Falmouth Bancorp, Inc. Earnings Results for the Quarter Ended December 31, 2002.

Business Editors

FALMOUTH, Mass.--(BUSINESS WIRE)--Jan. 17, 2003

Falmouth Bancorp, Inc. (AMEX: FCB) (the Company), a Delaware corporation, the holding company for Falmouth Co-operative Bank, announced today the Company's results of operations for the first quarter ended December 31, 2002. For the three months ended December 31, 2002 the Company reported net income of $375,000 as compared to $467,000 for the three months ended December 31, 2001. The decrease of $92,000 was due primarily to the prior year inclusion of $116,000 in after tax income from the adoption of SFAS No. 122 and 125 "Mortgage Servicing Assets and Mortgage Servicing Rights". The Company's basic earnings per share decreased to $0.43 at December 31, 2002 from $0.52 at December 31, 2001, a decrease of 17.3%. Diluted earnings per share decreased to $0.41 from $0.50, a decrease of 18.0% for the same period.

The Company had average shares outstanding of 902,573 at December 31, 2002, as compared to 931,456 average shares outstanding at December 31, 2001. The Company has continued with its stock buy-back programs. At December 31, 2002, the Company had repurchased 552,177 shares, or 38.0% of its stock, leaving 902,573 shares issued and outstanding.

The Company's total assets decreased by $1.3 million, or 0.8%, from $154.5 million at September 30, 2002 to $153.2 million at December 31, 2002. Total deposits decreased $1.6 million or 1.2%, from $131.7 million at September 30, 2002 to $130.1 million at December 31, 2002. This decrease was due, in part to withdrawals from demand deposits and certificates of deposit during the period. Total net loans were $84.8 million or 65.2% of total deposits at December 31, 2002, as compared to $95.0 million or 72.1% of total deposits at September 30, 2001, representing a decrease of $10.2 million for the quarter. This decrease was due, in part, to mortgage loans refinanced at lower rates and sold in the secondary market with the loan servicing retained. Investment securities were $51.3 million or 33.5% of total assets at December 31, 2002, as compared to $47.7 million or 30.9% of total assets at September 30, 2002. Investment securities increased $3.7 million or 7.8%, in part, due to the reinvestment of cash flows generated from loan payoffs and sold loans into short-term securities.

Net Income. The Company's net income for the three months ended December 31, 2002 was $375,000, as compared to $467,000 for the three months ended December 31, 2001. The decrease in net income of $92,000 was due, in part, to a decrease in interest and dividend income of $394,000 that was offset, in part, by a decrease in interest expense of $268,000. Other key factors included an increase in other income of $75,000, a decrease in the provision for loan losses of $50,000, an increase in other expenses of $134,000 and a decrease in income taxes of $43,000. The annualized return on average assets (ROA) for the three months ended December 31, 2002 was 0.97%, a decrease of 29 basis points, as compared to 1.26% for the same period of the prior year. Interest and dividend income decreased, primarily as the result of low interest rates, loan payoffs, and loan sales during the period. The decrease in interest expense was primarily due to a reduction in the general level of interest rates while total deposits declined slightly.

Net Interest and Dividend Income. Net interest and dividend income was $1.2 million for the three-month periods ended December 31, 2002 and $1.3 million for the three months ended December 31, 2001. A $126,000 decrease was the result of a $394,000 decrease in interest and dividend income, offset by a $268,000 decrease in interest expense. The net interest margin for the three months ended December 31, 2002 was 3.20%, a decrease of 45 basis points, as compared to 3.65% for the three months ended December 31, 2001. The decrease in net interest margin was primarily the result of a decrease in the yield on interest earning assets.

Other Income. Other income for the three-month period ended December 31, 2002 was $416,000, as compared to $341,000 for the three months ended December 31, 2001. The $75,000 increase was primarily the result of an increase in service charge income of $1,000, an increase in net gains on mortgages sold of $139,000, and an increase in other income of $29,000. This was offset, in part, by an increase in net losses realized from the sale of investment securities of $94,000. Gains on mortgages sold of $325,000 for the three months ended December 31, 2002 was due to the increased sales of mortgage originations in the secondary market.

Operating Expenses. Operating expenses for the three months ended December 31, 2002 were $984,000, as compared to $850,000 for the three months ended December 31, 2001. The $134,000 increase was primarily due to the combination of an increase in salaries and employee benefits of $57,000, an increase in Directors' fees of $6,000, an increase in legal and professional costs of $9,000, and an increase in other expenses of $73,000, combined with a decrease in data processing expense of $6,000 a decrease in occupancy expense of $1,000, and a decrease in equipment expense of $4,000. The annualized ratio of operating expenses to average total assets for the three months ended December 31, 2002 was 2.54%, as compared to 2.29% for the three-month period ended December 31, 2001, an increase of 25 basis points. The increase in other expenses was primarily due to the amortization of mortgage servicing rights of the large number of re-financed mortgages sold.

Falmouth Bancorp, Inc. is a publicly owned bank holding company and the parent corporation of Falmouth Co-operative Bank, a Massachusetts chartered stock co-operative bank offering traditional retail and commercial financial products and services. At December 31, 2002 the Bank had total assets of $151.8 million and deposits of $129.9 million. The Bank conducts business through its main office located at 20 Davis Straits, Falmouth, Massachusetts 02540, and its two branch locations in North and East Falmouth. The telephone number is [phone].

Forward Looking Statements

This press release contains certain forward-looking statements consisting of estimates with respect to the financial condition, results of operations and business of the Company and the Bank that are subject to various factors which could cause actual results to differ materially from these estimates. These factors include, but are not limited to: general and local economic conditions; changes in interest rates, deposit flows, demand for mortgages and other loans, real estate values, and competition; changes in accounting principles, policies, or guidelines; changes in legislation or regulation; and other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise.