**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

 

# **Washington,D.C. 20549**

# ** **

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**FORM 10-K/A**

# **AmendmentNo. 1**

# ** **

## **FOR ANNUAL ANDTRANSITION REPORTSPURSUANT TO SECTIONS 13 OR 15(D) OF THESECURITIES EXCHANGE ACT OF 1934**

 

**ý****                                ****ANNUAL REPORT PURSUANTTO SECTIONS 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**Forthe fiscal year ended December 31, 2003**

 

**OR**

 

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

 

**COMMISSIONFILE NUMBER: 000-25077**

 

**SEACOASTFINANCIAL SERVICES CORPORATION**

(Exact name of Registrant as Specified in itsCharter)

 

| **Massachusetts**                                  |   | **04-1659040**                        |
|----------------------------------------------------|--------|---------------------------------------|
| (State of Incorporation)                           |   | (I.R.S. Employer  Identification No.) |
|                                               |   |                                  |
| **One Compass Place, New Bedford,  Massachusetts** |   | **02740**                             |
| (Address of Principal Executive Offices)           |   | (Zip Code)                            |
|                                               |   |                                  |
| **(508) 984-6000**                                 |
| (Registrant’s Telephone No.)                  |

 

SECURITIES REGISTERED PURSUANT TOSECTION 12 (b) OF THE ACT:  **None**

 

SECURITIES REGISTERED PURSUANT TOSECTION 12 (g) OF THE ACT:**Common Stock, $.01 par value**

 

Indicate by check mark whether the registrant: (1) has filed allreports required to be filed by Section 13 or 15 (d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has been subjectto such filing requirements for the past 90 days.  Yes  ýNo o

 

Indicate by check mark if disclosure of delinquent filers pursuant toItem 405 of Regulation S-K is not contained herein, and will not be contained,to the best of registrant’s knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of this Form 10-K or anyamendment of this Form 10-K.  ý

 

The aggregate market value of the registrant’s voting and non-votingcommon stock held by non-affiliates of the registrant, computed by reference tothe closing price on June 30, 2003, the last day of the registrant’s mostrecently completed second fiscal quarter, as reported on the Nasdaq NationalMarket, was $503,656,076.  Althoughdirectors and executive officers of the registrant were assumed to be“affiliates” of the registrant for the purposes of this calculation, thisclassification is not to be interpreted as an admission of such status.

 

Indicate by check mark whether registrant is an accelerated filer (as definedin Rule 12b-2 of the Securities Exchange Act of 1934).  ýYes  oNo

 

As of March 1, 2004, 25,904,880 shares of the registrant’s commonstock were outstanding.

 

 

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**DOCUMENTS INCORPORATED BYREFERENCE**

** **

**None**

** **

**The following items are included herein:  Items 10, 11, 12, 13, 14 and 15.**

** **

**Explanationfor this Amendment:**

** **

**The Annual Report on Form 10-K of Seacoast FinancialServices Corporation  (the “Company”)for the Company’s fiscal year ended December 31, 2003 (the “2003 Form10-K”) is being amended hereby to include the items listed below:**

** **
| **ITEM**      |   | **DESCRIPTION**                                                                             |
|---------------|--------|---------------------------------------------------------------------------------------------|
|          |   |                                                                                        |
| **Item  10.** |   | **Directors  and Executive Officers of the Registrant**                                     |
| **Item  11.** |   | **Executive  Compensation**                                                                 |
| **Item  12.** |   | **Security  Ownership of Beneficial Owners and Management and Related Stockholder Matters** |
| **Item  13.** |   | **Certain  Relationships and Related Transactions**                                         |
| **Item  14.** |   | **Principal  Accountant Fees and Services**                                                 |
| **Item  15.** |   | **Exhibits,  Financial Statement Schedules and Reports on Form 8-K**                   |

 

**The Company’s 2003 Form 10-K, as originally filedwith the Securities and Exchange Commission (the “Commission”) onMarch 12, 2004, incorporated into such form the information required byItems 10, 11, 12, 13 and 14 of Form 10-K by reference to the Company’sDefinitive Proxy Statement for its 2004 Annual Meeting of Stockholders (the“Proxy Statement”).  The Proxy Statementwill not be filed with the Commission within 120 days of the close of theCompany’s fiscal year ended December 31, 2003.  Accordingly, the 2003 Form 10-K is being amended hereby toinclude the information that was originally expected to be incorporated byreference.**

** **

**TheAmendment:**

** **

**Items 10, 11, 12, 13 and 14 in Part III of the 2003Form 10-K are hereby amended by deleting the texts thereof in their entiretyand substituting therefor the following:**

** **

**2**

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** **

**Item 10**:  Directors and Executive Officers of theRegistrant

** **

**Information Regarding Directors**

 

The following table sets forth certain information (as ofApril 22, 2004) regarding the current Directors of the Company:

 
| **Name**                     |   | **Age** |   | **Director   Since*** |   | **Term as  Director   Will Expire** |   |
|------------------------------|--------|---------|--------|-----------------------|--------|-------------------------------------|--------|
| Kevin G. Champagne           |   | 54      |   | 1993                  |   | 2005                                |   |
| Howard C. Dyer, Jr.          |   | 75      |   | 1963                  |   | 2006                                |   |
| Mary F. Hebditch             |   | 72      |   | 1998                  |   | 2005                                |   |
| Thornton P. Klarén, Jr. |   | 68      |   | 1968                  |   | 2006                                |   |
| J. Louis LeBlanc             |   | 64      |   | 1982                  |   | 2004                                |   |
| Frederic D. Legate           |   | 62      |   | 1998                  |   | 2004                                |   |
| Reale J. Lemieux             |   | 65      |   | 1998                  |   | 2006                                |   |
| John F. Murphy               |   | 64      |   | 2003                  |   | 2004                                |   |
| Philip W. Read               |   | 67      |   | 2001                  |   | 2005                                |   |
| Denise M. Renaghan           |   | 47      |   | 2003                  |   | 2004                                |   |
| Carl Ribeiro                 |   | 57      |   | 1991                  |   | 2005                                |   |
| Joseph H. Silverstein        |   | 77      |   | 1980                  |   | 2006                                |   |
| Gerald H. Silvia             |   | 69      |   | 1990                  |   | 2005                                |   |

 

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*                 Includes (where applicable) service astrustee of Compass Bank prior to its reorganization into the mutual holdingcompany form of organization (the “Reorganization”) and as a trustee of theCompany from the date of Reorganization until the conversion of the Companyfrom a mutual to a stock holding company.

 

The principal occupation and business experience during at least thelast five years for each Director is set forth below.

 

***Kevin G. Champagne*** has served asPresident and Chief Executive Officer of the Company since its formation in1994 and as President and Chief Executive Officer of Compass Bank since 1994.Prior to 1994, Mr. Champagne was Executive Vice President/Retail Banking ofCompass Bank.

 

***Howard C. Dyer, Jr.*** was GeneralManager, New Bedford Storage Warehouse, New Bedford, Massachusetts, until hisretirement in 1996.

 

***Mary F. Hebditch*** has been aself-employed public accountant and auditor in Sandwich, Massachusetts since1983.  Ms. Hebditch served as a directorof Sandwich Co-operative Bank and Sandwich Bancorp, Inc. prior to the Company’sacquisition of Sandwich Bancorp, Inc. in December 1998 Ms. Hebditch is aCertified Public Accountant.

 

***Thornton P. Klarén, Jr****.*was a sales executive with Equi-Lube Inc.until his retirement in 1998.

 

***J. Louis LeBlanc*****is an attorney in private practice in NewBedford, Massachusetts.

 

***Frederic D. Legate*** has beenretired since the Company acquired Sandwich Bancorp, Inc. inDecember 1998.  Prior to hisretirement, he served as President and Chief Executive Officer and as adirector of Sandwich Co-operative Bank and of Sandwich Bancorp, Inc., positionshe held since 1981 and 1997, respectively.

 

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***Reale J. Lemieux*** has owned andoperated Bay Beach, a bed and breakfast establishment in Sandwich,Massachusetts, since 1988.  Mr. Lemieuxserved as a director of Sandwich Co-operative Bank and Sandwich Bancorp, Inc.prior to the Company’s acquisition of Sandwich Bancorp, Inc.

 

***John F. Murphy***has been retired since the Company acquiredBay State Bancorp, Inc. on May 31, 2003. Prior to his retirement, he served as Chairman, President and ChiefExecutive Officer and a director of Bay State Bancorp, Inc. and Chairman andChief Executive Officer and a director of Bay State Federal Savings Bank.  Mr. Murphy joined Bay State Federal in 1961. Mr. Murphy is a director of the BayState Federal Charitable Foundation.

 

***Philip W. Read***is President ofJared Coffin House, Inc., Nantucket, Massachusetts. Mr. Read serves as Chairmanof the Board of Nantucket Bank.

