SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                      ------------------------------------


                                    FORM 10-Q


(Mark One)


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

                                       or

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


    For the transition period from November 1, 1998 to December 31, 1998


                        COMMISSION FILE NUMBER: 000-25077


                     SEACOAST FINANCIAL SERVICES CORPORATION
             ------------------------------------------------------
             (Exact Name of Registrant as Specified in Its Charter)


<TABLE>
<S>                                                        <C>       
                 Massachusetts                                        04-1659040
          ----------------------------                   -------------------------------------
            (State of Incorporation)                       (IRS Employer Identification No.)


  791 Purchase Street, New Bedford, Massachusetts                        02740
---------------------------------------------------                 --------------
     (Address of Principal Executive Offices)                         (Zip Code)
</TABLE>


                                 (508) 984-6000
                         -------------------------------
                         (Registrant's Telephone Number)


                                   October 31
 -------------------------------------------------------------------------------
 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  X    No
                                                                  -----    -----

At March 12, 1999, the Company had 26,758,471 shares of common stock
outstanding.


<PAGE>



                     SEACOAST FINANCIAL SERVICES CORPORATION
                                      INDEX



<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION                                                  PAGE NO.
                                                                                --------

<S>                                                                                  <C>
Item 1.   Financial Statements (unaudited)

               Consolidated Balance Sheets at December 31, 1998                       1
               and October 31, 1998

               Consolidated Statements of Income for the two months                   2
               ended December 31, 1998 and 1997

               Consolidated Statements of Changes in Stockholders' Equity             3
               for the two months ended December 31, 1998 and 1997

               Consolidated Statements of Cash Flows for the two months ended         4
               December 31, 1998 and 1997

               Notes to Unaudited Consolidated Financial Statements                   6

Item 2.   Management's Discussion and Analysis of Financial                          11
          Condition and Results of Operations

               Liquidity and Capital Resources                                       13

               Impact of The Year 2000 Issue                                         13

Item 3.   Quantitative and Qualitative Disclosures About Market Risk                 15


PART II - OTHER INFORMATION

Item 1.   Legal Proceedings                                                          16

Item 2.   Changes in Securities and Use of Proceeds                                  16

Item 3.   Defaults upon Senior Securities                                            17

Item 4.   Submission of Matters to a Vote of Security Holders                        17

Item 5.   Other Information                                                          17

Item 6.   Exhibits and Reports on Form 8-K                                           18

SIGNATURES                                                                           19

EXHIBIT 27 - Financial Data Schedule
</TABLE>




<PAGE>


            SEACOAST FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                      December 31,   October 31,
                                                                                          1998          1998
                                                                                     -------------  -------------

<S>                                                                                   <C>            <C>
ASSETS:
     Cash and due from banks.......................................................   $   54,006     $   65,340
     Federal funds sold............................................................       47,413         41,033
                                                                                      ----------     ----------
        Total cash and cash equivalents............................................      101,419        106,373
     Other short-term investments..................................................       31,119         10,015
     Investment securities--
        Available-for-sale, at fair value..........................................      294,527        290,959
        Held-to-maturity, at amortized cost........................................       12,693         13,694
        Restricted equity securities...............................................        9,035          9,035
     Loans held-for-sale...........................................................           --         13,495
     Loans, net (Note 4)...........................................................    1,385,838      1,303,919
     Accrued interest receivable...................................................        8,523          8,463
     Banking premises and equipment, net (Note 3)..................................       19,743         21,145
     Other real estate owned.......................................................        1,391          1,299
     Net deferred tax asset........................................................       10,298          9,526
     Other assets..................................................................       13,131         18,600
                                                                                      ----------     ----------
           Total assets............................................................   $1,887,717     $1,806,523
                                                                                      ==========     ==========

LIABILITIES AND STOCKHOLDERS' EQUITY:
     Deposits (Note 5).............................................................   $1,496,706     $1,531,074
     Short -term borrowings........................................................       12,835         15,801
     Federal Home Loan Bank advances...............................................       83,951         85,111
     Other borrowings..............................................................          283            284
     Mortgagors' escrow payments...................................................        3,411          2,527
     Accrued expenses and other liabilities........................................       19,019         18,156
                                                                                      ----------     ----------
           Total liabilities.......................................................    1,616,205      1,652,953
                                                                                      ----------     ----------
     COMMITMENTS AND CONTINGENCIES
     Stockholders' equity:
        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;
           26,758,471 shares issued and outstanding................................          268             --
        Additional paid-in capital.................................................      152,936             --
        Surplus....................................................................           --        151,012
        Retained earnings..........................................................      127,263             --
        Accumulated other comprehensive income.....................................        2,337          2,558
        Unearned ESOP compensation.................................................     (11,153)             --
        Shares held in employee trust..............................................        (139)             --
                                                                                      ----------     ----------
           Total stockholders' equity..............................................      271,512        153,570
                                                                                      ----------     ----------
           Total liabilities and stockholders' equity..............................   $1,887,717     $1,806,523
                                                                                      ==========     ==========
</TABLE>

   See accompanying notes to the unaudited consolidated financial statements.


                                       -1-
<PAGE>



            SEACOAST FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
               FOR THE TWO MONTHS ENDED DECEMBER 31, 1998 AND 1997
                                   (Unaudited)
                                 (In Thousands)



<TABLE>
<CAPTION>
                                                                                           1998        1997
                                                                                         --------     -------
INTEREST AND DIVIDEND INCOME:
<S>                                                                                      <C>          <C>
   Interest on loans...............................................................      $ 17,790     $16,617
   Interest and dividends on investments securities................................         3,067       3,493
   Interest on federal funds sold and short-term investments.......................           775         379
                                                                                         --------     -------
      Total interest and dividend income...........................................        21,632      20,489
                                                                                         --------     -------

INTEREST EXPENSE:
   Interest on deposits............................................................         9,526       9,124
   Interest on borrowed funds......................................................         1,025       1,220
                                                                                         --------     -------
      Total interest expense.......................................................        10,551      10,344
                                                                                         --------     -------
      Net interest income..........................................................        11,081      10,145

PROVISION FOR LOAN LOSSES..........................................................           416         277
                                                                                         --------     -------
      Net interest income after provision
        for loan losses............................................................        10,665       9,868
                                                                                         --------     -------

NONINTEREST INCOME:
   Deposit and other banking fees..................................................           816         803
   Loan servicing fees, net........................................................           121         132
   Card fee income, net............................................................            90          75
   Other loan fees.................................................................           115          82
   Gain on sales of investment securities, net.....................................            22          46
   Gain on sales of loans, net.....................................................           244         283
   Other income....................................................................           259         271
                                                                                         --------     -------
      Total noninterest income.....................................................         1,667       1,692
                                                                                         --------     -------

NONINTEREST EXPENSE:
   Salaries and employee benefits..................................................         3,963       3,501
   Occupancy and equipment expenses................................................           924         791
   Data processing expenses........................................................           651         474
   Marketing expenses..............................................................           418         239
   Professional services expenses..................................................           361         336
   Deposit insurance premiums......................................................            39          39
   Other real estate owned expenses, net...........................................            62         114
   Other operating expenses........................................................         1,014       1,065
   Merger-related expenses (Note 2)................................................         6,813          --
   Writedown of banking premises and equipment (Note 3)............................         1,967          --
                                                                                         --------     -------
      Total noninterest expense....................................................        16,212       6,559
                                                                                         --------     -------
      Income (loss) before provision (benefit) for income taxes....................       (3,880)       5,001

PROVISION (BENEFIT) FOR INCOME TAXES...............................................         (544)       1,717
                                                                                         --------     -------
      Net income (loss)............................................................      $(3,336)     $ 3,284
                                                                                         ========     =======

      Net income (loss) per share (Note 6).........................................      $ (0.15)         N/A
                                                                                         ========     =======
</TABLE>

   See accompanying notes to the unaudited consolidated financial statements.

                                       -2-

<PAGE>



            SEACOAST FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

               FOR THE TWO MONTHS ENDED DECEMBER 31, 1998 AND 1997

                                   (Unaudited)
                                 (In thousands)


<TABLE>
<CAPTION>
                                                                                Additional
                                                                   Common        Paid-In                                 Retained 
                                                                    Stock        Capital             Surplus             Earnings 
                                                                  --------      ----------          ---------           ----------


<S>                                                                <C>          <C>                 <C>                 <C>       
Balance, October 31, 1997, as restated (Note 1) ..........         $  --        $       --          $ 138,387           $      -- 
Net income ...............................................            --                --              3,284                  -- 
Other comprehensive income -- Change in unrealized gain on
   securities available for sale, net of taxes ...........            --                --                 --                  --

       Comprehensive income ..............................
Effect of difference in year-ends ........................            --                --             (1,028)                 -- 
                                                                   -----        ----------          ---------           ---------
Balance, December 31, 1997 ...............................         $  --        $       --          $ 140,643           $      -- 
                                                                   =====        ==========          =========           =========
Balance, October 31, 1998, as restated (Note 1) ..........         $  --        $       --          $ 151,012           $      -- 
Transactions with stockholders of acquired entity ........            --                81                 --                  -- 
Stock offering, net of expenses of $7,290 ................           140           132,570                 --                  -- 
Reclassification of equity accounts due to merger with
   Sandwich Bancorp, Inc. and mutual-to-stock conversion .           128            20,285           (151,012)            130,599
Net loss .................................................            --                --                 --              (3,336)
Other comprehensive income -- Change in unrealized gain on
   securities available for sale, net of taxes ...........            --                --                 --                  -- 

       Comprehensive income (loss) .......................
Amortization of unearned ESOP compensation ...............            --                --                 --                  -- 
                                                                   -----        ----------          ---------           ---------
Balance, December 31, 1998 ...............................         $ 268        $  152,936          $      --           $ 127,263
                                                                   =====        ==========          =========           =========



<CAPTION>
                                                               Accumulated Other        ESOP           Shares Held
                                                                 Comprehensive        Unearned         in Employee
                                                                    Income          Compensation          Trust            Total
                                                               -----------------   --------------      ------------      ---------


Balance, October 31, 1997, as restated (Note 1) ..........          $ 1,741        $        --         $    --           $ 140,128
Net income ...............................................               --                 --              --               3,284
Other comprehensive income -- Change in unrealized gain on
   securities available for sale, net of taxes ...........               93                 --              --                  93
                                                                                                                         ---------
       Comprehensive income ..............................                                                                   3,377
Effect of difference in year-ends ........................               --                 --              --              (1,028)
                                                                    -------           --------           -----           ---------
Balance, December 31, 1997 ...............................          $ 1,834        $        --         $    --           $ 142,477
                                                                    =======           ========           =====           =========
Balance, October 31, 1998, as restated (Note 1) ..........          $ 2,558        $        --         $    --           $ 153,570
Transactions with stockholders of acquired entity ........               --                 --              --                  81
Stock offering, net of expenses of $7,290 ................               --            (11,200)           (139)            121,371
Reclassification of equity accounts due to merger with
   Sandwich Bancorp, Inc. and mutual-to-stock conversion .               --                 --              --                  --
Net loss .................................................               --                 --              --              (3,336)
Other comprehensive income -- Change in unrealized gain on
   securities available for sale, net of taxes ...........             (221)                --              --                (221)
                                                                                                                         ---------
       Comprehensive income (loss) .......................                                                                  (3,557)
Amortization of unearned ESOP compensation ...............               --                 47              --                  47
                                                                    -------           --------           -----           ---------
Balance, December 31, 1998 ...............................          $ 2,337           $(11,153)          $(139)          $ 271,512
                                                                    =======           ========           =====           =========
</TABLE>





   See accompanying notes to the unaudited consolidated financial statements.

                                       -3-

<PAGE>



            SEACOAST FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
               FOR THE TWO MONTHS ENDED DECEMBER 31, 1998 AND 1997
                                   (Unaudited)
                                 (In Thousands)



<TABLE>
<CAPTION>
                                                                                              1998                   1997
                                                                                          -------------          ------------

<S>                                                                                       <C>                    <C>       
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income (loss).........................................................           $     (3,336)          $    3,284
     Adjustments to reconcile net income (loss) to net cash
        provided by operating activities--
        Depreciation and writedown of premises and equipment...................                   2,358                  360
        Amortization and accretion, net........................................                     269                  199
        Merger-related expenses................................................                   6,813                   --
        Provision for loan losses..............................................                     416                  277
        Gain on sale of investment securities, net.............................                    (21)                 (46)
        Provision for other real estate losses.................................                      18                   63
        Gain on sale of other real estate owned................................                      --                  (9)
        Provision for deferred (prepaid) taxes.................................                 (1,340)                    5
        Originations of loans held-for-sale....................................                      --             (18,314)
        Proceeds from sales of loans originated for resale.....................                  12,909               16,452
        Gain on sales of loans, net............................................                   (244)                (283)
        Net increase in accrued interest receivable............................                    (60)                (296)
        Net (increase) decrease in other assets................................                   3,431              (2,120)
        Net increase in accrued expenses                                                   
          and other liabilities................................................                     553                4,035
                                                                                          -------------          -----------
                  Net cash provided by operating activities....................                  21,766                3,607
                                                                                          -------------          -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchase of securities classified as available-for-sale...................                (44,968)             (26,315)
     Purchase of securities classified as held-to-maturity.....................                      --              (2,982)
     Proceeds from sales, calls, paydowns and maturities of
        securities classified as available-for-sale............................                  18,973               28,946
     Proceeds from paydowns, maturities and calls of securities
        classified as held-to-maturity.........................................                   1,000                1,150
     Purchase of premises and equipment........................................                   (974)              (2,705)
     Purchase of loans.........................................................                 (4,158)                (250)
     Net increase in loans.....................................................                (77,691)             (10,515)
     Recoveries of loans previously charged off................................                      65                   23
     Proceeds from sales of other real estate owned............................                     216                  447
     Proceeds from sales of premises and equipment.............................                      18                1,060
                                                                                          -------------          -----------
                  Net cash used in investing activities........................               (107,519)             (11,141)
                                                                                          -------------          -----------
</TABLE>



