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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 September 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 8,590,798
shares of common stock outstanding as of November 7, 2002.
1
TABLE OF CONTENTS
Section Description Page No.
- ------- ----------- --------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Financial Condition 3
September 30, 2002 and December 31, 2001
Consolidated Statements of Income 4
Three and Nine Months Ended September 30, 2002 and 2001
Consolidated Statements of Cash Flows 5
Nine Months Ended September 30, 2002 and 2001
Consolidated Statements of Comprehensive Income 6
Nine Months Ended September 30, 2002 and 2001
Consolidated Statements of Changes in Stockholders' Equity 6
Nine Months Ended September 30, 2002 and 2001
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial Condition 8-18
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
2
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, December 31,
2002 2001
---- ----
ASSETS (Unaudited)
Cash and due from banks $ 53,786,171 $ 51,204,747
Short term interest-bearing deposits 48,132,457 10,857,540
Securities available for sale, at fair value 565,990,689 438,349,833
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 871,977,789 884,291,338
Less: Allowance for loan losses (12,421,722) (12,251,907)
--------------- ---------------
Net loans 859,556,067 872,039,431
--------------- ---------------
Loans held for sale 14,084,178 8,349,342
Premises and equipment 20,601,659 18,496,280
Deferred tax assets 4,914,398 2,619,189
Accrued interest receivable on securities 3,458,087 2,632,117
Accrued interest receivable on loans 3,328,497 3,736,071
Intangibles 6,848,482 7,972,088
Other assets 15,704,945 13,672,642
--------------- ---------------
Total assets $ 1,621,143,280 $ 1,454,666,930
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 973,887,814 $ 903,390,528
Borrowings from the Federal Home Loan Bank 414,567,692 384,314,318
Other short-term borrowings 29,841,186 30,735,238
Subordinated debt 5,000,000 5,000,000
Current taxes payable -- 2,064,060
Interest payable on deposits and borrowings 1,758,172 2,410,159
Post retirement benefits payable 3,584,858 3,293,458
Employee profit sharing retirement and bonuses payable 2,502,191 4,214,186
Due to broker-securities settlement 66,476,333 15,101
Other liabilities 3,804,263 3,910,277
--------------- ---------------
Total liabilities 1,501,422,509 1,339,347,325
=============== ===============
Minority interest 310,279 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 27,482,512 27,473,395
Undivided profits 91,726,184 83,156,834
Treasury stock, at cost (471,766 shares in 2002)
(440,641 shares in 2001) (8,146,684) (7,197,493)
Accumulated other comprehensive income (loss) (712,584) 2,822,203
--------------- ---------------
Total stockholders' equity 119,410,492 115,316,003
--------------- ---------------
Total liabilities and stockholders' equity $ 1,621,143,280 $ 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 Sept. 30, Nine Months Ended Sept. 30,
2002 2001 2002 2001
---- ---- ---- ----
INTEREST & DIVIDEND INCOME (Unaudited) (Unaudited)
Interest and fees on loans $ 14,062,927 $ 16,730,597 $ 42,472,385 $ 51,319,096
Interest on short term interest-bearing deposits 75,011 121,090 234,200 441,911
Interest on federal funds sold 254 678 2,313 3,552
Taxable interest income on securities 5,109,712 5,757,443 14,661,682 20,917,500
Tax-exempt interest income on securities 143,614 255,465 450,979 722,350
Dividends on securities 231,250 328,445 715,154 1,108,860
------------ ------------ ------------ ------------
Total interest & dividend income 19,622,768 23,193,718 58,536,713 74,513,269
------------ ------------ ------------ ------------
INTEREST EXPENSE
Interest on deposits 3,125,050 5,116,844 9,626,138 19,638,064
Interest on borrowings from the Federal Home Loan Bank 3,600,187 4,858,045 10,659,351 15,464,756
Interest on other short-term borrowings 87,265 198,133 198,719 674,897
Interest on subordinated debt 71,485 63,677 214,913 63,677
------------ ------------ ------------ ------------
Total interest expense 6,883,987 10,236,699 20,699,121 35,841,394
------------ ------------ ------------ ------------
Net interest income 12,738,781 12,957,019 37,837,592 38,671,875
Provision for loan losses -- -- -- --
------------ ------------ ------------ ------------
Net interest income after provision for loan losses 12,738,781 12,957,019 37,837,592 38,671,875
------------ ------------ ------------ ------------
NON-INTEREST INCOME
Financial advisor fees 1,676,004 1,574,269 5,142,336 5,222,500
Deposit account service charges 553,251 523,051 1,678,776 1,564,688
Branch banking fees 803,692 804,882 2,314,418 2,342,191
Electronic banking fees 747,116 493,683 1,954,965 1,451,848
Loan servicing and other loan fees 4,695 22,651 71,889 129,750
Brokerage fees and commissions 387,584 339,776 1,096,336 944,516
Net gain on sales of securities 538,017 292,426 3,178,772 1,144,983
Net gain on sales of loans 571,395 1,770,946 1,647,310 2,192,986
Insurance commissions 621,827 393,977 2,047,353 1,160,604
Other income (loss) (74,505) 178,631 184,706 502,259
------------ ------------ ------------ ------------
Total non-interest income 5,829,076 6,394,292 19,316,861 16,656,325
------------ ------------ ------------ ------------
NON-INTEREST EXPENSE
Salaries 4,667,904 4,494,331 13,752,409 12,821,739
Employee benefits 2,580,659 1,687,779 6,659,340 5,226,034
Buildings and equipment 1,596,374 1,426,065 4,658,522 4,177,169
Data processing 687,633 830,660 2,060,662 2,417,640
Accounting and legal fees 269,963 231,506 758,424 704,266
Other outside services 570,593 609,009 1,647,476 1,707,234
Amortization of intangibles 323,660 395,833 972,161 1,187,499
Delivery and communications 553,481 586,781 1,720,916 1,582,829
Directors' fees 86,650 85,800 258,250 257,400
Marketing and advertising 440,396 392,854 1,290,036 1,332,585
Printing and supplies 178,241 222,802 564,741 668,554
Insurance 148,717 111,948 471,001 359,336
All other expenses 507,287 506,894 1,696,217 1,215,390
------------ ------------ ------------ ------------
Total non-interest expense 12,611,558 11,582,262 36,510,155 33,657,675
------------ ------------ ------------ ------------
Minority interest 16,866 7,781 161,176 2,197
------------ ------------ ------------ ------------
Net income before taxes 5,939,433 7,761,268 20,483,122 21,668,328
Applicable income taxes 2,034,423 2,749,161 6,995,761 7,440,565
------------ ------------ ------------ ------------
Net income $ 3,905,010 $ 5,012,107 $ 13,487,361 $ 14,227,763
============ ============ ============ ============
Average shares outstanding - basic 8,610,986 8,615,738 8,621,148 8,610,640
Average shares outstanding - diluted 8,645,844 8,658,803 8,657,980 8,647,360
Basic earnings per share $ 0.45 $ 0.58 $ 1.56 $ 1.65
Diluted earnings per share $ 0.45 $ 0.58 $ 1.56 $ 1.65
Cash dividends declared $ 0.19 $ 0.18 $ 0.57 $ 0.54
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 Nine Months Ended September 30,
2002 2001
---- ----
(Unaudited)
-----------
CASH PROVIDED BY OPERATING ACTIVITIES
Net income $ 13,487,361 $ 14,227,763
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,231,652 3,223,646
Net amortization of securities 1,141,483 4,015,751
Amortization of net deferred loan costs 1,169,774 987,337
Net gain on sales of securities (3,178,772) (1,144,983)
Net gain on sale of loans (1,647,310) (2,192,986)
Proceeds from sales (originations) of loans held for sale, net (4,087,526) 2,430,601
Net change in:
Accrued interest receivable 418,396 308,795
Accrued expenses and other liabilities 2,290,861 (1,081,492)
Other, net (7,784,906) (421,327)
--------------- ---------------
Net cash provided by operating activities 5,041,013 20,353,105
--------------- ---------------
CASH USED BY INVESTING ACTIVITIES
Net decrease (increase) in loans 13,653,138 (27,870,460)
Maturities of available-for-sale securities 472,748,610 321,793,992