 

***Denise M. Renaghan*** is Executive Vice President, Chief OperatingOfficer and a director of the Bay State Federal Charitable Foundation.  She served as Executive Vice President andChief Operating Officer of Bay State Bancorp, Inc.******from 1998 and as President and ChiefOperating Officer of Bay State Federal Savings Bank from July 2000 untilBay State and Bay State Federal were acquired by the Company on May 31,2003.  She also served as director ofBay State and Bay State Federal.  Ms.Renaghan joined Bay State Federal in 1974.

 

***Carl Ribeiro*** is Presidentof Carlson Southcoast Corporation (formerly Luzo Foodservice Corp.) andPresident of Luzo Maximarket, New Bedford, Massachusetts.  He is also a Managing Partner of RibeiroReal Estate, LLC.

 

***Joseph H. Silverstein*** was thePresident of Silverstein’s Family Store, a retail clothing store located in NewBedford, Massachusetts, until his retirement in 1992.

 

***Gerald H. Silvia*** was the ownerof Americana Group Travel, a travel agency located in Tiverton, Rhode Island,until his retirement in 2002.

 

**Information Regarding Executive Officers**

 

The names and ages of all executive officers of the Company and theprincipal occupation and business experience during at least the last fiveyears for each are set forth below as of April 22, 2004.

 

***Kevin G. Champagne****.*See “Information Regarding Directors” above.

 

***Arthur W. Short*** has served asVice President of the Company since 1997. He also serves as Executive Vice President of Compass Bank, a positionhe has held since 1993, and as Chief Operating Officer of Compass Bank, aposition he has held since 1997.  Priorto 1997, Mr. Short served as Treasurer of the Company (since its formation in1994) and as Treasurer and Chief Financial Officer of Compass Bank.  Mr. Short is a Certified PublicAccountant.  He joined Compass Bank in1981.  Mr. Short is 63 years old.

 

***John D. Kelleher*** has served asVice President of the Company since its formation in 1994 and as Executive VicePresident of Compass Bank since 1993. He has headed Compass Bank’s Lending Division since 1984. Mr. Kelleherjoined Compass Bank’s Management Training Program in 1971.  Mr. Kelleher is 58 years old.

 

***Francis S. Mascianica, Jr.*** has served asTreasurer of the Company since 1997 and as Executive Vice President of CompassBank since December 2000.  He servedas Treasurer and Chief Financial Officer of Compass Bank from 1997 untilFebruary 2003 and as Senior Vice President of Compass Bank from 1997through 2000.  Mr. Mascianica joinedCompass Bank in 1981.  He is 56 yearsold.

 

***Carolyn A. Burnham*** has served asVice President of the Company since its formation in 1994 and as Executive VicePresident/Retail Banking of Compass Bank since December 2000.  She served as Senior Vice President and headof the Retail Banking Division of Compass Bank from 1994 to 2000.

 

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Ms. Burnham has held various positions with Compass Bank since shejoined Compass Bank in 1966.  She is 55years old.

 

***Robert J. Camara***has served asVice President of the Company and as Senior Vice President and Loan ServicingManager of Compass Bank since 1997. He joined Compass Bank in 1987 as AssistantVice President and Auditor and became Vice President and Loan Servicing Managerin 1990.  Mr. Camara is a CertifiedPublic Accountant.  Mr. Camara is 46years old.

 

***Joseph F. Casey*** has served asVice President of the Company and as Senior Vice President, Chief FinancialOfficer and Treasurer of Compass Bank since February 2003.  Prior to joining Compass Bank, Mr. Caseyserved as Chief Financial Officer and Treasurer of Andover Bancorp, Inc.  Mr. Casey is a Certified Public Accountantand is 43 years old.

 

***Mark T. Langone***has served asVice President of the Company and Senior Vice President/Risk Management ofCompass Bank since February 2003. Prior to joining Compass Bank, Mr. Langone served as a Bank Examiner forthe Federal Deposit Insurance Company. Mr. Langone is 36 years old.

 

***Bruce M. Lemieux***has served asVice President of the Company and as Senior Vice President and Senior CreditOfficer of Compass Bank since January 2001. He joined Compass Bank inJuly 2000 as Vice President and Commercial Credit Manager. Prior tojoining Compass Bank, Mr. Lemieux served as a program manager for the FederalDeposit Insurance Company.  Mr. Lemieuxis 56 years old.

 

***James R. Rice***has served asVice President of the Company and as Senior Vice President of Marketing ofCompass Bank since December 1998. Prior to joining Compass Bank in 1997 as Vice President of Marketing,Mr. Rice served as a Senior Marketing Manager for BankBoston from 1995 to 1997and as Vice President of Marketing for Medford Savings Bank from 1988 to 1995.Mr. Rice is 42 years old.

 

***William D. Rigby***has served asVice President of the Company since its formation in 1994, as Senior VicePresident of Compass Bank since 1994 and as Manager of the Consumer LendingDepartment of Compass Bank since he joined Compass Bank in 1985.  He is 56 years old.

 

***Carl W. Taber*** has served asVice President of the Company since its formation in 1994, as Senior Vice Presidentof Compass Bank since 1993 and as head of Mortgage Lending of Compass Banksince 1984. Mr. Taber joined Compass Bank’s Management Training Program in1975.  He is 50 years old.

 

***Friend S. Weiler*** has served asVice President of the Company since 1999 and as Senior Vice President ofCompass Bank since 1999.  Prior tojoining Compass Bank, Mr. Weiler served as Senior Vice President - CommercialLending for Fleet Bank of Massachusetts. Mr. Weiler is 58 years old.

 

All executive officers of the Company hold office until the firstmeeting of the Board of Directors following the annual meeting of stockholdersor special meeting in lieu thereof and until their successors are chosen andqualified, unless a shorter term is specified in the vote appointing them.  Officers may generally be removed fromoffice by vote of a majority of the full Board of Directors.

 

**Audit Committee and Financial Expert**

 

The Audit Committee, which is comprised of Messrs. Klarén, Read,Ribeiro and Silvia and Ms. Hebditch, is responsible for the selection of theCompany’s independent public accountants, overseeing the internal auditfunction, reviewing the scope of the annual audit of the Company’s consolidatedfinancial statements, reviewing the report of the independent public accountants,reviewing the independence of the independent public accountants, consideringthe range of audit and non-audit fees, reviewing the adequacy of the Company’sinternal accounting controls, and aiding the Board in discharging itsresponsibility in financial reporting and related matters.

 

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The Board of Directors has determined that while none of the AuditCommittee members is an “audit committee financial expert” as defined in therules adopted by the SEC, all members of the Audit Committee have sufficientknowledge in financial and auditing matters to serve on the Committee.

 

**Compliance with Section 16(a)**

 

During 2003, the Company was subject to Section 16(a) of theSecurities Exchange Act of 1934, as amended (the “Exchange Act”), whichrequires the Company’s officers and Directors, and persons who own more than10% of a registered class of the Company’s equity securities, to file reportsof ownership and changes in ownership with the Securities and ExchangeCommission.  Officers, Directors andgreater-than-10% beneficial owners are required by SEC regulations to furnishthe Company with copies of all Section 16(a) forms they file.

 

Based solely on its review of the copies of Forms 3, 4 and 5 furnishedto the Company during and with respect to 2003, or written representations thatno Forms 5 were required, the Company believes that all Section 16(a)filing requirements applicable to the Company’s officers, Directors andgreater-than-10% beneficial owners were complied with during 2003.

 

**Code of Ethics**

 

The Company has adopted a code of ethics that applies to its principalexecutive , financial and accounting officers.