                                       -4-

<PAGE>



            SEACOAST FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
               FOR THE TWO MONTHS ENDED DECEMBER 31, 1998 AND 1997
                                   (Unaudited)
                                 (In Thousands)



<TABLE>
<CAPTION>
                                                                                              1998                   1997
                                                                                          -------------          ------------

<S>                                                                                       <C>                    <C>        
CASH FLOWS FROM FINANCING ACTIVITIES:
     Decrease in NOW, money market deposit and
        demand deposit accounts................................................           $        (64)          $   (5,440)
     Decrease in passbook and other
        savings accounts.......................................................                (26,756)                (462)
     Increase (decrease) in term certificates..................................                 (7,548)                9,909
     Advances from Federal Home Loan Bank......................................                      --               18,550
     Repayments of Federal Home Loan Bank advances.............................                 (1,160)             (16,034)
     Proceeds of stock offering, net...........................................                 123,008                   --
     Transactions with stockholders
        of acquired entity.....................................................                   (649)                    8
     Payment of merger costs...................................................                 (3,949)                   --
     Increase (decrease) in short-term and other borrowings....................                 (2,967)                1,697
     Increase in mortgagors' escrow payments...................................                     884                  681
                                                                                          -------------          -----------
                  Net cash provided by financing activities....................                  80,799                8,909
                                                                                          -------------          -----------
NET INCREASE (DECREASE) IN CASH
     AND CASH EQUIVALENTS......................................................                 (4,954)                1,375
CASH AND CASH EQUIVALENTS,
     BEGINNING OF YEAR.........................................................                 106,373               49,020
                                                                                          -------------          -----------
CASH AND CASH EQUIVALENTS,
     END OF YEAR...............................................................           $    101,419           $    50,395
                                                                                          =============          ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
     INFORMATION:
        Interest paid on deposits and borrowed funds...........................           $     10,419           $   10,251
        Income taxes paid......................................................                      --                   --
SUPPLEMENTAL DISCLOSURE OF NONCASH
     TRANSACTIONS:
        Transfers from loans to other real estate owned........................                     326                  359
        Transfer from loans held-for-sale to loans.............................                  10,469                   --
        Stock offering proceeds funded by customer
          deposit accounts.....................................................                  24,567                   --
</TABLE>




   See accompanying notes to the unaudited consolidated financial statements.

                                       -5-

<PAGE>



            SEACOAST FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1998 and 1997

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

Basis of Presentation

      The unaudited consolidated financial statements of Seacoast Financial
Services Corporation (the "Company"), and its wholly-owned subsidiaries, Compass
Bank for Savings ("Compass" or "the Bank") and Lighthouse Securities Corporation
presented herein should be read in conjunction with the consolidated financial
statements of the Company as of and for the year ended October 31, 1998 included
as part of its Form 10-K. This Transition Report for the two month period ended
December 31, 1998 is being filed as a result of the change in the Company's
fiscal year end from October 31 to December 31 which was voted by the Board of
Directors on January 28, 1999.

      On November 20, 1998, the Company completed its conversion from a mutual
bank holding company to a stock holding company with the issuance of 14,000,000
shares of common stock in an initial public offering. On December 4, 1998, the
Company completed its acquisition of Sandwich Bancorp, Inc. (Sandwich) in a
stock-for-stock exchange accounted for as a pooling of interests. The
accompanying financial statements have been restated to combine the assets,
liabilities, equity and results of operations of Sandwich as if the merger had
occurred as of October 31, 1997 as required by the pooling of interests method
of accounting. The following presentation summarizes the impact of the Company's
merger with Sandwich on its previously reported equity at October 31, 1997 and
1998 (in thousands):


<TABLE>
<CAPTION>
                                                                1998                                      1997
                                                 ------------------------------------       --------------------------------
                                                                      Accumulated                            Accumulated
                                                                  other comprehensive                    other comprehensive
                                                  Surplus                income             Surplus              income
                                                 --------         -------------------       -------      -------------------
<S>                                              <C>                     <C>                <C>                  <C>   
Balance, as previously
   reported..................................    $110,020                $2,552             $96,527              $1,614
Effect of Sandwich merger....................      45,315                   186              41,929                  85
Elimination of intercorporate
   investment................................     (4,323)                  (309)                (69)                (73)
Reclassification of Sandwich investment
   securities to available-for-sale..........          --                   129                  --                 115
                                                 --------                ------             -------              ------
Balance, as restated.........................    $151,012                $2,558            $138,387              $1,741
                                                 ========                ======            ========              ======
</TABLE>



      Sandwich's fiscal year end was on December 31. For periods prior to 1998,
the accompanying financial statements combine Sandwich's financial data as of
December 31 with the Company's financial data as of October 31. For 1998,
Sandwich's information is as of October 31, 1998 and the twelve months then
ended. As a result, results of operations for the two month period ended
December 31, 1997, which amounted to a $1,028,000 increase in surplus, is
included in both surplus at October 31, 1997 and net income for the two months
ended December 31, 1997. This amount has been segregated as a reduction of
surplus in the accompanying statement of changes in stockholders' equity.

      As more fully discussed in Notes 2 and 3, the Company recognized certain
one time charges during the two month period ended December 31, 1998. These
charges resulted from the Sandwich merger and the Company's decision to dispose
of certain buildings and equipment in connection with its plan to construct a
new corporate headquarters.

      The results of operations for the two month transition period ended
December 31, 1998 will not be included with the results of operations of any
full fiscal year, but will be audited and separately presented in the Company's
annual





                                       -6-

<PAGE>


            SEACOAST FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1998 and 1997

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

report on Form 10-K for the year ending December 31, 1999. In the opinion of
management, the accompanying unaudited financial statements reflect all
adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation. Management is required to make estimates and assumptions that
effect 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 filed
with the SEC. For interim reporting purposes, the Company follows the same
significant accounting policies.

