ABINGTON BANCORP INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20429

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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2003

COMMISSION FILE NO. 0-16018

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ABINGTON BANCORP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

MASSACHUSETTS 04-3334127
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)

97 LIBBEY PARKWAY, 02189
WEYMOUTH, MASSACHUSETTS
(Address of Principal Executive Offices) (Zip Code)

(781) 682-6400
(Registrant's telephone number, including area code)

Securities registered under Section 12(b) of the Act: None

Securities registered under Section 12(g) of the Act (Title of Class):
Common Stock, par value $0.10 per share

Indicate by check mark whether the Registrant (together with its predecessor
in interest) (1) has filed all reports required to be filed by Section 13 or 15
(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past
90 days. Yes /X/ No / /

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /

The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based on the closing sales price for the Registrant's Common Stock
on June 30, 2003, as reported by the Nasdaq Stock Market, was $80,442,675.

Indicate by check mark whether registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2) Yes /X/ No / /

The number of shares outstanding of the Registrant's Common Stock as of
March 9, 2004: 4,031,767 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Information required by Part III of this Form 10-K is incorporated by
reference herein from the Registrant's Proxy Statement relating to the 2004
Annual Meeting of Stockholders of the Registrant.

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FORWARD LOOKING STATEMENTS

When used in this Report, the words or phrases "will likely result," "are
expected to," "will continue," "is anticipated," "estimate," "project,"
"believe" or similar expressions are intended to identify "forward-looking
statements" within the meanings of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. The Company wishes to
caution readers that all forward-looking statements are necessarily speculative
and not to place undue reliance on any such forward-looking statements, which
speak only as of the date made, and to advise readers that various risks and
uncertainties, including regional and national economic conditions, changes in
the real estate market, changes in levels of market interest rates, credit risks
of lending activities and competitive and regulatory factors, could affect the
Company's financial performance and could cause the Company's actual results for
future periods to differ materially from those anticipated or projected. The
Company disclaims any intent or obligation to update forward-looking statements
whether in response to new information, further events or otherwise.

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PART I

ITEM 1. BUSINESS

RECENT DEVELOPMENTS

On October 21, 2003, Abington Bancorp, Inc. ("Abington" or the "Company")
and Seacoast Financial Services Corporation (Seacoast), jointly announced the
execution of a definitive agreement whereby Seacoast will acquire Abington. Each
share of Abington common stock will be exchanged for either $34 per share in
cash, or 1.4468 shares of Seacoast common stock, subject to certain allocation
procedures intended to ensure that 75% of Abington's shares will be exchanged
for Seacoast common stock and 25% for cash. The transaction is expected to be
completed during the second quarter of 2004, subject to the approval of Abington
shareholders and regulators of both companies.

On February 23, 2004, Abington announced that it will hold a Special Meeting
of Stockholders on March 25, 2004 at 11:00 a.m., Eastern Time, at its Corporate
Headquarters, 97 Libbey Parkway, Weymouth, Massachusetts, to consider and vote
upon the proposal to approve the Agreement and Plan of Merger with Seacoast.

On February 17, 2004 Seacoast and Abington filed with the Securities and
Exchange Commission, a registration statement on Form S-4/A containing a proxy
statement/prospectus concerning the merger. On or about February 20, 2004,
Abington mailed a proxy statement/prospectus to its stockholders of record as of
February 5, 2004. Investors are urged to read the registration statement and any
other documents filed with the SEC, as well as any amendments or supplements to
those documents, because they contain (or will contain) important information.
Investors are able to obtain those documents free of charge at the SEC's website
(HTTP://WWW.SEC.GOV). In addition, any documents filed with the SEC by Abington
can be obtained, without charge, by directing a request to Abington
Bancorp, Inc., 97 Libbey Parkway, Weymouth, MA 02189, Attn: Corporate Secretary,
telephone (781) 682-6400.

Seacoast common stock is listed on The Nasdaq National Market under the
symbol "SCFS." On March 9, 2004, the closing sales price of a share of Seacoast
common stock was $34.10.

On January 26, 2004, Seacoast entered into an agreement and plan of merger
with Sovereign Bancorp, Inc. (Sovereign) under which Seacoast will be merged
with and into Sovereign, with Sovereign the surviving corporation. The
Sovereign/Seacoast merger is scheduled to close after the consummation of the
Seacoast/Abington merger. Stockholders of Seacoast (including Abington
shareholders who receive Seacoast common stock in exchange for their shares of
Abington common stock and do not sell their Seacoast shares prior to the
consummation of the Sovereign/Seacoast merger) generally will receive 1.461
shares of Sovereign common stock for each share of Seacoast that they own,
subject to potential adjustment, based on the average of Sovereign's closing
share prices as reported on the New York Stock Exchange for the 15 trading days
prior to the later to occur of (1) Seacoast's stockholder meeting to consider
the Sovereign/Seacoast merger, or (2) the date of the receipt of the last
governmental approval required to complete the Sovereign/Seacoast merger (the
Sovereign determination date). The Sovereign/Seacoast merger agreement was filed
with the SEC on January 24, 2004 as an exhibit to Sovereign's Current Report on
Form 8-K. A registration statement on Form S-4 containing a proxy
statement/prospectus concerning the Sovereign/Seacoast merger is expected to be
filed by Sovereign prior to the end of March 2004. These, and other documents
relating to the Sovereign/Seacoast merger are or will be available at the SEC's
website (HTTP://WWW.SEC.GOV).

Sovereign common stock is listed on the New York Stock Exchange under the
symbol "SOV." On March 9, 2004, the closing price of Sovereign common stock was
$21.75.

The Sovereign/Seacoast merger is subject to a number of conditions,
including receipt of regulatory approvals and the approval of the Seacoast
shareholders. There is currently no assurance that the

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Sovereign/Seacoast merger will be consummated or what the exchange ratio or
value of Sovereign common stock may be or when the closing will occur.

On March 9, 2004, Sovereign announced that it had entered into a definitive
agreement to acquire Waypoint Financial Corp. On February 6, 2004, Sovereign
completed its acquisition of First Essex Bancorp. Sovereign operates
approximately 540 community banking offices in Connecticut, Massachusetts, New
Hampshire, New Jersey, Pennsylvania and Rhode Island and reports assets of
$43.5 billion and deposits of $27.3 billion as of December 31, 2003.

GENERAL

Abington Bancorp, Inc. (the "Company") is a one-bank holding company, which
owns all of the outstanding capital stock of Abington Savings Bank ("the Bank").
The Company's primary business is serving as the holding company of the Bank.

The Bank operated as a Massachusetts-chartered mutual savings bank from its
incorporation in 1853 until June 1986 when the Bank converted from mutual to
stock form of ownership. From June 1986 to the present, the Bank has operated as
a stock-owned savings bank.

In May 1998, the Company formed a Delaware business trust, Abington Bancorp
Capital Trust (the "Trust"). All of the common securities of this special
purpose Trust are owned by the Company. The Trust exists solely to issue capital
securities. The Trust has issued Trust Preferred Securities and has invested the
net proceeds in Junior Subordinated Deferrable Interest Debentures
("Subordinated Debentures") issued to the Trust by the Company. These
Subordinated Debentures are the sole assets of the Trust.

On September 13, 2002, the Company completed its acquisition of
Massachusetts Fincorp, Inc. (MAFN), the parent company of the Massachusetts
Co-operative Bank with three branches in the Greater Boston area, for $30.00 per
share in cash and stock for a total purchase price of $15.8 million. The MFAN
branches provide a natural extension of the Company's market area and provide
opportunities to expand the Company's small business and commercial lending
areas.

The Bank has seven wholly-owned subsidiaries: Holt Park Place Development
Corporation and Norroway Pond Development Corporation, which own properties
being marketed for sale; Abington Securities Corporation, Mass Securities
Corporation and Mass SEC Corp. II, which invest primarily in United States
Government obligations and obligations of related agencies and equity
securities; 70 Quincy Ave. LLC, which owns and operates a building in Quincy;
and Old Colony Mortgage Corporation, which originates and sells primarily
first-lien mortgages secured by 1-4 family residential property.

The Company is engaged principally in the business of attracting deposits
from the general public, borrowing funds and investing those deposits and funds.
In its investments, the Company has emphasized various types of residential and
commercial real estate loans, commercial loans, residential construction loans,
consumer loans, and investments in securities. The Company considers its
principal market area to be parts of Plymouth, Norfolk and Suffolk Counties, in
Massachusetts (primarily Abington, Brockton, Canton, Cohasset, Dorchester,
Halifax, Hanover, Hanson, Holbrook, Hull, Kingston, Milton, Pembroke, Quincy,
Randolph and Whitman where it has banking offices, and nearby Rockland, Duxbury,
Scituate, Plympton, East Bridgewater, Plymouth, Carver, Weymouth and
Bridgewater). Additionally, the Company has mortgage lending offices in Auburn,
Brockton and Fall River.

The Company has grown from $697.3 million in assets and $389.7 million in
deposits at December 31, 1999 to $815.1 million in assets and $650.6 million in
deposits at December 31, 2003. Deposits in the Company are insured by the Bank
Insurance Fund of the Federal Deposit Insurance Corporation ("FDIC") up to FDIC
limits (generally $100,000 per depositor) and by the Depositors

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Insurance Fund, a state excess deposit insurer (the "Depositors Insurance
Fund"), for the portion of deposits in excess of amounts insured by the FDIC.

In August of 1997, the Company opened, in Cohasset, the first of five de
novo supermarket branches, with the Randolph and Hanson branches opening in
April and September, 1998, respectively, Brockton in May, 1999 and Canton in
November 2000. Additionally, the Company opened a free standing branch in
Hanover in July 2001 and acquired three new branches in Dorchester, Quincy and
Milton as a result of its MAFN acquisition. These branch openings are consistent
with the Company's ongoing strategy of controlled growth with a focus on retail
core deposit relationships and have enabled the Company to increase its regional
presence. Management plans to continue to explore growth opportunities through
de novo branches and acquisitions.

On April 1, 1999, the Company acquired Old Colony Mortgage Corporation
("OCM") (See Note 2 to the Consolidated Financial Statements). OCM is
headquartered in Weymouth, and has origination offices in Fall River and Auburn,
Massachusetts, as well as a presence in each of the Company's branches. This
acquisition was made to expand the Company's mortgage origination capabilities
as well as to provide the Company with a greater diversity of sources of income.

LENDING ACTIVITIES

GENERAL. Loans currently originated and purchased for the Company's own
portfolio generally have terms to maturity or repricing of 15 years or less,
such as residential construction loans and adjustable-rate and fixed-rate
mortgages on owner-occupied residential property. See "Item 7--Management's
Discussion and Analysis of Consolidated Financial Condition and Results of
Operations--Liquidity and Capital Resources" for discussion of the Company's
asset-liability strategy. The Company also originates one-year, three-year and
five-year adjustable-rate mortgages on non-owner-occupied residential property
as well as commercial and commercial real estate loans. Prior to 1996,
commercial, commercial real estate and commercial construction lending had not
been a primary source of loan originations. The Company began to emphasize such
lending in the latter part of 1996. The Company anticipates a continued emphasis
in the future for these types of loan originations. The Company has stressed the
origination or purchase of shorter-term 10- to 15-year fixed rate or adjustable
residential mortgage loans (generally hybrids with terms to first adjustment of
one, three, five and seven years with annual resets thereafter) or seasoned
30-year fixed rate residential mortgage loans for its own portfolio in
connection with its asset/liability management. (See "Lending
Activities-Residential and Commercial Construction and Commercial and Commercial
Real Estate Loans.")

The Company's net loan portfolio totaled $381.9 million at December 31,
2003, representing approximately 46.9% of its total assets. The majority of the
Company's loans are collateralized by real estate and are made within Norfolk,
Suffolk, and Plymouth Counties, although the Company also purchases residential
mortgage loans in other areas of the United States. Generally, loans purchased
outside of Massachusetts are well collateralized and reflect an adequate payment
history. Approximately 18% of the Company's total loan portfolio represents
owner-occupied first mortgages located outside of Massachusetts. The state
(other than Massachusetts) in which the Company has its largest concentration of
residential loans is Texas in which the Company held approximately $7,463,000,
or 1.9% of total loans as of December 31, 2003. No states other than
Massachusetts had a 2.5% or greater concentration.

The Company originated $53.5 million in commercial and commercial real
estate loans, $40.0 million of home equity loans, $8.4 million of consumer loans
and $476.5 million in residential first mortgage loans during the year ended
December 31, 2003. Of the latter amount, loans aggregating $79.9 million were
retained for the Company's own portfolio, $11.0 million were held for sale at
December 31, 2003, and loans aggregating $421.2 million were sold in the
secondary market. As of

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December 31, 2003, loan commitments to borrowers or potential borrowers of
$71.2 million were outstanding. These commitments included $5.6 million under
existing construction loans, $21.4 million in residential and commercial and
commercial real estate loans and $44.2 million under existing lines of credit
(including home equity loans). The Company had no outstanding commitments to
purchase residential first mortgages.

RESIDENTIAL MORTGAGE LOANS. The Company currently sells in the secondary
market most first mortgage loans originated on residential property. The Company
generally sells loans on a non-recourse basis. Prior to 1996, the Company had
generally retained the servicing rights on sold loans. Currently, the Company
typically sells the servicing rights along with the loans. The Company currently
receives annual loan servicing fees, where servicing was retained, generally
ranging from .25% to .425% per annum of the principal balance of the loans plus
all late charges. At December 31, 2003, the Company's loan servicing portfolio
amounted to $20.9 million.

As of December 31, 2003, the outstanding balance of residential first
mortgage loans totaled $186.9 million or 47.6% of the loan portfolio.
Residential first mortgage loans purchased or originated for the Company's
portfolio are generally written in amounts up to 95% of value if the property is
owner-occupied. Borrowers with a loan-to-value ratio in excess of 80% are
generally required to carry private mortgage insurance. Adjustable-rate mortgage
loans to owner occupants of one- to four-family residential property are subject
to certain requirements and limitations under guidelines issued by the
Massachusetts Commissioner of Banks (the "Commissioner"), including limitations
on the amount and frequency of changes in interest rates.

In most cases, the Company requires the residential first mortgage loans it
originates or purchases to meet Federal National Mortgage Association and
Federal Home Loan Mortgage Corporation standards, with an exception being made
in some cases for the size of the loan, in order to provide for the flexibility
to sell such loans if the Company chooses to do so in the secondary market.

HOME EQUITY AND SECOND MORTGAGE LOANS. The Company offers home equity
loans, which are revolving lines of credit secured by the equity in the
borrower's residence. The majority of home equity loans have interest rates that
adjust with movements in the prime lending rate although the Company does offer
fixed rate home equity loans. Home equity loans and second mortgage loans are
currently written generally in amounts from $7,500 to $100,000, but generally
not more than the difference between 80% of the appraised value of the property
and the outstanding balance of the existing first mortgage. However, home equity
loans with higher loan-to-value ratios up to 90% are available on a limited
basis provided certain underwriting criteria are met. Generally home equity
loans must have a current appraisal of the value of the mortgaged property at
origination. At December 31, 2003, the Company had in its portfolio
approximately $47.6 million of outstanding home equity and second mortgage loans
and unused commitments amounting to $32.5 million.

CONSTRUCTION, COMMERCIAL AND COMMERCIAL REAL ESTATE LOANS. The Company also
originates residential construction loans and, from time to time, commercial
construction and other commercial real estate loans.

Most construction loans are for residential single-family dwellings. They
are usually made with construction terms of no more than one year (residential
construction-to-permanent financing loans are offered with a 30-year term). The
Company generally makes construction loans to builders who have pre-sold the
homes to the future occupants. In most cases, permanent financing is arranged
through the Company on properties for which the Company has been the
construction lender. It is the Company's policy to require on-site inspections
before releasing funds on construction loans. Inspections on construction loans
are generally performed by third-party inspectors. At December 31, 2003, gross
construction loans totaled $18.8 million, or 4.8% of the Company's total loan
portfolio.

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Commercial real estate loans generally relate to properties, which are
typically non-owner occupied, income producing such as shopping centers, small
apartment buildings and other types of commercial properties. Commercial real
estate loans are generally written for a maximum term of 10 years, and interest
rates on these loans are typically fixed for no longer than 5 years. Currently,
commercial real estate loans are generally written in amounts up to $3,500,000
and are usually made in the Massachusetts counties of Plymouth, Suffolk,
Norfolk, Bristol and Barnstable. At December 31, 2003, the Company had a total
of $121.9 million of commercial real estate loans, or 31.1% of the Company's
total loan portfolio. Included in commercial real estate loans at December 31,
2003 is $20.2 million in multi-family real estate, or 5.1% of the Company's
total loan portfolio. Loans collateralized by multi-family properties generally
involve larger principal amounts and a greater degree of risk than one-to-four
family residential mortgage loans.

Commercial loans are generally provided to small-to-medium-sized businesses
located within the Company's market area. Commercial loans may be structured as
term loans or as revolving lines of credit. Commercial loans generally have a
repayment schedule of five years or less, with interest rates, that float in
relation to the Wall Street Journal prime rate. The majority of commercial loans
are collateralized by equipment, machinery, receivables, inventory or other
corporate assets. In addition, the Bank generally obtains personal guarantees
from the principals of the borrower for virtually all of its commercial loans.
At December 31, 2003, the Company had approximately $9.4 million of commercial
(non-real estate) loans outstanding which was approximately 2.4% of the
Company's total loan portfolio.

Commercial, commercial construction and commercial real estate lending,
including multi-family real estate entails greater risk than residential
mortgage lending to owner-occupants (including residential construction).
Compared to residential mortgage loans to owner-occupants, the repayment of
these types of loans is more dependent on the underlying business and financial
condition of the borrower and/or cash flows from leases on the subject
properties (and, in the case of construction loans, the economic viability of
the project) and is more susceptible to adverse future developments. Since 1996,
the Company has emphasized commercial, commercial real estate or commercial
construction lending and intends to continue to place an emphasis on commercial,
commercial construction and commercial real estate loan originations.

The following table shows the Company's construction and commercial loans
(excluding commercial real estate loans) by contractual maturity or repricing
interval at December 31, 2003:

CONSUMER LOANS. The Company also makes a variety of consumer loans, such as
new and used automobile and boat loans, unsecured loans, and passbook and
stock-secured loans. Education loans are periodically sold in the secondary
market. The Company's consumer loans totaled $7.7 million at December 31, 2003,
representing 2.0% of its total loan portfolio.