 

**Item 11****. Executive Compensation**

 

**SummaryCompensation Table**

 

The following table sets forth certain information regardingcompensation of the Chief Executive Officer and the Company’s four most highlycompensated officers other than the Chief Executive Officer who served asofficers at the end of fiscal 2003 and whose annual compensation exceeded$100,000 for fiscal 2003.

 
|                             |   |       |   |                    |    |         |   |           |   | **Long-Term  Compensation Awards** |   |             |   |
|----------------------------------|--------|------------|--------|-------------------------|---------|--------------|--------|----------------|--------|------------------------------------|--------|------------------|--------|
|                             |   |       |   |                    |    |         |   |           |   | **Restricted**                     |   | **Securities**   |   |   |   |
| **Name and**                     |   | **Fiscal** |   | **Annual Compensation** |    | **Stock**    |   | **Underlying** |   | **All Other**                      |   |
| **Principal Position**           |   | **Year**   |   | **Salary**              |    | **Bonus(1)** |   | **Other(2)**   |   | **Awards**                         |   | **Options/SARs** |   | **Compensation(3)** |   |
|                             |   |       |   |                    |    |         |   |           |   |                               |   |             |   |   |   |
| Kevin G. Champagne               |   | 2003       |   | $                       | 450,002 |         | $      | 225,000        |   |                               |   | —           |   | — |   | $ | 130,991 |   |
| President and Chief              |   | 2002       |   | 395,018                 |    | 180,000      |   |           |   | —                             |   | —           |   | 124,716 |   |
| Executive Officer of the         |   | 2001       |   | 350,012                 |    | 140,005      |   |           |   | —                             |   | —           |   | 107,520 |   |
| Company and Compass Bank         |   |       |   |                    |    |         |   |           |   |                               |   |             |   |   |   |
|                             |   |       |   |                    |    |         |   |           |   |                               |   |             |   |   |   |
| Arthur W. Short                  |   | 2003       |   | $                       | 229,609 |         | $      | 64,290         |   |                               |   | —           |   | — |   | $ | 30,221 |   |
| Vice President of the            |   | 2002       |   | 218,710                 |    | 57,739       |   |           |   | —                             |   | —           |   | 26,373 |   |
| Company; Executive Vice          |   | 2001       |   | 184,508                 |    | 51,662       |   |           |   | —                             |   | —           |   | 20,241 |   |
| President and Chief              |   |       |   |                    |    |         |   |           |   |                               |   |             |   |   |   |
| Operating Officer of             |   |       |   |                    |    |         |   |           |   |                               |   |             |   |   |   |
| Compass Bank                     |   |       |   |                    |    |         |   |           |   |                               |   |             |   |   |   |
|                             |   |       |   |                    |    |         |   |           |   |                               |   |             |   |   |   |
| John D. Kelleher                 |   | 2003       |   | $                       | 181,757 |         | $      | 50,891         |   |                               |   | —           |   | — |   | $ | 26,996 |   |
| Vice President of the            |   | 2002       |   | 173,957                 |    | 45,925       |   |           |   | —                             |   | —           |   | 23,073 |   |
| Company; Executive Vice          |   | 2001       |   | 156,156                 |    | 27,208       |   |           |   | —                             |   | —           |   | 18,596 |   |
| President/ Lending of            |   |       |   |                    |    |         |   |           |   |                               |   |             |   |   |   |
| Compass Bank                     |   |       |   |                    |    |         |   |           |   |                               |   |             |   |   |   |
|                             |   |       |   |                    |    |         |   |           |   |                               |   |             |   |   |   |
| Francis S. Mascianica, Jr.       |   | 2003       |   | $                       | 189,393 |         | $      | 57,625         |   |                               |   | —           |   | — |   | $ | 53,293 |   |
| Treasurer of the   Company; |   | 2002       |   | 172,586                 |    | 51,776       |   |           |   | —                             |   | —           |   | 21,667 |   |
| Executive Vice President of      |   | 2001       |   | 139,584                 |    | 40,480       |   |           |   | —                             |   | —           |   | 16,073 |   |
| Compass Bank                     |   |       |   |                    |    |         |   |           |   |                               |   |             |   |   |   |
|                             |   |       |   |                    |    |         |   |           |   |                               |   |             |   |   |   |
| Carolyn A. Burnham               |   | 2003       |   | $                       | 161,749 |         | $      | 48,524         |   |                               |   | —           |   | — |   | $ | 25,317 |   |
| Vice President of the            |   | 2002       |   | 144,550                 |    | 38,161       |   |           |   | —                             |   | —           |   | 19,168 |   |
| Company; Executive Vice          |   | 2001       |   | 132,548                 |    | 37,113       |   |           |   | —                             |   | —           |   | 15,023 |   |
| President/Retail Banking of      |   |       |   |                    |    |         |   |           |   |                               |   |             |   |   |   |
| Compass Bank                     |   |       |   |                    |    |         |   |           |   |                               |   |             |   |   |   |

 

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(1)                      Bonuses are reported for the year they were earned, even if paid in thesubsequent year.

 

(2)                      Perquisites and other personal benefits paid to each officer includedin the Summary Compensation Table in each instance aggregated less than 10% ofthe total annual salary and bonus set forth in the columns entitled  “Salary” and “Bonus” for each officer, andare omitted from the table in accordance with the rules of the SEC.

 

(3)                      For 2003, includes Compass Bank’s matching and automatic contributionsunder its 401(k) plan of $13,000, $13,000, $11,596, $11,364 and $10,352 for Messrs.Champagne, Short, Kelleher and Mascianica and Ms. Burnham, respectively;premiums paid by Compass Bank for excess group term life insurance of $1,518,$4,356, $2,559, $2,666 and $2,250 for Messrs. Champagne, Short, Kelleher andMascianica and Ms. Burnham; allocation of shares of Common Stock under theCompany’s Employee Stock Ownership Plan (the “ESOP”), the dollar value of whichwas $12,865, $12,865, $12,841, $12,753, $12,715 for Messrs. Champagne, Short,Kelleher and Mascianica and Ms. Burnham, respectively; and contributions of$103,608 and $26,510, to the accounts of Messrs. Champagne and Mascianica,respectively, under Compass Bank’s executive deferred compensation plan as asupplemental retirement benefit.

 

**Option Grants in Last Fiscal Year**

 

Nostock options were granted by the Company to any of the executive officersnamed in the Summary Compensation Table during the fiscal year endedDecember 31, 2003.

 

**Fiscal Year-End Option Table**

 

The following table provides information regarding stock options heldby the executive officers named in the Summary Compensation Table as ofDecember 31, 2003.

 
|                       |   | **Shares**   |   |            |      | **Number of  Securities Underlying** |    | **Value of  Unexercised**       |   |
|----------------------------|--------|--------------|--------|-----------------|-----------|--------------------------------------|---------|---------------------------------|--------|
|                       |   | **Acquired** |   |            |      | **Unexercised**                      |    | **In-the-Money  Options/**      |   |
|                       |   | **On**       |   | **Value**       |      | **Options/SARs  at Fiscal Year-End** |    | **SARs at  Fiscal Year-End(2)** |   |
| **Name**                   |   | **Exercise** |   | **Realized(1)** |      | **Exercisable**                      |    | **Unexercisable**               |   | **Exercisable** |   | **Unexercisable** |   |
| Kevin G. Champagne         |   | 80,000       |   | $               | 1,326,000 |                                 | 128,000 |                            | 52,000 |   | $ | 2,047,360 |   | $ | 831,740 |   |
| Arthur W. Short            |   | 0            |   | 0               |      | 70,000                               |    | 18,000                          |   | 1,119,650 |   | 287,910 |   |
| John D. Kelleher           |   | 0            |   | 0               |      | 62,000                               |    | 18,000                          |   | 991,690 |   | 287,910 |   |
| Francis S. Mascianica, Jr. |   | 0            |   | 0               |      | 62,000                               |    | 15,500                          |   | 991,690 |   | 247,923 |   |
| Carolyn A. Burnham         |   | 0            |   | 0               |      | 62,000                               |    | 15,500                          |   | 991,690 |   | 247,923 |   |
|                            |        |              |        |                 |           |                                      |         |                                 |        |  |  |  |  |  |  |  |

 

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(1)                          Value is based on the lastsales price of Common Stock on the date of exercise as reported by the NasdaqNational Market, less the option exercise price ($11.375).

 

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(2)                          Value is based on the lastsales price of Common Stock on December 31, 2003 ($27.37) as reported bythe Nasdaq National Market, less the option exercise price ($11.375).  These values have not and may never berealized.  Actual gains, if any, onexercise will depend on the value of the Common Stock on the date of the saleof the shares.

 

**Compensation Committee Report on Executive Compensation**

 

The Company’s Compensation Committee consists of Messrs. Dyer, LeBlanc,Legate, Lemieux and Ribeiro.  TheCompany’s compensation policies are designed to pay executives an annual salarythat is industry competitive and an annual bonus that is based on theperformance of the Company (as compared to its annual business plan).  The Committee reviews both components ofcompensation to ensure salaries remain competitive and bonuses rewardperformance.

 

Salaries for executive officers are based on the duties andresponsibilities of the position held by the executive compared with executiveofficers of other companies in the industry and were reviewed and establishedin December 2002 for 2003.  Insetting compensation levels for 2003, the Committee reviewed executive officercompensation data contained in a report dated November 2002 prepared byThomas Warren & Associates (the “Thomas Warren Report”) on behalf ofthe Company.  The Thomas Warren Reportcontained data from two other banking compensation surveys, the SNL Securitiessurvey dated July 2002, and a Massachusetts Bankers Associationsurvey.  Both surveys included data fromMassachusetts banks with $1 billion or more in assets.

 

The Company’s Chief Executive Officer reviewed the performance of eachexecutive officer and the Compensation Committee reviewed the performance ofthe Chief Executive Officer.  TheCompensation Committee’s review of the Chief Executive Officer was based on itsassessment of the degree to which the Chief Executive Officer accomplishedstrategic and financial goals.  Based onthe Chief Executive Officer’s performance reviews of executive officers and theCompensation Committee’s performance review of the Chief Executive Officer, theCompensation Committee made recommendations for executive officer compensationto the Board of Directors, which establishes executive salaries for theupcoming year.