Adoption of New Accounting Pronouncements

      Effective November 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." This
statement establishes standards for reporting and displaying comprehensive
income, which is defined as all changes to equity except investments by and
distributions to stockholders. Net income is a component of comprehensive income
with all other components referred to in the aggregate as other comprehensive
income. At December 31, 1998, the Company's other comprehensive income consisted
of unrealized gains on securities classified as available for sale, net of
taxes. The Company has presented its components of comprehensive income as part
of its statements of changes in stockholders' equity and, as required by SFAS
No. 130, has restated the prior period financial statements for comparative
purposes. Included in net income (loss) for the two months ended December 31,
1997 and 1998 are gains on the sale of investment securities of $46,000 and
$22,000, respectively, that had previously been classified with other
comprehensive income.

      Effective November 1, 1998, the Company adopted SFAS No. 131, "Disclosure
about Segments of an Enterprise and Related Information". In the opinion of
management, the Company functions as a single reportable operating unit and,
accordingly, the presentation of disaggregated information about segments of a
business enterprise is not applicable.

(2)   CONVERSION AND MERGER

      The Company completed its mutual-to-stock conversion and the initial
public offering of common stock on November 20, 1998, whereby a total of
14,000,000 shares were sold at a purchase price of $10 per share. An Employee
Stock Ownership Plan (ESOP) set-up by Compass acquired 8%, or 1,120,000, of the
shares issued which was funded by a loan from the Company. Net proceeds of the
Conversion were $121,371,000 which excludes the sale of ESOP shares which are
internally funded.

      On December 4, 1998, the Company completed its acquisition of Sandwich.
Pursuant to the Amended and Restated Affiliation and Merger Agreement, each
share of common stock of Sandwich (other than 90,000 shares held by the Company
and the Bank and other than fractional shares) was converted into and became
exchangeable for 6.385 shares of the Company's common stock. The exchange ratio
was determined using a formula based on the Company's stock trading price
between the date of the Conversion and the closing of the acquisition. A total
of 12,758,471 shares were issued in connection with the acquisition.

                                       -7-
<PAGE>


            SEACOAST FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1998 and 1997

(2)   CONVERSION AND MERGER (Continued)

      The Company has identified and separately classified those costs
attributable to the merger. These costs encompass both costs directly
identifiable to the merger, such as professional fees for investment bankers,
attorneys and accountants, and contractual severance pay as well as costs
incurred by Sandwich and the Bank that result from the merger and do not
generally benefit the on-going activities of the banks. Merger-related costs
consist of the following items (in thousands):

<TABLE>
<S>                                                           <C>   
      Professional fees.....................................  $2,692
      Severance pay.........................................   2,555
      Asset write-offs......................................     143
      Contractual obligations...............................     406
      Shareholder meeting (including printing costs)........     283
      Customer service (including checkbook replacements)...     662
      Other.................................................      72
                                                              ------
                                                              $6,813
                                                              ======
</TABLE>

   These costs were expensed in the two month period ended December 31, 1998.

(3)   NEW CORPORATE HEADQUARTERS

      On December 1, 1998, the Bank closed on its acquisition of several parcels
of land in downtown New Bedford, Massachusetts to be used for the development of
the Company's and the Bank's corporate headquarters and main banking office. The
Bank purchased the land from the New Bedford Redevelopment Authority and an
optionholder for $550,000. In connection with this transaction, the Bank agreed
to donate one of its downtown New Bedford buildings to the City at the time it
takes occupancy of its proposed new corporate headquarters. In February 1999,
the Bank selected a general contractor for construction. Based on preliminary
estimates by its architectural consultants, it expects to expend approximately
$20 million in the construction of the building and the purchase of land,
furniture, fixtures and equipment. At the completion of the project, which is
estimated to be in 2000, all Bank personnel, except retail branch personnel, are
expected to be located in this building.

      As part of this transaction, the Bank entered into a Tax Increment
Financing Agreement with the City of New Bedford. This agreement provides a
reduction in future property taxes to the Bank in return for its investment,
through this project, in downtown New Bedford. The tax incentives extend over a
twenty year period and are scheduled to produce an estimated $1.2 million in
property tax reductions. This agreement is conditional and requires the Bank to
retain and create permanent jobs in the City.

      The Bank's plan to construct a new corporate headquarters will result in
the ultimate disposal of its existing corporate offices. One location is
currently being marketed for sale. Two other buildings will continue to be
utilized until the Bank relocates to its new corporate headquarters (one of
which will be donated to the City of New Bedford at that time). Based on
estimates of the fair value of these buildings and the benefits associated with
their continuing utilization through the estimated date of relocation, the Bank
recorded a write-down of $1,967,000 in December 1998.

                                       -8-
<PAGE>



            SEACOAST FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1998 and 1997


(4) LOANS

    Compass's loan portfolio consisted of the following:


<TABLE>
<CAPTION>
                                                                                December 31,            October 31,
                                                                                    1998                    1998
                                                                               --------------          -------------
                                                                                          (In thousands)

<S>                                                                            <C>                     <C>         
Real estate loans:
   Residential (one-to-four family).....................................       $      696,668          $    629,779
   Commercial...........................................................              185,404               194,773
   Home equity lines of credit..........................................               25,984                27,471
   Construction.........................................................               66,373                63,189
                                                                               --------------          ------------
      Total real estate loans...........................................              974,429               915,212
                                                                               --------------          ------------

Commercial loans........................................................               75,061                64,937
                                                                               --------------          ------------

Consumer loans:
   Indirect auto loans..................................................              356,162               342,266
   Other................................................................               33,494                33,822
                                                                               --------------          ------------
   Total consumer loans.................................................              389,656               376,088
   Less-Unearned discount...............................................               37,394                37,201
                                                                               --------------          ------------
      Total consumer loans, net.........................................              352,262               338,887
                                                                               --------------          ------------
      Total loans.......................................................            1,401,752             1,319,036
Less-Allowance for loan losses..........................................               15,914                15,117
                                                                               --------------          ------------

      Total loans, net..................................................       $    1,385,838          $  1,303,919
                                                                               ==============          ============
</TABLE>

      Nonaccrual loans amounted to $6,045,000 and $6,535,000 at December 31,
1998 and October 31, 1998, respectively.











                                       -9-

<PAGE>



            SEACOAST FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1998 and 1997


(5)   DEPOSITS

      A summary of deposit balances is as follows:


<TABLE>
<CAPTION>
                                                                                    December 31,         October 31,
                                                                                        1998                 1998
                                                                                   --------------      --------------
                                                                                           (In thousands)

<S>                                                                                <C>                 <C>           
Demand deposit accounts.................................................           $      115,595      $      115,517
NOW and money market deposit accounts...................................                  430,320             430,462
Passbook and other savings accounts.....................................                  205,461             232,217
                                                                                   --------------      --------------

      Total noncertificate accounts.....................................                  751,376             778,196
                                                                                   --------------      --------------

Term certificates-
   Term certificates of $100,000 and over...............................                  154,589             159,460
   Term certificates less than $100,000.................................                  590,741             593,418
                                                                                   --------------      --------------

      Total term certificate accounts...................................                  745,330             752,878
                                                                                   --------------      --------------

   Total deposits.......................................................           $    1,496,706      $    1,531,074
                                                                                   ==============      ==============
</TABLE>


(6)   EARNINGS PER SHARE

      Earnings per share for the two months ended December 31, 1997 is not
presented as the Company did not convert from a mutual to a stock form of
ownership until November 1998.

      The loss per share for the two months ended December 31, 1998 was computed
based on the weighted average number of shares outstanding during the period,
which amounted to 21,626,667 shares. For purposes of this computation, shares
issued in connection with the acquisition of Sandwich were treated as
outstanding for the entire period. Unallocated ESOP shares are not considered
outstanding for purposes of the computation of earnings per share.



                                      -10-

<PAGE>



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

   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. 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 non-performing 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, the so-called
Year 2000 issue, changes in interest rates, and increased competition and bank
consolidations in the Company's market area.

Comparison of Financial Condition at December 31, 1998 and October 31, 1998

      Total assets increased by $81.2 million, or 4.5%, from $1,806.5 million at
October 31, 1998 to $1,887.7 million at December 31, 1998. This growth was
entirely due to an $82.7 million, or 6.3% increase in loans. Asset growth was
funded by the net proceeds of the stock offering which amounted to $121.4
million, of which $33.5 million at October 31, 1998 was included in deposits
earmarked for the purchase of common stock in the stock offering.

      The increase in loans occurred primarily in the residential mortgage and
indirect auto loan portfolios. From October 31, 1998 to December 31, 1998,
residential mortgage loans increased by $56.4 million (exclusive of a transfer
of loans previously classified as held-for-sale), or 9.0%, and indirect auto
loans (net of unearned discounts) increased by $13.7 million, or 4.5%. The
growth during the two months ended December 31, 1998 is generally attributable
to the favorable interest rate environment and economic conditions which
prevailed during this period and, more specifically, is due to the previously
disclosed temporary change in practice by Compass to retain in portfolio all
fixed rate residential mortgage loan originations. As a result, residential
mortgage loan sales declined from $16.2 million in the two month period ended
December 31, 1997 to $12.9 million in the two month period ended December 31,
1998. The Company has continued to emphasize the origination of indirect auto
loans through its network of automobile dealers causing the growth in this
portfolio.

      Total deposits at December 31, 1998 were $1,496.7 million, a decrease of
$34.4 million, or 2.2% compared to $1,531.1 million at October 31, 1998. As
indicated above, a portion of the proceeds of the stock offering was funded by
either deposit accounts of Bank customers or from non-customers who had funded
their stock subscriptions with the Bank at October 31, 1998. Of the $121.4
million of net proceeds of the stock offering, $24.6 million was funded from the
deposits of Bank customers and $31.9 million was funded from non-customer
subscription accounts, of which $18.0 was held by the Bank as deposits at
October 31, 1998. These funds, totaling $42.6 million, were transferred to
stockholders' equity in November 1998 when the stock offering was completed.
Exclusive of this transfer, deposits increased by less than 1% during the two
months ended December 31, 1998, a cyclical period which has historically been
one of modest deposit growth. Total borrowed funds were $97.1 million at
December 31, 1998 compared to $101.2 million at October 31, 1998, a decrease of
$4.1 million, or 4.1%.

      The increase in stockholders' equity of $117.9 million to $271.5 million
at December 31, 1998 resulted from the net proceeds of the stock offering of
$121.4 million offset by the net loss of $3.3 million for the two months ended
December 31, 1998. As discussed more fully elsewhere herein, the net loss was
caused by certain one time charges including merger costs associated with the
Sandwich acquisition and the writedown of banking premises and equipment.

Comparison of Operating Results for the Two Months Ended December 31, 1998 and
December 31, 1997

      The Company incurred a net loss of $3.3 million for the two months ended
December 31, 1998 compared to net income of $3.3 million for the comparable
period in 1997. The net loss for the 1998 period reflects certain one time
charges including $5.1 million (after tax) of merger related costs resulting
from the Sandwich acquisition and $1.3 million (after tax) related to the
writedown of banking premises and equipment caused by the consummation of plans
to construct a new corporate headquarters and main banking office and to dispose
of the facilities which will be replaced. Exclusive of these one-time charges,
core earnings for the two months ended December 31,1998 were $3.1 million, or
$194,000 less than the net income in the comparable period in 1997.

      Interest Income. Interest income for the two months ended December 31,
1998 was $21.6 million, compared to 

                                      -11-

<PAGE>



$20.5 million for the two months ended December 31, 1997, an increase of $1.1
million, or 5.4%. All of the increase in interest income resulted from growth in
average interest-earning assets of $173.8 million, or 11.1%, as the overall
yield on interest-earning assets declined by 39 basis points in the 1998 period.
The principal areas of growth related to short-term investments (up $62.6 or
215.1%), real estate loans (up $39.7 million, or 4.5%) and indirect auto loans
(up $101.2 million, or 47.8%). Most of the real estate loan growth resulted from
increased originations and retention in portfolio of one-to-four family real
estate loans. The increase in indirect auto loans resulted from an improved
economic environment within Compass's local markets and the continued emphasis
of this area of lending.

      The net proceeds of the stock offering of $121.4 had a positive impact on
the Company's interest income and, in particular, its net interest income. Of
the increase of $936,000 in net interest income, approximately $700,000 is
attributable to the earnings on the investment of the net proceeds of the stock
offering during the two months ended December 31, 1998. Conversely, the
Company's overall yield on interest earning assets was negatively impacted as a
higher percentage of assets were invested in shorter-term, lower yielding
investments during the 1998 period.

      Interest Expense. Interest expense for the two months ended December 31,
1998 was $10.6 million, compared to $10.4 million for the two months ended
December 31, 1997, an increase of $207,000 or 2.0%. This increase resulted from
a higher average balance of interest-bearing liabilities (up $73.3 million, or
5.3%). Average interest-bearing deposit balances increased $95.2 million, or
7.5%, during the two months ended December 31, 1998 compared to the same period
in 1997 while the cost of deposits declined 12 basis points.