Purchase of available-for-sale securities (625,758,917) (479,927,573)
Sales of available-for-sale securities 84,547,957 84,746,392
Purchases of premises and equipment (4,364,866) (4,399,992)
--------------- ---------------
Net cash used by investing activities (59,174,078) (105,657,641)
--------------- ---------------
CASH PROVIDED BY FINANCING ACTIVITIES
Net increase (decrease) in deposits 70,497,286 (37,869,925)
Advances of borrowings from the Federal Home Loan Bank 1,215,619,876 1,352,634,404
Repayments of borrowings from the Federal Home Loan Bank (1,185,366,502) (1,272,995,147)
Net (decrease) increase in other short-term borrowings (894,052) 10,932,892
Issuance of common stock under stock option plan 267,434 202,135
Purchase of treasury stock (1,216,625) --
Proceeds from issuance of subordinated debt -- 5,000,000
Cash dividends paid on common stock (4,918,011) (4,648,345)
--------------- ---------------
Net cash provided by financing activities 93,989,406 53,256,014
--------------- ---------------
Net increase (decrease) in cash and cash equivalents 39,856,341 (32,048,522)
Cash and cash equivalents at beginning of period 62,062,287 66,215,030
--------------- ---------------
Cash and cash equivalents at end of period $ 101,918,628 $ 34,166,508
=============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest $ 21,347,025 $ 37,528,588
Income taxes 9,501,190 8,779,819
Non-cash transactions:
Unsettled securities trades $ 66,461,232 $ 11,350,954
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 Nine Months Ended September 30,
2002 2001
---- ----
(Unaudited)
Net income $13,487,361 $14,227,763
----------- -----------
Unrealized holding (losses) gains on securities available for sale (2,962,451) 7,956,354
Reclassification of gains on securities realized in income (3,178,772) (1,144,983)
----------- -----------
Net unrealized (losses) gains (6,141,223) 6,811,371
Related tax effect 2,606,436 (2,825,843)
----------- -----------
Net other comprehensive (loss) income (3,534,787) 3,985,528
----------- -----------
Comprehensive income $ 9,952,574 $18,213,291
=========== ===========
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Nine Months Ended September 30,
2002 2001
---- ----
(Unaudited)
COMMON STOCK
Balance, beginning of period $ 9,061,064 $ 9,061,064
------------ ------------
Balance, September 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 9,117 (21,495)
------------ ------------
Balance, September 30 27,482,512 27,473,395
------------ ------------
UNDIVIDED PROFITS
Balance, beginning of period 83,156,834 69,896,759
Net income 13,487,361 14,227,763
Cash dividends declared (4,918,011) (4,648,345)
------------ ------------
Balance, September 30 91,726,184 79,476,177
------------ ------------
TREASURY STOCK
Balance, beginning of period (7,197,493) (7,399,628)
Issuance of common stock under stock option plan 267,434 202,135
Purchase of treasury stock (1,216,625) --
------------ ------------
Balance, September 30 (8,146,684) (7,197,493)
------------ ------------
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Balance, beginning of period 2,822,203 (324,307)
Net other comprehensive income (loss) (3,534,787) 3,985,528
------------ ------------
Balance, September 30 (712,584) 3,661,221
------------ ------------
TOTAL STOCKHOLDERS' EQUITY, END OF PERIOD $119,410,492 $112,474,364
============ ============
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
Nine Months Ended September 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 September
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 nine months ended September 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 2002, 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 through July 2, 2002. 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.
In September 2002, the Bank filed the 2001 tax return, excluding from its income
$20.3 million of dividend distributions received from its real estate investment
trust subsidiary.