 

The Company has an Incentive Compensation Plan (the “Bonus Plan”)pursuant to which certain officers of Compass Bank are eligible for bonuses ifthe Bank achieves its financial performance goals for the year.  The performance goals used to determine theamount available for award under the Bonus Plan include return-on-equity,earnings per share and net loan/deposit growth.  The 2003 performance goals for the Bank (exclusive of the bonusaccrued) were a return-on-equity target of approximately 12.31% to 13.26%, anearnings per share target of $1.35 to $1.47, an efficiency ratio target of54.83% to 53.14% and combined net loan/deposit growth targets of $318 millionto $411 million.  Based on the extent towhich Compass Bank achieves those objectives, participants may receive from 0%to 40% of base salary, depending on their Bonus Plan group.  The Compensation Committee reviews bothindividual performance and Compass Bank goals annually; however, the Board ofDirectors has final authority with respect to all bonus awards.  Compass Bank achieved its performance goalsfor 2003.

 

*Equity-Based Compensation. *The Compensation Committee believes that stockownership by Directors and management and stock-based compensation arrangementsare beneficial in aligning the Board’s and management’s interests with theinterests of stockholders.  Accordingly,Directors and executive officers have been granted stock options and restrictedstock awards under the Company’s 1999 Stock Incentive Plan and its 2003 StockIncentive Plan.

 

In determining initial awards under the Company’s 1999 Stock IncentivePlan, the Committee reviewed reports provided by a Company consultant, whichoutlined allocations to directors and executive officers of more than twelverecently converted financial institutions. The Committee also reviewed summary proxy material from a select peergroup of Northeast financial institutions with assets between $600 million and$2 billion.

 

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*Chief Executive Officer Compensation. *Mr. Champagne’s salary andbonus are determined by the Compensation Committee substantially in accordancewith the policies described above relating to all executives of the Company. Inparticular, the Compensation Committee considered, among other things, thefollowing performance criteria in determining Mr. Champagne’s 2003 base salary:(1) return-on-assets and return-on-equity of the Company; (2) selection andmanagement of staff; (3) development of regional business relationships; (4)effective management of budgets and asset growth; and (5) development of newopportunities for business expansion. The grant of a cash bonus to Mr. Champagne for fiscal 2003 reflects theCompany’s achievement of certain performance objectives as specified in theBonus Plan.

 

In December 2002, the Compensation Committee increased Mr.Champagne’s salary for fiscal 2003. This salary increase was based on data set forth in the ThomasWarren Report, the Massachusetts Bankers Association survey and the SNLSecurities survey for chief executive officer salaries in the peer group, thecontinuing improvement in the Company’s performance and recognition of Mr.Champagne’s achievement of certain strategic goals, including building anexperienced management team, improving asset quality and the proposedacquisition of Bay State Bancorp, Inc. The Committee established Mr. Champagne’s salary at a level that iscomparable to that of other chief executive officers of similarly situatedbanks.

 

HowardC. Dyer, Jr., Chairman

J.Louis LeBlanc

FredericD. Legate

RealeJ. Lemieux

CarlRibeiro

 

**Employmentand Change in Control Agreements**

 

The Company and Compass Bank have entered into employment agreementswith Messrs. Champagne, Short, Kelleher and Mascianica and Ms. Burnham, whichwere amended as of December 4, 2003. The agreements provide for an annual base salary, subject to increase(which increased amount becomes a floor below which the officer’s base salarymay not fall during the term of the agreement), and certain benefits.  The current base salary of each of Messrs.Champagne, Short, Kelleher and Mascianica and Ms. Burnham is $562,503,$240,610, $190,258, $212,085 and $170,250, respectively.

 

The initial term of each agreement is two years (in the case of Mr.Champagne, three years), with the term automatically extended by one day foreach day that the officer is employed by Compass Bank (and the Company, in thecase of Mr. Champagne).

 

In the event the officer’s employment is terminated by the Company forother than “cause” or by the officer for “good reason,” each as defined in theagreement, the officer will be entitled to receive a lump sum severance benefitequal to three times the average of the sum of the officer’s W-2 compensationplus contributions made on the officer’s behalf to Compass Bank’s EmployeeStock Ownership Plan and 401(k) Plan for the three calendar years preceding thedate of termination.

 

The agreements also provide that in the event that a tax is imposed onthe officer by Section 4999 of the Internal Revenue Code of 1986, asamended, by reason of any payment or benefit that the officer has received fromthe Company or any subsidiaries, the Company shall pay as additionalcompensation to the officer that amount which, after taking into account alltaxes imposed upon such amount by any federal, state or local government, shallbe equal to the amount of said tax imposed by Section 4999.

 

The Company and Compass Bank have also entered into change in controlagreements with Messrs. Champagne, Short, Kelleher and Mascianica and Ms.Burnham.  The change in control agreementsprovide for a lump sum severance payment equal to approximately three times theofficer’s

 

9

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“base amount” (as such term is defined in Section 280G(b)(3) ofthe Internal Revenue Code) and certain other benefits if, within three years ofa “Change in Control” (as defined in the agreements) of the Company or CompassBank, the officer’s employment is terminated (for any reason other than deathor “cause”) or if the officer terminates his or her employment following:(i) a significant change in the nature or scope of the officer’sresponsibilities, authorities, powers, functions or duties; (ii) adetermination by the officer that, as a result of a Change in Control, theofficer is unable to exercise the responsibilities, authorities, powers,functions or duties exercised by the officer immediately prior to the Change inControl; (iii) a reduction in the officer’s annual base salary;(iv) a relocation of the offices of the Company or Compass Bank to alocation more than 25 miles from New Bedford, Massachusetts; (v) a failureof either the Company or Compass Bank to pay any portion of compensation due tothe officer; (vi) the termination of or a material reduction in theofficer’s benefits; or (vii) a failure of the Company or Compass Bank toobtain a satisfactory agreement from any successor to assume and agree toperform the officer’s Change in Control Agreement.

 

Officers may elect to receive termination benefits under either theiremployment agreement or their change in control agreement, but not both.

 

The Company has also entered into Change in Control Agreements withcertain other officers that are substantially similar to the foregoing, exceptthat the benefit is equal to two (rather than three) times the “base amount”and is payable only if employment terminates within one year after the Changein Control.

 

**Executive Salary Continuation Agreements**

 

Compass Bank has entered into a salary continuation agreement, or SERP,with five of the Company’s executive officers: Messrs. Champagne, Short,Kelleher and Mascianica and Ms. Burnham. The agreements provide each officerwith an annual supplemental retirement benefit in an amount equal to 25% of theaverage of the three highest years of compensation (including salary andbonuses) paid to the officer in the ten years of employment immediatelypreceding the officer’s retirement. The benefit is payable monthly, for aperiod of 15 years, commencing on the first day of the month next following theofficer’s retirement. A reduced benefit is payable if the officer retires priorto the age of 65, but after age 55.  Ifthe officer dies while employed by Compass Bank, an annual benefit will bepaid, in monthly installments, to the officer’s beneficiary for a period of 15years in an annual amount equal to 25% of the officer’s salary on the date ofhis death. If the officer’s employment with Compass Bank is terminated prior tothe age of 55 other than for cause, the officer is entitled to a benefit equalto 5% of the benefit he would have received upon retirement at age 65,multiplied by the number of years of service between the age of 35 andtermination of employment.  If theofficer’s employment with Compass Bank is terminated following a change incontrol, the officer is entitled to a lump sum payment equal to the actuarialequivalent value of the officer’s SERP benefit as if the officer had attainedage 65 and had continued to work until age 65. The agreements are funded by life insurance policies, of which CompassBank is the owner and beneficiary, held in a “rabbi” trust.

 

**Executive Savings Plan**

 

The Company maintains the Compass Bank for Savings Executive SavingsPlan, which offers eligible executives the opportunity to defer the receipt ofa portion of their income in a manner that defers the taxation of such incomeand provides for a retirement income target for Messrs. Champagne, Short,Kelleher and Mascianica and Ms. Burnham equal to 70% of each officer’s averageannual compensation for the three full calendar years prior to the year ofdetermination.  The retirement incometarget takes into account the projected benefits payable to each officer, uponretirement, from social security, matching contributions under the CompassBank401(k) plan, ESOP contributions and SERP payments.  In the event that an officer is not projected to meet his or herretirement income target in any year from the foregoing sources, the savingsplan provides for the officer to receive a

 

10

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supplemental credit, if any, in an amount necessary to make up for theshortfall in theofficer’s projected retirement income. In the event of a change in control, Compass Bank will record anadditional supplemental retirement credit for the benefit of each officer in anamount equal to the projected shortfall, if any, assuming the officer hadremained employed until age 65.

