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THIS DOCUMENT IS A COPY OF THE FORM 10-Q FILED ON AUGEST 14, 2002 PURSUANT TO A
RULE 201 TEMPORARY HARDSHIP EXEMPTION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended June 30, 2002
Commission File No. 000-25381
CCBT FINANCIAL COMPANIES, INC.
(Exact name of Registrant as specified in its charter)
Massachusetts 04-3437708
(State of Incorporation) (I.R.S. Employer
Identification No.)
495 Station Avenue, South Yarmouth, Massachusetts 02664
(Address of principal executive office) (Zip Code)
(Registrant's telephone #, incl. area code): 508-394-1300
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. : Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date. There were 8,618,548
shares of common stock outstanding as of August 12, 2002.
TABLE OF CONTENTS
Section Description Page No.
- ------- ----------- --------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Financial Condition 3
June 30, 2002 and December 31, 2001
Consolidated Statements of Income 4
Three and Six Months Ended June 30, 2002 and 2001
Consolidated Statements of Cash Flows 5
Six Months Ended June 30, 2002 and 2001
Consolidated Statements of Comprehensive Income 6
Six Months Ended June 30, 2002 and 2001
Consolidated Statements of Changes in Stockholders' Equity 6
Six Months Ended June 30, 2002 and 2001
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition 7-18
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
PART II OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities and Use of Proceeds 19
Item 3. Defaults upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements
CONSOLIDATED STATEMENTS OF FINANCIAL
CONDITION
June 30, December 31,
2002 2001
---- ----
ASSETS (Unaudited)
Cash and due from banks $ 53,412,052 $ 51,204,747
Short term interest-bearing deposits 656,412 10,857,540
Securities available for sale, at fair value 431,144,198 438,349,833
Federal Home Loan Bank stock, at cost 23,502,600 23,502,600
Federal Reserve Bank stock, at cost 1,235,050 1,235,050
Total loans 895,750,473 884,291,338
Less: Allowance for loan losses (12,387,038) (12,251,907)
--------------- ---------------
Net loans 883,363,435 872,039,431
--------------- ---------------
Loans held for sale 2,566,541 8,349,342
Premises and equipment 20,138,999 18,496,280
Deferred tax assets 2,636,818 2,619,189
Accrued interest receivable on securities 2,943,473 2,632,117
Accrued interest receivable on loans 3,689,384 3,736,071
Intangibles 7,172,143 7,972,088
Other assets 16,951,164 13,672,642
--------------- ---------------
Total assets $ 1,449,412,269 $ 1,454,666,930
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 923,358,155 $ 903,390,528
Borrowings from the Federal Home Loan Bank 353,648,511 384,314,318
Other short-term borrowings 25,418,774 30,735,238
Subordinated debt 5,000,000 5,000,000
Current taxes payable 800,029 2,064,060
Interest payable on deposits and borrowings 1,743,404 2,410,159
Post retirement benefits payable 3,485,408 3,293,458
Employee profit sharing retirement and bonuses payable 1,661,894 4,214,186
Due to broker-securities settlement 9,019,889 15,101
Other liabilities 3,340,826 3,910,277
-------------- --------------
Total liabilities 1,327,476,890 1,339,347,325
------------- --------------
Minority interest 293,414 3,602
------------- --------------
Commitments and contingencies
Stockholders' equity
Common stock, $1.00 par value:
Authorized: 12,000,000 shares
Issued: 9,061,064 9,061,064 9,061,064
Surplus 27,481,728 27,473,395
Undivided profits 89,462,023 83,156,834
Treasury stock, at cost
(425,016 shares) in 2002
(440,641 shares) in 2001 (6,942,306) (7,197,493)
Accumulated other comprehensive income 2,579,456 2,822,203
------------- --------------
Total stockholders' equity 121,641,965 115,316,003
------------- --------------
Total liabilities and stockholders' equity $1,449,412,269 $1,454,666,930
============== ==============
The accompanying notes are an integral part of these unaudited,
consolidated financial statements.
3
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements (continued)
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended June 30, Six Months Ended June 30,
2002 2001 2002 2001
---- ---- ---- ----
INTEREST & DIVIDEND INCOME: (Unaudited) (Unaudited)
Interest and fees on loans $ 14,254,996 $ 17,453,717 $ 28,409,458 $ 34,588,499
Interest on short term interest-bearing deposits 82,271 134,334 161,248 323,695
Taxable interest income on securities 5,012,365 7,070,495 9,551,970 15,160,057
Tax-exempt interest income on securities 122,615 229,888 307,365 466,885
Dividends on securities 245,091 362,473 483,904 780,415
------------ ------------ ------------ ------------
Total interest & dividend income 19,717,338 25,250,907 38,913,945 51,319,551
------------ ------------ ------------ ------------
INTEREST EXPENSE
Interest on deposits 3,163,598 6,747,503 6,501,088 14,521,220
Interest on borrowings from the Federal Home Loan Bank 3,341,938 5,640,327 7,059,164 10,606,711
Interest on other short-term borrowings 52,555 199,680 111,454 476,764
Interest on subordinated debt 71,473 -- 143,428 --
------------ ------------ ------------ ------------
Total interest expense 6,629,564 12,587,510 13,815,134 25,604,695
------------ ------------ ------------ ------------
Net interest income 13,087,774 12,663,397 25,098,811 25,714,856
Provision for loan losses -- -- -- --
------------ ------------ ------------ ------------
Net interest income after provision for loan losses 13,087,774 12,663,397 25,098,811 25,714,856
------------ ------------ ------------ ------------
NON-INTEREST INCOME
Financial advisor fees 1,746,142 1,887,868 3,466,332 3,648,231
Deposit account service charges 566,969 539,891 1,125,525 1,041,637
Branch banking fees 763,866 819,913 1,510,726 1,537,309
Electronic banking fees 687,440 475,817 1,207,849 958,165
Loan servicing and other loan fees (costs) 120,757 47,427 67,194 107,099
Brokerage fees and commissions 346,414 332,210 708,752 604,740
Net gain on sales of securities 961,940 392,063 2,640,755 852,557
Net gain on sales of loans 499,855 280,409 1,075,915 422,040
Insurance commissions 999,398 368,934 1,425,526 766,627
Other income 86,417 201,592 259,211 323,628
------------ ------------ ------------ ------------
Total non-interest income 6,779,198 5,346,124 13,487,785 10,262,033
------------ ------------ ------------ ------------
NON-INTEREST EXPENSE
Salaries 5,001,520 4,382,870 9,084,505 8,327,408
Employee benefits 2,023,425 1,677,057 4,078,681 3,538,255
Buildings and equipment 1,598,069 1,421,257 3,062,148 2,751,104
Data processing 717,679 809,260 1,373,029 1,586,980
Accounting and legal fees 263,630 258,083 488,461 472,760
Other outside services 524,102 589,093 1,076,883 1,098,281
Amortization of intangibles 324,250 395,833 648,501 791,666
Delivery and communications 590,467 471,557 1,167,435 996,048
Directors' fees 85,800 85,800 171,600 171,600
Marketing and advertising 539,499 591,479 849,640 939,731
Printing and supplies 214,416 308,377 386,500 445,752
Insurance 178,860 109,918 322,284 247,388
All other expenses 663,071 333,157 1,188,930 708,440
------------ ------------ ------------ ------------
Total non-interest expense 12,724,788 11,433,741 23,898,597 22,075,413
------------ ------------ ------------ ------------
Minority Interest 147,916 (17,753) 144,310 (5,584)
------------ ------------ ------------ ------------
Net income before taxes 6,994,268 6,593,533 14,543,689 13,907,060
Applicable income taxes 2,459,115 2,207,861 4,961,338 4,691,404
------------ ------------ ------------ ------------
Net income $ 4,535,153 $ 4,385,672 $ 9,582,351 $ 9,215,656
============ ============ ============ ============
Average shares outstanding - basic 8,630,478 8,608,048 8,626,313 8,608,048
Average shares outstanding - diluted 8,670,676 8,647,543 8,664,207 8,641,190
Basic earnings per share $ 0.52 $ 0.51 $ 1.11 $ 1.07
Diluted earnings per share $ 0.52 $ 0.51 $ 1.11 $ 1.07
Cash dividends declared $ 0.19 $ 0.18 $ 0.38 $ 0.36
The accompanying notes are an integral part of these unaudited,
consolidated financial statements.
4
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements (continued)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30,
2002 2001
---- ----
(Unaudited)
CASH PROVIDED BY OPERATING ACTIVITIES
Net income $ 9,582,351 $ 9,215,656
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,121,727 2,134,598
Net amortization of securities 568,068 460,380
Amortization of net deferred loan costs 669,709 517,047
Net gain on sales of securities (2,640,755) (852,557)
Net gain on sale of loans (1,075,915) (422,040)
Proceeds from sales (originations) of loans held for sale, 6,858,716 (485,592)
net
Net change in:
Accrued interest receivable 264,669 403,358
Accrued expenses and other liabilities (3,596,548) (2,757,705)
Other, net 1,851,622 (222,451)
------------- -------------
Net cash provided by operating activities 14,603,644 7,990,694
------------- -------------
CASH PROVIDED (USED) BY INVESTING ACTIVITIES
Net increase in loans (10,654,295) (69,515,489)
Maturities of available-for-sale securities 301,730,450 187,778,611
Purchase of available-for-sale securities (335,938,949) (270,323,202)
Sales of available-for-sale securities 44,409,557 67,467,964
Purchases of premises and equipment (3,115,944) (2,857,831)
------------- -------------
Net cash (used) by investing activities (3,569,181) (87,449,947)
------------- -------------
CASH PROVIDED (USED) BY FINANCING ACTIVITIES
Net increase (decrease) in deposits 19,967,627 (46,287,100)
Advances of borrowings from the Federal Home Loan Bank 663,438,876 772,994,404
Repayments of borrowings from the Federal Home Loan Bank (694,104,683) (660,629,842)
Net (decrease) increase in other short-term borrowings (5,316,464) 6,128,664
Issuance of common stock under stock option plan 263,520 --
Cash dividends paid on common stock (3,277,162) (3,098,897)
------------- -------------
Net cash provided (used) by financing activities (19,028,286) 69,107,229
------------- -------------
Net decrease in cash and cash equivalents (7,993,823) (10,352,024)
Cash and cash equivalents at beginning of period 62,062,287 66,215,030
------------- -------------
Cash and cash equivalents at end of period $ 54,068,464 $ 55,863,006
============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest $ 14,478,794 $ 26,702,737
Income taxes 6,036,630 7,179,819
Non-cash transactions:
Unsettled trades $ 9,004,788 $ 9,995
The accompanying notes are an integral part of these unaudited,
consolidated financial statements.
5
FINANCIAL INFORMATION
ITEM 1. Financial Statements (continued)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Six Months Ended June 30,
2002 2001
---- ----
(Unaudited)
Net income $ 9,582,351 $ 9,215,656
------------ -----------
Unrealized holding gains on securities available for sale 2,069,153 5,380,784
Reclassification of gains on securities realized in income (2,640,755) (852,557)
------------ -----------
Net unrealized gains (571,602) 4,528,227
Related tax effect 328,855 (1,868,130)
------------ -----------
Net other comprehensive income (242,747) 2,660,097
------------ -----------
Comprehensive income $ 9,339,604 $11,875,753
============ ===========
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Six Months Ended June 30,
2002 2001
---- ----
(Unaudited)
COMMON STOCK
Balance, beginning of period $ 9,061,064 $ 9,061,064
------------- -------------
Balance, June 30 9,061,064 9,061,064
------------- -------------
SURPLUS
Balance, beginning of period 27,473,395 27,494,890
Issuance of common stock under stock option plan 8,333 --
------------- -------------
Balance, June 30 27,481,728 27,494,890
------------- -------------
UNDIVIDED PROFITS
Balance, beginning of period 83,156,834 69,896,759
Net income 9,582,351 9,215,656
Cash dividends declared (3,277,162) (3,098,897)
------------- -------------
Balance, June 30 89,462,023 76,013,518
------------- -------------
TREASURY STOCK
Balance, beginning of period (7,197,493) (7,399,628)
Issuance of common stock under stock option plan 255,187 --
------------- -------------
Balance, June 30 (6,942,306) (7,399,628)
------------- -------------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance, beginning of period 2,822,203 (324,307)
Net other comprehensive income (242,747) 2,660,097
------------- -------------
Balance, June 30 2,579,456 2,335,790
------------- -------------
TOTAL STOCKHOLDERS' EQUITY, END OF PERIOD $ 121,641,965 $ 107,505,634
============= =============
The accompanying notes are an integral part of these unaudited,
consolidated financial statements.
6
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements (continued)
CCBT FINANCIAL COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2002 and 2001 (Unaudited)
Business
CCBT Financial Companies, Inc. ("Company") was incorporated under the
laws of the Commonwealth of Massachusetts on October 8, 1998 under the name of
CCBT Bancorp, Inc. at the direction of the Board of Directors and management of
Cape Cod Bank and Trust Company ("Bank") for the purpose of becoming a bank
holding company for the Bank. On February 11, 1999, Bancorp became the holding
company for the Bank by acquiring 100% of the outstanding shares of the Bank's
common stock in a 1:1 exchange for Bancorp common stock. During 1999, the
Company's name was changed to CCBT Financial Companies, Inc. The Bank's charter
was converted to that of a national bank effective September 1, 1999. Currently,
the Company's business activities are conducted primarily through the Bank.
During the second quarter of 2000, the Company, through its
wholly-owned subsidiary, Cape Cod Bank and Trust Company N.A., acquired 51% of
the stock of Murray & MacDonald Insurance Services, Inc. (the "Agency") of
Falmouth, Massachusetts, a full service insurance Agency offering property,
casualty, life, accident and health products to clients on Cape Cod. The Agency
has been in business since 1972 and has license agreements with more than thirty
insurance firms.
In addition to the acquisition of Murray & MacDonald Insurance
Services, Inc., the Company also completed its acquisition of two branch banking
offices, in Falmouth and Wareham, Massachusetts, from Fleet Bank during the
second quarter of 2000. These branches added approximately $55 million in
deposits at a 15.5% premium, at June 30, 2000.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principals for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principals for complete
financial statements. Certain amounts have been reclassified in the June 30,
2001 financial statements to conform to the 2002 presentation. In the opinion of
management, all adjustments (consisting principally of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the six months ended June 30, 2002 are not necessarily
indicative of the results that may be expected for the current fiscal year. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for the
year ended December 31, 2001.
On June 30, 2001, the FASB issued SFAS No. 141, "Business Combinations," and No.
142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001. With the adoption of SFAS No. 142, effective January 1,
2002, goodwill is no longer subject to amortization over its estimated useful
life, but is subject to at least an annual assessment for impairment by applying
a fair value based test. The first impairment evaluation was completed by June
30, 2002, and no impairment was identified. Additionally, under SFAS No. 142,
acquired intangible assets (such as core deposit intangibles) should be
separately recognized if the benefit of the intangible asset is obtained through
contractual or other legal rights, or if the intangible asset can be sold,
transferred, licensed, rented, or exchanged, regardless of intent to do so.
Unidentified intangible assets pertaining to branch acquisitions will continue
to be amortized as such transactions are outside the scope of SFAS No. 142. As a
result, effective January 1, 2002, the Company's goodwill is no longer being
amortized but is evaluated for impairment, and the Company's core deposit
intangibles continue to be amortized over their estimated useful lives.
Contingency
In June, the Bank received from the Commonwealth of Massachusetts
Department of Revenue ("DOR"), a Notice of Intent to Assess additional state
excise taxes of $3,102,504 plus interest of $462,797. The assessment is based on
a desk review of the financial institution excise return filed by the Bank for
the years ended December 31, 1999 and 2000. The 2001 tax return had not yet been
filed by the Bank as of the time of the DOR desk review.
7
The DOR contends that dividend distributions which the Bank received
from its real estate investment trust subsidiary, CCBT Preferred Corp., are
fully taxable in Massachusetts. The Bank believes that 95% of these
distributions are excludable from its income under Massachusetts tax law.
Accordingly, no provision has been made in the Bank's consolidated financial
statements for the
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements
(continued)
amounts assessed or additional amounts that might be assessed in the future. The
Bank intends to vigorously appeal the assessment and to pursue all available
means to defend its position. Assessed amounts ultimatley paid, if any, would be
deductible expenses for federal income tax purposes.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
This Form 10Q contains certain statements that may be considered
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. The Company's actual results could differ materially from those
projected in the forward-looking statements as a result, among other factors, of
changes in general, national or regional economic conditions, changes in loan
default and charge-off rates, reductions in deposit levels
necessitating increased borrowing to fund loans and investments, changes in
interest rates, changes in the size and nature of the Company's competition, and
changes in the assumptions used in making such forward-looking statements.
The following discussion should be read in conjunction with the
accompanying unaudited consolidated financial statements included within this
report. Given that the Company's principal activity currently is ownership of
the Bank, for ease of reference, the term "Company" in this item generally will
refer to the investments and activities of the Company and the Bank except where
otherwise noted.
CCBT Financial Companies, Inc. is a bank holding company. Its main
operating subsidiary, Cape Cod Bank and Trust Company, N.A. is the largest
commercial bank headquartered in Barnstable County. It offers a wide range of
commercial banking services for individuals, businesses, non-profit
organizations, governmental units and fiduciaries. The Bank receives
substantially all of its deposits from and makes substantially all of its loans
to individuals and businesses on Cape Cod, although the Bank has some loans on
properties outside its market area, including some sizable participations in
commercial mortgages. The Bank's core market is comprised of retail, wholesale,
and manufacturing businesses; primary households (including a significant
retirement population); and a growing number of second homeowners. In addition,
a substantial non-core vacation population contributes to seasonal deposit
growth.
(The remainder of this page intentionally left blank.)
8
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (cont.)
Net Interest Income, Net Interest Margin
Three Months Ended June 30,
---------------------------------------------------------------------
2002 2001
---------------------------------- ------------------------------
Average Average Average Average
Balance Interest Yield Balance Interest Yield
---------------------------------------------------------------------
(Dollar amounts in thousands)
ASSETS
Securities:
Mortgage-backed securities $ 9,730 $ 137 5.65% $ 36,694 $ 518 5.65%
CMOs 131,811 2,423 7.35% 187,016 2,850 6.10%
U.S. Government agencies 22,228 228 4.10% 15,916 152 3.87%
State and municipal obligations 13,488 123 3.64% 20,064 230 6.04%
Other securities 254,642 2,551 4.02% 261,502 4,047 6.27%
---------- -------- ---------- --------
Total securities 431,899 5,462 5.07% 521,192 7,797 6.08%
---------- -------- ---------- --------
Loans:
Commercial 92,014 1,312 5.64% 93,196 1,937 8.43%
Commercial construction 54,355 699 5.09% 48,320 943 7.83%
Residential construction 45,430 690 6.08% 48,835 818 6.62%
Commercial mortgages 263,281 5,066 7.61% 245,737 5,548 9.06%
Industrial revenue bonds 1,075 15 5.66% 1,300 21 9.16%
Residential mortgages 365,137 5,545 6.07% 415,091 7,134 6.88%
Home equity 60,351 758 5.04% 42,302 828 7.85%
Consumer 6,657 170 11.31% 8,702 225 10.90%
---------- -------- ---------- --------
Total loans 888,300 14,255 6.39% 903,483 17,454 7.75%
---------- -------- ---------- --------
Total earning assets 1,320,199 19,717 5.95% 1,424,675 25,251 7.11%
-------- --------
Cash and due from banks 28,101 37,552
Non-earning assets 36,528 30,713
---------- ----------
Total assets $1,384,828 $1,492,940
========== ==========
LIABILITIES & STOCKHOLDERS' EQUITY
Interest bearing deposits:
NOW accounts $ 150,882 180 0.48%$ 138,333 180 0.52%
Regular savings 79,704 227 1.14% 63,942 207 1.29%
Money Market accounts 277,711 1,260 1.82% 240,983 1,921 3.20%
Certificates of Deposit of
$100,000 or more 41,619 320 3.08% 105,731 1,557 5.91%
Other time deposits 136,803 1,176 3.45% 196,663 2,883 5.88%
---------- -------- ---------- --------
Total interest bearing deposits 686,719 3,163 1.85% 745,652 6,748 3.63%
---------- -------- ---------- --------
Borrowings:
Federal Home Loan Bank 329,202 3,342 4.07% 412,679 5,640 5.48%
Other short-term borrowings 22,066 53 0.96% 26,309 200 3.04%
Subordinated debt 5,000 71 5.73% -- -- --
---------- -------- ---------- --------
Total borrowings 356,268 3,466 3.90% 438,988 5,840 5.34%
---------- -------- ---------- --------
Total interest-bearing liabilities 1,042,987 6,629 2.55% 1,184,640 12,588 4.26%
-------- --------
Demand deposits 215,478 199,080
Non-interest bearing liabilities 9,172 6,347
Stockholders' equity 117,191 102,873
---------- ----------
Total liabilities & equity $1,384,828 $1,492,940
========== ==========
Net interest income/interest rate spread $ 13,088 3.40% $ 12,663 2.85%
======== ========== ====
Net interest margin (NII/Avg. Earning Assets) 3.98% 3.57%
9
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (cont.)
RESULTS OF OPERATIONS
Three Months Ended June 30, 2002 vs. June 30, 2001
Source and Use of Funds
When compared to the second quarter of 2001, average interest bearing
deposits declined by 7.9% or $58.9 million in the second quarter of 2002. A
significant decline in average time certificates of deposit of $124.0 million or
41.0% can be attributed to the maturity of a large amount of one year
certificates of deposit during the third quarter of 2001. Partially offsetting
the decrease in time deposits were increases in all other interest bearing
deposits (NOW accounts, regular savings and money market accounts), up a
combined 14.7% or $65.1 million. Average non-interest bearing demand deposits
also increased in the second quarter of 2002 by $16.4 million or 8.2% when
compared to the same period in the prior year. On average, borrowings from the
Federal Home Loan Bank during the second quarter of 2002 declined by 20.2% or
$83.5 million as compared to prior year. The issuance of $5 million of Trust
Preferred Securities during the latter half of 2001 by CCBT Statutory Trust I, a
subsidiary of the Company, provided an additional source of funds.
During the second quarter of 2002 as compared to 2001, average loans
decreased slightly by $15.2 million or 1.7%. On average, residential
construction and mortgage loans declined by $53.4 million or 11.5% reflecting
payoffs as well as sales. The Company generally sells fixed rate mortgages upon
origination. In contrast, commercial construction and mortgage loans were up
$23.6 million or 8.0%, while home equity loans increased by $18.0 million or
42.7% due in large part to the lower rates currently available on this product.
Total securities during the second quarter of 2002 decreased on average, by
$89.3 million or 17.1% compared to the same period in 2001. Declining
interest-rates have resulted in significant prepayments on mortgage-backed
securities, down 73.5% or $27.0 million, and CMO's, down 29.5% or $55.2 million.
Net interest income
Net interest income for the three months ended June 30, 2002 was $13.1
million, which represented an increase of 3.4% over the $12.7 million reported
for the same period in 2001. The interest rate spread and net interest margin
were 3.40% and 3.98%, respectively, for the quarter ended June 30, 2002 as
compared to 2.85% and 3.57%, respectively, for the comparable period in 2001.
Despite the current low interest rate environment, these results show
improvement from the prior year in part due to the maturity of higher-yield time
certificates of deposit since the prior year. Also, consistent with the current
low interest rate environment, the variable rate costs of interest bearing
liabilities has been reduced while, by contrast, the proportion of fixed and
intermediate term adjustable rate earning assets have helped to maintain the
gross yield thereon. The improved yield on Collateralized Mortgage Obligations
(CMOs) reflects a comparatively high yield being earned on a small portion of
the portfolio which was purchased during the second quarter of 2002.
Provision for loan losses
Recoveries on loans previously charged off exceeded charge-offs during
the three months ended June 30, 2002 by $51,000. Management's assessment of the
risks in the loan portfolio at June 30, 2002 as well as the Company's recent
loss experience, whereby recoveries have actually exceeded charge-offs since
1997, resulted in no provision for loan losses during the second quarter of
2002.
Non-interest Income and Expense
Non-interest income totaled $6.8 million for the quarter ended June 30,
2002, an increase of 26.8% or $1.4 million compared to the $5.3 million earned
during the comparable period in 2001. Net gain on sales of securities accounted
for $570 thousand of this increase, while insurance commissions increased $630
thousand inclusive of a $398 thousand adjustment for the recognition of
previously deferred insurance commissions for which no deferral is required.
For the three months ended June 30, 2002, non-interest expense totaled
$12.7 million, an increase of 11.3% or $1.3 million over the $11.4 million
expended during the same period in 2001. Salaries and employee benefits
increased $965 thousand or 15.9%, with approximately $500 thousand of this
increase attributable to the recognition of expenses associated with an early
retirement program offered to certain long-term employees during the second
quarter of 2002. The remainder of this increase is due to normal salary
increases as well as additional staff for new locations. An increase in building
and equipment expense of $177 thousand or 12.4% can be attributed to three added
locations since the prior year. The increase in all other expenses of $330
thousand is largely due to increased expenses of electronic banking products due
to the higher volume of this type of transaction as well as the offering of new
products.
10
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (cont.)
Additionally, a payment of $50 thousand was made to the Commonwealth of
Massachusetts Department of Revenue in June 2002 for a sales/use tax assessment
as a result of an audit.
Income taxes
Applicable State and Federal income tax expense of $2.5 million for the
quarter ended June 30, 2002 was 11.4% more than the $2.2 million recorded for
the same quarter in 2001, a reflection of higher pretax net income. The combined
effective State and Federal tax rate was 35% and 33% of pretax net income for
the quarters ended June 30, 2002 and 2001, respectively.
Net income
Consolidated net income was $4.5 million representing earnings per
share of $0.52 for the three months ended June 30, 2002 as compared to $4.4
million or $0.51 per share for the comparable three months ended June 30, 2001.
Annualized returns on average assets and average equity were 1.31% and 15.48%,
respectively, for the three months ended June 30, 2002 as compared to 1.18% and
17.05%, respectively, for the three months ended June 30, 2001.
(The remainder of this page intentionally left blank.)
11
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (cont.)
Net Interest Income, Net Interest Margin
Six Months Ended June 30,
---------------------------------------------------------------------
2002 2001
---------------------------------- ------------------------------
Average Average Average Average
Balance Interest Yield Balance Interest Yield
---------------------------------------------------------------------
(Dollar amounts in thousands)
ASSETS
Securities:
Mortgage-backed securities $ 13,679 $ 372 5.43% $ 37,061 $1,219 6.58%
CMOs 145,245 4,430 6.10% 182,421 6,282 6.89%
U.S. Government agencies 19,930 428 4.29% 19,091 510 5.41%
State and municipal obligations 18,466 307 3.33% 21,087 481 6.01%
Other securities 250,950 4,968 3.99% 253,789 8,240 6.58%
---------- -------- ---------- --------
Total securities 448,270 10,505 4.71% 513,449 16,732 6.62%
---------- -------- ---------- --------
Loans:
Commercial 88,914 2,545 5.69% 86,756 3,758 8.78%
Commercial construction 53,742 1,393 5.15% 45,241 1,868 8.33%
Residential construction 44,712 1,289 5.76% 49,180 1,590 6.43%
Commercial mortgages 263,902 10,120 7.63% 241,153 10,957 9.16%
Industrial revenue bonds 1,105 31 5.64% 1,432 53 10.53%
Residential mortgages 368,057 11,237 6.11% 407,810 14,230 6.98%
Home equity 57,630 1,440 5.04% 40,145 1,691 8.50%
Consumer 6,836 354 11.37% 8,611 441 10.73%
---------- -------- ---------- --------
Total loans 884,898 28,409 6.41% 880,328 34,588 7.90%
---------- -------- ---------- --------
Total earning assets 1,333,168 38,914 5.83% 1,393,777 51,320 7.44%
-------- --------
Cash and due from banks 33,384 37,185
Non-earning assets 33,844 30,835
---------- ----------
Total assets $1,400,396 $1,461,797
========== ==========
LIABILITIES & STOCKHOLDERS' EQUITY
Interest bearing deposits:
NOW accounts $ 148,712 349 0.47% $ 135,369 405 0.60%
Regular savings 77,731 439 1.14% 64,431 492 1.54%
Money Market accounts 274,689 2,475 1.82% 240,516 4,120 3.45%
Certificates of Deposit of
$100,000 or more 44,959 711 3.19% 114,062 3,461 6.12%
Other time deposits 141,499 2,528 3.60% 199,997 6,043 6.09%
---------- -------- ---------- --------
Total interest bearing deposits 687,590 6,502 1.91% 754,375 14,521 3.88%
---------- -------- ---------- --------
Borrowings:
Federal Home Loan Bank 349,944 7,059 4.07% 378,700 10,606 5.65%
Other short-term borrowings 24,410 111 0.92% 26,122 478 3.68%
5,000 143 5.78% -- -- --
---------- -------- ---------- --------
Subordinated debt
Total borrowings 379,354 7,313 3.89% 404,822 11,084 5.52%
---------- -------- ---------- --------
Total interest-bearing liabilities 1,066,944 13,815 2.61% 1,159,197 25,605 4.45%
-------- --------
Demand deposits 207,483 193,995
Non-interest bearing liabilities 9,818 8,301
Stockholders' equity 116,151 100,304
Total liabilities & equity $1,400,396 $1,461,797
========== ==========
Net interest income/interest rate spread $25,099 3.22% $25,715 2.99%
======= =======
Net interest margin (NII/Avg. Earning Assets) 3.80% 3.72%
12
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (cont.)
RESULTS OF OPERATIONS
Six Months Ended June 30, 2002 vs. June 30, 2001
Source and Use of Funds
On average, interest bearing deposits decreased $66.8 million or 8.9%
when comparing the first half of 2002 with the same period in 2001. This decline
can be attributed to time certificates of deposit which decreased $127.6 million
or 40.6% as a result of the maturity of a significant amount of one year
certificates of deposit during the third quarter of 2001 and the reduction of
interest rates being offered on these products. Partially offsetting the
decrease in time deposits were increases in NOW accounts of $13.3 million or
9.9%, regular savings up $13.3 million or 20.6%, and money market accounts up
$34.2 million or 14.2%. Average non-interest bearing demand deposits also
increased $13.5 million or 7.0% for the first half of 2002 as compared to 2001.
Average Federal Home Loan Bank borrowings declined by $28.8 million or 7.6%
during the first six months of 2002 when compared to the same period in 2001. An
additional source of funds was the issuance of $5.0 million of Trust Preferred
Securities during the third quarter of 2001 by CCBT Statutory Trust I, a
subsidiary of the Company.