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
7
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 10-Q 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 September 30,
---------------------------------------------------------------------------
2002 2001
----------------------------------- -----------------------------------
Average Average Average Average
Balance Interest Yield Balance Interest Yield
----------------------------------- -----------------------------------
(Dollar amounts in thousands)
ASSETS
Securities:
Mortgage-backed securities $ 8,508 $ 137 6.46% $ 19,858 $ 306 6.17%
CMOs 211,766 2,031 3.84% 188,609 2,466 5.23%
U.S. Government agencies 46,699 393 3.36% 12,777 172 5.38%
State and municipal obligations 18,111 144 3.17% 26,321 255 3.88%
Other securities 245,967 2,855 4.61% 244,412 3,264 5.30%
---------- ------- ---------- --------
Total securities 531,051 5,560 4.17% 491,977 6,463 5.23%
---------- ------- ---------- --------
Loans:
Commercial 84,270 1,177 5.47% 84,930 1,699 7.83%
Commercial construction 59,281 786 5.18% 51,533 922 7.00%
Residential construction 45,260 646 5.71% 48,173 776 6.44%
Commercial mortgages 277,986 5,241 7.38% 252,175 5,461 8.47%
Industrial revenue bonds 1,023 15 5.70% 1,246 19 6.20%
Residential mortgages 357,440 5,220 5.84% 431,542 6,820 6.32%
Home equity 62,372 813 5.17% 46,231 817 7.01%
Consumer 6,089 165 11.69% 8,514 217 10.74%
---------- ------- ---------- --------
Total loans 893,721 14,063 6.22% 924,344 16,731 7.16%
---------- ------- ---------- --------
Total earning assets 1,424,772 19,623 5.46% 1,416,321 23,194 6.49%
Cash and due from banks 37,637 ------- 39,432 --------
Non-earning assets
25,868 26,749
---------- ----------
Total assets $1,488,277 $1,482,502
========== ==========
LIABILITIES & STOCKHOLDERS' EQUITY
Interest bearing deposits:
NOW accounts $ 158,692 198 0.50% $ 143,054 172 0.48%
Regular savings 87,109 252 1.15% 69,858 210 1.20%
Money Market accounts 298,687 1,380 1.83% 258,647 1,748 2.68%
Certificates of Deposit of
$100,000 or more 38,913 281 2.87% 62,979 736 4.64%
Other time deposits 128,504 1,014 3.13% 176,316 2,251 5.06%
---------- ------- ---------- -------
Total interest bearing deposit s 711,905 3,125 1.74% 710,854 5,117 2.86%
---------- ------- ---------- -------
Borrowings:
Federal Home Loan Bank 371,337 3,601 3.85% 391,857 4,857 4.92%
Other short-term borrowings 30,419 87 1.14% 31,510 199 2.51%
Subordinated debt 5,000 71 5.67% 3,315 64 7.65%
---------- ------- ---------- -------
Total borrowings 406,756 3,759 3.67% 426,682 5,120 4.76%
---------- ------- ----------
Total interest-bearing liabilities 1,118,661 6,884 2.44% 1,137,536 10,237 3.57%
---------- ------- ---------- -------
Demand deposits 241,870 229,346
Non-interest bearing liabilities 6,384 7,789
Stockholders' equity 121,362 107,831
---------- ----------
Total liabilities & equity $1,488,277 $1,482,502
========== ==========
Net interest income/interest rate spread $12,739 3.02% $12,957 2.92%
======= =======
Net interest margin (NII/Avg. Earning Assets) 3.55% 3.63%
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 September 30, 2002 vs. September 30, 2001
Source and Use of Funds
Average interest bearing deposits increased $1.1 million or 1.5% when
comparing the third quarter of 2002 with the same period in 2001. A decline in
average time certificates of deposit of $71.9 miilion or 30.0% was offset by
increases in all other interest bearing deposits (NOW accounts, money market
accounts and regular savings accounts). Money market accounts, on average,
increased $40.0 million or 15.5%, regular savings increased $17.3 million or
24.7%, and NOW accounts increased $15.6 million or 10.9%. Average non-interest
bearing demand deposits increased $12.5 million or 5.5%. As compared to the same
period in 2001, average borrowings from the Federal Home Loan Bank declined
during the third quarter of 2002 by $20.5 million or 5.2% while other short-term
borrowings also declined slightly by $1.1 million or 3.5%. The issuance of $5
million of Trust Preferred Securities during the third quarter of 2001 by CCBT
Statutory Trust I, a subsidiary of the Company, provided an additional source of
funds.