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COMPOSITION OF LOAN PORTFOLIO. The following table shows the composition of
the Company's loan portfolio by type of loan.

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ORIGINATION AND UNDERWRITING. Residential mortgage and consumer loan
originations are developed by the Company's officers and lending personnel from
a number of sources, including referrals from branches, realtors, builders,
attorneys, customers and Directors. The Company employs approximately 18
mortgage originators who are paid a commission based on the amount and volume of
residential loans originated. Consumer and home equity loans are generally
originated through the Company's branch and call center personnel. Consumer loan
services are also solicited by direct mail to existing customers. Advertising
media is also used to promote loans. The Company currently receives origination
fees on most new first mortgage loans that it originates. Fees to cover the
costs of appraisals and credit reports are also collected. In addition, the
Company collects late charges on real estate and consumer loans.

Commercial and commercial real estate loan originations are developed by the
Company's officers and lending personnel from a number of sources, including
referrals from attorneys, CPAs, customers, realtors, direct solicitation and
Directors. The Company employs four commercial loan officers who are paid a
salary and performance bonus. Loans originated by these officers are maintained
in the commercial loan portfolio.

Applications for all types of loans offered by the Company are taken at all
of the Company's offices, and in some cases over the phone, and referred to the
Company's operations center or commercial loan division for processing. The
Company's loan underwriting process is performed in accordance with a policy
approved by the Board of Directors. The process includes but is not limited to
the use of credit applications, property appraisals, verification of an
applicant's credit history, and analysis of financial statements, employment and
banking relationships, and other measures management deems appropriate in the
circumstances.

All loans to Directors must be approved by the full Board of Directors after
review by management. Commercial loans are prohibited to officers and employees
of the Company or the Bank.

NON-PERFORMING ASSETS. The Company attempts to manage its loan portfolio so
as to recognize problem loans at an early point in order to manage each
situation and thereby minimize losses. Interest on loans is generally not
accrued when such interest is not paid for a three-month period and/or, in the
judgment of management, the collectibility of the principal or interest becomes
doubtful. When a loan is placed on a non-accrual status, all interest previously
accrued but not collected is reversed against interest income in the current
period. Interest income is sometimes subsequently recognized only to the extent
that cash payments are received. Those loans that continue to accrue interest
after reaching a three-month delinquency status generally include only consumer
loans, although, on occasion, some residential mortgage loans have been
included. Real estate acquired by foreclosure and other real estate owned is
stated at the lower of the carrying value of the underlying loan or the
estimated fair value less estimated selling costs. For further discussion of
non-performing assets, see "Item 7--Management's Discussion and Analysis of
Consolidated Financial Condition and Results of Operations."

At December 31, 2003, non-performing assets were 0.2% of total assets,
compared with 0.2% and 0.05% at December 31, 2002 and 2001, respectively.

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The following table sets forth non-performing assets at the dates indicated:

The recorded total investment in impaired loans was $1,285,000 and
$2,024,000 at December 31, 2003 and 2002, respectively. At December 31, 2003 and
2002 there were no impaired loans that required a specific allocation of the
allowance for loan losses. The remaining impaired loans did not require any
allocation of the reserve for loan losses. All loans classified as impaired are
also on non-accrual.

The average balance of impaired and/or non-accrual loans was approximately
$1,881,000, $3,568,000, and $704,000 in 2003, 2002 and 2001, respectively. The
total amount of interest income recognized on impaired loans during 2003, 2002
and 2001 was approximately $50,000, $108,000 and $39,000, respectively, which
approximated the amount of cash received for interest during that period. The
Company has no commitments to lend additional funds to borrowers whose loans
have been deemed to be impaired.

Currently, in the single-family home sector, prices are stable and
properties are selling quickly. Additionally, Boston area vacancy rates on
commercial real estate properties have remained relatively low in comparison to
the early 1990's, which has helped to support the market values of those
properties. The Company cannot predict the impact on future provisions for loan
losses that may result from future market conditions. While the regional economy
has declined, the local residential real estate market has remained strong over
recent years. It is difficult to predict to what extent such economic conditions
will continue.

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ALLOWANCE FOR LOAN LOSSES. The following table summarizes changes in the
allowance for possible loan losses and other selected statistics for the years
indicated:

The allowance for loan losses is based on management's estimate of the
amount required to reflect the probable inherent losses in the loan portfolio,
based on circumstances known at each reporting date in accordance with Generally
Accepted Accounting Principles ("GAAP"). Management utilizes three methodologies
to determine a range of required reserves, from which a consistent process is
used to derive a reserve number. The results and recommendations from these
processes provide senior management, the Board's Loan Committee and the full
Board of Directors with independent information on loan portfolio condition.

The first method utilized is the Risk Identification Method. This method
involves the allocation of certain loss percentages against adversely classified
commercial loans, and general loss allocations against segments of the loan
portfolio that have similar attributes. Under this methodology, the credit
quality of the commercial portfolios is quantified by a corporate credit rating
system designed to parallel regulatory criteria and categories of loan risk.
Individual lenders monitor their loans to ensure

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appropriate rating assignments are timely made. Risk ratings and the quality of
the portfolio are assessed regularly by an independent Credit Review firm and
other general internal loan reviews and updates as provided by Credit Policy and
Administration personnel. Credit Review and Credit Policy and Administration
personnel conduct ongoing portfolio trend analyses and individual credit reviews
to evaluate loan risk and compliance with corporate lending policies. The level
of allowance allocable to each group of risk-rated loans is then determined by
applying a loss factor that estimates the amount of probable loss in each
category. The assigned loss factor for each risk rating is based upon
management's assessment of historical loss data, portfolio characteristics,
economic trends, overall market conditions and past experience.

Consumer and residential real estate loan quality is evaluated on the basis
of delinquency data and other credit data available due to the large number of
such loans and the relatively small size of individual credits. Allocations for
these loan categories are principally determined by applying loss factors that
represent management's estimate of inherent losses. In each category, inherent
losses are estimated based upon management's assessment of historical loss data,
portfolio characteristics, economic trends, overall market conditions and past
experience. In addition, certain loans in these categories may be individually
risk-rated if considered necessary by management.

The second method utilized is the Migration Method, which utilizes the Risk
Identification Method outlined above and then adjusts the allowance calculation
to reflect a migration of non-pass rated loans to a more adverse category. This
methodology recognizes that no risk identification system can address all
potential risks of loss at any point in time and, therefore, there is an
inherent unidentified risk of loss that may not be accurately characterized or
identified.

The third method utilized is the Specific Identification Method. This method
entails the assignment of reserve amounts to individual adversely-classified
loans based on a specific impairment review of such loans. Under this method,
loans are selected for evaluation based on the internal risk rating or
non-accrual status of the loan. Additionally, general loss allocations are made
against segments of the loan portfolio that have similar attributes.

From these three methodologies, management calculates a range of estimated
required reserves and then determines an appropriate reserve amount within this
range. There are three components to the allowance for loan losses: 1) specific
reserves for loans considered to be impaired or for other loans for which
management considers a specific reserve to be necessary; 2) allocated reserves
based upon management's formula-based process for assessing the adequacy of the
allowance for loan losses; and 3) a non-specific unallocated allowance
considered necessary by management based on its assessment of other qualitative
factors.

The allowance for loan losses is increased by provisions charged against
current earnings. Loan losses are charged against the allowance when management
believes that the collectibility of the loan principal is unlikely. Recoveries
on loans previously charged off are credited to the allowance. Management
believes that the allowance for loan losses is adequate. While management uses
available information to assess probable losses on loans, future additions to
the allowance may be necessary based on increases in non-performing loans,
changes in economic conditions, or for other reasons. Any future additions to
the allowance would be recognized in the period in which they were determined to
be necessary. In addition, various regulatory agencies periodically review the
Company's allowance for loan losses as an integral part of their examination
process. Such agencies may require the Company to recognize additions to the
allowance based on judgments different from those of management.

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The following table summarizes the allowance for loan losses for the years
indicated and the percentage of loans by category to total loans and loans held
for sale:

During 2003, the allowance for loan loss allocated to commercial loans
decreased by $44,000. This decrease is generally attributable to a slight
decline in outstandings. The amount allocated to commercial real estate loans
increased by $279,000 in 2003. This increase was consistent with the general
loan growth in that portfolio. The economic uncertainty in 2002, continuing into
2003 warranted a larger conservative allocation to commercial real estate.
During 2003, the percent allocated to the consumer and residential real estate
portfolios remained consistent with prior year allocations. The risk factors
used for determining the level of potential loan losses in these categories for
2003 also remained consistent with the prior year.

A portion of the allowance is not allocated to any specific segment of the
loan portfolio. This non-specific allowance is maintained for two primary
purposes: (a) market risk factors, such as the effects of economic variability
on the entire portfolio, and (b) unique portfolio risk factors that are inherent
characteristics of the loan portfolio. The non-specific component of the reserve
was reduced in 2001 as compared to prior years in conjunction with management's
re-assessment of the risk identified in the commercial real estate portfolio
which resulted in an increased allocation of reserves to that portion of the
portfolio from that which was previously classified as unallocated. Management
determined, based on its review of all components of the Company's loan
portfolio, economic data, industry trends, and other factors, that the remaining
non-specific portion of the allowance for loan loss was adequate at
December 31, 2003.

No portion of the allowance is restricted to any loan or group of loans, and
the entire reserve is available to absorb future realized losses. The amount and
timing of realized losses and future reserve allocations may vary from current
estimates. The Company's provision for loan losses in 2003 was $375,000,
compared to $225,000 and $1,705,000 in 2002 and 2001, respectively. The
provisions for the respective periods are generally attributable to the asset
quality factors discussed above and the methodologies that management uses to
measure and evaluate the adequacy of the allowance. Net charge-offs of $373,000
were recorded in 2003, primarily due to the write-down of a single credit in the
amount of $288,000.

INVESTMENT ACTIVITIES

The Company's investment portfolio is currently managed in accordance with
an investment policy approved by the Board of Directors. The Company's
investments are subject to the laws of the Commonwealth of Massachusetts,
including regulations of the Massachusetts Commissioner of Banks, and certain
provisions of the federal law.

13

The following table sets forth certain information regarding the carrying
value of the Company's investment portfolio at December 31, 2003, excluding
mortgage-backed securities and Federal Home Loan Bank stock:

A schedule of the maturity distribution of investment securities held by the
Company, other than mortgage-backed securities and FHLB stock, and the related
weighted average yield, at December 31, 2003 follows:

At December 31, 2003, the Company had one security in excess of ten percent
of stockholders' equity that was not an obligation of the U. S. Government,
federal agencies, or government sponsored agencies. It is a private issue
mortgage-backed security with a par value of $6,163,000 at December 31, 2003
with the description RYMS 1994-5MI.

SOURCES OF FUNDS

GENERAL. Deposits and borrowings are the Company's primary sources of funds
for investment. The Company also derives funds from operations, amortization and
prepayments of loans and sales of assets. Deposit flows vary significantly and
are influenced by prevailing interest rates, money market conditions, economic
conditions, location of Company offices and competition.

DEPOSITS. Most of the Company's deposits are derived from customers who
work or reside in the Company's primary service area. The Company's deposits
consist of passbook savings accounts, special notice accounts, NOW accounts,
money market deposit accounts, club accounts, money market certificates,
negotiated rate certificates and term deposit certificates. The Company also
offers Individual Retirement Accounts, which currently include a one-year
variable rate account with monthly

14

interest rate adjustments or 1 to 4-year fixed-rate accounts. Although in
previous years the Company has solicited brokered deposits, at December 31, 2003
there were no such deposits.

At December 31, 2003, the Company's outstanding certificates of deposit with
balances in excess of $100,000 are scheduled to mature as follows:

OTHER ACTIVITIES

SAVINGS BANK LIFE INSURANCE. The Company sells savings bank life insurance
as an agent but not as an issuer and receives a commission on the sales.

OTHER. The Company also offers safe deposit box services, automated teller
machines and drive-up banking services. The Company also provides its borrowers
the opportunity to purchase life, accident and disability insurance through a
third-party insurance agency. The Company offers investment services (including
annuities) to its customers through a third-party broker-dealer, and its
insurance agency affiliate. The third-party pays fees to the Company based upon
sales volume generated by the brokers who are employed at the Company.

SUPERVISION AND REGULATION

As an FDIC-insured, state-chartered bank, the Bank is subject to supervision
and regulation by the Massachusetts Commissioner of Banks and the FDIC and is
subject to periodic examination. The Company is subject to regulation and
supervision of the Federal Reserve as a bank holding company.

The Company and the Bank are subject to numerous laws and regulations
generally applicable to financial institutions and SEC registrants. The
extensive regulation limits the activities in which the Company and the Bank may
engage and the conduct of permitted activities. Further, the laws and
regulations, including the Sarbanes-Oxley Act of 2002, impose reporting and
information collection obligations on both the Company and the Bank.

COMPETITION

The Company faces substantial competition both in attracting deposits and in
originating loans.

Competition in originating loans comes generally from other thrift
institutions, commercial banks, credit unions, finance companies, insurance
companies, other institutional lenders and mortgage companies. The Company
competes for loans principally on the basis of interest rates and loan fees, the
types of loans originated, service and geographic location.

In attracting deposits, the Company's primary competitors are other savings
banks, commercial banks and co-operative banks, credit unions, and mutual funds.
Other competition for deposits comes from government securities as investments.
The Company's attraction and retention of deposits depends on its ability to
provide investment opportunities that satisfy the requirements of investors with
respect to rate of return, liquidity, risk and other factors. The Company
attracts a significant amount of its deposits from the communities in which its
offices are located, and, accordingly, competition for these deposits comes
principally from other thrift institutions and commercial banks located in the
same geographic areas. The Company competes for these deposits by attempting to
offer competitive rates,

15

convenient branch locations, and convenient business hours and by attempting to
build an active, civic-spirited image in these communities.

Financial institutions that are not now located within the Company's market
area may find entry in the Company's market area attractive. Such entry could
have an adverse effect on the Company's growth or profitability. The Company's
potential competitors may have substantially greater financial and other
resources than the Company. In addition, increased competition for deposits has
had an impact on the rate that the Company pays on certificates of deposit.

Under the Gramm-Leach-Bliley Act, effective March 11, 2000, securities
firms, insurance companies and other financial service providers that elect to
become financial holding companies may acquire or establish banks. This has not
yet resulted in significant changes to the competitive environment in which the
Company operates.

EMPLOYEES

As of December 31, 2003, the Bank had 242 full-time employees, consisting of
25 full-time officers and 217 full-time non-officers, as well as 141 part-time
employees. None of the Company's employees are represented by a union or other
labor organization. The Company provides its employees with a comprehensive
range of employee benefit programs. Management believes that its employee
relations are good.

ADDITIONAL AVAILABLE INFORMATION

Our principal Internet address is WWW.ABINGTONSAVINGS.COM. Our web site
provides a hyperlink to a third-party web site through which our annual,
quarterly and current reports, and amendments to those reports, are available
free of charge. We believe these reports are made available as soon as
reasonably practicable after we electronically file them with, or furnish them
to, the SEC. We do not maintain or provide any information directly to the
third-party web site, and we do not check its accuracy. Copies of these reports
can also be obtained from the SEC's web site at WWW.SEC.GOV.

ITEM 2. PROPERTIES

At December 31, 2003, the Company conducted business from a centralized,
administrative, operations and banking office at Weymouth Woods Corporate
Center, 97 Libbey Parkway, Weymouth, Massachusetts, under a long-term lease
agreement. The main banking office is in Abington, Massachusetts, and there are
10 other banking offices, 5 Shaw's supermarket banking offices, and 3 mortgage
offices located all in Massachusetts. The Company's properties are either owned
or leased and the net book value of properties and leasehold improvements was
$8.4 million at December 31, 2003. The Company believes that all of its
facilities are in good condition and are adequate for the Company's present
operations.

ITEM 3. LEGAL PROCEEDINGS

The Company is a defendant in various legal matters, none of which is
believed by management to be material to the consolidated financial statements.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

16

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCK HOLDER MATTERS

The common stock of the Company is currently listed on the Nasdaq Stock
Market under the symbol "ABBK".

The table below sets for the range of high and low sales prices for the
stock of the Company for the quarters indicated. Market quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not necessarily represent actual transactions.

As of December 31, 2003, the Company had approximately 788 stockholders of
record who held 4,020,021 outstanding shares of the Company's Common Stock. The
number of stockholders indicated does not reflect the number of persons or
entities who hold their common stock in nominee or "street" name through various
brokerage firms. If all of such persons are included, the Company believes that
there are approximately 1,800 beneficial owners of the Company's common stock.

17

ITEM 6. SELECTED FINANCIAL DATA

- --------------------------

(1) Includes Federal Home Loan Bank stock.

(2) Includes $0.10 and $0.15 per share special dividends declared in 1998 and
1999, respectively.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion should be read in conjunction with the financial
statements, notes and tables included in this Annual Report on Form 10-K for the
fiscal year ended December 31, 2003. The discussion contains certain forward
looking statements regarding future performance of the Company. All forward
looking information is inherently uncertain and actual results may differ
materially from the assumptions, estimates or expectations reflected or
contained in the forward looking information. Please refer to "Cautionary
Statement Regarding Forward-Looking Information preceding Part I of this
Form 10-K for a further discussion.

OVERVIEW

There are a number of events and circumstances affecting the financial
condition, changes in financial condition results of operations and future
prospects of the Company.

On October 21, 2003, Abington Bancorp, Inc. ("Abington" or the "Company")
and Seacoast Financial Services Corporation (Seacoast) jointly announced the
execution of a definitive agreement whereby Seacoast will acquire Abington. Each
share of Abington common stock will be exchanged for either $34 per share in
cash, or 1.4468 shares of Seacoast common stock, subject to certain allocation
procedures intended to ensure that 75% of Abington's shares will be exchanged
for Seacoast common stock and 25% for cash. The transaction is expected to be
completed during the second quarter of 2004, subject to the approval of Abington
shareholders and regulators of both companies. A total of $523,000 of merger
expenses related to this transaction was recorded during 2003. Abington has
agreed, unless Seacoast otherwise consents in writing (which consent shall not
be unreasonably withheld) that until the time of the merger, Abington and its
subsidiaries will comply with specified restrictions related to the operation of
its business.