Average loans increased $4.6 million or 0.5% during the first half of
2002 as compared to 2001. On average, commercial construction and mortgage loans
grew by $31.3 million or 10.9% while residential construction and mortgage loans
declined by $44.2 million or 9.7% as a result of sales of residential mortgages.
Average home equity loans increased 43.6% or $17.5 million, in large part due to
lower rates on this prime-based product. Additional loan growth, on average,
occurred in commercial loans, up $2.2 milllion or 2.5% while consumer loans
declined $1.8 million or 20.6%. When compared to the first six months of 2001,
average securities declined in 2002 by $65.2 million or 12.7%. Substantial
decreases in CMO's, down $37.2 million or 20.4%, and mortgage-backed securities,
down $23.4 million or 63.1%, can be attributed to prepayments on these
securities as a result of the decline in interest rates.
Net interest income
Net interest income was $25.1 million for the six months ended June 30,
2002 as compared to $25.7 million for the same period in 2001, a decline of
2.4%. The spread and net interest margin ratios were 3.22% and 3.80%,
respectively, for the six months ended June 30, 2002 as compared to 2.96% and
3.72%, respectively, for the comparable 2001 period. The effect of lower
interest rates on net interest income has been tempered somewhat by the maturity
of higher-yield time certificates of deposit since the prior year. Also,
consistent with the current low interest rate environment, the variable rate
costs of interest bearing liabilities has been reduced while, by contrast, the
proportion of fixed and intermediate term adjustable rate earning assets have
helped to maintain the gross yield thereon. The improved interst rate spread and
net interest margin results are also affected by the high proportion of
transaction deposits having little or no interest cost as well as the Company's
practice of match-funding 3 to 5 year fixed rate commercial loans with similar
term FHLB Advances. This portfolio totalled $186 million at June 30, 2002 as
compared with $166 million one year ago.
Provision for loan losses
Recoveries on loans previously charged off exceeded charge-offs during
the six months ended June 30, 2002 by $135,000. Management's assessment of the
risks in the loan portfolio at June 30, 2002 as well as the Company's recent
loss experience, whereby recoveries have exceeded charge-offs since 1997,
resulted in no provision for loan losses during the first half of 2002. The
allowance for loan losses was 1.38% and 1.33% of total loans at June 30, 2002
and 2001, respectively.
Non-interest Income and Expense
Non-interest income of $13.5 million for the six months ended June 30,
2002, represented an increase of 31.4% compared to the $10.3 million earned
during the same period in 2001. Net gain on sales of securities contributed $1.8
million to this increase while the net gain on sales of loans increased $654
thousand. Insurance commissions accounted for an additional $659 thousand of the
increase inclusive of a $398 thousand adjustment in the second quarter for the
recognition of deferred insurance commissions for which no deferral is required.
During the first six months of 2002, non-interest expenses totaled
$23.9 million, an increase of 8.3% or $1.8 million over the $22.1 million
expended during the comparable period last year. Salaries and employee benefits
rose $1.3 million or 10.9%.
13
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (cont.)
Approximately $500 thousand of this increase is attributable to expenses
associated with an early retirement package offered to certain long-term
employees during the second quarter of 2002. The remainder of this increase is a
factor of normal salary increases as well as planned additions to staff. The
increase of $480,000 or 67.8% in the all other expenses category is, in large
part, attributable to an increase in expenses associated with the higher volume
of electronic transactions as well as the offering of new electronic banking
products. Also included in all other expenses in 2002 is a $50 thousand payment
to the Commonwealth of Massachusetts Department of Revenue for a sales/use tax
assessment. Buildings and equipment increased $311,000 or 11.3%, as a result of
increased expenses due to the addition of three new financial service offices
during the last year
Income taxes
Applicable State and Federal income tax expense of $5.0 million for the
six months ended June 30, 2002 was 5.8% greater than the $4.7 million recorded
for the same period in 2001, a reflection of higher pretax net income. The
combined effective State and Federal tax rate was 34% of pretax net income for
each period presented.
Net income
Consolidated net income was $9.6 million representing earnings per
share of $1.11 for the six months ended June 30, 2002 as compared to $9.2
million or $1.07 per share for the comparable six months ended June 30, 2001.
Annualized returns on average assets and average equity were 1.37% and 16.50%,
respectively, for the six months ended June 30, 2002 as compared to 1.26% and
18.38%, respectively, for the six months ended June 30, 2001.
COMPARATIVE ANALYSIS OF SELECTED PERIOD-END ASSETS,
LIABILITIES AND CAPITAL
The Company had $1.45 billion consolidated total assets, $923.4 million
deposits and $121.6 million stockholders' equity at June 30, 2002. Its capital
to assets ratio was 8.4%, exceeding all regulatory requirements. As compared to
reported balances at December 31, 2001, securities available for sale decreased
$7.2 million or 1.64%, gross loans increased $11.5 million or 1.3%, deposits
increased $20.0 million or 2.21% and borrowed funds decreased $36.0 million or
8.7%.
Securities
The adjusted cost and estimated market values of investment
securities, which the Company classified as available for sale, at June 30, 2002
and December 31, 2001 were as follows:
June 30, 2002
---------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
(Dollar amounts in thousands)
U.S. Government agency CMOs $ 89,724 $3,877 $1,034 $ 92,567
Other U.S. Government agency obligations 41,611 22 322 41,311
Other collateralized mortgage obligations 81,445 985 455 81,975
State and municipal obligations 18,819 -- -- 18,819
Other debt securities 195,270 2,285 1,083 196,472
------- ----- ----- -------
Totals $426,869 $7,169 $2,894 $431,144
======== ====== ====== ========
14
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (cont.)
December 31, 2001
---------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
(Dollar amounts in thousands)
U.S. Government agency CMOs $116,949 $2,362 $ 921 $118,390
Other U.S. Government agency obligations 14,254 158 48 14,364
Other collateralized mortgage obligations 66,356 1,720 289 67,787
State and municipal obligations 24,114 -- -- 24,114
Other debt securities 211,831 2,672 808 213,695
------- ----- ------ -------
Totals $433,504 $6,912 $2,066 $438,350
======== ====== ====== ========
Securities available for sale decreased $7.2 million, from $438.3
million at December 31, 2001 to $431.1 million at June 30, 2002. Net gains from
sales were $962 thousand and $2.6 million during the quarter and six months
ended June 30, 2002, respectively, compared to net gains of $392 thousand and
$853 thousand, respectively, during the same periods in 2001.
Loans
The following is a summary of the Company's outstanding loan balances as of the
dates indicated:
June 30, December 31,
2002 2001
---- ----
Mortgage loans on real estate
Residential $356,339 $376,504
Commercial 276,285 264,934
Construction 100,581 95,186
Equity lines of credit 62,600 53,336
Other loans
Commercial 92,781 84,947
Industrial revenue bonds 1,054 1,163
Consumer 6,110 8,221
-------- --------
Total loans 895,750 884,291
Less: Allowance for loan losses (12,387) (12,252)
-------- --------
Total portfolio loans, net $883,363 $872,039
======== ========
Loans held for sale $ 2,567 $ 8,349
======== ========
As shown in the table above, total loans increased $11.5 million or
1.30% to $895.8 million at June 30, 2002 as compared to December 31, 2001, with
significant growth occuring in the commercial mortgage, equity lines of credit
and commercial loan portfolios, up $11.4, $9.3 and $7.8 million, respectively.
New residential mortgage originations of $27.5 million fixed rate and $55.7
million adjustable rate were achieved in the second quarter 2002. During the
same period, the Company, consistent with its strategy of generally selling
fixed rate mortgages, sold $28.0 million residential mortgages, producing net
gains of $499.9 thousand.
Allowance for Loan Losses
The allowance for loan losses is an estimate of the amount necessary to
absorb probable losses in the loan portfolio. The allowance consists of
specific, general and unallocated components. Commercial real estate and
commercial business loans are evaluated individually for allowance purposes.
Other categories of loans are generally evaluated as a group. The specific
component relates to loans that are classified as doubtful, substandard or
special mention. Loans classified as doubtful are considered impaired in
accordance with SFAS No. 114, and an allowance is determined using a discounted
cash flow calculation. Loss factors for substandard loans are based on a loss
migration database, while loss factors for all other categories of loans are
based on the Company's historical loss experience with similar loans of similar
quality as determined by the Company's internal rating system. Loss factors are
then adjusted for additional points that consider qualitative factors such as
current economic trends (both local and national), concentrations, growth and
15
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (cont.)
performance trends, and the results of risk management assessments. Accordingly,
increases or decreases in the amount of each loan category as well as the
ratings of the loans within each category are considered in calculating the
overall allowance. The allowance is an estimate, and ultimate losses may vary
from current estimates. As adjustments become necessary, they are reported in
earnings of the periods in which they become known.
In addition, the Company's allowance for loan losses is periodically
reviewed by the OCC as part of their examination process. The OCC may require
the Company to make additions to the allowance based upon judgments different
from those of management.
Non performing assets and loan loss experience
As shown in the following table non-performing assets were $2.8 million
or .19% of total assets at June 30, 2002 compared to $3.3 million or .23% of
total assets at December 31, 2001. Accrual of interest income on loans is
discontinued when it is questionable whether the borrower will be able to pay
the principal and interest in full and/or when loan payments are 60 days past
due, or 90 days past due if the loan is fully secured by real estate or other
collateral held by the Bank.
June 30, December 31,
2002 2001
---- ----
(Dollar amounts in thousands)
Nonaccrual loans $1,266 $1,802
Loans past due 90 days or more and still accruing -- --
Property from defaulted loans 1,500 1,500
------ ------
Total non-performing assets $2,766 $3,302
====== ======
Restructured troubled debt performing in
accordance with amended terms, not included above $ 220 $ 224
====== ======
The following is a summary of the activity in the allowance for loan losses for
the indicated periods:
Six Months Ended June 30,
2002 2001
---- ----
Balance, beginning of period $12,252 $12,154
Provision for loan losses
-- --
Charge-offs (53) (114)
Recoveries on loans previously charged off 188 182
------ -------
Balance, end of period $12,387 $12,222
======= =======
Recoveries on loans previously charged off exceeded charge-offs
therefore management determined that additions to the reserve for loan losses
were unnecessary in 2002, notwithstanding the minor growth in the loan
portfolio. The reserve represented 1.38% of total loans at June 30, 2002, 1.39%
at December 31, 2001, and 1.33% at June 30, 2001. Although management believes
that upon review of loan quality and payment statistics, the reserve is adequate
to cover losses likely to result from loans in the current portfolio at June 30,
2002, there can be no assurance that the reserve is adequate or that additional
provisions might not become necessary.
16
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (cont.)
The Company had outstanding commitments to originate new residential
and commercial mortgages of $27.6 million at June 30, 2002 and $40.3 million at
December 31, 2001 which are not reflected on the consolidated statements of
financial condition. Additional unadvanced loan funds are summarized as follows
for the indicated periods:
June 30, 2002 December 31, 2001
------------- -----------------
Commercial loans (Dollar amounts in thousands)
Dealer floor plan $ 7,566 $ 9,997
Lines of credit 39,805 45,469
Other 6,054 4,845
Commercial mortgages
Construction 34,288 25,685
Other 7,987 10,346
Residential mortgages
Home equity 71,907 61,891
Consumer loans
Lines of credit 3,016 2,969
-------- --------
Total $170,623 $161,202
======== ========
Deposits
The following table is a summary of deposits outstanding as of the dates
indicated:
June 30, 2002 December 31, 2001
------------- -----------------
Deposits
Demand $233,186 $209,551
NOW 158,146 149,109
Money market 278,768 185,156
Other savings 81,466 155,255
Certificates of deposit greater than $100,000 40,089 53,123
Other time 131,703 151,197
-------- --------
Total deposits $923,358 $903,391
======== ========
Reflecting somewhat the seasonal nature of Cape Cod economy as
discussed in "Liquidity" on page 18 herein, total deposits at June 30, 2002 are
$20.0 million or 2.2% higher than total deposits at December 31, 2001.
Generally, the Company's strategy is to price deposits according to local market
rates, offering higher alternative rates based on increasing amounts deposited.
Interest rates paid are frequently reviewed and are modified to reflect changing
conditions.
Borrowed Funds
Historically, the Company has selectively engaged in short and long
term borrowings from the Federal Home Loan Bank of Boston, and has sold
securities under agreements to repurchase, to fund loans and investments. At
June 30, 2002, borrowed funds totaled $384.1 million, down 8.6% or $36.0 million
compared to borrowed funds at December 31,2001. This decrease offsets the
seasonal deposit decline described under the section entitled "Deposits" above
and contributes to the support of heretofore described loan growth.