When compared to the third quarter of 2001, average securities increased
$39.1 million or 7.9% during the third quarter of 2002. This growth was led by
an increase in U.S. Government agencies of $33.9 million or 265.5% and an
increase in CMOs of $23.2 million or 12.3%. Other securities also increased
slightly by $1.6 million or 0.64%. These increases were partially offset by
declines in mortgage backed securities of $11.4 million or 57.2%. During the
third quarter of 2002 as compared to 2001, average loans decreased $30.6 million
or 3.3%. This decrease can be attributed to the decline in residential mortgages
of $74.1 million or 17.2% as a result of payoffs as well as the Company's policy
of selling fixed rate mortgages upon origination. Other categories of loans
experiencing a decrease include residential construction, down $2.9 million or
6.0%, and consumer loans, down $2.4 million or 28.5%. These declines were
partially offset by the increase in commercial construction and mortgage loans
of $33.6 million or 11.0%.
Net interest income
Net interest income for the three months ended September 30, 2002 was $12.7
million, which represented a decrease of 1.7% compared to the $13.0 million
reported for the same period in 2001. The interest rate spread and net interest
margin were 3.02% and 3.55%, respectively, for the quarter ended September 30,
2002 as compared to 2.92% and 3.63%, respectively, for the comparable period in
2001. 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
has caused the gross yield on earning assets to decrease at a slower pace.
Provision for loan losses
Recoveries on loans previously charged off exceeded charge-offs during the
three months ended September 30, 2002 by $35,000. Management's assessment of the
risks in the loan portfolio at September 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 third quarter of
2002.
Non-interest Income and Expense
Non-interest income totaled $5.8 million for the quarter ended September
30, 2002, a decrease of 8.8% or $565 thousand compared to the $6.4 million
earned during the comparable period in 2001. In addition to a $230 thousand loss
on the sale of a fixed asset included in other income (loss), there was a
significant decrease in the net gain on sales of loans, down $1.2 million
compared to the third quarter of 2001 results which included the effect of a
large sale of residential mortgages. Partially offsetting these decreases were
increases in net gain on sales of securities of $246 thousand and electronic
banking fees, up $253 thousand, due to increased transaction volume as well as
new product offerings. In addition, insurance commissions increased $228
thousand as a result of planned growth in this area.
For the three months ended September 30, 2002, non-interest expense totaled
$12.6 million, an increase of 8.9% or $1.0 million over the $11.6 million
expended during the same period in 2001. Salaries and employee benefits
increased $1.1 million or 17.3% with a significant portion of this increase
attributable to a performance-based bonus program and incentive program. The
remainder of the increase is due to normal salary increases, increased insurance
costs and additional staff for new locations.
10
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (cont.)
Income taxes
Applicable State and Federal income tax expense of $2.0 million for the
quarter ended September 30, 2002 was 25.9% less than the $2.7 million recorded
for the same quarter in 2001, a reflection of lower pretax net income. The
combined effective State and Federal tax rate was 34% and 35% of pretax net
income for the quarters ended September 30, 2002 and 2001, respectively.
Net income
Consolidated net income was $3.9 million representing earnings per share of
$0.45 for the three months ended September 30, 2002 as compared to $5.0 million
or $0.58 per share for the comparable three months ended September 30, 2001.
Annualized returns on average assets and average equity were 1.05 % and 12.87%,
respectively, for the three months ended September 30, 2002 as compared to 1.35%
and 18.59%, respectively, for the three months ended September 30, 2001.
11
(The remainder of this page intentionally left blank.)