On January 26, 2004, Seacoast entered into an agreement and plan of merger
with Sovereign Bancorp, Inc. (Sovereign) under which Seacoast will be merged
with and into Sovereign, with Sovereign the surviving corporation. Under the
Sovereign/Seacoast merger agreement, stockholders of Seacoast (which may include
former stockholders of Abington should the Seacoast/Abington merger take place),
subject to certain exceptions will receive shares of Sovereign common stock.
Additional information concerning the Sovereign/Seacoast merger will be
contained in documents filed or to be filed with the Securities and Exchange
Commission, including a registration statement on Form S-4. For additional
information on the Seacoast/Abington and Sovereign/Seacoast mergers see Item 1,
BUSINESS--"Recent Developments."

During the quarter ended September 30, 2003, the Company announced a balance
sheet restructuring program to improve earnings, strengthen capital ratios and
reduce interest rate and price risk. The program was completed by quarter end
and included the sale of $75 million of higher risk and $22 million of smaller
denomination mortgage-backed securities. Proceeds from these sales were used to
reduce approximately $72 million of longer-term, higher-cost Federal Home Loan
Bank (FHLB) borrowings. In connection with the program, the Company recorded
approximately

19

$1.72 million in charges related to the prepayment of the FHLB borrowings. The
Company repaid an additional $46 million of short-term FHLB debt during the
quarter and sold an additional $12 million of mortgage-backed securities. All of
these activities affected the Company's results of operations for the year ended
December 31, 2003.

Based on the findings of an internal accounting review initiated by the
Company during the first quarter of 2003, the Company announced that it would
revise its previously released 2002 financial results and would restate its
previously issued 2001 financial statements. The revisions and restatement were
necessary to correct accounting errors related to the amortization/accretion of
premiums/discounts on mortgage-backed investment securities due to the
acceleration of prepayments, errors in recording payments received on various
investment securities, interest income on mortgage loans and certain adjustments
related to accruals for income and expense. Approximately $600,000 of accounting
and legal fees were incurred in connection with the financial statement
revisions and re-audit and approximately $325,000 of write-offs were recorded
relative to unreconciled differences. The restatement is reflected in the
Company's Annual Report on Form 10-K for the year ended December 31, 2002.

On September 13, 2002 the Company completed the acquisition of Massachusetts
Fincorp, Inc. (MAFN), the parent company of The Massachusetts Co-operative Bank
with three branches in the Greater Boston area. The transaction was accounted
for under the purchase method of accounting. Accordingly, the consolidated
assets and liabilities of MAFN are included in the Company's consolidated
balance sheet at December 31, 2002 and the results of MAFN's operations have
been included in the consolidated financial statements since September 14, 2002.
Results of Operation for 2003 include a full year of the consolidated operations
of MAFN as compared with a partial year in 2002. The Company recorded goodwill
of $4.2 million and other intangible assets of $4.2 million in connection with
the acquisition.

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities." The objective of FIN 46 was to
provide guidance on how to identify a variable interest entity and determine
when the assets, liabilities, noncontrolling interests, results of operations of
a variable interest entity need to be included in a company's consolidated
financial statements. In December 2003, the FASB issued a revision to FIN 46
(FIN 46R), to clarify some of the provisions of FIN 46. Based on FIN 46R, the
Company deconsolidated its issuer trust (Abington Bancorp Capital Trust) as of
December 31, 2003, and restated its historical financial statements. The
adoption of FIN 46R results in the reclassification of Company obligated
mandatorily redeemable securities from mezzanine capital to other liabilities,
as well as the reclassification of dividends on these securities from
non-interest expense to interest expense.

FINANCIAL CONDITION/CHANGES IN FINANCIAL CONDITION

Total assets at December 31, 2003 were $815.1 million, down $88.9 million,
or 9.8% from the $904.0 million reported at year-end 2002. During the first
quarter of 2003, the Company increased its investment portfolio, primarily
through the purchase of mortgage-backed securities, by approximately
$156 million. The purchases were funded through a combination of approximately
$78 million of Federal Home Loan Bank borrowings and the reinvestment of
approximately $78 million of excess funds. A continuation of a low interest rate
environment and significant mortgage refinancings led to an acceleration of
prepayment activity on the Company's mortgage-backed security holdings. As a
result, premium amortization was accelerated reducing portfolio yields below
anticipated levels. During the third quarter, pursuant to the aforementioned
balance sheet restructuring program, the balance

20

sheet was deleveraged through a reduction in investment securities and the
repayment of FHLB debt. The result was an improvement to both the interest rate
spread and the net interest margin, as follows:

An additional goal of the balance sheet restructuring program was to reduce
interest rate risk and improve balance sheet ratios and capital adequacy. At
year end 2003, total borrowings had been reduced to 10.75% of total assets from
a high of over 15% earlier in the year and the ratio of stockholders' equity to
total assets increased from 5.9% at the end of the first quarter to a ratio of
7.2% at year end.

Total loans at December 31, 2003 were $386.1 million, compared with
$361.4 million at December 31, 2002, in increase of $24.7 million, or 6.8%.
Loans held for sale at year-end 2003 were $11.0 million, reflecting a decline of
$24.6 million, or 69.1%, from year end 2002 as mortgage banking activity slowed.
Deposits totaled $650.6 million at year end 2003, compared with $646.6 million
at year end 2002. Lower-cost demand, NOW, savings and money market accounts grew
by $28.6 million, or 6.27%, to $485.1 million, while higher-cost term
certificates decreased by $24.7 million, or 12.98%, to $165.5 million.
Stockholders' equity was $58.6 million at December 31, 2003, compared with
$57.8 million at December 31, 2002. The change results from a combination of net
income and proceeds from stock option exercises, net of dividends declared,
unearned compensation and a decrease in the market value of investment
securities, net of tax.

RESULTS OF OPERATIONS

The Company's results of operations depend primarily on its net interest
income after provision for loan losses, its revenue from other banking services
and noninterest expenses. Net interest income is dependent upon the volume of
earning assets and the related spread between the yield on earning assets and
the cost of funds, consisting of interest bearing deposits and borrowings. Net
interest income is also affected by the performance of the loan portfolio,
amortization or accretion of premiums or discounts on purchased loans or
mortgage-backed securities and the level of non-earning assets. Revenues from
loan fees and other banking services depend upon the volume of new transactions
and the pricing of competitive products and services. Noninterest expenses
include personnel, occupancy and other general and administrative expenses that
are influenced by account activity volumes as well as general market and
economic conditions. Throughout 2003, the Company's results of operations were
enhanced by earnings contributions from its mortgage-banking subsidiary, a
direct result of the significant volume of refinancing activity processed during
the year.

For the year ended December 31, 2003, net income was $3.08 million, or $0.76
per diluted share, compared with net income of $6.17 million, or $1.76 per
diluted share, for the year ended December 31, 2002. A number of unusual and
infrequent expenses were recorded during 2003 that contributed to the decrease
in earnings.

A detailed discussion of operating results for the years 2003 compared with
2002 and 2002 compared with 2001 appears later within this Discussion and
Analysis of Financial Condition and Results of Operations.

CRITICAL ACCOUNTING POLICIES

Management's discussion and analysis of the Company's financial condition
are based on the consolidated financial statements which are prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of such financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses and related disclosure of contingent assets
and liabilities. On an ongoing basis, management

21

evaluates its estimates, including those related to the allowance for possible
loan losses, goodwill and other intangible assets, other than temporary
impairment of investments and deferred taxes. Management bases its estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis in
making judgments about the carrying values of assets that are not readily
apparent from other sources. Actual results could differ from the amount derived
from management's estimates and assumptions under different assumptions or
conditions. Management believes the following critical accounting policies
represent the more significant estimates and assumptions used in the preparation
of the consolidated financial statements.

ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses, established
through a charge or credit to the provision for loan losses, is based on
management's evaluation of the level of the allowance required in relation to
the estimated loss exposure in the loan portfolio. Management regularly
evaluates it for adequacy by taking into consideration, among other factors,
such as local industry trends, management's ongoing review of individual loans,
trends in levels of watched or criticized assets, an evaluation of results of
examinations by regulatory authorities and analyses of historical trends in
charge-offs and delinquencies. The use of different estimates or assumptions
could produce different provisions for loan losses. Refer to the discussion of
ALLOWANCE FOR LOAN LOSSES in the Business Section for a detailed description of
management's estimation process and methodology related to the allowance for
loan losses.

VALUATION OF ACQUIRED ASSETS AND LIABILITIES. The Company is required to
record assets acquired and liabilities assumed at their fair value, which is an
estimate determined by the use of internal or other valuation techniques. These
valuation estimates result in goodwill and other intangible assets. Goodwill is
subject to ongoing periodic impairment tests and is evaluated using various fair
value techniques.

OTHER-THAN TEMPORARY IMPAIRMENT. Management records an investment
impairment charge at the point it believes an investment has experienced a
decline in value that is other than temporary. In determining whether an other
than temporary impairment has occurred, management reviews information about the
underlying investment that is publicly available, analysts reports, applicable
industry data and other pertinent information. The investment is written down to
its current market value at the time the impairment is deemed to have occurred.
Future adverse changes in market conditions, continued poor operating results of
underlying investments or other factors could result in further losses that may
not be reflected in an investment's current carrying value, possibly requiring
an additional impairment charge in the future.

MORTGAGE BACKED SECURITIES (MBS). Mortgage Backed Securities are investment
grade securities backed by pools of mortgages of differing maturities. These
securities are purchased with associated premiums and/or discounts based on
market conditions on the date of purchase. In periods of falling market interest
rates, accelerated loan prepayments requires an acceleration of the premium
amortization or discount accretion for these mortgage-backed securities. The
Company estimates prepayment speeds based on the average three month CPR, which
is updated monthly, to record premium amortization and discount accretion.

INTEREST INCOME RECOGNITION. Interest on loans is included in income as
earned based upon interest rates applied to unpaid principal. Interest is not
accrued on loans 90 days or more past due unless they are adequately secured and
in the process of collection or on other loans when management believes
collection is doubtful. All loans considered impaired are nonaccruing. Interest
on nonaccruing loans is recognized as payments are received when the ultimate
collectibility of interest is no longer considered doubtful. When a loan is
placed on nonaccrual status, all interest previously accrued is reversed against
current-period interest income; therefore an increase in loans on nonaccrual
status could have an adverse impact on interest income recognized in future
periods.

22

TAX ESTIMATES. The Company accounts for income taxes by deferring income
taxes based on estimated future tax effects of differences between the tax and
book basis of assets and liabilities considering the provisions of enacted tax
laws. These differences result in deferred tax assets and liabilities, which are
included in the Company's Consolidated balance sheets. The Company must also
assess the likelihood that any deferred tax assets will be recovered from future
taxable income and establish a valuation allowance for those assets determined
to not likely be recoverable. Management judgment is required in determining the
amount and timing of recognition of the resulting deferred tax assets and
liabilities, including projections of future taxable income. Although the
Company has determined a valuation allowance is not required for all deferred
tax assets, there is no guarantee that these assets are recognizable.

INTEREST RATE ENVIRONMENT

The historically low interest rate environment which existed throughout 2003
and 2002 has had a significant impact on the pricing of the Company's assets and
liabilities.

Many of the Company's earning assets are comprised of residential mortgages,
directly through loans and indirectly through mortgage-backed securities. These
mortgage-related assets, which comprise roughly 66.0% or $498,896,000 of total
earning assets as of December 31, 2003 and 58.0% or $485,111,000 of total
earning assets as of December 31, 2002 are generally priced in relation to the
3, 5 and 10-year treasury rate at the time of purchase or origination (for the
typical maturities that the Company prefers for its own earning assets).

The Company's deposit pricing is driven by market competition as noted in
"Liquidity and Capital Resources." The trends in deposit pricing over the past
two years have not been volatile and have generally been on a consistent
downward trend over this period.

The Company's borrowings, which are primarily with the FHLB, are generally
LIBOR-based and generally vary in terms ranging from overnight to over seven
years in original maturities. While LIBOR changes over the past two years were
not exactly the same as the Federal Reserve inter-bank borrowing rate, the trend
in these rates and the pricing of the Company's borrowings were consistent with
the relative movements in those rates.

NET INTEREST INCOME

Net interest income is affected by the mix and volume of assets and
liabilities, and levels of prepayment primarily on loans and mortgage-backed
investments, the movement and level of interest rates, and interest spread,
which is the difference between the average yield received on earning assets and
the average rate paid on deposits and borrowings. The Company's net interest
rate spread was 2.69% and 2.76% for the years ended December 31, 2003 and 2002,
respectively.

The level of non-accrual loans and other real estate owned can have an
impact on net interest income. At December 31, 2003, the Company had $1,285,000
in non-accrual loans and $238,000 in other real estate owned compared to
$2,024,000 in non-accrual loans and no other real estate owned as of
December 31, 2002.

23

The table below presents average balances, interest income and expense and
average yields earned or rates paid on the major categories of assets and
liabilities for the years indicated.

- ------------------------------

(1) Includes Federal Home Loan Bank Stock.

(2) Includes investments available for sale at amortized cost.

(3) Loans held for sale and Non-accrual loans are included in average loan
balances, net of reserve for loan losses.

(4) Interest rate spread equals the yield on average earning assets minus the
yield on average deposits and borrowed funds.

(5) Net interest margin equals net interest income divided by average earning
assets.

24

RATE/VOLUME ANALYSIS

The following table presents, for the periods indicated, the changes in
interest income and in interest expense attributable to the change in interest
rates and the change in the volume of earning assets and interest-bearing
liabilities. The change attributable to both volume and rate has been allocated
proportionately to the change due to volume and the change due to rate.

COMPARISON OF THE YEARS ENDED DECEMBER 31, 2003 AND 2002

GENERAL

Net income for 2003 was $3,080,000 or $0.76 per diluted share compared with
net income of $6,174,000 or $1.76 per diluted share in 2002, a net decrease of
$3,094,000 or 50.1%. Net interest income remained relatively flat between the
periods, declining by only $81,000 while the provision for loan losses increased
by approximately $150,000. Non-interest income grew by approximately
$4.8 million over 2002, but was more than offset by a $9.3 million increase in
non-interest expense. Included in non-interest expense were a number of items
including approximately $1.7 million in pre-tax charges incurred in connection
with the prepayment of Federal Home Loan Bank borrowings, approximately
$600 thousand in legal and accounting fees associated with the re-audit and
restatement of 2001 financial statements, approximately $523,000 in
non-deductible expenses incurred in connection with the Company's pending merger
with Seacoast Financial Services Corporation, approximately $400,000 in
severance payments and lease adjustments.

INTEREST AND DIVIDEND INCOME

Interest and dividend income for 2003 was $39,301,000 compared to
$45,526,000 for 2002, a decrease of $6,225,000 or 13.7%. The decrease was
attributable to a decrease in yields on earning assets partially offset by an
increase in average earning assets. The balance of average earning assets for
2003 was $814,953,000 as compared to $766,634,000 in 2002, an overall increase
of $48,319,000 or 6.3%.

The increase in earning assets was primarily driven by increases in
Short-term investments, mortgage-backed investments and loans, partially offset
by a decrease in other investment securities. The average balance of
mortgage-backed securities was $341,549,000 for 2003 and $310,920,000 for

25

2002, an increase of $30,629,000 or 9.9%. Investment securities average balances
declined to $40,850,000 in 2003 from $47,700,000 in 2002, for a decrease of
$6,850,000 or 14.4%. The yield on mortgage-backed investments was 4.01% in 2003
as compared to 5.57% for 2002. The yield on investment securities was 2.84% in
2003 as compared to 4.15% in 2002. The yields on both mortgage-backed
investments and investment securities have been primarily influenced by the rate
environment which existed in 2003 and 2002.

The Company's investment securities and MBS portfolio were purchased at
market prices at greater or less than par. The resulting premium amortization
and discount accretion are deducted from or added to interest income. At
December 31, 2003 and 2002 the Company had gross unamortized premiums of
approximately $2,579,000 and $2,564,000, respectively, and approximately
$1,087,000 and $953,000, respectively, of unaccreted discount. The Company
recorded premium amortization, net of discount accretion, of approximately
$2.6 million during 2003 and $1.7 million during 2002 which reduced the yield on
these portfolios.

The average loan balance increased to $384,427,000 in 2003 as compared to
$368,122,000 in 2002, an increase of $16,305,000 or 4.4%. The bulk of the loan
growth was centered in home equity loans, construction and commercial real
estate. Growth in home equity loans resulted from rate promotions throughout the
year while construction and commercial loans increased due to a combination of
rates and historical customer relationships.

INTEREST EXPENSE

Interest expense for 2003 decreased $6,144,000 or 27.7% to $16,071,000 in
2003 from the restated $22,215,000 in 2002, generally due to decreases in the
rates paid on deposits and borrowed funds and declines in the average balances
of borrowed funds and time deposits, offset in part by increases in average
interest bearing core deposit balances. The average balance of interest bearing
core deposits (NOW, regular savings and money market) was $389,544,000 and
$315,549,000 in 2003 and 2002, respectively, an increase of $73,995,000, or
23.4%. The average balance of time deposits was $178,164,000 throughout 2003
compared with $167,759,000 throughout 2002, an increase of $10,405,000, or 6.2%.
The increases in average interest bearing core deposits in 2003 include a full
year of balances acquired in the MAFN acquisition, coupled with internal growth
of the Company's retail products and services in its geographic market. Average
borrowings, including Company obligated mandatorily redeemable securities of
$13,041,000 in both periods, decreased to $185,097,000 in 2003 compared to
$216,401,000 in 2002, a decline of $31,304,000 or 14.5%. Borrowings were
dramatically decreased during the third quarter of 2003 under a balance sheet
restructuring program.

The average rate paid on interest bearing liabilities was 2.13% in 2003 as
compared to 3.17% in 2002. The overall average rates paid on borrowed funds
declined to 4.23% in 2003 from 5.27% in 2002. The average rates paid on interest
bearing deposits was 1.45% in 2003 as compared to 2.24% in 2002. The cost of
time deposits decreased to 2.93% in 2003 from 3.84% in 2002. The rates paid on
time deposits decreased continued to decline in 2003 due to a combination of
lower rate offerings and the maturity of higher cost certificates. See "Asset/
Liability Management" for further discussion of the competitive market for
deposits and overall strategies for the uses of borrowed funds.

