Seacoast Financial Services Corporation Announces First Quarter 2004 Results, Dividend; Receipt of Approvals for Abington Merger

Business Wire, April 22, 2004

Business Editors

NEW BEDFORD, Mass.--(BUSINESS WIRE)--April 22, 2004

Seacoast Financial Services Corporation (NASDAQ: SCFS) holding company for Compass Bank and Nantucket Bank, today announced net income of $6.7 million, or $0.26 per diluted share, for the quarter ended March 31, 2004, compared to a net loss of $3.1 million, or $0.14 per diluted share, for the quarter ended March 31, 2003. During the first quarter of 2004, the Company recorded a charge for expenses incurred in connection with its pending merger with Sovereign Bancorp Inc. (Sovereign) (NYSE: SOV) which reduced net income by $1.8 million, or $0.07 per diluted share. Included in the first quarter 2003 results is an $11.2 million charge to earnings, $0.50 per diluted share, due to a retroactive change to Massachusetts tax law implemented on March 5, 2003.

Kevin G. Champagne, President and CEO stated, "I am pleased with our operating results for the first quarter. We are on target with our previously announced merger with Abington Bancorp, Inc. (Abington) (NASDAQ: ABBK) to close on April 29, 2004 and are in receipt of all regulatory approvals. We are also preparing for the merger with Sovereign that we announced in January 2004 which is still expected to close in the third quarter of 2004."

Net interest income totaled $34.8 million for the quarter ended March 31, 2004 compared to $31.0 million in the same period in 2003, an increase of $3.8 million, or 12%. This increase was mainly attributable to solid loan and deposit growth of over 19% during the past year aided by the acquisition of Bay State Bancorp, in May 2003. Seacoast's net interest margin in the quarter ended March 31, 2004 was 3.41% compared to 3.50% in the same period in 2003 and 3.39% in the fourth quarter of 2003.

Deposit, loan fees and other income totaled $4.2 million for the quarter ended March 31, 2004 versus $3.3 million for the comparable quarter in 2003, an improvement of $941,000 or 29%. Growth in banking fees was due in part to the acquisition of Bay State Bancorp. Gains on sales of securities and loans totaled $1.0 million for the quarter ended March 31, 2004 versus $304,000 for the comparable quarter in 2003.

Noninterest expenses increased $5.3 million, or 26%, during the first quarter of 2004 to $25.6 million compared to $20.4 million in the same period in 2003. Included in other noninterest expense in the first quarter of 2003 is an interest charge of $1.6 million for the retroactive tax assessment by the Commonwealth of Massachusetts pertaining to the disallowance of the dividend received deductions for dividends from a REIT. Included in noninterest expenses in the first quarter of 2004 are certain merger related expenses of $1.8 million pertaining to the merger with Sovereign. Expenses related to the merger with Abington will be included in the cost of that acquisition to be accounted for upon consummation. For the first quarter of 2004, salaries and employee benefits increased by $2.4 million, occupancy and equipment expenses increased by $883,000, marketing expenses increased by $495,000 and professional services expenses increased by $908,000. Such increases are generally attributable to franchise expansion, including several new branches as well as the acquisition of Bay State Bancorp.

Income tax provisions decreased by $9.1 million from the first quarter of 2003, which was materially impacted by the retroactive assessment of the disallowance of the dividend received deduction on distributions from a REIT. Exclusive of this retroactive assessment of $9.6 million, income tax provisions in the first quarter of 2003 would have been $5.6 million for an effective tax rate of 46.3%. The first quarter of 2004 tax provisions were impacted by the non-deductibility of merger expenses, thereby increasing the effective tax rate to 47.6% from 41.6%.

Total assets increased by $67.7 million from December 31, 2003 to a total of $4.5 billion at March 31, 2004. Total loans increased by $62.8 million from December 31, 2003 to a total of $3.7 billion at March 31, 2004. The increases were mainly in residential real estate loans, indirect automobile loans, construction loans and commercial real estate loans which increased $29.4 million, $15.1 million, $7.6 million, and $7.3 million, respectively. The current low interest rate environment continues to fuel the housing and automobile sector and has helped to sustain strong earning asset growth for the quarter.

Total deposits of $2.9 billion at March 31, 2004 were up by $7.6 million from the December 31, 2003 balances. Growth in NOW checking accounts and certificates of deposit were partially offset by declines in savings and money market balances. The reduction in savings balances was due primarily to a decline in municipality balances. Wholesale borrowing increased $52.2 million for the first quarter of 2004 as the Company took advantage of the favorable rate environment to draw down some longer term funding.

Total stockholders' equity at March 31, 2004 was $396.7 million versus $390.9 million at December 31, 2003. This represents a tangible book value per share of $10.69 at March 31, 2004 versus $10.48 at December 31, 2003.