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
Nine Months Ended September 30,
-------------------------------------------------------------------------------
2002 2001
----------------------------------- ----------------------------------
Average Average Average Average
Balance Interest Yield Balance Interest Yield
----------------------------------- ----------------------------------
(Dollar amounts in thousands)
ASSETS
Securities:
Mortgage-backed securities $ 11,936 $ 509 5.68% $ 31,263 $ 1,525 6.50%
CMOs 167,662 6,461 5.14% 184,507 8,748 6.32%
U.S. Government agencies 28,951 820 3.78% 16,963 682 5.36%
State and municipal obligations 18,346 451 3.28% 22,851 736 4.30%
Other securities 249,271 7,823 4.20% 250,629 11,503 6.14%
---------- ------- ---------- --------
Total securities 476,166 16,064 4.50% 506,213 23,194 6.12%
---------- ------- ---------- --------
Loans:
Commercial 87,349 3,722 5.62% 86,140 5,456 8.35%
Commercial construction 55,609 2,178 5.16% 47,362 2,790 7.77%
Residential construction 44,897 1,935 5.75% 48,841 2,365 6.46%
Commercial mortgages 268,648 15,362 7.54% 244,867 16,418 8.84%
Industrial revenue bonds 1,077 46 5.66% 1,369 73 7.10%
Residential mortgages 364,479 16,458 6.02% 415,807 21,049 6.75%
Home equity 59,228 2,254 5.09% 42,196 2,508 7.95%
Consumer 6,584 518 10.52% 8,579 660 10.28%
---------- ------- ---------- --------
Total loans 887,871 42,473 6.34% 895,161 51,319 7.60%
---------- ------- ---------- --------
Total earning assets 1,364,037 58,537 5.70% 1,401,374 74,513 7.07%
------- --------
Cash and due from banks 34,818 37,942
Non-earning assets 31,156 29,585
---------- ----------
Total assets $1,430,011 $1,468,901
========== ==========
LIABILITIES & STOCKHOLDERS' EQUITY
Interest bearing deposits:
NOW accounts $ 152,075 547 0.48% $ 137,959 577 0.56%
Regular savings 80,891 691 1.14% 66,260 702 1.42%
Money Market accounts 282,776 3,855 1.82% 246,626 5,868 3.18%
Certificates of Deposit of
$100,000 or more 42,921 992 3.09% 96,856 4,197 5.79%
Other time deposits 137,120 3,541 3.45% 192,008 8,294 5.78%
---------- ------- ---------- --------
Total interest bearing 695,783 9,626 1.85% 739,709 19,638 3.55%
deposits ---------- ------- ---------- --------
Borrowings:
Federal Home Loan Bank 357,153 10,659 3.99% 383,134 15,464 5.40%
Other short-term borrowings 26,435 199 1.01% 27,938 675 3.23%
Subordinated debt 5,000 215 5.75% 1,117 64 7.66%
---------- ------- ---------- --------
Total borrowings 388,588 11,073 3.81% 412,189 16,203 5.26%
---------- ------- ---------- --------
Total interest-bearing 1,084,371 20,699 2.55% 1,151,898 35,841 4.16%
liabilities ------- --------
Demand deposits 219,072 205,908
Non-interest bearing liabilities 8,661 8,168
Stockholders' equity 117,907 102,927
---------- ----------
Total liabilities & equity $1,430,011 $1,468,901
========== ==========
Net interest income/interest rate spread $37,838 3.15% $38,672 2.91%
Net interest margin (NII/Avg. Earning Assets) ======= 3.71% ======= 3.69%
12
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (cont.)
RESULTS OF OPERATIONS
Nine Months Ended September 30, 2002 vs. September 30, 2001
Source and Use of Funds
On average, interest bearing deposits decreased $43.9 million or 5.9% when
comparing the first nine months of 2002 with the same period in 2001. This
decline can be attributed to time certificates of deposit which decreased $108.8
million or 37.7% as a result of the maturity of a significant amount of one year
certificates of deposit during the third quarter of 2001 as well as the
reduction of interest rates being offered on these products. Partially
offsetting the decrease in time deposits were increases in NOW accounts of
$14.1 million or 10.2%, regular savings up $14.6 million or 22.1%, and money
market accounts up $36.2 million or 14.7%. Average non-interest bearing demand
deposits also increased $13.2 million or 6.4% for the first nine months of 2002
as compared to 2001. Average Federal Home Loan Bank borrowings declined by $26.0
million or 6.8% during the first nine 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 decreased $7.3 million or 0.8% during the first nine months
of 2002 as compared to 2001. On average, residential construction and mortgage
loans declined by $55.3 million or 11.9% as a result of sales of residential
mortgages while commercial construction and mortgage loans grew by $32.0 million
or 11.0%. Average home equity loans increased 40.4% or $17.0 million, in large
part due to lower rates on this prime-based product. Additional loan growth, on
average, occurred in commercial loans, up $1.2 million or 1.4% while consumer
loans declined $2.0 million or 23.3%. When compared to the first nine months of
2001, average securities declined in 2002 by $30.0 million or 5.9%. Substantial
decreases in mortgage-backed securities, down $19.3 million or 61.8%, and
CMO's, down $16.8 million or 9.1%, can be attributed to prepayments on these
securities as a result of the decline in interest rates. Partially offsetting
these decreases is an increase in U.S. Government agencies of 70.7% or $12.0
million.