NON-INTEREST INCOME

Total non-interest income for 2003 was $18,521,000 compared to $13,751,000
for 2002 an increase of $4,770,000 or 34.7%. Customer service fees were
$10,756,000 in 2003 compared to $8,904,000 in 2002, an increase of $1,852,000 or
20.8%. These fees rose primarily due to growth in deposit accounts, primarily
NOW and checking account portfolios, and continued success in cross-selling
customers other products and services, debit card activity and sales of mutual
funds and annuities. Gains on sales of mortgage loans of $5,743,000 exceeded the
$4,338,000 earned in the prior year by $1,405,000, or 32.4% due to increased
volumes of mortgage originations created by refinancing activity directly
related to a favorable rate environment. A total of $541,000,000 of loan
applications was processed in 2003

26

compared with $425,900,000 in 2002. Activity declined throughout the second half
of 2003, however, as rates remained relatively stable and refinancing activity
slowed. It is expected that mortgage-banking activity will decline in 2004 in
comparison to the historically high levels in 2003. Loan servicing fees have
continued to decline as the Company has been selling loans on a servicing
released basis since 1996.

Gains on sales of securities were $898,000 in 2003 compared with realized
losses of $157,000 in 2002. A total of $641,000 in gains were realized during
the first quarter of 2003 to supplement earnings. The remaining gains were
recorded throughout the remainder of the year as the investment portfolio was
restructured. At December 31, 2003, the Company had no marketable equity
securities or corporate bonds in its investment portfolio.

NON-INTEREST EXPENSE

Non-interest expense for 2003 was $36,110,000 compared to the restated
$26,847,000 for 2002, an increase of $9,263,000, or 34.5%. In addition to the
unusual items summarized under "GENERAL" in the comparison of the years ended
December 31, 2003 and 2002, the year 2003 includes a full year of overhead
assumed in the MAFN transaction versus approximately three and one-half months
in 2002. Salaries and employee benefits increased by $3,263,000, or 22.1%, in
2003 as compared to 2002. Approximately $1,761,000 of the increase is
attributable to increased production volumes and revenues for mortgage banking
as well as increased performance and profit related increases. An additional
$292,000 relates to increases in employee benefits such as group health
insurance. The remainder of the increase relates to changes in staffing, normal
salary adjustments and a full year of staff additions associated with the MAFN
transaction

Occupancy and equipment expense increased by $1,015,000 or 26.2% in 2003 in
comparison to 2002. The increase reflects both a full year of overhead
associated with the addition of former MAFN branches and a full year of lease
and other operating expenses associated with the Company's Weymouth Woods
corporate headquarters, first occupied in the Fall of 2002. Also included as
non-interest expense in 2003 is the aforementioned $1,722,000 in prepayment
penalties associated with the prepayment of FHLB borrowings and $523,000 in
non-deductible merger related expenses. All other non-interest expense totaled
$10,942,000, up $2,740,000, or 33.4%, from the $8,202,000 recorded in 2002.
Following is a summary of the significant increases in 2003 over 2002.

The above increases generally reflect a full year of operating expenses
related to the 2002 MAFN acquisition (amortization of intangibles, volume
related data processing, postage, telephone, insurance, etc.); expenses
associated with generic growth and promotion of the core banking business in
existing and new markets (marketing/advertising and postage); increased legal
and accounting and board fees associated with the re-audit/restatement of
historical financial statements; and increases within other accounts related to
mortgage-banking volumes and other banking activities.

27

PROVISION FOR LOAN LOSSES

The provision for loan losses was $375,000 for 2003, an increase of $150,000
or 66.7% over the $225,000 provided in 2002. The provision for loan losses is
generally attributable to the methodologies management uses to measure and
evaluate the adequacy of the allowance. Net charge-offs of $373,000 were
recorded during 2003, primarily related to the write-down of a single credit in
the amount of $288,000. The delinquency rate and non-performing assets at
December 31, 2003 were .60% and $1,523,000, respectively as compared to 0.62%
and $2,031,000, respectively, at December 31, 2002. The allowance for loan
losses is arrived at by management after careful consideration of various asset
quality factors including delinquency rates and trends, non-performing and
"watched" asset levels and overall historical charge-off rates by major loan
type. The allowance for loan losses was 1.09% and 1.17% of gross loans at
December 31, 2003 and 2002, respectively.

PROVISION FOR INCOME TAXES

The Company's effective income tax rate for 2003 was 41.5% as compared to
38.2% in 2002. The effective tax rate assumes a federal statutory rate of 34%
combined with a variable state tax rate for the bank and non-bank subsidiaries,
net of federal benefit. Pre-tax operating profits and losses of the Company, the
bank and certain non-bank subsidiaries are taxed at different rates for state
tax purposes that can affect the consolidated income tax provision, subject to
the proportionate contribution of pre-tax profits or losses contributed by the
individual entities.

COMPARISON OF THE YEARS ENDED DECEMBER 31, 2002 AND 2001

GENERAL

Based on the findings of an internal accounting review initiated by the
Company during the first quarter of 2003, the Company announced that it would
revise its 2002 financial results that had previously been announced and would
restate its previously issued 2001 financial statements. The revisions and
restatement were necessary to correct accounting errors related to the
acceleration of prepayments on mortgage-backed investment securities, errors in
recording payments received on various investment securities and certain
adjustments related to accruals for income and expense. The Company engaged its
independent auditor, PricewaterhouseCoopers LLP, which replaced Arthur Andersen
LLP in mid-2002, to undertake a re-audit of the year 2001. Accordingly, the
following discussion reflects such restatement of the Company's 2001 financial
statements.

Net income for 2002 was $6,174,000 or $1.76 per diluted share compared to
net income of $2,032,000 or $.63 per diluted share from 2001, a net increase of
$4,142,000 or 204%. The overall increase was attributable to decreases in net
realized losses on securities (corporate bond loss in 2001) and provisions for
possible loan losses, coupled with increases in net interest margins, customer
service fees and gains on sales of mortgages partially offset by accretion of
discounts on mortgage-backed securities and increased salaries and benefits
expense.

INTEREST AND DIVIDEND INCOME

Interest and dividend income for 2002 was $45,526,000 compared to
$48,929,000 for 2001, a decrease of $3,403,000 or 7.0%. The decrease was
attributable to a decrease in yields on earning assets partially offset by an
increase in average earning assets. The balance of average earning assets for
2002 was $766,634,000 as compared to $704,574,000 in 2001, an overall increase
of $62,060,000 or 8.8%.

The increase in earning assets was primarily driven by increases in
mortgage-backed investments and short-term investments, offset in part by
decreases in loans and investment securities. The average balance of
mortgage-backed securities was $310,920,000 for 2002 as compared to $239,381,000
for 2001, an increase of $71,539,000 or 29.9%. Investment securities average
balances declined to $47,700,000 in 2002 from $55,234,000 in 2001, for a
decrease of $7,534,000 or 13.6%. The yield on mortgage-backed investments was
5.57% in 2002 as compared to 6.29% for 2001. The yield on investment securities
was

28

4.15% in 2002 as compared to 7.30% in 2001. The yield on investment securities
in 2001 was positively influenced by two agency-issued bonds, which had been
purchased at a discount and were called at the issuer's option during the year.
This resulted in $221,000 of discounts being taken into income, which increased
the yield on investment securities by 40 basis points. The resulting investment
securities yield for 2001 excluding these discounts was 6.90%. The yields on
both mortgage-backed investments and investment securities have been primarily
influenced by the rate environment that existed in 2002 and 2001. From June 1999
through July 2000, the Federal Reserve raised the inter-bank borrowing rate by
175 basis points. From January 2001 through December 2002, the Federal Reserve
lowered the inter-bank borrowing rate 525 basis points which in turn, but to a
lesser degree, influenced yields on assets purchased since the second quarter of
2001, particularly in relation to the yields available for comparable assets in
the previous year.

The Company's MBS portfolio was purchased at market prices that produced
discounts and premiums from par. At December 31, 2002 and 2001 the Company had a
net purchased premium on MBS of approximately $900,000 and $213,000,
respectively. During 2002, the Company purchased approximately $214,375,000 of
MBS and paid a net premium of approximately $2,017,000 for these securities. In
addition, in connection with the acquisition of Massachusetts Fincorp, Inc.
(MAFN), the Company acquired an additional premium of approximately $370,000.
Borrowers taking advantage of interest rates at 40 year lows started prepaying
mortgages at an accelerated pace, thus shortening the schedule for amortizing
the premiums paid for these investments. As a result, the Company recorded
premium amortization of approximately $1.7 million during 2002, which negatively
impacted the yield on this portfolio.

The average balances of loans decreased to $368,122,000 in 2002 as compared
to $385,149,000 in 2001, a decrease of $17,027,000 or 4.4%. The balances
declined primarily as a result of residential mortgage loans paying off more
quickly in 2002 due to historically lower interest rates available on new
mortgages which prompted customers to refinance those loans (see later
discussion regarding mortgage origination volumes and gains on sales of
mortgages). Additionally, given the historically low rates available on loans
originated or for purchase, management elected to purchase mortgage-backed
investment securities rather than loans due to generally shorter available
average lives in light of the then current interest rate environment in
comparison to those historically typically available.

INTEREST EXPENSE

Interest expense for 2002 decreased $6,548,000 or 22.8% to $22,215,000 in
2002 from $28,763,000 in 2001, generally due to decreases in the rates paid on
deposits and borrowed funds and declines in the average balances of borrowed
funds and time deposits, offset in part by increases in average core deposit
balances. The average balance of core and time deposits was $390,513,000 and
$167,759,000, respectively, in 2002 as compared to $278,481,000 and
$193,418,000, respectively, in 2001, for an increase of $112,032,000 or 40.2% in
core deposits and for a decrease of $25,659,000 or 13.3% in time deposits,
respectively. These increases in core deposits in 2002 as compared to 2001
relate to the attractiveness of the Company's retail products and services in
the marketplace it serves as well as reflecting the low interest rate
environment causing a shift to short-term investments. The average balances of
borrowed funds, including company obligated mandatorily redeemable securities,
decreased to $204,480,000 in 2002 as compared to $225,467,000 in 2001, a decline
of $20,987,000 or 9.3%. This decrease in borrowings was achieved due to the
Company's success in attracting deposits during 2002.

The average rate paid on interest bearing liabilities was 3.17% in 2002 as
compared to 4.44% in 2001. The overall weighted average rates paid on borrowed
funds, including company obligated mandatorily redeemable securities, declined
to 5.27% in 2002 from 5.92% in 2001. This decrease is reflective of actions
taken by the Federal Reserve Bank in 2001 and 2002. The weighted average rates
paid on interest bearing deposits was 2.24% in 2002 as compared to 3.59% in
2001. The cost of core deposits, including non-interest bearing DDAs, declined
to 1.12% in 2002 from 1.30% in 2001. The cost of time deposits decreased to
3.84% in 2002 from 5.72% in 2001. The rates paid on time deposits

29

decreased significantly in 2002 as the falling interest rate environment of the
last two years has impacted the pricing of maturing time deposits in 2002 and
also due to greater concentration of core deposits in relation to total deposits
in 2002 as compared to 2001. See "Asset/ Liability Management" for further
discussion of the competitive market for deposits and overall strategies for the
uses of borrowed funds.

NON-INTEREST INCOME

Total non-interest income for 2002 was $13,751,000 compared to $9,769,000
for 2001 an increase of $3,982,000 or 40.8%. Customer service fees were
$8,679,000 in 2002 as compared to $7,949,000 in 2001 for an increase of $730,000
or 9.2%. These fees rose primarily due to growth in deposit accounts, primarily
NOW and checking account portfolios and continued success in cross-selling
customers other products and services, debit card activity and sales of mutual
funds and annuities (the Company received regulatory approval to sell insurance
annuities in May 2001). The sales of mutual funds and insurance annuities
accounted for $190,000 of the aforementioned increase in customer service fees.
Loan servicing fees and gains on sales of mortgage loans were $225,000 and
$4,338,000, respectively, in 2002 as compared to $255,000 and $2,888,000,
respectively, in 2001. The increase in gains on sales of mortgage loans of
$1,450,000 or 50.2% was due to an even more favorable market for residential
loan originations in 2002 as compared to 2001. This favorable market was due to
mortgage rates falling to historical lows in 2002. It is expected that the
volume of mortgage originations will likely decline in 2003 in comparison to
these historically high levels in 2002. Loan servicing fees continued to decline
in 2002 as the Company continued its practice since 1996 of selling loans on a
servicing released basis. The combination of loan payoffs and the Company's
practice of selling loans on a servicing released basis have contributed to the
decline in the Company's residential mortgage portfolio.

Losses on securities, net, were $157,000 in 2002 as compared to $1,723,000
in 2001, for a decrease of $1,566,000. The net loss for the year ended December
31, 2002 was the result of $495,000 in losses on the sale of the equity
portfolio offset by $338,000 in gains on the sale of the Company's corporate
bond portfolio. At December 31, 2002, the Company had no marketable equity
securities or corporate bonds in its investment portfolio.

NON-INTEREST EXPENSE

Non-interest expense for 2002 was $26,847,000 compared to $24,627,000 for
2001 an increase of $2,220,000 or 9.0%. Salaries and employee benefits increased
$2,342,000 or 18.8% in 2002 as compared to 2001. Approximately $1,000,000 of the
increase is attributable to increased production volumes and revenues for
mortgage banking as well as increased performance and profit related incentives.
The acquisition of MAFN accounts for approximately $800,000 of the increase, the
opening of the Hanover branch (July 2001) accounts for approximately $200,000 of
the increase, approximately $629,000 relates to net staff additions and merit
raises and $250,000 relates to increases in employee benefits such as group
health insurance. These increases were offset by the one-time favorable impact
of $376,000 that resulted from the Company's settlement of its previously
terminated pension plan.

Occupancy and equipment expense decreased $163,000 or 4.0% in 2002 as
compared to 2001. The results in 2001 include a write-down on real estate
holdings of $635,000. Excluding this write-down, occupancy and equipment expense
increased $472,000 related primarily to the lease and operating expenses
associated with the Company's new corporate headquarters. Other non-interest
expense only increased $41,000 or 0.9% in 2002 as compared to 2001. This
increase reflects increases in item processing and other EDP services offset by
the change in accounting for goodwill as required by SFAS No. 142 "Goodwill and
Other Intangible Assets," which went into effect as of January 1, 2002. (See
Note 17 "Goodwill and Other Intangibles").

30

PROVISION FOR LOAN LOSSES

The provision for loan losses was $225,000 for 2002 a decrease of $1,480,000
or 86.8% from $1,705,000 in 2001. This decrease in the provision primarily
related to two credits, both of which were on non-accrual at December 31, 2001
and provided for in 2001. The most significant of these credits was a $3,363,000
relationship consisting primarily of a commercial credit to a company in the
telecommunications industry. The delinquency rate and non-performing assets at
December 31, 2002 were .62% and $2,031,000, respectively as compared to 1.16%
and $3,959,000, respectively, at December 31, 2001. Without the aforementioned
telecommunications credit, the delinquency and non-performing asset levels would
have been .30% and $518,000, respectively, in 2001. The credit was charged off
in 2002 and as a result was not included in the 2002 delinquency and
non-performing asset levels. The allowance for loan losses is arrived at by
management after careful consideration of various asset quality factors
including delinquency rates and trends, non-performing and "watched" asset
levels and overall historical charge-off rates by major loan type. The allowance
for loan losses was 1.05% and 1.32% of gross loans at December 31, 2002 and
2001, respectively.

PROVISION FOR INCOME TAXES

The Company's effective income tax rate for 2002 was 38.2% as compared to
35.3% in 2001. The lower effective tax rate in comparison to statutory rates for
both periods is reflective of income earned by certain non-bank subsidiaries
which are taxed, for state tax purposes, at lower rates.

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING

In December 2001, the Company elected to early adopt EITF 00-14 "Accounting
for Certain Sales Incentives." The pronouncement provided additional guidance
for the accounting for the cost of incentives given to customers to open new
deposit accounts with the Bank. Under this guidance the cost of the incentive
should be charged to earnings on the date the account is opened. This varies
from the previous methodology used by the Company which was to defer this cost
and amortize it to expense over the expected life on the deposit account
relationship. The impact of this change in accounting is reflected on a net of
tax basis as if it were applied at the beginning of the current year. The
cumulative effect of this change in accounting principle was to write off the
unamortized portion of previously capitalized incentives at January 1, 2001
totaling $298,000, net of tax.

ASSET/LIABILITY MANAGEMENT

The objective of asset/liability management is to ensure that liquidity,
capital and market risk are prudently managed. Asset/liability management is
governed by policies reviewed and approved annually by the Company's Board of
Directors (Board). The Board delegates responsibility for asset/liability
management to the corporate Asset/Liability Management Committee (ALCO). ALCO
sets strategic directives that guide the day-to-day asset/liability management
activities of the Company. ALCO also reviews and approves all major funding,
capital and market risk-management programs. ALCO is comprised of members of
management and executive management of the Company and the Bank.

Interest rate risk is the sensitivity of income to variations in interest
rates over both short-term and long-term time horizons. The primary objective of
interest rate risk management is to control this risk within limits approved by
the Board and by ALCO. These limits and guidelines reflect the Company's
tolerance for interest rate risk. The Company attempts to control interest rate
risk by identifying potential exposures and developing tactical plans to address
such potential exposures. The Company quantifies its interest rate risk
exposures using sophisticated simulation and valuation models, as well as a more
simple gap analysis. The Company manages its interest rate exposures by
generally using on-balance sheet strategies, which is most easily accomplished
through the management of the durations and rate sensitivities of the Company's
investments, including mortgage-backed securities portfolios, and by extending
or shortening maturities of borrowed funds. Additionally, pricing strategies,
asset sales

31

and, in some cases, hedge strategies are also considered in the evaluation and
management of interest rate risk exposures.

The Company uses simulation analysis to measure the exposure of net interest
income to changes in interest rates over a 1 to 5 year time horizon. Simulation
analysis involves projecting future interest income and expense from the
Company's assets, liabilities, and off-balance sheet positions under various
interest rate scenarios.

The Company's limits on interest rate risk specify that if interest rates
were to ramp up or down 200 basis points over a 12 month period, estimated net
interest income for the next 12 months should decline by less than 10%. Given
the unusually low rate environment at December 31, 2003 and 2002, the Company
assumed a 100 basis point decline in interest rates rather than the 200 basis
point used in a higher interest rate environment. The following table reflects
the Company's estimated exposure, as a percentage of estimated net interest
income for the next 12 months, which does not materially differ from the impact
on net income, on the above basis:

Interest rate gap analysis provides a static view of the maturity and
repricing characteristics of the on-balance sheet and off-balance sheet
positions. The interest rate gap analysis is prepared by scheduling all assets,
liabilities and off-balance sheet positions according to scheduled repricing or
maturity. Interest rate gap analysis can be viewed as a short-hand complement to
simulation and valuation analysis.