      Interest expense on borrowed funds decreased $195,000, or 16.0%, in the
two months ended December 31, 1998 due to a $21.9 million, or 18.5%, decrease in
the average balance of such funds which was partially offset by a 19 basis point
increase in the average rate paid on borrowed funds to 6.39% in the 1998 period
compared to the 1997 period.

      Provision for Loan Losses. Compass establishes provisions for loan losses,
which are charged to operations, in order to maintain the allowance for loan
losses at a level that management estimates is appropriate 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 real estate collateral, current and anticipated
economic conditions, volume and type of lending and the levels of nonperforming
and other classified loans. The amount of the allowance is based on estimates
and the ultimate losses may vary from such estimates. Management assesses the
allowance for loan losses on a quarterly basis and makes provisions for loan
losses monthly in order to maintain the adequacy of the allowance.

      Compass provided $416,000 for loan losses in the two month period ended
December 31, 1998 compared to $277,000 in the two month period ended December
31, 1997, an increase of $139,000. This increase was primarily influenced by the
growth in the loan portfolio.

      Non-Interest Income. Total non-interest income was $1.7 million for each
of the two months ended December 31, 1998 and 1997. In addition, there were no
significant shifts among the components of non-interest income. Gains on the
sale of loans declined by $39,000 during the two months ended December 31, 1998
as compared to the comparable period in 1997 as a result of the temporary change
in practice, initiated by the Bank in November 1998, whereby fixed rate
residential mortgage loans with terms of 15 years or longer are not being sold
in the secondary mortgage market. This change resulted from the Sandwich
acquisition and its impact on the sensitivity of the balance sheet to changes in
interest rates along with the relative attractiveness of the yield and expected
duration of such mortgage loans. Because of the timing of this change, its
impact was only partially felt in the two month period ended December 31, 1998.
While the Company expects to return to selling longer-term fixed rate
residential mortgage loans later in 1999, until it does so, the Company expects
to experience a decline in its gains on the sale of loans.

      Non-Interest Expense. Exclusive of the one time charges previously noted,
non-interest expense increased by $873,000, or 13.3%, from $6.6 million for the
two months ended December 31, 1997 to $7.4 million for the two months ended
December 31, 1998. Of this increase, $462,000 related to salaries and employee
benefits, which rose 13.2% to $4.0 million for the two months ended December 31,
1998. The higher level of compensation and employee benefits was caused by
overall salary increases averaging 4%, and employee benefit increases related to
the newly created ESOP, the inclusion of the former Sandwich employees in the
Bank's defined benefit plan and a non-recurring bonus of $250,000 related to the
qualification of the Company's real estate investment trust for favorable tax
treatment.

      Occupancy and equipment expenses increased $133,000, or 16.8%, to $924,000
for the two months ended December 31, 1998. This increase was due to an increase
in maintenance costs and rent expense attributable to 

                                      -12-

<PAGE>



relocation of the Bank's Operations and Consumer Lending Departments, the
opening of a new branch in Plymouth and an upgraded branch in Westport.

      Marketing expenses increased $179,000, or 74.9%, to $418,000 for the two
months ended December 31, 1998. This increase was primarily attributable to the
development of an image campaign, and related production and advertising costs,
to introduce Compass to each community on Cape Cod where Sandwich had a branch
office.

      Data processing expenses increased $177,000, or 37.3%, to $651,000 for the
two months ended December 31, 1998. This increase was due to new services,
including laser printing and Internet services, and volume-related increased in
loans and deposits.

      Income Taxes. The effective tax rate for the two months ended December 31,
1998 was 14.0%, or approximately 25% less than the Company's typical rate of
approximately 39%. This reduction in overall tax benefit is due to certain
non-deductible expenses of the Sandwich merger, primarily professional fees
directly related to the transaction.

      The effective tax rate for the two months ended December 31, 1997 was
34.3%. Income taxes were favorably impacted in 1997 by a non-recurring net
benefit of approximately $300,000 resulting from the utilization of a capital
loss carryforward.

Liquidity and Capital Resources

      Compass's liquidity, represented by cash and cash equivalents and debt
securities, is a product of its operating, investing, and financing activities.
The Bank's primary sources of funds are deposits, borrowings, principal and
interest payments on outstanding loans, mortgage-backed securities and
collateralized mortgage obligations, 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. Compass invests excess funds in
federal funds sold and other short-term investments which provide liquidity to
meet lending 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 December 31,1998, the Company maintained cash and
due from banks, short-term investments and debt securities (other than mortgage
related securities) maturing within one year of $171.3 million, or 9.1% of total
assets. Compass's liquidity at December 31, 1998 is slightly higher than its
historical level due, in part, to the recently completed stock offering.
Management anticipates that liquidity will be reduced during 1999.

      The Company's "Tier One" capital measured 21.7% of risk-weighted assets at
December 31, 1998. Total capital, including the "Tier Two" allowance for loan
losses, was 23.0% of risk-weighted assets. The leverage capital ratio was 14.1%.
These ratios placed the Company in the "well-capitalized" category according to
regulatory standards.

Impact of The Year 2000 Issue

      The Year 2000 Issue (commonly referred to as "Y2K") is the result of
computer programs being written using two digits, rather than four digits, to
define the applicable year. The Y2K issue, which is common to most corporations,
including banks, concerns the inability of information systems, primarily (but
not exclusively) computer software programs, to properly recognize and process
date-sensitive information as the Year 2000 approaches and beyond. The following
constitutes the Company's Y2K readiness disclosure under the Year 2000
Information and Readiness Disclosure Act.

      Since Compass's information systems functions are either outsourced to
service bureaus or processed in-house using programs developed by third-party
vendors, the direct effort to correct Y2K issues will be undertaken largely by
third parties and will therefore not be totally within Compass's direct control.
Compass expects to bring its mission critical operating systems into compliance
with Y2K requirements through the installation of updated or replacement
programs developed by third parties.

      Compass began addressing the Y2K issue in the Fall of 1996 when if formed
a Y2K Project Team comprised of financial, operations, information systems,
internal audit, compliance, lending, corporate services, loan servicing and
retail personnel. A formal Y2K Action Plan was developed by the Y2K Project Team
and approved by the Board of 

                                      -13-

<PAGE>



Directors in 1997. The Board of Directors receive quarterly Year 2000 status
reports on all mission critical systems and related testing details. During
1998, Compass engaged an outside consultant to assist in providing limited Y2K
assurance. Notwithstanding this engagement, Compass retains responsibility for
Y2K issues, plans and compliance efforts.