 

**ESOP Restoration Plan**

 

The Company has established an ESOPrestoration plan in order to provide payments to senior executive officers whoare prevented from receiving the full benefits contemplated by the ESOP benefitformula.  The restoration plan benefitsconsist of payments in lieu of shares that cannot be allocated to participantsunder the ESOP due to the legal limitations imposed on tax-qualifiedplans.  See “Beneficial Ownership Table”for the number of units allocated to the account of each executive officernamed in the Summary Compensation Table under the Seacoast Financial ServicesCorporation ESOP Restoration Plan.

 

**Compensation Committee Interlocks and Insider Participation**

 

Messrs. Dyer, LeBlanc, Legate, Lemieux and Ribeiro served as members ofthe Compensation Committee during fiscal 2003. No person serving on the Compensation Committee or on the Board ofDirectors of the Company is an executive officer of another entity for which anexecutive officer of the Company or the Bank serves on the Board of Directorsor on that entity’s Compensation Committee.

 

**Performance Graph**

 

The following graph compares the performance of the Common Stock of theCompany (assuming reinvestment of dividends) with the total return for theS&P 500 Index and the SNL Securities $1 billion to $5 billionThrift Index. The calculation of total cumulative return assumes a $100investment was made at market close on December 31, 1998.

 

11

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**S****EACOAST FINANCIAL SERVICES CORPORATION**

 

 
|                                    |   | **Period  Ending** |   |
|-----------------------------------------|--------|--------------------|--------|
| **Index**                               |   | **12/31/98**       |   | **12/31/99** |   | **12/31/00** |   | **12/31/01** |   | **12/31/02** |   | **12/31/03** |   |
| Seacoast Financial Services Corporation |   | 100.00             |   | 100.26 |   | 121.27 |   | 177.46 |   | 211.29 |   | 295.86 |   |
| S&P 500*                            |   | 100.00             |   | 121.11 |   | 110.34 |   | 97.32 |   | 75.75 |   | 97.40 |   |
| SNL $1B-$5B Thrift Index                |   | 100.00             |   | 89.55 |   | 108.24 |   | 154.32 |   | 197.62 |   | 296.40 |   |

 

There can be no assurance that stock performancewill continue into the future with the same or similar trends to those depictedin the graph above. Data for the chart was provided to the Company by SNLSecurities and is believed to be reliable, but neither the accuracy nor thecompleteness of the information is guaranteed by the Company.

 

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*****Source: CRSP, Center for Research in SecurityPrices, Graduate School of Business, the University of Chicago 2004.  Used with permission.  All rights reserved.  crsp.com.

 

**Item 12**.  CertainRelationships and Related Transactions

** **

**Beneficial Ownership Table**

** **

The following table sets forth certain information as of April 22,2004 regarding each Director of the Company, each executive officer named inthe Summary Compensation Table, all Directors and executive officers of theCompany as a group and each person known by the Company to own beneficiallymore than 5% of the Company’s common stock.

 

12

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| **Name**                                                                              |   | **Amount and  Nature of  Beneficial Ownership(1)** |   | **Percent of  Class (2)** |   |
|---------------------------------------------------------------------------------------|--------|----------------------------------------------------|--------|---------------------------|--------|
| Mac-Per-Wolf Company  310 S. Michigan Ave., Suite 2600  Chicago, Illinois  60604 |   | 2,570,375                                          | (3)    | 10.0                      | %      |
| Janus Small Cap Value Fund  100 Filmore Street  Denver, Colorado                      |   | 1,700,000                                          | (4)    | 6.6                       | %      |
| Carolyn A. Burnham                                                                    |   | 114,802                                            | (5)    |                      | *      |
| Kevin G. Champagne                                                                    |   | 347,620                                            | (6)    | 1.34                      | %      |
| Howard C. Dyer, Jr.                                                                   |   | 42,500                                             | (7)    |                      | *      |
| Mary F. Hebditch                                                                      |   | 55,860                                             | (8)    |                      | *      |
| John D. Kelleher                                                                      |   | 122,936                                            | (9)    |                      | *      |
| Thornton P. Klarén, Jr.                                                          |   | 35,965                                             | (10)   |                      | *      |
| J. Louis LeBlanc                                                                      |   | 48,400                                             | (11)   |                      | *      |
| Frederic D. Legate                                                                    |   | 202,349                                            | (12)   |                      | *      |
| Reale J. Lemieux                                                                      |   | 48,785                                             | (13)   |                      | *      |
| Francis S. Mascianica, Jr.                                                            |   | 114,520                                            | (14)   |                      | *      |
| John F. Murphy                                                                        |   | 108,311                                            | (15)   |                      |   |
| Philip W. Read                                                                        |   | 3,285                                              | (16)   |                      | *      |
| Denise M. Renaghan                                                                    |   | 102,065                                            | (17)   |                      |   |
| Carl Ribeiro                                                                          |   | 57,000                                             | (18)   |                      | *      |
| Arthur W. Short                                                                       |   | 125,330                                            | (19)   |                      | *      |
| Joseph H. Silverstein                                                                 |   | 38,850                                             | (20)   |                      | *      |
| Gerald H. Silvia                                                                      |   | 40,186                                             | (21)   |                      | *      |
| Directors and executive officers as a group  (26 persons)                             |   | 1,974,423                                          | (22)   | 6.85                      | %      |

 

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*                                         Less than 1%

 

(1)                                  Except as otherwise noted, all persons havesole voting and investment power over their shares.  All amounts shown in this column include shares obtainable uponexercise of stock options exercisable within 30 days of the date of this table.

 

(2)                                  Calculated based on outstanding shares ofcommon stock on April 22, 2004, unless otherwise indicated.

 

(3)                                  Based on information contained in AmendmentNo. 3 to a Schedule 13G filed jointly by Mac-Per-Wolf Company and JanusSmall Cap Value Fund with the Securities and Exchange Commission onFebruary 2, 2004.  Mac-Per-WolfCompany is a parent holding company and is filing on behalf of two of its subsidiaries,PWMCO, LLC, a broker-dealer registered under Section 15 of the SecuritiesAct and an investment advisor registered under Section 203 of theInvestment Advisers Act of 1940, and Perkins, Wolf, McDonnell and Company, LLC,an investment advisor registered under Section 203 of the InvestmentAdvisers Act of 1940.  Janus Small CapValue Fund is an investment company registered under Section 8 of theInvestment Company Act of 1940 and is one of the managed portfolios to whichPerkins, Wolf, McDonnell and Company, LLC provides investment advice.

 

(4)                                  Based on information contained in AmendmentNo. 3 to a Schedule 13G filed jointly by Mac-per-Wolf Company and JanusSmall Cap Value Fund with the Securities and Exchange Commission onFebruary 2, 2004.  Mac-Per-WolfCompany is a parent holding company and is filing on behalf of two of itssubsidiaries, PWMCO, LLC, a broker-dealer registered under Section 15 ofthe Securities Act and an investment advisor registered under Section 203of the Investment Advisers Act of 1940, and Perkins, Wolf, McDonnell andCompany, LLC, an investment advisor registered under Section 203 of theInvestment Advisers Act of 1940.  JanusSmall Cap Value Fund is an investment company registered under Section 8of the Investment Company Act of 1940 and is one of the managed portfolios towhich Perkins, Wolf, McDonnell and Company, LLC provides investment advice

 

(5)                                  Includes 6,862 shares held by 401(k) plan,2,600 shares held by the ESOP as to which Ms. Burnham has the power to directvoting and 77,500 shares that Ms. Burnham has the right to acquire within 60days of April 22, 2004 under options granted pursuant to the Company’s1999 Stock Incentive Plan.  Does not

 

13

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include105.4319 stock units held in Ms. Burnham’s account in the Seacoast FinancialServices Corporation ESOP Restoration Plan for which she has no investmentpower.  These units do not representoutstanding shares and do not have voting rights.

 

(6)                                  Includes 2,700 shares owned by spouse, 20,092shares held by executive deferred compensation plan, 7,389 shares held by401(k) plan, 50 shares held as custodian for daughter, 2,999 shares held by theESOP as to which Mr. Champagne has the power to direct voting and 180,000 sharesthat Mr. Champagne has the right to acquire within 60 days of April 22,2004 under options granted pursuant to the Company’s 1999 Stock IncentivePlan.  Does not include 1425.8188 stockunits held in Mr. Champagne’s account in the Seacoast Financial ServicesCorporation ESOP Restoration Plan for which he has no investment power.  These units do not represent outstandingshares and do not have voting rights.

 

(7)                                  Includes 20,800 shares that Mr. Dyer has theright to acquire within 60 days of April 22, 2004 under options grantedpursuant to the Company’s 1999 Stock Incentive Plan.

 

(8)                                  Includes 4,469 shares held in IRA and 18,500shares that Ms. Hebditch has the right to acquire within 60 days ofApril 22, 2004 under options granted pursuant to the Company’s 1999 StockIncentive Plan.

 

(9)                                  Includes 500 shares held as custodian forson, 930 shares held in spouse’s IRA, 2,936 shares held by the ESOP as to whichMr. Kelleher has the power to direct voting and 80,000 shares that Mr. Kelleherhas the right to acquire within 60 days of April 22, 2004 under optionsgranted pursuant to the Company’s 1999 Stock Incentive Plan.  Does not include 172.2860 stock units heldin Mr. Kelleher’s account in the Seacoast Financial Services Corporation ESOPRestoration Plan for which he has no investment power.  These units do not represent outstandingshares and do not have voting rights.

 

(10)                            Includes 2,961 shares owned by spouse, 262 shares owned by daughter and21,000 shares that Mr. Klarén has the right to acquire within 60 days ofApril 22, 2004 under options granted pursuant to the Company’s 1999 StockIncentive Plan.

 

(11)                            Includes 4,000 shares held by spouse and 26,000 shares that Mr. LeBlanchas the right to acquire within 60 days of April 22, 2004 under optionsgranted pursuant to the Company’s 1999 Stock Incentive Plan.

 

(12)                            Includes 31,925 shares owned by spouse and 26,000 shares that Mr.Legate has the right to acquire within 60 days of April 22, 2004 underoptions granted pursuant to the Company’s 1999 Stock Incentive Plan.

 

(13)                            Includes 3,467 shares held by IRA, 3,266 shares held in spouse’s IRAand 4,200 shares that Mr. Lemieux has the right to acquire within 60 days ofApril 22, 2004 under options granted pursuant to the Company’s 1999 StockIncentive Plan.

 

(14)                            Includes 5,567 shares held by 401(k) plan, 2,703 shares held by theESOP as to which Mr. Mascianica has the power to direct voting and 77,500shares that Mr. Mascianica has the right to acquire within 60 days ofApril 22, 2004 under options granted pursuant to the Company’s 1999 StockIncentive Plan.  Does not include215.0574 stock units held in Mr. Mascianica’s account in the Seacoast FinancialServices Corporation ESOP Restoration Plan for which he has no investmentpower.  These units do not represent outstandingshares and do not have voting rights.

 

(15)                            Includes 8,098 shares held by 401(k) plan, 7,629 shares held by theESOP as to which Mr. Murphy has the power to direct voting, 223 shares owned byspouse and 1,679 shares held in IRA.

 

(16)                            Includes 500 shares that Mr. Read has the right to acquire within 60days of April 22, 2004 under options granted pursuant to the Company’s1999 Stock Incentive Plan.

 

(17)                            Includes 7,519 shares held in IRA.

 

(18)                            Includes 6,000 shares held by spouse and 21,000 shares that Mr. Ribeirohas the right to acquire within 60 days of April 22, 2004 under optionsgranted pursuant to the Company’s 1999 Stock Incentive Plan.

 

(19)                            Includes 1,237 shares held by 401(k) plan, 3,944 shares held byexecutive deferred compensation plan, 2,999 shares held by the ESOP as to whichMr. Short has the power to direct voting and 88,000 shares that Mr. Short hasthe right to acquire within 60 days of April 22, 2004 under optionsgranted pursuant to the Company’s 1999 Stock Incentive Plan.  Does not include 330.0893 stock units heldin Mr. Short’s account in the Seacoast Financial Services Corporation ESOPRestoration Plan for which he has no investment power.  These units do not represent outstanding sharesand do not have voting rights.

 

14

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(20)                            Includes 26,000 shares that Mr. Silverstein has the right to acquirewithin 60 days of April 22, 2004 under options granted pursuant to theCompany’s 1999 Stock Incentive Plan.

 

(21)                            Includes 6,440 shares held by spouse and 21,000 shares that Mr. Silviahas the right to acquire within 60 days of April 22, 2004 under optionsgranted pursuant to the Company’s 1999 Stock Incentive Plan.

 

(22)                            Includes 25,276 shares held by the ESOP as to which all executiveofficers have the power to direct voting and 892,450 shares that all executiveofficers and directors have the right to acquire within 60 days ofApril 22, 2003 under options granted pursuant to the Company’s 1999 StockIncentive Plan.

 

**Equity Compensation Plans**

 

The following table sets forth certain information as ofDecember 31, 2003 regarding securities authorized for issuance under theCompany’s equity compensation plans.  Asof December 31, 2003, the Company had two equity compensation plans, the1999 Stock Incentive Plan and the 2003 Stock Incentive Plan.  Both Plans were approved by the Company’sstockholders.

 
| **Plan Category**                                       |   | **Number of  shares to  be issued upon  exercise of outstanding  options  (a)** |   | **Weighted-average  exercise price of  outstanding options  (b)** |   | **Number of  shares  remaining available  for future issuance  under equity  compensation plans  (excluding shares  reflected in column (a)  (c)** |    |
|---------------------------------------------------------|--------|---------------------------------------------------------------------------------|--------|-------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------|---------|
|                                                    |   |                                                                            |   |                                                              |   |                                                                                                                                               |    |
| Equity compensation plans approved by  shareholders     |   | 1,390,850                                                                       |   | $                                                                 | 13.052 |                                                                                                                                               | 998,250 |   |
|                                                    |   |                                                                            |   |                                                              |   |                                                                                                                                               |    |   |
| Equity compensation plans not approved by  shareholders |   | —                                                                          |   | —                                                            |   | —                                                                                                                                             |    |
|                                                    |   |                                                                            |   |                                                              |   |                                                                                                                                               |    |
| **Total**                                               |   | 1,390,850                                                                       |   | $                                                                 | 13.052 |                                                                                                                                               | 998,250 |   |

 

**Item 13****.  Certain Relationships and RelatedTransactions**

 

Some of the Directors and executive officers, as well as members oftheir immediate families and companies, organizations, trusts and otherentities with which they are associated are, or during 2003 were, customers ofthe Company's subsidiary banks (the Banks) in the ordinary course of businessor had loans outstanding from the Banks during 2003, including loans of $60,000or more.  It is anticipated that suchpersons and their associates will continue to be customers of and indebted tothe Banks in the future.  All such loanswere made in the ordinary course of business, did not involve more than thenormal risk of collectibility or present other unfavorable features and weremade on substantially the same terms, including interest rates and collateral,as prevailed at the time for comparable transactions with other persons.

 

The Company entered into a consulting andnoncompetition agreement with John F. Murphy, dated December 19, 2002, inconnection with the Company’s acquisition of Bay State Bancorp, Inc..  Mr. Murphy was Chairman, President and ChiefExecutive Officer of Bay State until Bay State was acquired by the Company onMay 31, 2003.  Under the agreement, theCompany has agreed to pay Mr. Murphy $100,000 per year for a period of one yearbeginning on May 31, 2003 to perform certain consulting services to theCompany.  The Company has also agreed topay Mr. Murphy $366,666 per year for a period of three years beginning on May31, 2003 in exchange for Mr. Murphy’s agreement not to compete in various wayswith the business conducted by the Company and its bank subsidiaries or Bay Stateand its bank subsidiaries ways or to solicit employees or customers of theCompany or any of its subsidiaries.

 

The Company entered into a noncompetitionagreement with Denise M. Renaghan, dated December 19, 2002, in connection withthe Company’s acquisition of Bay State. Ms. Renaghan was Executive Vice President and Chief Operating Officer ofBay State until its acquisition by the Company on May 31, 2003.  Under the agreement, the Company has agreedto pay Ms. Renaghan $233,333 per year for a period of three years beginning onMay 31, 2003 in exchange for Ms. Renaghan’s agreement not to compete in variousways with the business conducted by the Company and its bank subsidiaries orBay State and its bank subsidiaries ways or to solicit employees or customersof the Company or any of its subsidiaries.

 

**Item 14****. Principal Accountant Fees and Services**

 

Thefollowing is a summary of the fees for professional services rendered by KPMGLLP for the fiscal years ended December 31, 2003 and December 31,2002:

 

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|               |   | **Fees** |    |
|--------------------|--------|----------|---------|
| **Fee category**   |   | **2003** |    | **2002** |   |
|               |   |     |    |   |   |
| Audit Fees         |   | $        | 417,550 |   | $ | 307,000 |   |
| Audit-Related Fees |   | 200,442  |    | 7,500 |   |
| Tax Fees           |   | 44,233   |    | 32,060 |   |
| All Other Fees     |   | 0        |    | 0 |   |
| Total Fees         |   | $        | 662,225 |   | $ | 346,560 |   |

 

*Audit Fees*. Audit Fees represent fees for professional services performed by KPMGLLP for the audit of the Company’s annual financial statements and the reviewof the Company’s quarterly financial statements, as well as services that arenormally provided in connection with statutory and regulatory filings orengagements and related expenses, including comfort procedures related to theCompany’s trust preferred offering.

 

*Audit-RelatedFees*.  Audit-Related Fees represent fees forassurance and related services performed by KPMG LLP that are reasonablyrelated to the performance of the audit or review of the Company’s financialstatements, including the audit of the employee benefit plan and due diligencerelated to acquisitions.

 

*Tax Fees*.  TaxFees represent fees for professional services performed by KPMG LLP withrespect to tax compliance, tax advice and tax planning and related expenses,including tax consulting relating to state and local tax matters and theCompany’s real estate investment trust.

 

*All otherfees*.  None. All Other Fees represent fees forproducts and services provided by KPMG LLP, other than those disclosed above.

 

Priorto engaging KPMG LLP to render audit and non-audit services for 2003, the AuditCommittee of the Company approved the engagement.

 

TheAudit Committee has discussed the independence of KPMG LLP and consideredwhether the provision of non-audit services by KPMG LLP is compatible withmaintaining auditor independence, and has satisfied itself as to KPMG LLP’sindependence.

 

Thefollowing is a summary of the fees for professional services rendered by ArthurAndersen LLP (the Company’s principal accountants until May 16, 2002) for thefiscal year ended December 31, 2002:

 

*Audit Fees. *Arthur Andersen LLP billedthe Company an aggregate of $12,500 in fees for professional services renderedfor the reviews of the financial statements included in the Company’s QuarterlyReports on SEC Form 10-Q for the quarter ended March 31, 2002.

 

*All Other Fees. *Arthur Andersen LLP billedthe Company an aggregate of $76,686 for other services rendered to the Companyduring the fiscal year ended December 31, 2002, including $5,970 for taxservices, $50,000 for services related to the Company’s issuance of trustpreferred securities and $20,716 for a loss valuation assessment in connectionwith a legal matter in which the Company was involved.

 

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**Part IV**

 

**Item 15.****  Exhibits, Financial Statement Schedules andReports on Form 8-K**

 

TheCompany’s Financial Statements (listed below) were previously filed with theCompany’s Annual Report on Form 10-K for the fiscal year endedDecember 31, 2003.

 

(1)                                  Financial Statements:  All financial statements are included inItem 8 of Part II to this report.

 

(2)                                  Financial Statement Schedules: All financialstatement schedules have been omitted because they are either not required, notapplicable or are included in the consolidated financial statements or relatednotes.

 

(3)                                  *Exhibits*:

 
| 2.1    | Agreement  and Plan of Merger, dated as of December 19, 2002 by and between  Seacoast Financial Services Corporation, Seacoast Merger Sub, Inc. and Bay  State Bancorp, Inc.                                       |   | h      |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|   |                                                                                                                                                                                                                    |   |   |
| 2.2    | Agreement  and Plan of Merger, dated as of October 20, 2003, by and between  Seacoast Financial Services Corporation, Coast Merger Sub Corporation and  Abington Bancorp Inc.                                      |   | j      |
|   |                                                                                                                                                                                                                    |   |   |
| 2.3    | Agreement  and Plan of Merger, dated as of January 26, 2004, by and between  Sovereign Bancorp, Inc. and Seacoast Financial Services Corporation                                                                   |   | l      |
|   |                                                                                                                                                                                                                    |   |   |
| 2.4    | Amendment  to Agreement and Plan of Merger, dated as of April 12, 2004, by and  between Sovereign Bancorp, Inc. and Seacoast Financial Services Corporation                                                        |   | m      |
|   |                                                                                                                                                                                                                    |   |   |
| 3.1    | Restated  Articles of Organization of Seacoast Financial Services Corporation                                                                                                                                           |   | c      |
|   |                                                                                                                                                                                                                    |   |   |
| 3.2    | By-Laws  of Seacoast Financial Services Corporation                                                                                                                                                                     |   |   |
|   |                                                                                                                                                                                                                    |   |   |
| 4      | Specimen  certificate for the common stock of Seacoast Financial Services Corporation                                                                                                                                   |   | b      |
|   |                                                                                                                                                                                                                    |   |   |
| 4.2    | Form  of 8.50% Junior Subordinated Debenture of Seacoast Financial Services  Corporation                                                                                                                                |   | f      |
|   |                                                                                                                                                                                                                    |   |   |
| 4.3    | Form  of Preferred Security of Seacoast Capital Trust I (incorporated by reference  to Amended and Restated Trust Agreement of Seacoast Capital Trust I dated May  31, 2002                                             |   | f      |
|   |                                                                                                                                                                                                                    |   |   |
| 10.1*  | Form  of Employment Agreement by and among Seacoast Financial Services Corporation,  Compass Bank for Savings and Kevin G. Champagne                                                                                    |   | a      |
|   |                                                                                                                                                                                                                    |   |   |
| 10.2*  | First  Amendment, dated as of December 4, 2003, to Employment Agreement dated  as of November 20, 1998 by and among Seacoast Financial Services  Corporation, Compass Bank for Savings and Kevin G. Champagne |   | k      |
|   |                                                                                                                                                                                                                    |   |   |
| 10.3*  | Form  of Employment Agreements by and among Seacoast Financial Services  Corporation, Compass Bank for Savings and certain officers of Compass Bank  for Savings                                                        |   | a      |
|   |                                                                                                                                                                                                                    |   |   |
| 10.4*  | Form  of Employment Agreements by and among Seacoast Financial Services  Corporation, Compass Bank for Savings and each of Carolyn A. Burnham, John D.  Kelleher, Francis S. Mascianica, Jr. and Arthur W. Short        |   | a      |

 

17

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| 10.5*  | Form  of First Amendment to Employment Agreement by and among Seacoast Financial  Services Corporation, Compass Bank for Savings and each of Carolyn A.  Burnham, John D. Kelleher, Francis S. Mascianica, Jr. and Arthur W. Short    |   | k      |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|   |                                                                                                                                                                                                                                  |   |   |
| 10.6*  | Form  of Change in Control Agreements by and among Seacoast Financial Services  Corporation, Compass Bank for Savings and each of Kevin Champagne and certain  officers of Compass Bank for Savings                                   |   | a      |
|   |                                                                                                                                                                                                                                  |   |   |
| 10.7*  | Form  of Change in Control Agreements by and among Seacoast Financial Services  Corporation, Compass Bank for Savings and certain officers of Compass Bank  for Savings                                                               |   | a      |
|   |                                                                                                                                                                                                                                  |   |   |
| 10.8*  | Form  of Executive Salary Continuation Agreements as Amended and Restated made and  entered into by and between Compass Bank for Savings and each of Kevin G.  Champagne, Arthur W. Short, John D. Kelleher and Francis S. Mascianica |   | k      |
|   |                                                                                                                                                                                                                                  |   |   |
| 10.9*  | Executive  Salary Continuation Agreement dated as of December 4, 2003 by and  between Compass Bank for Savings and Carolyn A. Burnham                                                                                            |   | k      |
|   |                                                                                                                                                                                                                                  |   |   |
| 10.10* | Employment  Agreement dated as of October 20, 2003 by and among Seacoast Financial  Services Corporation, Compass Bank for Savings and James P. McDonough                                                                        |   | k      |
|   |                                                                                                                                                                                                                                  |   |   |
| 10.11* | First  Amendment dated as of December 4, 2003 to Employment Agreement dated as  of October 20, 2003 by and among Seacoast Financial Services  Corporation, Compass Bank for Savings and James P. McDonough                  |   | k      |
|   |                                                                                                                                                                                                                                  |   |   |
| 10.12* | Change  of Control Agreement dated as of October 20, 2003 by and among Seacoast  Financial Services Corporation, Compass Bank for Savings and James P.  McDonough                                                                |   | k      |
|   |                                                                                                                                                                                                                                  |   |   |
| 10.13* | Payments  and Waiver Agreement by and among Seacoast Financial Services Corporation,  Bay State Bancorp, Inc., Bay State Federal Savings Bank and John F. Murphy                                                                      |   | h      |
|   |                                                                                                                                                                                                                                  |   |   |
| 10.14* | Payments  and Waiver Agreement by and among Seacoast Financial Services Corporation,  Bay State Bancorp, Inc., Bay State Federal Savings Bank and Denise Renaghan                                                                     |   | h      |
|   |                                                                                                                                                                                                                                  |   |   |
| 10.15* | Consulting  and Non-Competition Agreement between Seacoast Financial Services Corporation  and John F. Murphy                                                                                                                         |   | h      |
|   |                                                                                                                                                                                                                                  |   |   |
| 10.16* | Non-Competition  Agreement between Seacoast Financial Services Corporation and Denise Renaghan                                                                                                                                        |   | h      |
|   |                                                                                                                                                                                                                                  |   |   |
| 10.17* | Seacoast  Financial Services Corporation 1999 Stock Incentive Plan                                                                                                                                                                    |   | d      |
|   |                                                                                                                                                                                                                                  |   |   |
| 10.18* | Seacoast  Financial Services Corporation 2003 Stock Incentive Plan                                                                                                                                                                    |   | i      |
|   |                                                                                                                                                                                                                                  |   |   |
| 10.19* | Compass  Bank for Savings January 2000 Incentive Compensation Plan                                                                                                                                                               |   | e      |
|   |                                                                                                                                                                                                                                  |   |   |
| 10.20* | Compass  Bank for Savings Executive Deferred Compensation Plan                                                                                                                                                                        |   | a      |
|   |                                                                                                                                                                                                                                  |   |   |
| 10.21* | Rabbi  Trust for Compass Bank for Savings Executive Deferred Compensation Plan                                                                                                                                                        |   | a      |
|   |                                                                                                                                                                                                                                  |   |   |
| 10.22* | Seacoast  Financial Services Corporation Merger Severance Benefit Plan as of  December 4, 2003                                                                                                                                   |   | k      |