The Company's policy is to match, as well as possible, the interest rate
sensitivities of its assets and liabilities. Generally, residential mortgage
loans currently originated by the Company are sold in the secondary market.
Residential mortgage loans that the Company currently originates, from time to
time, or purchases for the Company's own portfolio are primarily 1-year, 3-year,
5-year and 7-year adjustable rate mortgages and shorter term (generally 15-year
or seasoned 30-year) fixed rate mortgages.

The Company also emphasizes loans with terms to maturity or repricing of 5
years or less, such as certain commercial mortgages, business loans, residential
construction loans and home equity loans.

Management desires to expand its interest earning asset base in future
periods primarily through growth in the Company's loan portfolio. Loans
comprised approximately 47% of the average interest earning assets in 2003. In
the future, the Company intends to continue to be competitive in the residential
mortgage market but plans to place greater emphasis on home equity and
commercial loans. The Company also historically has been and expects to remain
active in pursuing wholesale opportunities to purchase loans. During 2003, 2002
and 2001, the Company acquired approximately 76,888,000, $10,800,000 and
$79,700,000, respectively, of residential first mortgages, which are serviced by
others.

The Company has also used mortgage-backed investments (typically with
weighted average lives of 5 to 7 years, or less) as a vehicle for fixed and
adjustable rate investments and as an overall asset/liability tool. These
securities have been highly liquid given current levels of prepayments in the
underlying mortgage pools and, as a result, have provided the Company with
greater reinvestment flexibility.

32

Management believes current interest rates to be at the lower end of the
interest rate cycle. As a result, management has been very selective in the
types and terms of loans and investments that are put on the Company's balance
sheet. The Company's investment strategy has been directed toward investment
securities with average lives closer to 2 to 4 years in order to put the Company
in a more favorable environment as rates eventually rise. Most of the Company's
residential loan production has been sold in the secondary market as part of
this strategy.

During 2003, the Company continued to experience high levels of prepayment
activity in its mortgage-related assets (residential mortgages and
mortgage-backed securities), which comprise approximately 61% of the Company's
balance sheet as of December 31, 2003.

The level of the Company's liquid assets and the mix of its investments may
vary, depending upon management's judgment as to market trends, the quality of
specific investment opportunities and the relative attractiveness of their
maturities and yields. Management will continue to evaluate future funding
strategies and alternatives and continue to focus its efforts on attracting
core, retail deposit relationships.

The Company is also a voluntary member of the Federal Home Loan Bank
("FHLB") of Boston. This borrowing capacity assists the Company in managing its
asset/liability growth because, at times, the Company may consider it more
advantageous to borrow money from the FHLB than to raise money through non-core
deposits (i.e., certificates of deposit). FHLB borrowings totaled $79,135,000 at
December 31, 2003 compared to $167,009,000 at December 31, 2002. These
borrowings have primarily funded residential loan originations and purchases as
well as mortgage-backed investments and investment securities.

In June 1998, the Company issued $13,041,000 of 8.25% subordinated
debentures to Abington Bancorp Capital Trust, which carry a higher interest rate
than similar FHLB borrowings. These securities are currently afforded Tier 1
capital treatment by the Federal Reserve Board. See "Liquidity and Capital
Resources" for further discussion.

The following table sets forth maturity and repricing information relating
to interest sensitive assets and liabilities at December 31, 2003. The balance
of such accounts has been allocated among the various periods based upon the
terms and repricing intervals of the particular assets and liabilities. For
example, fixed rate residential mortgage loans and mortgage-backed securities,
regardless of "available for sale" classification, are shown in the table in the
time periods corresponding to projected principal amortization computed based on
their respective weighted average maturities and weighted average rates using
prepayment data available from the secondary mortgage market.

Adjustable rate loans and securities are allocated to the period in which
the rates would be next adjusted. The following table does not reflect partial
or full prepayment of certain types of loans and investment securities prior to
scheduled contractual maturity. Additionally, all securities or borrowings,
which are callable at the option of the issuer or lender are reflected in the
following table based upon the likelihood of call options being exercised by the
issuer on certain investments or borrowings in a most likely interest rate
environment. Since regular passbook savings and NOW accounts are subject to
immediate withdrawal, such accounts have been included in the "Other Savings
Accounts" category and are assumed to mature within 6 months. This table does
not include non-interest bearing deposits.

While this table presents a cumulative negative gap position in the
six-month to three-year horizon, the Company considers its earning assets to be
more sensitive to interest rate movements than its liabilities. In general,
assets are tied to increases that are immediately impacted by interest rate
movements while deposit rates are generally driven by market area and demand
which tend to be less sensitive to general interest rate changes. In addition,
other savings accounts and money market accounts are substantially stable core
deposits, although subject to rate changes. A substantial core balance in these
types of accounts is anticipated to be maintained over time.

33

- ------------------------------

(1) Cumulative as to the amounts previously repriced or matured. Assets held for
sale are reflected in the period in which sales are expected to take place.
Securities classified as available for sale are shown at repricing/maturity
intervals as if they are to be held to maturity as there is no definitive
plan of disposition. These securities are shown at amortized cost.

LIQUIDITY AND CAPITAL RESOURCES

Payments and prepayments on the Company's loan and mortgage-backed
investment portfolios, sales of fixed rate residential loans, increases in
deposits, borrowed funds and maturities of various investments comprise the
Company's primary sources of liquidity. The Company is also a voluntary member
of the FHLB of Boston and, as such, is entitled to borrow an amount up to the
value of its qualified collateral that has not been pledged to outside sources.
Qualified collateral generally consists of residential first mortgage loans,
securities issued, insured or guaranteed by the U.S. Government or its agencies,
and funds on deposit at the FHLB of Boston. Short-term advances may be used for
any sound business purpose, while long-term advances may be used only for the
purpose of providing funds to finance housing. At December 31, 2003, the Company
had approximately $186,579,000 in unused borrowing capacity that is contingent
upon the purchase of additional FHLB of Boston stock. Use of this borrowing
capacity is also impacted by capital adequacy considerations.

34

The Company regularly monitors its asset quality to determine the level of
its loan loss reserves through periodic credit reviews by members of the
Company's Management Credit Committee. The Management Credit Committee, which
reports to the Loan Committee of the Company's Board of Directors, also works on
the collection of non-accrual loans and disposition of real estate acquired by
foreclosure. The allowance for possible loan losses is determined by the
Management Credit Committee after consideration of several key factors
including, without limitation, potential risk in the current portfolio, levels
and types of non-performing assets and delinquency, levels of potential problem
loans, which generally have varying degrees of loan collateral and repayment
issues, on the watched asset reports. Workout approach and financial condition
of borrowers are also key considerations to the evaluation of non-performing
loans.

Non-performing assets were $1,523,000 at December 31, 2003, compared to
$2,031,000 at December 31, 2002, a decrease of $508,000 or 25%. The Company's
percentage of delinquent loans to total loans was 0.60% at December 31, 2003, as
compared to 0.62% at December 31, 2002. Management believes that while
delinquency rates and non-performing assets remain at relatively low levels, a
sustained economic slowdown would likely result in future increases in problem
assets and ultimately loan loss provisions. Management continues to monitor the
overall economic environment and its potential effects on future credit quality
on an ongoing basis.

The Company's total stockholders' equity was $58,621,000 or 7.2% of total
assets at December 31, 2003, compared with $57,780,000 or 6.4% of total assets
at December 31, 2002. The change in stockholders' equity resulted from a
combination of an increase in retained earnings and cash and related tax credits
recorded in connection with the exercise of stock options, reduced by dividends
declared and a net decrease in net unrealized gains on available-for-sale
securities, net of taxes.

Abington Bancorp Capital Trust issued $12,650,000 of 8.25% Trust Preferred
Securities in June 1998. Under current regulatory guidelines, trust preferred
securities are allowed to represent up to approximately 25% of the Company's
Tier 1 capital with any excess amounts available as Tier 2 capital. As of
December 31, 2002, all of these securities were included in Tier 1 capital.
Prior to December 31, 2003, these securities were classified as mezzanine
capital on the Company's consolidated balance sheet. Effective December 31,
2003, these Company obligated mandatorily redeembable securities were
reclassified from mezzanine capital to other liabilities in conformity with FASB
Interpretation No. 46R. The related interest cost of these securities,
historically reported as non-interest expense is now reported as interest
expense. Prior periods have been restated to conform to the current
presentation.

Bank regulatory authorities have established a capital measurement tool
called "Tier 1" leverage capital. A 4.00% ratio of Tier 1 capital to assets now
constitutes the minimum capital standard for most banking organizations and a
5.00% Tier 1 leverage capital ratio is required for a "well-capitalized"
classification. At December 31, 2003, the Company's Tier 1 leverage capital
ratio was approximately 7.17%. In addition, regulatory authorities have also
implemented risk-based capital guidelines requiring a minimum ratio of Tier 1
capital to risk-weighted assets of 4.00% (6.00% for "well-capitalized") and a
minimum ratio of total capital to risk-weighted assets of 8.00% (10.00% for
"well-capitalized"). At December 31, 2003, the Company's Tier 1 and total
risk-based capital ratios were approximately 15.06% and 16.11%, respectively.
The Bank is also categorized as "well-capitalized" under the Federal Deposit
Insurance Corporation Improvement Act of 1991 (F.D.I.C.I.A.) as of December 31,
2003. The Company is categorized as "well-capitalized" under the guidelines
established by the Board of Governors of the Federal Reserve System as of
December 31, 2003.

CONTRACTUAL OBLIGATIONS, COMMITMENTS AND LESS LIQUID ASSETS

In connection with its operating activities, the Company enters into certain
contractual obligations, as well as commitments to fund loans. The Company's
future cash payments associated with its

35

contractual obligations pursuant to its long-term debt and operating lease
obligations as of December 31, 2003 are summarized below:

- ------------------------

(1) See notes 9 and 10 to the consolidated financial statements.

(2) See note 12 to the consolidated financial statements.

The Company's commitments associated with funding loans as of December 31,
2003 are summarized below. Since commitments may expire unused, the amounts
shown do not necessarily reflect the actual future cash funding requirements:

- ------------------------

(1) See Note 12 to the consolidated financial statements.

The table above does not include commitments to extend credit for consumer
loans or other commercial lines of credit in the amount of $44,170,000. Such
commitments arise from agreements with customers for unused lines of credit on
certain home equity loans or business lines of credit secured generally by all
business assets, provided there is no violation of conditions established in the
related agreement. These commitments, substantially all of which the Company can
terminate at any time and which do not necessarily represent future cash
requirements, are periodically reviewed based on account usage and customer
creditworthiness (see Note 6 to the consolidated financial statements).

At December 31, 2003, certain assets of the Company, such as real property,
equipment and leasehold improvements, totaling $11,583,000 and intangibles of
$9,789,000 were illiquid, although real property, if accepted by the FHLB, could
be used to secure additional borrowings at approximately 50% of the lesser of
the book or market value.

IMPACT OF INFLATION

The Consolidated Financial Statements of the Company and related Financial
Data presented herein have been prepared in accordance with accounting
principles generally accepted in the United States which generally require the
measurement of financial condition and operating results in terms of historical
dollars without considering the changes in the relative purchasing power of
money over time due to inflation. The primary impact of inflation on operations
of the Company is reflected in increased operating costs. Unlike most industrial
companies, almost all the assets and liabilities of a financial institution are
monetary in nature. As a result, interest rates have a more significant impact

36

on a financial institution's performance than the effects of general levels of
inflation. Interest rates do not necessarily move in the same direction or in
the same magnitude as the price of goods and services.

RECENT ACCOUNTING PRONOUNCEMENTS

New accounting policies adopted by the Company during 2003 and the expected
impact of accounting standards recently issued are discussed in "Notes to
Consolidated Financial Statements, Note 1--Summary of Significant Accounting
Policies," included in Part IV, Item 15 of this Form 10-K.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION--"Asset/Liability Management."

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The response to this item is included in a separate section of this report.
See "Index to Consolidated Financial Statements" on Page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None

ITEM 9A. CONTROLS AND PROCEDURES

As of December 31, 2003, an evaluation was performed, under the supervision
and with the participation of the Company's management, including the Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures. Based
on the evaluation of these controls and procedures, as defined in Securities
Exchange Act Rules 13a-15(e) and 15d-15(e), the Chief Executive Officer and
Chief Financial Officer concluded that the design and operation of these
disclosure controls and procedures were effective as of December 31, 2003.

There were no significant changes in the Company's internal control over
financial reporting that occurred during the quarter ended December 31, 2003
that have materially affected, or are reasonably likely to affect, the Company's
internal control over financial reporting.

37

ABINGTON BANCORP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003

F-1

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of
Abington Bancorp, Inc.:

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, changes in stockholders' equity,
comprehensive income, and of cash flows present fairly, in all material
respects, the financial position of Abington Bancorp, Inc. and its subsidiaries
(the "Corporation") at December 31, 2003 and 2002, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2003, in conformity with accounting principles generally accepted
in the United States of America. These financial statements are the
responsibility of the Corporation's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 1 to the financial statements, effective January 1, 2001
the Corporation changed its method of accounting for the cost of incentives
given to new customers. As also discussed in Note 1, the Corporation changed its
method of accounting for goodwill and other intangible assets effective
January 1, 2002.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts
February 26, 2004

F-2

ABINGTON BANCORP, INC.
CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these consolidated financial
statements.

F-3

ABINGTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of these consolidated financial
statements.

F-4

ABINGTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

The accompanying notes are an integral part of these consolidated financial
statements.

F-5

ABINGTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

The accompanying notes are an integral part of these consolidated financial
statements.

F-6

ABINGTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of these consolidated statements.

F-7

ABINGTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2003

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION AND CONSOLIDATION

The consolidated financial statements include the accounts of Abington
Bancorp, Inc. (the "Company") (a Massachusetts corporation) and its wholly-owned
subsidiaries, Abington Savings Bank (the "Bank") and Abington Bancorp Capital
Trust (See Note 3). The Bank also includes its wholly-owned subsidiaries,
Abington Securities Corporation, Mass Securities Corporation and Mass SEC Corp.
II, which invest primarily in obligations of the United States Government and
its agencies and equity securities, Old Colony Mortgage which originates and
sells loans to investors on a servicing released basis (See Note 2), 70 Quincy
Ave. LLC, which owns and operates a building in Quincy, which is also used as a
bank branch and Holt Park Place Development Corporation and Norroway Pond
Development Corporation, each typically owning properties being marketed for
sale. The Company's primary business is serving as the holding company of the
Bank. All significant intercompany balances and transactions have been
eliminated in consolidation.

USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of income and expenses during the reporting
periods. Operating results in the future could vary from the amounts derived
from management's estimates and assumptions. The most significant estimates
include those used in determining the allowance for loan losses and other than
temporary impairment of investment securities.

RECLASSIFICATIONS

The Company reclassified its Company obligated manditorily redeemable
securities from mezzanine capital to other liabilities and has included as
interest expense related dividends associated with these securities, previously
reported as non-interest expense to interest expense. This change was made
pursuant to FIN 46R, issued in December 2003, a revision to FIN46,
"Consolidation of Variable Interest Entities." The reclassification became
effective on December 31, 2003 and prior periods have been restated to conform
to the current presentation. The adoption of FIN 46R did not have any impact on
the consolidated financial statements, results of operations or liquidity of the
Company.

CASH EQUIVALENTS

Cash equivalents include amounts due from banks, short-term investments with
original maturities of less than 3 months and federal funds sold on a daily
basis.

SECURITIES

Investment securities are classified in 1 of 3 categories and are accounted
for as follows:

- Debt securities that the Company has the positive intent and ability to
hold to maturity are classified as "held for investment" securities and
reported at amortized cost.

- Debt and equity securities that are bought and held principally for the
purpose of selling them in the near term are classified as "trading
securities" and reported at fair value, with unrealized gains and losses
included in earnings.

F-8

- Debt and equity securities not classified as either held for investment or
trading are classified as "available for sale" and reported at fair value
with unrealized gains and losses excluded from earnings and reported in a
separate component of stockholders' equity, net of applicable income tax
effects.

The Company had no securities classified as trading securities or held for
investment at December 31, 2003 and 2002.

Mortgage-backed investments are reduced by principal payments with discounts
and premiums being recognized on a level yield basis in income by the interest
method over the expected maturity of the investments.

Management records an investment impairment charge at the point it believes
an investment has experienced a decline in value that is other than temporary.
In determining whether an other than temporary impairment has occurred,
management reviews information about the underlying investment that is publicly
available, analysts reports, applicable industry data and other pertinent
information. The investment is written down to its current market value at the
time the impairment is deemed to have occurred. Future adverse changes in market
conditions, continued poor operating results of underlying investments or other
factors could result in further losses that may not be reflected in an
investment's current carrying value, possibly requiring an additional impairment
charge in the future.

Gains and losses on the disposition of securities are computed using the
specific identification method. Unrealized losses which are deemed to be other
than temporary declines in value are charged to operations.

LOANS AND ALLOWANCE FOR LOAN LOSSES

The Company grants mortgage, commercial and consumer loans to customers. A
substantial portion of the loan portfolio consists of mortgage loans in the
southeastern Massachusetts area. The ability of the Company's debtors to honor
their contracts is generally dependent upon the stability of real estate market
and the general economic conditions in the Company's market area.

Funds for lending are partially derived from selling participating and whole
interests in mortgage loans. Loans designated as held for sale are accounted for
at the lower of their aggregate cost or market value. Gains or losses on sales
of loans are recognized at the time of the sale.

Of the total loan portfolio at December 31, 2003, approximately 18%
represents owner-occupied first mortgages located outside of Massachusetts,
throughout the United States. In this purchased loan portfolio, the Company owns
approximately $7,463,000 of loans collateralized by residential properties
located in Texas. No other concentration in any other states, except for
Massachusetts, exceeds 2.5% of total loans.

Loan origination and commitment fees and certain direct loan origination
costs, as defined, are deferred and amortized as a yield adjustment over the
contractual life of the related loans under the interest method. Premiums and
discounts on purchased residential loans are also amortized as a yield
adjustment by the interest method over the estimated duration of the loans.
Unearned discounts are amortized under the interest method over the term of the
related loans. All other interest on loans is recognized on a simple interest
basis.

Interest on loans is generally not accrued when the principal or interest on
the loan becomes delinquent in excess of 90 days, and/or in the judgment of
management the collectibility of the principal or interest becomes doubtful.
When a loan is placed on a non-accrual status, all interest previously accrued
but not collected is reversed against interest income in the current period.
Interest income is subsequently recognized only to the extent cash payments are
received.

F-9

The allowance for loan losses related to loans that are identified as
impaired is based on discounted cash flows using the loan's effective interest
rate or the fair value of the collateral for certain collateral dependent loans.
The Company has determined that commercial and commercial real estate loans
recognized by the Company as non-accrual, restructured troubled debt and certain
internally adversely classified loans constitute the portfolio of impaired
loans.

The allowance for loan losses is based on management's evaluation of the
level of the allowance required in relation to the estimated loss exposure in
the loan portfolio. Factors considered in determining the allowance requirements
include, among other factors, local industry trends, management's ongoing review
of individual loans, trends in levels of watched or criticized assets, an
evaluation of results of examinations by regulatory authorities and analyses of
historical trends in charge-offs and delinquencies. Loans are charged-off to the
allowance for loan losses when, in the opinion of management, such loans are
deemed to be uncollectible. The allowance is an estimate, and ultimate losses
may vary from current estimates. As adjustments become necessary, they are
reported in earnings during the periods in which they become known.

The allowance for loan losses as of December 31, 2003 is based on
management's estimate of the amount required to absorb losses in the loan
portfolio based on known current circumstances including real estate market
conditions. Additionally, management assesses the risk of inherent but
unidentified losses which are believed to exist based on evaluation of watched
asset report trends and analysis, the results of which are reflected in current
reserves. However, uncertainty exists as to future trends in the local economy
and real estate market. If there is significant deterioration in the local
economy the Company would expect increases in non-performing loans requiring
additional provisions for loan losses and increased lost interest income on
non-accrual loans.

OTHER REAL ESTATE OWNED

Real estate acquired by foreclosure and acquired by deed in lieu of
foreclosure is classified as other real estate owned and initially recorded at
the lower of cost or fair value less estimated selling costs. In the event
subsequent declines in value are identified, other real estate owned is adjusted
to fair market value through a charge to non-interest income.

The fair value for these assets is based on periodic analysis of the real
estate by management. Factors considered include, but are not limited to,
general economic and market conditions, geographic location, the composition of
the real estate holdings and property conditions.

BANKING PREMISES AND EQUIPMENT

Land is carried at cost. Buildings, leasehold improvements and equipment are
carried at cost less accumulated depreciation computed on the straight-line
method over the estimated useful lives of the assets, or the terms of the
leases, if shorter. The cost of maintenance and repairs are expensed as
incurred; major expenditures for betterments are capitalized and depreciated.

The management of the Company reviews long-lived assets and certain
identifiable intangibles to be held and used for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. If impairment is deemed to exist, long-lived assets are reported
at the lower of the carrying amount or fair value less cost to sell.

In 2001, management developed a plan to dispose of certain real estate which
was being used by the Company for non-branch purposes. As such the Company
recorded a writedown of $635,000 to reflect this real estate at its estimated
fair market value which is included in occupancy and equipment expenses in the
accompanying Consolidated Statement of Operations.

F-10

GOODWILL AND OTHER INTANGIBLE ASSETS

On January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other
Intangible Assets." Under the provisions on SFAS No. 142 goodwill can no longer
be amortized over its estimated useful life, but rather must be subject to an
annual assessment for impairment by applying a fair-value based test. The
Company's other intangible assets have finite lives and are amortized on a
straight-line basis over their estimated lives of 7 to 10 years. There were no
adjustments required for impairment based upon management's analysis as of
December 31, 2003.

Upon the adoption of SFAS 142 the Company ceased amortizing its goodwill.
The pro forma effect of adoption of SFAS 142 to the 2001 results is shown in
Note 17.

On October 1, 2002, the Financial Accounting Standards Board ("FASB")
released SFAS No. 147, "Acquisitions of Certain Financial Institutions." The
statement allows financial institutions that have certain unidentifiable
intangible assets that arose from business combinations where the fair value of
liabilities assumed exceeded the fair value of assets acquired (or SFAS No. 72,
assets) to reclassify these assets to goodwill as of the later of the date of
acquisition or the application date of SFAS No. 142, January 1, 2002. SFAS 147
also modifies SFAS 144 to include in its scope long-term customer-relationship
intangible assets and thus subject those intangible assets to the same
measurement provisions required for other long-lived assets.

INCOME TAXES

Tax assets and liabilities are reflected at currently enacted income tax
rates. As changes in tax laws and rates are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes.

STOCK BASED COMPENSATION

The Company accounts for stock options under the provisions of Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees," under which no compensation expense is recognized when the stock
options are granted.

In December 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based
Compensation--Transition and Disclosure" ("SFAS No. 148"). SFAS No. 148 amends
SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative
methods of transition for a voluntary change to the fair value based methods of
accounting for stock-based employee compensation. In addition, SFAS No. 148
amends the disclosure requirements of SFAS No. 123 to require more prominent
disclosure about the method of accounting for stock based compensation and the
effect of the method on reported results.

The Company continues to follow the intrinsic value method of accounting as
prescribed by APB No. 25. The following table presents the effects on net income
and earnings per share if the Company

F-11

had applied the fair value recognition provisions of SFAS No. 123 to stock-based
employee compensation.

ACCOUNTING FOR CERTAIN INCENTIVES

In December 2001, the Company elected to early adopt EITF Issue
No. 00-14--"Accounting for Certain Sales Incentives." This pronouncement
provided additional guidance for the accounting for the cost of incentives given
to customers to open new deposit accounts with the Bank. Under this guidance,
the cost of the incentive should be charged to earnings on the date the account
is opened (which is the date that the sales incentive is offered). This varies
from the previous methodology used by the Company which was to defer this cost
and amortize it to expense over the expected life of the deposit account
relationship. The cumulative effect of this change in accounting principle was
to write off the unamortized portion of previously capitalized incentives at
January 1, 2001 totaling $298,000, net of tax.

RECENT ACCOUNTING PRONOUNCEMENTS

In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. This interpretation expands the
disclosures to be made by a guarantor in its financial statements about its
obligations under certain guarantees and requires the guarantor to recognize a
liability for the fair value of an obligation assumed under a guarantee. FIN 45
clarifies the requirements of SFAS 5, Accounting for Contingencies, relating to
guarantees. In general, FIN 45 applies to contracts or indemnification
agreements that contingently require the guarantor to make payments to the
guaranteed party based on changes in an underlying that is related to an asset,
liability, or equity security of the guaranteed party. Certain guarantee
contracts are excluded from both the disclosure and recognition requirements of
this interpretation, including, among others, guarantees relating to employee
compensation, residual value guarantees under capital lease arrangements,
commercial letters of credit, loan commitments, subordinated interests in an
SPE, and guarantees of a company's own future performance. Other guarantees are
subject to the disclosure requirements of FIN 45 but not to the recognition
provisions and include, among others, a guarantee accounted for as a derivative
instrument under SFAS 133, a parent's guarantee of debt owed to a third party by
its subsidiary or vice versa, and a guarantee which is based on performance not
price. The disclosure requirements of FIN 45 are effective for the Company as of
December 31, 2002, and require disclosure of the nature of the guarantee, the
maximum potential amount of future payments that the guarantor could be required
to make under the guarantee, and the current amount of the liability, if any,
for the

F-12

guarantor's obligations under the guarantee. The recognition requirements of
FIN 45 are to be applied prospectively to guarantees issued or modified after
December 31, 2002. Significant guarantees that have been entered into by the
Company are disclosed in Note 12.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation--Transition and Disclosure." SFAS No. 148 amends No. 123,
"Accounting for Stock-Based Compensation," to provide alternative methods of
transition for a voluntary change to the fair value based methods of accounting
for stock-based employee compensation. Companies are able to eliminate a
"ramp-up" effect that the SFAS No. 123 transition rule creates in the year of
adoption. Companies can choose to elect a method that will provide for
comparability amongst years reported. In addition, this Statement amends the
disclosure requirement of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the fair value based method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. The transition amendments to SFAS No. 123 are
effective for financial statements for fiscal years ending after December 15,
2002. The potential impact to the Company of adopting such accounting can be
seen above under "Stock Based Compensation."

In January 2003, the FASB issued FASB Interpretation no. 46 (FIN 46),
"Consolidation of Variable Interest Entities." The objective of FIN 46 is to
provide guidance on how to identify a variable interest entity (VIE) and
determine when the assets, liabilities, noncontrolling interests, results of
operations of a VIE need to be included in a company's consolidated financial
statements. In December 2003, the FASB issued FIN 46R, a revision to FIN 46. The
objective of FIN 46R was to clarify some of the provisions of FIN 46. Based on
FIN 46R, the Company deconsolidated its issuer trust (Abington Bancorp Capital
Trust) as of December 31, 2003 and restated its historical financial statements.

In April, 2003, the Financial Accounting Standards Board issued SFAS
No. 149, "Amendment of Statement 133 on Derivative and Hedging Activities." This
Statement amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities under SFAS No. 133. SFAS No. 149 is
effective for contracts entered into or modified after June 30, 2003, except for
certain contracts that relate to SFAS No. 133 Implementation Issues that have
been effective for fiscal quarters that began prior to June 15, 2003. The
Company has no material derivative instruments and the application of SFAS
No. 149 has no material impact on the Company's financial position or results of
operation.

In December 2003, the FASB issued SFAS No. 132 (revised 2003), "Employers'
Disclosures about Pensions and Other Postretirement Benefits," that improves
financial statement disclosures for defined benefit plans. The change replaces
existing FASB disclosure requirements for pensions. The Company discontinued its
defined benefit program in 2000. Accordingly, SFAS No. 132 has no affect on the
Company's financial condition or results of operations.

PENDING MERGER/SUBSEQUENT EVENT

On October 21, 2003, the Company (Abington) and Seacoast Financial Services
Corporation (Seacoast), jointly announced the execution of a definitive
agreement whereby Seacoast will acquire Abington. Each share of Abington common
stock will be exchanged for either $34 per share in cash, or 1.4468 shares of
Seacoast common stock, subject to certain allocation procedures intended to
ensure that 75% of Abington's shares will be exchanged for Seacoast common stock
and 25% for cash. The transaction is expected to be completed during the second
quarter of 2004, subject to the approval of Abington shareholders and regulators
of both companies.

On January 26, 2004, Seacoast entered into an agreement and plan of merger
with Sovereign Bancorp, Inc. (Sovereign) under which Seacoast will be merged
with and into Sovereign, with Sovereign the surviving corporation. Under the
Sovereign/Seacoast merger agreement, stockholders of Seacoast

F-13

(which may include former stockholders of Abington should the Seacoast/Abington
merger take place), subject to certain expectations, will receive shares of
Sovereign common stock.

2. ACQUISITIONS

On September 13, 2002 the Company completed the acquisition of Massachusetts
Fincorp, Inc. (MAFN), the parent company of The Massachusetts Co-operative Bank
with three branches in the Greater Boston area. The transaction was accounted
for under the purchase method of accounting. Accordingly, the consolidated
assets and liabilities of MAFN are included in the Company's consolidated
balance sheet and the results of MAFN's operations have been included in the
consolidated financial statements since September 14, 2002. The Company recorded
goodwill of $4.2 million and other intangible assets of $4.2 million in
connection with the acquisition.

Approximately 510,500 shares of Company stock were issued and the majority
of previously outstanding options to purchase the stock of MAFN were converted
to 80,145 options to acquire shares of the Company's common stock at prices
ranging from $7.13 to $8.84.

The following table summarizes the allocation of purchase price to assets
and liabilities acquired on September 13, 2002:

Following is supplemental information, reflecting selected pro forma results
as if the acquisition had been consummated as of January 1, 2001 (in thousands,
except EPS):

Total revenue includes net interest income and noninterest income.

F-14

3. GUARANTEED PREFERRED BENEFICIAL INTEREST IN THE COMPANY'S JUNIOR
SUBORDINATED DEBENTURES (TRUST PREFERRED SECURITIES)

In May 1998, the Company formed a Delaware business trust, Abington Bancorp
Capital Trust (the "Trust"). All of the common securities of this special
purpose Trust are owned by the Company; the Trust exists solely to issue capital
securities. Upon the adoption of FIN 46R, effective December 31, 2003, the
Company deconsolidated the net assets and results of operations of the trust
from its consolidated financial statements. The capital securities are
separately presented in the consolidated balance sheet as Company obligated
manditorily redeemable securities. The Trust has issued trust preferred
securities and invested the net proceeds in junior subordinated deferrable
interest debentures (subordinated debentures) issued to the Trust by the
Company. The subordinated debentures are the sole assets of the Trust. The
Company has the right to defer payment of interest on the subordinated
debentures at any time, or from time to time, for periods not exceeding
5 years. If interest payments on the subordinated debentures are deferred, the
distributions on the trust preferred securities are also deferred. Interest on
the subordinated debentures is cumulative. The Company, through guarantees and
agreements, has fully and unconditionally guaranteed all of the Trust's
obligations under the trust preferred securities.

The Federal Reserve Bank has accorded the trust preferred securities Tier 1
capital status limited to approximately 25% of such capital. The ability to
apply Tier 1 capital treatment, as well as to deduct the expense of the
subordinated debentures for income tax purposes, provided the Company with a
cost-effective way to raise regulatory capital. The trust preferred securities
are not included as a component of total shareholders' equity in the
consolidated balance sheet.

The 8.25% trust preferred securities pay quarterly distributions which
commenced in September 1998. The Trust issued 1,265,000 preferred shares ($10
per share liquidation value). Issuance costs consisting primarily of
underwriting discounts and professional fees were capitalized and are being
amortized through maturity to interest expense using the straight-line method.
Distributions, including those accrued and accumulated, and amortization expense
totaling $1,120,000 for 2003, 2002, and 2001 relating to these trust preferred
securities is reflected in the statement of operations as interest expense.

The maturity date of the trust preferred securities may be shortened to a
date not earlier than 2003 if certain conditions are met, including obtaining
approval from the Board of Governors of the Federal Reserve System. The
redemption price of the trust preferred securities would equal the liquidation
value of each security.

4. REGULATORY MATTERS

The Company and the Bank are subject to various regulatory requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company and the Bank must meet specific capital guidelines that involve
quantitative measures of the Company's and the Bank's assets, liabilities and
certain off-balance sheet items as calculated under regulatory accounting
practices. The Company's and the Bank's capital amounts and classification are
also subject to qualitative judgments by the regulators about components,
risk-weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as
defined) to assets (as defined). Management believes as of December 31, 2003,
that the Company and the Bank met all capital adequacy requirements to which
they are subject. As of December 31,

F-15

2003, the most recent notification from the FDIC categorized the Bank as
well-capitalized under the regulatory framework for prompt corrective action.
There are no conditions or events since that notification that management
believes have changed the institution's category. To be considered
well-capitalized under the regulatory framework for prompt corrective action,
the Bank must maintain minimum Tier 1 leverage, Tier 1 risk-based, and total
risk-based capital ratios as set forth in the table below.

F-16

5. SECURITIES

The amortized cost and fair value of securities classified as available for
sale at December 31, 2003 and 2002 are as follows:

The following table shows the gross unrealized losses and fair values of
investment securities aggregated by investment category, and the length of time
individual investment securities have been in a continuous loss position, as of
December 31, 2003.

The Company believes that these securities are only temporarily impaired and
that the full principle will be collected as anticipated. There are five
securities which have been in a loss position for more than 12 months. They are
obligations of U.S. Government Agencies and are at a loss position because they
were acquired when the general level of interest rates were lower than that on
December 31, 2003.

The amortized cost and fair value of investments and mortgage-backed
securities, respectively, at December 31, 2003 by contractual maturity follows.
Expected maturities or cash flows from securities will differ from contractual
maturities because the issuer may have the right to call or repay obligations

F-17

with or without call or prepayment penalties. Projected payments and prepayments
for mortgage-backed securities have not been considered for purposes of this
presentation.

There were no gains or losses on sales of marketable equity securities
during 2003. Gross gains on sales of marketable equity securities were $216,000,
and $847,000 for 2002 and 2001, respectively. There were losses of $710,000 and
$2,122,000 on sales of equity securities in 2002 and 2001, respectively.

Gross gains on sales of investment securities were $454,000, $447,000, and
$536,000 for 2003, 2002, and 2001, respectively. Gross losses on sales of
investment securities were $110,000 and $2,618,000 for 2002 and 2001,
respectively. There were no losses on sales of investment securities in 2003.

Proceeds from sales of mortgage-backed investments classified as available
for sale during 2003 were $110,307,000. Gross gains of $696,000 were realized
and gross losses of $252,000 were realized on those sales for 2003.

There were no sales of mortgage-backed investments classified as available
for sale during 2002. Proceeds from sales of mortgage-backed investments
classified as available for sale during 2001 were $98,595,000. Gross gains of
$1,641,000 were realized and gross losses of $7,000 were realized on those sales
in 2001.

All agency and mortgage-backed securities also serve as collateral for
Federal Home Loan Bank borrowings as part of a blanket collateral agreement as
further described in Note 9.

At December 31, 2003 and 2002 securities with a carrying value of
$11,524,000 and $11,226,000 were pledged as collateral on retail repurchase
agreements.

F-18

6. LOANS

A summary of the loan portfolio follows:

The above table includes unamortized purchase premium related to loans
acquired from MAFN of $937,000 and $1,726,000 at December 31, 2003 and 2002,
respectively.

At December 31, 2003 and 2002, the Company also held approximately
$10,994,000 and $35,629,000, respectively, of loans held for sale. At
December 31, 2003 and 2002, the estimated market values of loans held for sale
was in excess of their carrying value. In addition, the Company was servicing
mortgage loans sold under non-recourse agreements amounting to approximately
$20,868,000 and $45,517,000 at December 31, 2003 and 2002, respectively.

In the ordinary course of business, the Company has granted loans to certain
of its officers and directors and their affiliates. All transactions are on
substantially the same terms as those prevailing at the same time for
individuals not affiliated with the Company and do not involve more than the
normal risk of collectibility. The total amount of such loans which exceeded
$60,000 in aggregate amounted to $168,000 at December 31, 2003, and $306,000 at
December 31, 2002. During the year ended December 31, 2003, total principal
additions were $25,000 and total principal reductions were $163,000.