      The Y2K Project Team has completed an assessment, identified mission
critical systems, and created a formal tracking system identifying all third
party vendors and their Y2K compliant version of all bank installed systems.
Mission critical systems include hardware, software, program interfaces,
operating systems as well as other mechanical or computer-generated requirements
that are beyond Compass's main central processing system and network. Based upon
the results of the assessment, Compass has established internal time frames to
upgrade or replace its existing hardware and software systems. Compass has added
to the Information Systems staff in the first quarter of 1999. The Bank will
utilize internal and, if necessary, external resources to test the software and
systems for Year 2000 modifications. Compass has completed approximately 80% of
the planned upgrade to its 34 retail branches with new Y2K compliant hardware
and branch teller platform software. All branch upgrades are expected to be
substantially completed by the end of March 1999. Additionally, Compass has
replaced other specific hardware and software that had been identified as
non-compliant according to schedule. Currently, approximately 70% of Compass's
information technology infrastructure has been determined to be Year 2000 ready
and is deployed for use.

      Compass's plan to resolve the Y2K issue was developed along the five phase
project management process outlined in the Federal Financial Institutions
Examination Council (FFIEC) Year 2000 statement of May 5, 1997 which consisted
of (i) awareness; (ii) assessment; (iii) renovation; (iv) validation; and (v)
implementation. The awareness phase has been completed. The Y2K assessment was
completed and monitoring of service bureau and vendor progress is ongoing.
Renovation of third party systems that were identified as non-compliant have
either been upgraded or replaced by the compliant version or scheduled to be
upgraded by March 31, 1999. All non critical software applications effected by
the millennium have been identified. It is expected that these applications will
be upgraded and Y2K compliant by June 30, 1999. The Y2K Project Team has
developed and implemented test plans of all mission critical systems. Compass
conducted a successful test of its key transaction processing system with its
service bureau in the fourth quarter of 1998. In addition, Compass and its
outside consultant are scheduled to review documentation of its service bureaus'
test results during the first quarter of 1999. Compass is in the process of
developing its Y2K contingency plan incorporating certain elements of its
bankwide Disaster Recovery Plan. Also, Compass is working with its service
bureau to create a remote branch Mobile Recovery Unit, located in Framingham,
Massachusetts or possibly develop a paper-based, batch entry system to be used
in the event of a catastrophic telecommunications or power failure. The remote
branch Mobile Recovery Unit or paper-based, batch entry system would be created
at an off premise site that is capable of creating its own emergency power for
extended periods of time. Key documents would then be delivered to the remote
branch which is capable of transmitting data to Compass's service bureau. Both
locations also have emergency power to continue processing customer account
activity. The Compass contingency plan is scheduled to be completed by June 30,
1999 in accordance with the recently issued Interagency Regulatory Statement on
Contingency Planning. Contingency plans will be initiated if a vendor misses its
target date or is not considered Y2K compliant by June 30, 1999.

      The chief components of Compass's expense related to the Y2K issue are
currently believed to be the replacement of personal computer equipment and the
purchase or upgrade of third-party software. External maintenance and internal
modification costs will be expensed as incurred. Costs of new hardware and
software will be capitalized and depreciated in accordance with Compass
policies. Management expects to incur cost in the range of $750,000 to $1.0
million on its Year 2000 readiness efforts. Through December 31, 1998, Compass
had expended approximately $550,000. Costs of the Y2K project are based on
current estimates and actual results could vary significantly from such
estimates once detailed testing is completed. If the resolution plan is
unsuccessful, it may have a material, adverse effect on Compass's future
operating results and financial condition.

      Recognizing the importance of customer awareness, Compass has completed
three mailings of Y2K information to all customers with statement accounts.
Also, letters have been sent to major commercial loan customers and automobile
dealerships informing them of the Year 2000 Issue and how it can impact
businesses. An overall assessment of the Y2K readiness of the Compass's
commercial loan customers was completed in October 1998, with an overall
assessment of low to medium risk. The Bank will continue to monitor its large
commercial loan relationships through account officers contact programs. Also,
new and renewed commercial credits greater than $100,000 include a Y2K

analysis as part of the normal underwriting decision process.

      The Company acquired Sandwich on December 4, 1998. Data system conversions
were completed in February 


                                      -14-

<PAGE>



1999. Year 2000 team leaders have incorporated into their Y2K planning the
integration of all hardware and software systems into those of Compass. Compass
foresees no material Y2K complications from the acquisition and plans to
complete the Year 2000 project no later than June 30, 1999.

      To date, Compass has not identified any system which presents a material
risk of not being Year 2000 ready in a timely fashion or for which a suitable
alternative cannot be implemented. However, as Compass progresses with its Year
2000 project, it may identify systems which do present a material risk of Year
2000 disruption. Such disruption could include, among other things, the
inability to process and underwrite loan applications, to credit deposits and
withdrawals from customer accounts, to credit loan payments or track
delinquencies, to properly reconcile and record daily activity or to engage in
normal banking activities. Additionally, if Compass's commercial customers are
not Year 2000 compliant and suffer adverse effects on their operations, their
ability to meet their obligations to the Bank could be adversely affected. The
failure of Compass to identify systems which require Year 2000 hardware and
software upgrades that are critical to the Bank's operations or the failure of
the Bank or others with which the Bank does business to become Year 2000 ready
in a timely manner could have a material adverse impact on the Bank's financial
condition and results of operations. Moreover, to the extent that the risks
posed by the Year 2000 problem are pervasive in data processing and transmission
and communications services worldwide, the Bank cannot predict with any
certainty that its operations will remain materially unaffected after January 1,
2000 or on dates preceding this date at which time post- January 1, 2000 dates
become significant within the Bank's systems.

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
Compass's capital and liquidity requirements, business strategy, performance
objectives and operating environment and maintenance of such risks within
guidelines approved by the Board. Through such management, Compass seeks to
reduce the vulnerability of its net earnings to changes in interest rates.
Compass's Asset/Liability Committee, comprised of senior management, is
responsible for managing interest rate risk and reviewing with the Board of
Directors on a quarterly basis its activities and strategies, the effect of
those strategies on Compass's and the Company's operating results, Compass's
interest rate risk position and the effect changes in interest rates would have
on Compass's net interest income. The extent of movement of interest rates is an
uncertainty that could have a negative impact on the earnings of the Company.

       The principal strategies the Company and Compass generally use to manage
interest rate risk include (i) emphasizing the origination and retention of
adjustable-rate loans, origination of indirect auto loans 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 quantifies its 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. Compass's internal guidelines on interest
rate risk specify that for every 100 basis points immediate shift in interest
rates, its 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. Prepayment speeds
for loans are based on published median dealer forecasts for each interest rate
scenario.