 

18

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| 10.23*  | Seacoast  Financial Services Corporation ESOP Restoration Plan as of December 4,  2003                                                                                                                                                                                                              |   | k      |
|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|    |                                                                                                                                                                                                                                                                                                     |   |   |
| 10.24*  | Compass  Bank for Savings Executive Savings Plan as Amended and Restated as of  December 1, 2003                                                                                                                                                                                                    |   | k      |
|    |                                                                                                                                                                                                                                                                                                     |   |   |
| 10.25*  | Trust  Agreement, made as of December 18, 1992, by and between Compass Bank for  Savings and Shawmut Bank, N.A.                                                                                                                                                                                     |   | a      |
|    |                                                                                                                                                                                                                                                                                                     |   |   |
| 10.26** | Data  Service Agreement with FISERVE                                                                                                                                                                                                                                                                     |   | g      |
|    |                                                                                                                                                                                                                                                                                                     |   |   |
| 10.27*  | Sandwich  Co-Operative Bank 1992 Directors Deferred Compensation Plan                                                                                                                                                                                                                                    |   | b      |
|    |                                                                                                                                                                                                                                                                                                     |   |   |
| 10.28   | Amended  and Restated Trust Agreement of Seacoast Capital Trust I dated May 31, 2002  among Seacoast Financial Services Corporation, State Street Bank and Trust  Company, Christiana Bank and Trust Company, the Administrative Trustees named  therein and the Several Holders of the Trust Securities |   | f      |
|    |                                                                                                                                                                                                                                                                                                     |   |   |
| 10.29   | Guarantee  Agreement dated May 31, 2002 between Seacoast Financial Services Corporation  and State Street Bank and Trust Company                                                                                                                                                                         |   | f      |
|    |                                                                                                                                                                                                                                                                                                     |   |   |
| 10.30   | Agreement  as to Expenses and Liabilities dated May 31, 2002 between Seacoast Financial  Services Corporation and Seacoast Capital Trust I (incorporated by reference  to Exhibit C to Exhibit 10.27 hereof)                                                                                             |   | f      |
|    |                                                                                                                                                                                                                                                                                                     |   |   |
| 10.31   | Junior  Subordinated Indenture dated May 31, 2002 between Seacoast Financial Services  Corporation and State Street Bank and Trust Company                                                                                                                                                               |   | f      |
|    |                                                                                                                                                                                                                                                                                                     |   |   |
| 10.32*  | Amendment  agreement dated as of October 20, 2003 by and among Seacoast Financial  Services Corporation, Abington Bancorp Inc., Abington Savings Bank and James  P. McDonough                                                                                                                       |   | k      |
|    |                                                                                                                                                                                                                                                                                                     |   |   |
| 10.33*  | Amendment  agreement dated as of October 20, 2003 by and among Seacoast Financial  Services Corporation, Abington Bancorp Inc., Abington Savings Bank and Kevin  M. Tierney                                                                                                                         |   | k      |
|    |                                                                                                                                                                                                                                                                                                     |   |   |
| 11      | A  statement regarding earnings per share is included in Item 8, Note 1, of the  Form 10-K (which is being amended by this Amendment No. 1)                                                                                                                                                              |   |   |
|    |                                                                                                                                                                                                                                                                                                     |   |   |
| 14      | Code  of Ethics and Business Conduct Policy                                                                                                                                                                                                                                                              |   |   |
|    |                                                                                                                                                                                                                                                                                                     |   |   |
| 21      | Subsidiaries  (See Item 1 of Part I to the Form 10-K (which is being amended by this  Amendment No. 1))                                                                                                                                                                                                  |   |   |
|    |                                                                                                                                                                                                                                                                                                     |   |   |
| 23      | Consent  of KPMG LLP                                                                                                                                                                                                                                                                                     |   |   |
|    |                                                                                                                                                                                                                                                                                                     |   |   |
| 31.1    | Certification  by Kevin G. Champagne, Chief Executive Officer, pursuant to section 302  of the Sarbanes-Oxley Act of 2002 regarding this Amendment No. 1***                                                                                                                                         |   |   |
|    |                                                                                                                                                                                                                                                                                                     |   |   |
| 31.2    | Certification  by Francis S. Mascianica, Treasurer, pursuant to section 302 of the  Sarbanes-Oxley Act of 2002 regarding this Amendment No. 1***                                                                                                                                                    |   |   |
|    |                                                                                                                                                                                                                                                                                                     |   |   |
| 32      | Certification  required by section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                            |   |   |

 

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All exhibits have been previously filed unlessotherwise indicated.

 

*                 Management compensatory plan or arrangement.

 

19

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**          Certain portions of this Exhibit have beenomitted pursuant to a request for confidential treatment filed with theSecurities and Exchange Commission.

 

***   Filed herewith.

 

a                                          Incorporated by reference to the Company’sRegistration Statement on Form S-1 (333-52889), filed with the SEC underthe Company’s prior name, “The 1855 Bancorp”, on May 15, 1998.

 

b                                         Incorporated by reference to AmendmentNo. 1 to the Company’s Registration Statement on Form S-1(333-52889), filed with the SEC under the Company’s prior name, “The 1855Bancorp”, on August 14, 1998.

 

c                                          Incorporated by reference to the Company’s RegistrationStatement on Form 8-A filed with the SEC on November 18, 1998.

 

d                                         Incorporated by reference to the Company’sProxy Statement on Schedule 14A filed with the SEC on April 16, 1999.

 

e                                          Incorporated by reference to the Company’sAnnual Report on Form 10-K filed with the SEC on March 28, 2000.

 

f                                            Incorporated by reference to the Company’scurrent report on Form 10-Q for the second quarter of 2002, filed with theSEC on August 14, 2002.

 

g                                         Incorporated by reference to the Company’scurrent report on Form 10-Q for the third quarter of 2002, filed with theSEC on November 14, 2002.

 

h                                         Incorporated by reference to the Company’scurrent report on Form 8-K filed with the SEC on December 23, 2002.

 

i                                             Incorporated by reference to the Company’sProxy Statement on Schedule 14A filed with the SEC on April 15, 2003.

 

j                                             Incorporated by reference to the Company’scurrent report on Form 8-K filed with the SEC on October 27, 2003.

 

k                                          Incorporated by reference to the Company’sRegistration Statement on Form S-4 (333-111415) filed with the SEC onDecember 19, 2003 and as amended on February 13, 2004.

 

l                                             Incorporated by reference to SovereignBancorp, Inc.’s current report on Form 8-K filed with the SEC onJanuary 28, 2004.

 

m                                       Incorporated by reference to SovereignBancorp, Inc.’s current report on Form 8-K filed with the SEC on April 13,2004.

 

(b)                                 Reports on Form 8-K:

 

•                       Form 8-K dated October 27, 2003filed under Items 5 and 7 whereby Seacoast announced that it entered into adefinitive agreement to acquire Abington Bancorp Inc.

 

•                       Form 8-K dated October 23, 2003furnished under Items 12 and 7 whereby Seacoast announced its third quarter2003 earnings.

 

20

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**SIGNATURES**

 

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, the registrant has duly caused this AmendmentNo. 1 to be signed on its behalf by the undersigned, thereunto duly authorized.

 
|   | SEACOAST FINANCIAL SERVICES CORPORATION |
|--------|-----------------------------------------|
|   |                                    |
|   |                                    |
|   | By:                                     | /s/ Francis S. Mascianica, Jr. |   |
|   |                                    | Francis S. Mascianica, Jr. |   |
|   |                                    | Treasurer, *As Principal Financial and Accounting  Officer* |   |

 

 

Dated: April 29, 2004

 

21

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**Exhibit Index**

 
| **Exhibit No.** |   | **Description**                                                                                                                 |
|-----------------|--------|---------------------------------------------------------------------------------------------------------------------------------|
|            |   |                                                                                                                            |
| 31.1            |   | Certification by Kevin G.  Champagne, Chief Executive Officer, pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002. |
|            |   |                                                                                                                            |
| 31.2            |   | Certification  by Francis S. Mascianica, Treasurer, pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002.            |

 

22

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