Additionally, all conforming residential mortgage loans (first-lien) and
also first mortgages on residential property with four or more units (considered
in commercial real estate above for financial reporting purposes) are considered
collateral for FHLB borrowings as part of the blanket collateral agreement as
further described in Note 9. These loans totaled approximately $197,104,000 and
$238,076,000, at December 31, 2003 and 2002, respectively.

F-19

The following analysis summarizes the Company's non-performing assets at
December 31, 2003 and 2002:

The recorded total investment in impaired loans was $1,285,000 and
$2,031,000 at December 31, 2003 and 2002, respectively. At December 31, 2003
there were no impaired loans that required a specific allocation of the
allowance for loan losses. Impaired loans totaling $3,432,000 at December 31,
2002 required an allocation of $2,181,000 of the allowance for loan losses. The
average balance of impaired loans was approximately $1,881,000, $3,568,000 and
$704,000 in 2003, 2002 and 2001, respectively. All loans identified as impaired
are accounted for as non-accrual. The remaining impaired loans did not require
any allocation of the allowance for possible loan losses. The total amount of
interest income recognized on impaired loans during 2003, 2002 and 2001 was
approximately $50,000, $108,000 and $39,000, respectively, which approximated
the amount of cash received for interest during those periods. The Company has
no commitments to lend additional funds to borrowers whose loans have been
deemed to be impaired.

An analysis of the allowance for loan losses follows:

F-20

7. BANKING PREMISES AND EQUIPMENT

A summary of the cost and accumulated depreciation of banking premises and
equipment and their estimated useful lives is as follows:

Depreciation expense for the years ended December 31, 2003, 2002 and 2001
amounted to $1,951,000, $1,644,000 and $2,274,000, respectively.

8. DEPOSITS

A summary of deposit balances, by type, is as follows:

A summary of certificate accounts by maturity is as follows:

Term certificate accounts include $96,000 and $355,000 of unamortized
purchase premium at December 31, 2003 and 2002, respectively.

F-21

9. SHORT-TERM BORROWINGS

Short-term borrowings consist of retail purchase agreements and Federal Home
Loan Bank (FHLB) advances with original maturities of 1 year or less. The retail
repurchase agreements are collaterized by securities. All borrowings from the
FHLB are secured under a blanket lien by certain qualified collateral defined
principally as 85% to 90% of the carrying value of U.S. Government and agency
obligations, including mortgage-backed securities, and 75% of the carrying value
of residential mortgage loans. Information relating to activity and rates paid
under these borrowing agreements is presented below:

10. LONG-TERM DEBT

A summary of long-term debt, consisting of FHLB advances with an original
maturity of greater than 1 year, is as follows:

F-22

11. INCOME TAXES

The provision (benefit) for income taxes, including the tax effect of change
in accounting principle in 2001, consists of the following:

The reason for the differences between the statutory tax rates and the
effective tax rate are summarized as follows:

The components of net deferred taxes as recorded as of December 31, 2003 and
2002 are as follows (assets/(liabilities)):

F-23

In August of 1996, Congress passed the Small Business Job Protection Act of
1996. Included in this bill was the repeal of IRC Section 593, which allowed
thrift institutions special provisions in calculating bad debt deductions for
income tax purposes. Thrift institutions are now viewed as commercial banks for
income tax purposes.

One effect of this legislative change was to suspend the Bank's bad debt
reserve for income tax purposes as of its base year (October 31, 1988). Any bad
debt reserve in excess of the base year amount is subject to recapture over a
6 year time period. The suspended (i.e., base year) amount is subject to
recapture upon the occurrence of certain events, such as complete or partial
redemption of the Bank's stock or if the Bank ceases to qualify as a bank for
income tax purposes.

At December 31, 2001, the Bank's surplus includes approximately $1,960,000
of bad debt deductions for which income taxes have not been provided. As the
Bank does not intend to use the reserve for purposes other than to absorb loan
losses, deferred taxes of approximately $820,000 have not been provided on this
amount.

12. COMMITMENTS AND CONTINGENCIES

In the normal course of business, there are outstanding commitments and
contingencies which are not reflected in the consolidated financial statements
as discussed below.

LITIGATION

The Company is a defendant in various legal claims incident to its business,
none of which is believed by management, based on the advice of legal counsel,
to be material to the consolidated financial statements.

SPECIAL TERMINATION AGREEMENTS

The Company has entered into Special Termination Agreements with five
officers which provide for a lump-sum severance payment if there is a
terminating event within a 3 year period following a "change in control," as
defined in the agreements.

LOAN AND GENERAL COMMITMENTS

The Company is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments principally include commitments to extend credit and
advance funds on outstanding lines of credit. Those instruments involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the balance sheet. The contract amounts or unpaid principal
balance of those instruments reflect the extent of involvement the Company has
in these particular classes of financial instruments.

The Company's exposure to credit loss is represented by the contractual
amount or unpaid principal balance of those instruments. The Company uses the
same credit policies in making

F-24

commitments and conditional obligations as it does for financial instruments
reflected on the balance sheet. Financial instruments which represent credit
risk at December 31, 2003 and 2002 are as follows:

Commitments to grant loans are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. The commitments for lines of credit may expire without
being drawn upon. Therefore, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's credit
worthiness on a case-by-case basis.

Standby letters of credit are conditional commitments that guarantee the
performance of a customer to a third party. The letters of credit are primarily
issued to support borrowing arrangements and have expiration dates within one
year. The credit risk involved in issuing letters of credit is essentially the
same as that involved in extending loan facilities to customers. The letters of
credit are generally secured.

LEASE COMMITMENTS

Pursuant to the terms of non-cancelable lease agreements, future minimum
rent commitments for the next 5 years and thereafter are as follows at
December 31, 2003:

Certain leases also contain renewal options (up to 10 years) and real estate
tax escalation clauses. Rent expense for the years ended December 31, 2003, 2002
and 2001 amounted to approximately $1,669,000, $1,107,000 and $640,000,
respectively.

13. STOCKHOLDERS' EQUITY

At the time of the conversion from mutual to stock form in 1986, the Bank
established a liquidation account in the amount of $7,478,000. In accordance
with Massachusetts statutes, the liquidation account will be maintained for the
benefit of eligible account holders who continue to maintain their accounts in
the Bank after the conversion. The liquidation account will be reduced annually
to the extent that eligible account holders have reduced their qualifying
deposit.

F-25

Subsequent qualifying deposit increases will not restore an eligible account
holder's interest in the liquidation account. In the event of a complete
liquidation of the Bank, each eligible account holder will be entitled to
receive a distribution in an amount equal to their current adjusted liquidation
account balances to the extent that the funds are available.

Federal and state banking regulations place certain restrictions on
dividends paid and loans or advances made by the Company. The total amount of
dividends which may be paid at any date is generally limited to the undivided
profits of the Company. Undivided profits (or retained earnings) at the Company
totaled $36,490,000 at December 31, 2003. Additionally, future dividends, if
any, will depend on the earnings of the Company and its subsidiaries, its need
for funds, its financial condition, and other factors, including applicable
government regulations. (See Note 4)

14. EMPLOYEE BENEFIT PLANS

Through October 31, 2000, the Company provided basic pension benefits for
eligible employees through the Savings Bank's Employees Retirement Associations
("SBERA") Pension Plan (the "Pension Plan"). Each employee reaching the age of
21 and having completed at least 1,000 hours of service in a consecutive
12 month period beginning with such employee's date of employment automatically
became a participant in the pension plan. All participants were fully vested
after being credited with 3 years of service or at age 62, if earlier. Employees
were also able to participate in a contributory plan administered by SBERA based
on the same eligibility requirements through December 31, 2000. The Company had
no obligation to contribute to this plan.

As part of a program to redesign the Company's employee retirement benefits,
the Board of Directors voted October 10, 2000 to freeze the Company's Pension
Plan effective as of October 31, 2000 and terminate the Pension Plan effective
on December 31, 2000. In connection therewith, the Company amended the Pension
Plan to improve the benefit formula for current employees and permit payment of
lump sums from the Pension Plan.

The Company settled the remaining obligations of the terminated pension plan
in the first quarter of 2002. This resulted in a gain on settlement of $376,000
(approximately $244,000 net of applicable taxes) which is netted against
salaries and benefits expense. As a result of the decision to freeze and
terminate the Pension Plan, the Company recognized a curtailment gain of
approximately $155,000 in 2000 which was classified with salaries and benefit
expense in the Consolidated Statement of Operations. A partial termination gain
of approximately $81,000, net of tax, was recorded in 2001.

As part of the redesign of retirement benefits, the Bank added, effective in
January 2001, a 3% automatic contribution to the 401(k) plan for all employees,
even for employees who do not separately contribute to that plan. Such
contribution is being made for all eligible participants based on their W-2
compensation. The expense for the year ended December 31, 2003, 2002 and 2001
was $735,000, $602,000 and $497,000, respectively.

F-26

Net periodic pension expense for the plan year ended October 31, 2001, the
measurement date, consisted of the following:

The Bank has adopted a management incentive plan whereby designated officers
and supervisors are eligible to receive a bonus, proportionate to their
respective salary, if the Bank meets or exceeds certain base standards of
profitability and net worth levels for its fiscal year. The structure of this
plan is reviewed on an annual basis by the Board of Directors. The incentive
bonus expense in 2003, 2002 and 2001 was approximately $403,000, $430,000 and
$220,000, respectively.

F-27

15. OTHER NON-INTEREST EXPENSE

Other non-interest expense consisted of the following:

16. EARNINGS PER SHARE

Basic earnings per share ("EPS") excludes dilution and is computed by
dividing net income available to common shareholders by the weighted average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock that share in the
earnings of the entity. The calculation of common stock equivalents for fully
diluted per share computations excludes options that have an exercise price in
excess of the average closing price of the Company's stock for the period
presented. The following table shows the computation of average common share and
common share equivalents for the purposes of earnings per share calculations:

As result of the acquisition of MAFN, approximately 510,500 shares of
Company common stock were issued and the majority of previously outstanding
options to purchase the stock of MAFN were converted, using the formula
presented in the merger agreement, to 80,145 options to acquire shares of the
Company common stock at prices ranging from $7.13 to $8.84. These shares and
share equivalents were included in the calculations shown above on a weighted
average basis commencing September 13, 2002. The total common shares
outstanding, excluding share equivalents on a fully diluted basis, at
December 31, 2003 were approximately 4,020,000.

F-28

17. GOODWILL AND OTHER INTANGIBLES

Upon the adoption of SFAS 142 on January 1, 2002 the Company ceased
amortizing its goodwill, which decreased non-interest expense and increased net
income in 2002 as compared to 2001. The following table shows the pro forma
effects of applying SFAS 142 to the 2001 period.

- ------------------------

(2) Net of tax.

At December 31, 2003, the Company's intangible assets are comprised of
goodwill in the amount of $5,915,000 and core deposit intangibles of $4,018,000.
Amortization on finite-lived intangibles amounted to $597,000, $317,000 and
$177,000 for the years 2003, 2002 and 2001, respectively. Estimated amortization
expense for the year ended December 31, 2004 is $560,000, $500,000 for the year
ended December 31, 2005 and for each of the years ending December 31, 2006,
2007, and 2008 is $500,000.

The changes in the carrying amount of goodwill for the year ended
December 31, 2003 are as follows (in thousands):

18. STOCK OPTION PLAN

The Company has several Qualified and Nonqualified Stock Options Incentive
Plans (the "Stock Option Plans") which provide for the granting of options to
certain officers, employees and

F-29

non-employee directors of the Company. The options vest and become exercisable
in accordance with the terms of the grant. All options granted become fully
vested no later than the end of the ninth year.

Included in the above tables are 75,666 shares with a weighted average
exercise price of $7.14 that were issued in conjunction the MAFN acquisition.
There are 211,600 shares authorized for grant under the stock option plans at
December 31, 2003. The Company accounts for stock options under the provisions
of Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock
Issued to Employees," under which no compensation expense is recognized when the
stock options are granted.

In December 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based
Compensation--Transition and Disclosure," ("SFAS No. 148"). SFAS No. 148 amends
SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative
methods of transition for a voluntary change to the fair value based methods of
accounting for stock-based employee compensation. In addition, SFAS No. 148
amends the disclosure requirements of SFAS No. 123 to require more prominent
disclosure about the method of accounting for stock based compensation and the
effect of the method on reported results. The Company continues to follow the
intrinsic value method of accounting as prescribed by APB No. 25.

Had compensation cost for awards in 2003, 2002, and 2001 under the Bank's
stock-based compensation plans been determined based on the fair value at the
grant dates consistent with the

F-30

method set forth under SFAS No. 123, the effect on the Bank's net income and
earnings per share would have been as follows:

The initial impact of applying SFAS No. 123 on pro forma net income may not
be indicative of future amounts when the method prescribed by SFAS No. 123 will
apply to all outstanding awards because compensation expense for options granted
prior to January 1, 1995 is not reflected in the pro forma amounts above.

The fair value of each option grant is estimated on the grant date using the
Black-Scholes option-pricing model using the following weighted-average
assumptions:

The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.

In conjunction with the Company's aforementioned Stock Option Plans, the
Company adopted a Long Term Performance Incentive Plan in 1999 to encourage
executive management and members of the Board of Directors to build long-term
shareholder value. The plan was a 3 year program which provided a mechanism for
granting options under the Company's Stock Option Plan. Options to purchase
approximately 0, 59,500 and 48,000 shares of common stock for performance in
2001, 2000 and 1999, respectively, were granted to members of the Board of
Directors and certain principal officers. All options granted under this plan
are included in the preceding table. The options are granted based on
achievement of strategic goals.

19. EMPLOYEE STOCK OWNERSHIP PLAN

The Company has established an Employee Stock Ownership Plan ("ESOP") which
is being funded by the Company's contributions made in cash (which generally
will be invested in common stock) or common stock. Benefits may be paid in
shares of common stock or in cash, subject to the employees' right to demand
shares.

F-31

In November 1993, the Company loaned the ESOP $570,000 to acquire additional
shares for participants on the open market. The loan was to be repaid over
7 years with principal and interest (at a rate equal to 85% of the prevailing
prime rate) payable quarterly. In November 2000, the loan was repaid in full.

Management and the Board of Directors revised its methodology for funding
the ESOP commencing in 2001. The Board of Directors may grant annual cash
contributions to the ESOP, based on set financial performance criteria, which
will in turn be used to acquire the Company's common stock for immediate
allocation to participants. The amounts contributed, if any, will be based on
the accomplishment of financial and strategic goals.

The Company recorded no ESOP expense for the years ended December 31, 2003,
2002 and 2001.

20. RESTRICTION ON CASH AND DUE FROM BANKS

At December 31, 2003 and 2002, cash and due from banks included $15,668,00
and $12,675,000, respectively, to satisfy the reserve requirements of the
Federal Reserve Bank.

21. STOCK REPURCHASE PROGRAM

On January 28, 2003, the Company announced plans to purchase shares of its
common stock on the open market and in negotiated purchases in the amount of
approximately $800,000. The Abington Savings Bank Employee Stock Ownership Plan
acquired 16,500 shares at a cost of $344,000 during 2003.

On March 27, 1997, the Company announced that its Board of Directors had
authorized the Company to repurchase up to 10% (375,000 shares) of its then
outstanding common stock from time to time at prevailing market prices. On
February 24, 1998, the Company announced that its Board of Directors had
authorized the Company to repurchase an additional 10% (347,000) of its
outstanding common stock, as adjusted for amounts remaining to be repurchased
under the March 1997 plan. On March 25, 1999, the Board of Directors authorized
the Company to repurchase an additional 10% (320,000) of its outstanding common
stock, as adjusted for amounts remaining to be purchased under the previously
authorized plans. The Board delegated to the discretion of the Company's senior
management the authority to determine the timing of the repurchase program's
commencement, subsequent purchases and the prices at which the repurchases will
be made. There are approximately 109,000 shares of stock available for purchases
as of December 31, 2003 under the plans. As of December 31, 2003, the Company
had repurchased 932,600 shares of its common stock under these plans at a total
cost of approximately $13,882,000.

During 2003 certain executives of the bank elected to cancel options to
satisfy the minimum tax withholding requirements on their option exercises. As a
result the Company acquired 45,559 shares of its common stock at its then fair
market value of approximately $1,768,000.

22. SUPPLEMENTAL EXECUTIVE RETIREMENT PROGRAM

The Company has a non-cash supplemental executive retirement plan for an
officer. Under this arrangement, the individual (or his beneficiary) is entitled
to receive monthly retirement benefits for life, or a minimum of twenty years,
whichever is longer, in amounts specified in the contract. Benefits commence
upon retirement date which is deemed to be the age of sixty-five. If death
occurs during employment with the Company, the individual designated as
beneficiary will receive a distribution in two components, the first of which is
an amount equal to 3 times the annual salary of the officer, as determined under
the plan and the second of which is the aggregate of all accruals made by the
Company with respect to the benefit up to the end of the preceding fiscal year.
If the officer retires or terminates his employment (other than for cause) prior
to age 60, he will receive a percentage of the

F-32

benefit he would otherwise receive. In March 1998, the Company also purchased a
single life annuity insurance policy. The contract was purchased at a cost of
$2,863,184. The cash surrender value is earning a rate of return, with a
guaranteed minimum rate of 4%. In addition, the Company has entered into a split
dollar agreement with the officer, which requires that any death benefit be
shared between the Company and the designated beneficiary, based on a
predetermined schedule. The amounts due to the beneficiary as death benefits
under the Plan are reduced to the extent death benefits under the insurance
contract are remitted to such beneficiary. The obligation under the plan is
being accrued over the expected employment period, through age 65. Approximately
$162,000, $147,000, and $153,000 was charged to compensation expense in 2003,
2002 and 2001, respectively. Income related to the increased value of the
insurance contract of $168,000, $167,000 and $161,000 was recognized as other
non-interest income in 2003, 2002 and 2001, respectively. The contract values of
$3,749,000 and $3,581,000, at December 31, 2003 and 2002, respectively, are
reflected as Bank-owned life insurance--contract value in the Consolidated
Balance Sheet.

Additionally, in 2001 the Company established cash funded supplemental
executive retirement plans for two other officers. The officers vest in the
rights to these assets and accumulated earnings on the later of two years from
the date of the agreement and five years from the date the officer commenced
employment. The expense related to these cash funding arrangements was
approximately $57,000 in 2003 and 2002.