                                      -15-

<PAGE>



      As of December 31, 1998, 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:


<TABLE>
<CAPTION>
                                                                    Percentage Change in Estimated
                                                                       Net Interest Income Over:
                                                             --------------------------------------------
                                                               12 months                      24 months
                                                             -------------                  -------------

<S>                                                             <C>                            <C>    
300 basis point increase in rates                               (6.19%)                        (1.50%)
200 basis point decrease in rates                               (2.27%)                        (7.19%)
</TABLE>

      Based on the scenario above, net income would be adversely affected
(within Compass's internal guidelines) in both the twelve and twenty-four month
periods. For each one percentage point change in net interest income, the effect
on net income would be $461,000, assuming a 40% tax rate.

OTHER INFORMATION

Item 1.  Legal Proceedings

      The Company and Compass are not involved in any pending legal proceedings
other than those involved in the ordinary course of business. Management
believes that the resolution of these matters will not materially affect their
business or the consolidated financial condition of the Company and Compass.

Item 2.  Changes in Securities and Use of Proceeds

      The Company's initial registration statement (No. 333-52889) on Form S-1
was declared effective on September 21, 1998 and the Offering commenced on
September 30, 1998. Ryan, Beck & Co. and McConnell, Budd & Downes, Inc. were the
selling agents in the Offering. The Offering was consummated on November 20,
1998 with 14,000,000 shares of common stock, par value $.01 per share,
registered and issued at a price of $10 per share resulting in an aggregate
offering amount of $140,000,000. The following table summarizes the actual
offering expenses and net offering proceeds:




<TABLE>
<S>                                                                          <C>             
Aggregate offering proceeds...........................................       $    140,000,000
Less: Expenses -
      Underwriters, including expenses................................              5,020,042
      Professional fees and expenses..................................              1,312,810
      Printing and distribution costs.................................                486,415
      Other expenses..................................................                470,737
                                                                             ----------------
             Total expenses...........................................              7,290,004

Less: Employee Stock Ownership Plan purchase of 1,120,000 shares                   11,200,000
      Shares held in Employee Trust...................................                138,600
                                                                             ----------------

      Net offering proceeds...........................................       $    121,371,396
                                                                             ================
</TABLE>


      The Company added the net offering proceeds to its existing available
funds which are used for general corporate purposes, including investments in
short- and medium- term, investment grade debt securities, including U.S.
Government and Agency securities and, to a lesser extent, corporate bonds and
mortgage-backed securities. Certain of the proceeds have also been used for loan
originations and, over time, a greater proportion of the net offering proceeds
than was the case at December 31, 1998 are expected to be invested in loans. At
December 31, 1998 the Company had not yet contributed any of the net offering
proceeds to Compass. In March 1999, the Company contributed $75 million of the
net offering proceeds to the capital of Compass.

      In December 1998, Seacoast Financial acquired land at a cost of $550,000
to be used for its new corporate headquarters and main banking office. The
preliminary estimate of the total cost of this development is $20 million which
will be funded by available funds including the portion of the net offering
proceeds which are available during the development period.


                                      -16-

<PAGE>




      Neither expenses of the Offering nor expenditure of net offering proceeds
through December 31, 1998 were paid to officers, directors or affiliates of
Seacoast Financial.

      On December 4, 1998, Seacoast Financial completed its acquisition of all
of the outstanding common stock of Sandwich Bancorp, Inc. (Sandwich). A
registration statement on Form S-4 was declared effective on September 21, 1998.
In connection with this transaction, 12,758,471 shares of common stock, par
value $.01 per share, were registered and issued to the Sandwich shareholders.

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.







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<PAGE>



<TABLE>
<CAPTION>
Item 6.    Exhibits and Reports on Form 8-K
a.         Exhibits

<S>        <C>
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 1998 Incentive Compensation Plan***
10.8       Amended and Restated Affiliation and Merger Agreement dated as of
           March 23, 1998 by and among Seacoast Financial Services Corporation,
           Compass Bank for Savings, Sandwich Bancorp, Inc. and the Sandwich
           Co-operative Bank**
10.9       Stock Option Agreement dated as of March 23, 1998 by and between
           Sandwich Bancorp. Inc. and Seacoast Financial Services Corporation**
10.10      Form of Voting Agreements between Seacoast Financial Services
           Corporation and the Directors of Sandwich Bancorp, Inc.**
10.11      Form of Affiliates Agreements between Seacoast Financial Services
           Corporation and certain affiliates of Sandwich Bancorp, Inc.**
10.12*     Compass Bank for Savings Executive Deferred Compensation Plan**
10.13*     Rabbi Trust for Compass Bank for Savings Executive Deferred
           Compensation Plan**
10.14(a)*  Employment Agreements dated July 18, 1994 by and between Sandwich
           Co-operative Bank and Frederic D. Legate, Dana S. Briggs and George
           L. Larson***
10.14(b)*  1998 Amendment to Employment Agreements dated July 18, 1994 by and
           between Sandwich Co-operative Bank and Frederic D. Legate, Dana S.
           Briggs and George L. Larson***
10.15(a)*  Employment Agreement dated December 17, 1991 by and between Sandwich
           Cooperative Bank and David A. Parsons***
10.15(b)*  1998 Amendment to Employment Agreement dated December 17, 1991 by and
           between Sandwich Co-operative Bank and David A. Parsons***
10.16*     Sandwich Co-operative Bank 1983 Directors Deferred Income
           Agreement***
10.17*     Sandwich Co-operative Bank 1992 Directors Deferred Compensation
           Plan***
10.18*     Supplemental Executive Retirement Agreements dated May 5, 1995 by and
           between Sandwich Co-operative Bank and Frederic D. Legate, Dana S.
           Briggs, George L. Larson and David A. Parsons and amendments
           thereto***
10.19*     Employment Agreement by and among Seacoast Financial Services
           Corporation, Compass Bank for Savings and James E. Lambert***
11         A statement regarding earnings per share is included in Item 1, Note
           6, of this Report.
27         EDGAR Financial Data Schedule

----------------
*          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.

b.         Reports on Form 8-K:
</TABLE>

           The Company filed Current Reports on Form 8-K and Amendment No. 1
thereto with the SEC on December 17, 1998 and February 9, 1999, respectively, in
connection with the acquisition of Sandwich Bancorp, Inc. The Company filed a
Current Report on Form 8-K with the SEC on February 9, 1999 in connection with
its change in fiscal year from October 31 to December 31.


                                      -18-

<PAGE>



                                   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: March 12, 1999                By  /s/ Kevin G. Champagne
                                        --------------------------------------
                                         Kevin G. Champagne
                                         President and Chief Executive Officer






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