During the third quarter of 2001, CCBT Statutory Trust I was formed for
the purpose of issuing trust preferred securities and investing the proceeds of
the sale of these securities in subordinated debentures issued by the Company. A
total of $5 million of floating rate Trust Preferred Securities were issued and
are scheduled to mature in 2031, callable at the option of the Company after
7/31/06. Distributions on these securities are payable quarterly in arrears on
the last day of April, July, October and January. The Trust Preferred Securities
are presented in the consolidated statements of financial condition of the
Company as Subordinated Debt. The Company records distributions payable on the
Trust Preferred Securities as Interest on subordinated debt in its consolidated
statements of income.
17
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (cont.)
Stockholders' Equity
The Company's capital to assets ratio was 8.39% at June 30, 2002
compared to 7.93% at December 31, 2001.
The Company (on a consolidated basis) and the Bank are subject to
various regulatory capital requirements administered by the federal banking
agencies. Failure to meet minimum capital requirements can initiate certain
mandatory and possible additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the Company's and the Bank's
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and/or the Bank must meet
specific capital guidelines that involve quantitative measures of their assets,
liabilities and certain off-balance-sheet items as calculated under regulatory
accounting practices. Holding companies, such as the Company, are not subject to
prompt corrective action provisions. The 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 of total and Tier 1 capital (as defined) to average assets (as defined).
The following schedule displays these capital guidelines and the ratios of the
Company and the Bank as of June 30, 2002.
Minimum June 30, 2002
Regulatory -----------------------
Guidelines Company Bank
------------------------------------
Tier 1 leverage capital 4.00% 8.49% 8.42%
Tier 1 capital to risk-weighted assets 4.00% 12.25% 12.16%
Total capital to risk-weighted assets 8.00% 13.50% 13.41%
The Company's book value at June 30, 2002 was $14.09 per share compared
to $13.38 per share at December 31, 2001.
LIQUIDITY
The Company normally experiences a wide swing in its liquidity each
year as a result of the seasonal nature of the economy in its market area.
Liquidity is usually at its high in late summer and early fall and the annual
low point is usually in the early spring. The Bank's investment securities could
be sold if necessary to meet liquidity needs. In that event, a gain or loss
would be realized if the market value of the securities sold was not equal to
their cost, adjusted for the amortization of premium or accretion of discount.
The Bank can also borrow funds using investment securities as collateral and it
has a line of credit of $5,000,000 from the Federal Home Loan Bank of Boston.
The Bank has also established a line of credit of $7,000,000 for the purchase of
federal funds from SunTrust Bank and may borrow from the Federal Reserve Bank if
necessary.
ASSET/LIABILITY MANAGEMENT
The Company's Asset/Liability Management Committee ("ALCO"), which is
comprised of several Directors with senior management, is responsible for
managing interest rate risk in accordance with policies approved by the Board of
Directors regarding acceptable levels of interest rate risk, liquidity and
capital. The committee meets monthly and sets the rates paid on deposits,
approves loan pricing and reviews investment transactions.
Given the substantial liquidity from cash flow and maturities of the
Company's investment portfolio, the sizable proportion of rate sensitive loans
to total loans, and the large core deposit base, ALCO believes the Company to be
moderately asset-sensitive to changes in interest rates. Nevertheless, the
Company's strategy has included the funding of certain fixed rate loans with
medium term borrowed funds in order to mitigate a margin squeeze should interest
rates rise.
The Cape Cod market is one in which competing financial institutions
frequently offer a wide range of yields for similar deposit products. Within
this market, the Company finds it necessary, from time to time, to offer higher
rates than it would otherwise justify, thereby increasing pressure on net
interest income. In order to offset this pressure somewhat, the Company is
strategically focusing on customer relationship profitability.
18
PART I FINANCIAL INFORMATION
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
For a discussion of the Company's management of market risk exposure,
see "Asset/Liability Management" in Item 2 of Part I of this report and Item 7A
of Part II of the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2001 (the "2001 Annual Report").
For quantitative information about market risk, see Item 7A of Part II
of the Company's 2001 Annual Report.
There have been no material changes in the quantitative and qualitative
disclosures about market risk as of June 30, 2002 from those presented in the
Company's 2001 Annual Report.
PART II OTHER INFORMATION
ITEM 1. Legal proceedings
There are no material legal proceedings to which the Company is a party
or to which any of its property is subject, although the Company is a party to
ordinary routine litigation incidental to its business.
ITEM 2. Changes in securities and use of proceeds
Not applicable
ITEM 3. Defaults upon senior securities
Not applicable
ITEM 4. Submission of matters to a vote of security holders
Not applicable
ITEM 5. Other information
Not applicable
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the three
month period ended June 30, 2002
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
(Registrant): CCBT Financial Companies, Inc.
--------------------------------------------------------------
Date: August 14, 2002
--------------------------------------------------------------
/s/ STEPHEN B. LAWSON, President and Chief Executive Officer
-------------------------------------------------------------
Stephen B. Lawson, President and Chief Executive Officer
/s/ NOAL D. REID, Chief Financial Officer and Treasurer
-------------------------------------------------------------
Noal D. Reid, Chief Financial Officer and Treasurer
(For the period covered by this report)
20
Correspondence
CERTIFICATION PURSUANT TO
18 U.S.C.ss.1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of CCBT Financial
Companies, Inc. (the "Company") for the quarter ended June 30, 2002 , as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
the undersigned President and Chief Executive Officer for the Company, certify
pursuant to 18 U.S.C. Section.1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
/s/ STEPHEN B. LAWSON, President and Chief Executive Officer
- ---------------------------------------
President and Chief Executive Officer
Date:
-----------------------------------
21
Correspondence
CERTIFICATION PURSUANT TO
18 U.S.C.ss.1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of CCBT Financial
Companies, Inc. (the "Company") for the quarter ended June 30, 2002 , as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
the undersigned Chief Financial officer and Treasurer for the Company, certify
pursuant to 18 U.S.C. Section.1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
/s/ NOAL D. REID, Chief Financial Officer and Treasurer
- -------------------------------------------------------
Noal D. Reid, Chief Financial Officer and Treasurer
(For the period covered by this report)
Date: August 14, 2002
- -------------------------------------------------------
22