F-33

23. DEFERRED STOCK COMPENSATION PLAN

In 1998, the Company adopted a Deferred Stock Compensation Plan for
directors (the "Plan") which, for those directors who elected to participate,
would, in lieu of current cash payments, defer their compensation for attendance
at various meetings of the Board of Directors until retirement or some future
point in time to be determined. Furthermore, the deferred compensation is
eligible to be paid only in shares of the Company's common stock, the units
earned which are predetermined for a fixed 3 year period based upon the Board
meeting fee schedule which was in effect as of July 1, 1998, divided by the
stock price of the Company's common shares at the close of business on July 1,
1998. This price was $18.75 per share. On July 1, 2001, the price was changed as
required by the Plan to $15.75 effective through July 1, 2004. The shares when
earned are placed in a Rabbi Trust (the "Trust") which is administered by an
independent trustee. The voting for these shares is controlled by the
independent trustee although for accounting purposes the shares are reflected as
treasury shares until such time as the shares are distributed. The expense
associated with this plan is based upon the market value of the shares of stock
earned on the date of the respective meeting. There are currently no directors
who continue to participate in the Plan other than for dividends on accumulated
balances. The amount of expense associated with this plan for 2003, 2002 and
2001 was $2,900, $3,500 and $9,000, respectively, which has been reflected as
salaries expense with the corresponding liability pertaining to stock earned and
not yet distributed is reflected in stockholders' equity. A total of 100,000
shares has been registered for the Plan. There are approximately 6,700, 9,600
and 8,800 shares earned and deferred as of December 31, 2003, 2002 and 2001,
respectively.

24. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value
of each class of financial instrument for which it is practicable to estimate
that value. Fair value estimates which were derived from discounted cash flows
or broker quotes cannot be substantiated by comparison to independent markets
and, in many cases, could not be realized in immediate settlement of the
instrument.

CASH, FEDERAL FUNDS SOLD AND SHORT-TERM INVESTMENTS

For these short-term instruments, the carrying amount is a reasonable
estimate of fair value.

INVESTMENT SECURITIES, ASSETS HELD FOR SALE AND MORTGAGE-BACKED INVESTMENTS

For investment securities, assets held for sale (typically loans) and
mortgage-backed investments, fair values are based on quoted market prices or
dealer quotes.

LOANS

For certain homogeneous categories of loans, such as residential mortgages,
home equity and consumer loans, fair value is estimated using the quoted market
prices for securities backed by similar loans adjusted for differences in loan
characteristics or dealer quotes. The fair value of other types of loans was
estimated by discounting anticipated future cash flows using current rates at
which similar loans would be made to borrowers with similar credit ratings and
for the same remaining maturities.

DEPOSIT LIABILITIES

The fair value of non-certificate deposit accounts is the amount payable on
demand at the reporting date. The fair value of fixed maturity certificates of
deposit is estimated by discounting the anticipated future cash payments using
the rates currently offered for deposits of similar remaining maturities.

F-34

SHORT-TERM AND LONG-TERM BORROWINGS

The fair value of borrowings was determined by discounting the anticipated
future cash payments by using the rates currently available to the Company for
debt with similar terms and remaining maturities.

COMMITMENTS TO EXTEND CREDIT/SELL LOANS

The fair value of commitments is estimated using the fees currently charged
to enter into similar agreements, taking into account the remaining terms of the
agreements and the present credit worthiness of customers. For fixed rate loan
commitments and obligations to deliver fixed rate loans, fair value also
considers the difference between committed rates and current levels of interest
rates. These commitments, particularly when rates are fixed, are for short-terms
and therefore there is not a material difference between the fixed rates and
market rates for these instruments. Therefore, the market value as shown is the
same as the material amount of those estimates.

VALUES NOT DETERMINED

SFAS No. 107 excludes certain financial instruments from its disclosure
requirements including, among others, real estate included in banking premises
and equipment, the intangible value of loan servicing for its own portfolio and
for those serviced for others (these loans were made and/or sold prior to the
emergence of SFAS No. 122 as amended by SFAS No. 125 and SFAS No. 140) and the
intangible value inherent in the Bank's deposit relationships (i.e., core
deposits). Accordingly, the aggregate fair value amounts presented are not
intended to represent the underlying value of the Bank.

The carrying amount and estimated fair values of the Bank's financial
instruments at December 31, 2003 and 2002 are represented as follows:

F-35

25. BUSINESS SEGMENTS

On January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which establishes standards for reporting operating segments of a
business enterprise. The rules establish revised standards for public companies
relating to the reporting of financial and descriptive information about their
operating segments in financial statements. Operating segments are components of
an enterprise which are evaluated regularly by the chief operating decision
maker in deciding how to allocate resources and in assessing performance. The
Company's chief operating decision maker is the President and Chief Executive
Officer. Historically, the Company has identified its reportable operating
business segment as Community Banking and Mortgage Banking based on products and
services provided to the customer.

The Company's community banking business segment consists of commercial
banking and retail banking. The community banking business segment derives its
revenues from a wide range of banking services, including lending activities,
acceptance of demand, saving and time deposits, investment management, mortgage
lending and sales, as well as servicing income for investors.

Non-reportable operating segments of the Company's operations which do not
have similar characteristics to the community banking or mortgage banking
operations and do not meet the quantitative thresholds requiring disclosure are
included in the Other category in the disclosure of business segments below.
These non-reportable segments include the activity of the Parent Company
(Note 26) and the Trust. Consolidation adjustments are also included in the
Other category.

The accounting policies used in the disclosure of business segments are the
same as those described in the summary of significant accounting policies. The
consolidation adjustments reflect certain eliminations of interest, segment
revenue, cash and Parent Company investments in subsidiaries.

F-36

BUSINESS SEGMENTS

F-37

26. PARENT COMPANY FINANCIAL STATEMENTS--ABINGTON BANCORP, INC.
(PARENT COMPANY ONLY)

BALANCE SHEETS

STATEMENTS OF INCOME

F-38

STATEMENTS OF CASH FLOWS

F-39

27. QUARTERLY DATA (UNAUDITED)

Operating results on a quarterly basis for the year ended December 31, 2003
and 2002 are as follows:

- --------------------------

(a) Includes non-recurring acquisition related charge of $330,000 and
approximately $1.1 million increase attributable to increased mortgage
company commissions and performance related incentives.

(b) Includes a $413,000 gain on the settlement of the pension program.

F-40

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information required by Item 10 of this Form 10-K is incorporated by
reference herein from the Company's Proxy Statement relating to the 2004 Annual
Meeting of Stockholders of the Company.

ITEM 11. EXECUTIVE COMPENSATION

Information required by Item 11 of this Form 10-K is incorporated by
reference herein from the Company's Proxy Statement relating to the 2004 Annual
Meeting of Stockholders of the Company.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information required by Item 12 of this Form 10-K is incorporated by
reference herein from the Company's Proxy Statement relating to the 2004 Annual
Meeting of Stockholders of the Company.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information required by Item 13 of this Form 10-K is incorporated by
reference herein from the Company's Proxy Statement relating to the 2004 Annual
Meeting of Stockholders of the Company.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Information required by Item 14 of this Form 10-K is incorporated by
reference herein from the Company's Proxy Statement relating to the 2004 Annual
Meeting of Stockholders of the Company.

II-1

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) 1. Financial Statements:

See "Index to Financial Statements" on Page F-1

2. Financial Statement Schedules:

All financial statement schedules have been omitted because they are
not applicable, the data is not significant or the required
information is shown elsewhere in this report.

3. Exhibits:

The Exhibit Index (which follows the signature page to this Annual
Report) is incorporated herein by reference.

(b) Reports on Form 8-K:

The Company filed a report on Form 8-K on October 23, 2003 under
Items 12 and 7 containing the Company's press release for the Company's
results of operations for the quarter ended September 30, 2003. The
release was included as an exhibit.

The Company filed a report on Form 8-K on October 27, 2003 under Items 5
and 7 containing:

(i) a copy of the Agreement and Plan of Merger between the Company
and Seacoast Financial Services Corporation.

(ii) A copy of the Form of Voting Agreement wherein certain officers
and directors have committed to vote their shares in favor of
the merger

(iii) A copy of the press release summarizing the terms and
conditions of the proposed acquisition of the Company by
Seacoast Financial Services Corporation

(c) Exhibits:

See Item 15(a)(3) above.

(d) Financial Statement Schedules:

See Item 15(a)(2) above.

II-2

SIGNATURES

Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

ABINGTON BANCORP, INC.

Date: March 12, 2004 By: /s/ JAMES P. MCDONOUGH
-----------------------------------------
James P. McDonough
PRESIDENT AND CHIEF EXECUTIVE OFFICER

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints James P. McDonough, his true and lawful
attorney-in-fact and gent with full power of substitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
to this Form 10-K, and to file the same, with all exhibits thereto, and all
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing which he may deem necessary or advisable to
be done in connection with this Form 10-K, as fully to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or any substitute may lawfully do or cause to be
done by virtue hereof.

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
behalf of the Registrant and in the capacities and on the dates indicated.

II-3

II-4

EXHIBIT INDEX

2.1 Plan of Reorganization and Acquisition dated as of October 15, 1996
between the Company and Abington Savings Bank incorporated by reference
to the Company's Registration Statement on Form 8-A, effective January
13, 1997.

2.2 Amended and Restated Agreement and Plan of Merger dated As of April 10,
2002 and amended and restated on May 23, 2002 among the Company,
Abington Acquisition Corp. and Massachusetts Fincorp, Inc.,
incorporated by reference to the Company's Registration Statement on
Form S-4 filed on May 31, 2002.

2.3 Agreement and Plan of Merger dated as of October 20, 2003 between
Seacoast Financial Services Corporation, Coast Merger Sub Corporation
and Abington Bancorp, Inc. incorporated by reference to the Company's
Current Report on Form 8-K filed on October 27, 2003.

3.1 Articles of Organization of the Company incorporated by reference to
the Company's Registration Statement on Form 8-A, effective January 13,
1997.

3.2 By-Laws of the Company, incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the first quarter of 2000, filed on
May 12, 2000.

4.1 Specimen stock certificate for the Company's Common Stock incorporated
by reference to the Company's Registration Statement on Form 8-A,
effective January 31, 1997.

4.2 Form of Indenture between Abington Bancorp, Inc. and State Street Bank
and Trust Company incorporated by reference to Exhibit 4.1 of the
Registration Statement on Form S-2 of the Company and Abington Bancorp
Capital Trust, filed on May 12, 1998.

4.3 Form of Junior Subordinated Debenture incorporated by reference to
Exhibit 4.2 of the Registration Statement on Form S-2 of the Company
and Abington Bancorp Capital Trust, filed on May 12, 1998.

4.4 Form of Amended and Restated Trust Agreement by and among the Company,
State Street Bank and Trust Company, Wilmington Trust Company and the
Administrative Trustees of the Trust incorporated by reference to
Exhibit 4.4 of the Registration Statement on Form S-2 of the Company
and Abington Bancorp Capital Trust, filed on May 12, 1998.

4.5 Form of Preferred Securities Guarantee Agreement by and between the
Company and State Street Bank and Trust Company incorporated by
reference to Exhibit 4.6 of the Registration Statement on Form S-2 of
the Company and Abington Bancorp Capital Trust, filed on May 12, 1998.

*10.1 (a) Amended and Restated Special Termination Agreement dated as of
January 1997 among the Company, the Bank and James P. McDonough
incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996 filed on March 31, 1997.

(b) Amendment to Amended and Restated Special Termination Agreement,
dated as of July 1, 1997 among the Company, the Bank and James P.
McDonough, incorporated by reference to the Company's quarterly report
on Form 10-Q for the second quarter of 1997, filed on August 13, 1997.

*10.2 Special Termination Agreement dated as of November 2, 1998 among the
Company, the Bank and Kevin M. Tierney, incorporated by reference to
the Company's quarterly report on Form 10-Q for the third quarter of
1998, filed on November 12, 1998.

*10.5 (a) Abington Bancorp, Inc. Incentive and Nonqualified Stock Option
Plan, as amended and restated to reflect holding company formation,
incorporated by reference to the Company's Annual Report for the year
ended December 31, 1996 on Form 10-K filed on March 31, 1997.

(b) Amendment to Abington Bancorp, Inc. Incentive and Nonqualified
Stock Option Plan, filed herewith.

*10.6 Senior Management Incentive Plan incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December 31,
1999, filed on March 28, 2000.

*10.7 Revised Long Term Performance Incentive Plan dated January 2000
incorporated by reference to the Company's Annual Report for the year
ended December 31, 1999 on Form 10-K filed on March 28, 2000.

*10.9 Dividend Reinvestment and Stock Purchase Plan is incorporated by
reference herein to the Company's Registration Statement on Form S-3,
effective January 31, 1997.

*10.10 (a) Abington Bancorp, Inc. 1997 Incentive and Nonqualified Stock Option
Plan, incorporated by reference herein to Appendix A to the Company's
proxy statement relating to its special meeting in lieu of annual
meeting held on June 17, 1997, filed with the Commission on April 29,
1997.

(b) Amendment to Abington Bancorp, Inc. 1997 Incentive and Nonqualified
Stock Option Plan, filed herewith.

*10.11 (a) Special Termination Agreement dated as of July 1, 1997 among the
Company, the Bank and Robert M. Lallo, incorporated by reference to the
Company's quarterly report on Form 10-Q for the second quarter of 1997,
filed on August 13, 1997.

(b) Amendment No. 1 to Special Termination Agreement, dated April 16,
1998, by and among the Company, the Bank and Robert M. Lallo,
incorporated by reference to the Company's quarterly report on Form
10-Q for the first quarter of 1998, filed on May 8, 1998.

*10.12 Merger Severance Benefit Program dated as of August 28, 1997,
incorporated by reference to the Company's Quarterly Report on Form
10-Q for the third quarter of 1997, filed on November 15, 1997.

*10.13 Supplemental Executive Retirement Agreement between the Bank and James
P. McDonough dated as of August 23, 2001, incorporated by reference to
the Company's quarterly report on Form 10-Q for the third quarter of
2001, filed on November 13, 2001.

*10.14 Deferred Stock Compensation Plan for Directors, effective July 1, 1998
incorporated by reference to Appendix A to the Company's proxy
statement (schedule 14A) for its 1998 Annual Meeting, filed with the
Commission on April 13, 1998.

*10.15 Special Termination Agreement dated as of February 7, 2000 among the
Company, the Bank and Jack B. Meehl, incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December 31,
1999, filed on March 28, 2000.

*10.16 (a) Abington Bancorp, Inc. 2000 Incentive and Nonqualified Stock Option
Plan, incorporated by reference herein to Appendix A to the Company's
proxy statement relating to its annual meeting held on May 16, 2000,
filed with the Commission on April 13, 2000.

(b) Amendment to Abington Bancorp, Inc. 2000 Incentive and Nonqualified
Stock Option Plan.

*10.17 Abington Bancorp, Inc. Former Director Advisory Board Service Plan,
incorporated by reference to the Company's quarterly report on Form
10-Q for the third quarter of 2002, filed on November 14, 2002.

*10.18 Defined Contribution Supplemental Executive Retirement Agreement
between the Bank and Kevin M. Tierney, Sr. dated July 26, 2001,
incorporated by reference to the Company's quarterly report on Form
10-Q for the second quarter of 2001, filed on August 10, 2001.

*10.19 Defined Contribution Supplemental Executive Retirement Agreement
between the Bank and Robert M. Lallo dated July 26, 2001, incorporated
by reference to the Company's quarterly report on Form 10-Q for the
second quarter of 2001, filed on August 10, 2001.

*10.20 Payments Agreement dated as of April 10, 2002 by and among the Company,
Massachusetts Fincorp, Inc. and The Massachusetts Co-operative Bank and
Paul C. Green, incorporated by reference to the Company's Registration
Statement on Form S-4 filed on May 31, 2002.

*10.21 Payments Agreement dated as of April 10, 2002 by and among the Company,
Massachusetts Fincorp, Inc. and The Massachusetts Co-operative Bank and
Anthony A. Paciulli, incorporated by reference to the Company's
Registration Statement on Form S-4 filed on May 31, 2002.

*10.22 Consulting Agreement dated as of April 10, 2002 between the Company and
Paul C. Green, incorporated by reference to the Company's Registration
Statement on Form S-4 filed on May 31, 2002.

*10.23 Employment Agreement dated as of April 10, 2002 by and between the Bank
and Anthony A. Paciulli, incorporated by reference to the Company's
Registration Statement on Form S-4 filed on May 31, 2002.

**10.24 Lease for office space located at Weymouth Woods Corporate Center, 97
Libbey Industrial Parkway, Weymouth, Massachusetts ("lease"), used for
the Bank's principal and administrative offices, dated March 29, 2002,
incorporated by reference to the Company's quarterly report on Form
10-Q for the second quarter of 2002, filed on August 14, 2002.

*10.26 Special Termination Agreement dated as of October 24, 2002 by and
between the Bank and Julie Jenkins, incorporated by reference to the
Company's quarterly report on Form 10-Q for the third quarter of 2002
filed on November 14, 2002.

*10.27 Special Termination Agreement dated as of April 24, 2003 by and between
the Bank and W. Cleveland Cogswell, incorporated by reference to the
Company's quarterly report on Form 10-Q for the first quarter of 2003
filed on May 15, 2003.

*10.28 Special Severance Agreement dated as of May 12, 2003 by and between the
Bank and Robert M. Lallo, incorporated by reference to the Company's
quarterly report on Form 10-Q for the second quarter of 2003 filed on
August 14, 2003.

*10.29 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, incorporated by
reference to Seacoast Financial Services Corporation's Registration
Statement on Form S-4 filed on December 19, 2003.

*10.30 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, incorporated by
reference to Seacoast Financial Services Corporation's Registration
Statement on Form S-4 filed on December 19, 2003.

*10.31 Abington Bancorp, Inc., 2003 Stock Incentive Plan, incorporated by
reference to Appendix A to the Company's proxy statement for the annual
meeting held on July 31, 2003, filed on June 27, 2003.

21.1 Subsidiaries of the Company, filed herewith

23.1 Consent of PricewaterhouseCoopers, filed herewith.

24.1 Power of Attorney is included on signature page.

31.1 Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002, filed herewith

31.2 Certification of Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002, filed herewith

99.1 Certifications required by Section 906 of the Sarbanes-Oxley Act of
2002, filed herewith

- ------------------------

* Management contract or compensatory plan or arrangement.

** Certain portions of this exhibit have been omitted pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.