the level of risk considered appropriate given capital and liquidity requirements, business strategy, performance objectives and operating environment and maintenance of such risks within guidelines approved by the Board of Directors.  Through such management, the Company seeks to reduce the vulnerability of its net earnings to changes in interest rates.  Each Bank’s Asset/Liability Committee, comprised of senior management, is responsible for managing interest rate risk and reviewing with its Board of Directors on a quarterly basis its activities and strategies, the effect of those strategies on operating results, the Bank’s interest rate risk position and the effect changes in interest rates would have on net interest income. The extent of movement of interest rates is an uncertainty that could have a negative impact on earnings.

The principal strategies that the Company generally uses to manage interest rate risk include (i) emphasizing the origination and retention of adjustable-rate loans, origination of indirect auto loans (Compass only) which have relatively short maturities  and origination of loans with maturities at least partly matched with those of the deposits and borrowings funding the loans, (ii) investing in debt securities with relatively short maturities and (iii) classifying a significant portion of its investment portfolio as available for sale so as to provide sufficient flexibility in liquidity management.

The Company and the Banks quantify their interest rate risk exposure using a sophisticated simulation model.  Simulation analysis is used to measure the exposure of net interest income to changes in interest rates over a specified time horizon.  Simulation analysis involves projecting future interest income and expense under various rate scenarios.  Internal guidelines on interest rate risk specify that for every 100 basis points immediate shift in interest rates, the estimated net interest income over the next 12 months should decline by less than 5%.

In utilizing a 300 basis point increase in rates in its simulation model, the full impact of annual rate caps of 200 basis points common to most adjustable rate mortgage loan products is considered.  The rate shocks used assume an instantaneous and parallel change in interest rates and that no strategies are implemented in response to the change in interest rates.  Prepayment speeds for loans are based on published median dealer forecasts for each interest rate scenario.

As of September 30, 2001, the Company s estimated exposure as a percentage of estimated net interest income for the next twelve and twenty-four month periods is as follows:

	Percentage Change in Estimated
	Net Interest Income Over:
	12 Months		24 Months
300 basis point increase in rates	(7.59	)%	(4.97	)%
200 basis point decrease in rates	(0.10	)%	(2.64	)%

Based on the scenario above, net income would be adversely affected (within internal guidelines) in both the twelve and twenty-four month periods.  For each one percent change in net interest income, the effect on net income would be $760,000 assuming a 36% tax rate.

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

The Company is not involved in any pending legal proceedings other than those occurring in the ordinary course of business.  Management believes that the resolution of these matters will not materially affect the Company’s financial position, results of operations or liquidity.

Item 2.  Changes in Securities and Use of Proceeds

Not applicable.

Item 3.  Defaults Upon Senior Securities

Not applicable.

Item 4.  Submission of Matters to A Vote of Security Holders

        Not applicable.

Item 5.  Other Information

Not applicable.

Item 6.    Exhibits and Reports on Form 8-K

a.             Exhibits:

2.1           Agreement and Plan of Merger by and between Seacoast Financial Services Corporation and Home Port Bancorp, Inc. date as of July 20, 2000++++++

2.2           Stock Option Agreement between Home Port Bancorp, Inc. and Seacoast Financial Services Corporation dated as of July 20, 2000++++++

3.1           Articles of Organization of Seacoast Financial Services Corporation+++

3.2           By-Laws of Seacoast Financial Services Corporation+++

4              Specimen certificate for the common stock of Seacoast Financial Services Corporation++

10.1*       Form of Employment Agreement by and among Seacoast Financial Services Corporation, Compass Bank for Savings and Kevin G. Champagne+

10.2*       Form of Employment Agreement by and among Compass Bank for Savings, Seacoast Financial Services Corporation and certain Officers of Compass Bank for Savings+

10.3*       Form of Change in Control Agreements by and among Seacoast Financial Services Corporation, Compass Bank for Savings, Kevin G. Champagne and certain other Officers of Compass Bank for Savings+

10.4*       Form of Change in Control Agreement by and among Seacoast Financial Services Corporation, Compass Bank for Savings and certain Officers of Compass Bank for Savings+

10.5*       Form of Executive Salary Continuation Agreements made and entered into by and between Compass Bank for Savings and Kevin G. Champagne, Arthur W. Short, John D. Kelleher and Francis S. Mascianica and forms of amendments thereto+

10.6*       Trust Agreement, made as of December 18, 1992, by and between Compass Bank for Savings and Shawmut Bank, N.A.+

10.7*       Compass Bank for Savings January 2000 Incentive Compensation Plan +++++

10.12*     Compass Bank for Savings Executive Deferred Compensation Plan+

10.13*     Rabbi Trust for Compass Bank for Savings Executive Deferred Compensation Plan+

10.17*     Sandwich Co-operative Bank 1992 Directors Deferred Compensation Plan++

10.20*     Seacoast Financial Services Corporation 1999 Stock Incentive Plan++++

11            A statement regarding earnings per share is included in Item 1, Note 5, of this report.

b.             Reports on Form 8-K: No reports on Form 8-K were filed during the quarter ended September 30, 2001.

*             Management compensatory plan or arrangement.

+              Incorporated by reference to the Company’s Registration Statement on Form S-1 (333-52889), filed with the Securities and Exchange Commission under the Company’s prior name, “The 1855 Bancorp”, on May 15, 1998.

++           Incorporated by reference to Amendment No. 1 to the Company’s Registration Statement on Form S-1 (333-52889), filed with the Securities and Exchange Commission under the Company’s prior name, “The 1855 Bancorp”, on August 14, 1998.

+++         Incorporated by reference to the Company’s Registration Statement on Form 8-A filed with the Securities and Exchange Commission on November 18, 1998.

++++       Incorporated by reference to the Company’s Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on April 16, 1999.

+++++    Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 28, 2000.

++++++  Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on August 3, 2000.

SIGNATURES

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

		Seacoast Financial Services Corporation
		(Registrant)
Date: November 13, 2001	By	/s/ Kevin G. Champagne
		Kevin G. Champagne
		President and Chief Executive Officer
Date: November 13, 2001	By	/s/ Francis S. Mascianica, Jr.
		Francis S. Mascianica, Jr.
		Treasurer, as Principal Financial and
		Accounting Officer