Net interest income
Net interest income was $37.8 million for the nine months ended September
30, 2002 as compared to $38.7 million for the same period in 2001, a decline of
2.2%. The spread and net interest margin ratios were 3.15% and 3.71%,
respectively, for the nine months ended September 30, 2002 as compared to 2.91%
and 3.69%, 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 has
caused the gross yield on earning assets to decrease at a slower pace. The
improved interest 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 $193
million at September 30, 2002 as compared with $171 million one year ago.
Provision for loan losses
Recoveries on loans previously charged off exceeded charge-offs during the
nine months ended September 30, 2002 by $170,000. Management's assessment of the
risks in the loan portfolio at September 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 nine months of 2002.
The allowance for loan losses was 1.42% and 1.39% of total loans at September
30, 2002 and 2001, respectively.
Non-interest Income and Expense
Non-interest income of $19.3 million for the nine months ended September
30, 2002, represented an increase of 16.0% compared to the $16.7 million earned
during the same period in 2001. Net gain on sales of securities contributed $2.0
million to this increase while electronic banking fees increased $503 thousand
as a result of increased volume of electronic transactions as well as new
product offerings. Insurance commissions accounted for $887 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.
Partially offsetting these increases was a decrease in net gain on sales of
loans, down $546 thousand from 2001 results which included the gain on a
significant sale of residential mortgages as well as a $230 thousand loss on the
sale of a fixed asset.
During the first nine months of 2002, non-interest expenses totaled $36.5
million, an increase of 8.5% or $2.9 million over the $33.7 million expended
during the comparable period last year. Salaries and employee benefits rose $2.4
million or 13.1%.
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, planned additions to staff, increased
insurance costs and increases attributable to performance based bonus and
incentive programs. The increase of $480,000 or 39.6% 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 $481 thousand
or 11.5%, as a result of increased expenses due to the addition of three new
financial service offices and two new branches during the last year.
Income taxes
Applicable State and Federal income tax expense of $7.0 million for the
nine months ended September 30, 2002 was 6.0% less than the $7.4 million
recorded for the same period in 2001, a reflection of lower 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 $13.5 million representing earnings per share
of $1.56 for the nine months ended September 30, 2002 as compared to $14.2
million or $1.65 per share for the comparable nine months ended September 30,
2001. Annualized returns on average assets and average equity were 1.26% and
15.25%, respectively, for the nine months ended September 30, 2002 as compared
to 1.29% and 18.43%, respectively, for the nine months ended September 30, 2001.
COMPARATIVE ANALYSIS OF SELECTED PERIOD-END ASSETS,
LIABILITIES AND CAPITAL
The Company had $1.62 billion consolidated total assets, $973.9 million
deposits and $119.4 million stockholders' equity at September 30, 2002. Its
capital to assets ratio was 7.4%, exceeding all regulatory requirements. As
compared to reported balances at December 31, 2001, securities available for
sale increased $127.6 million or 29.1%, gross loans decreased $12.3 million or
1.4%, deposits increased $70.5 million or 7.8% and borrowed funds increased
$29.4 million or 7.1%.
Securities
The adjusted cost and estimated market values of investment securities,
which the Company classified as available for sale, at September 30, 2002 and
December 31, 2001 were as follows:
September 30, 2002
---------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
(Dollar amounts in thousands)
U.S. Government agency CMOs $ 65,575 $1,919 $ 665 $ 66,829
Other U.S. Government agency obligations 67,213 68 69 67,212
Other collateralized mortgage obligations 168,808 500 2,846 166,462
State and municipal obligations 15,944 -- -- 15,944
Other debt securities 249,745 2,708 2,909 249,544
-------- ------ ------ --------
Totals $567,285 $5,195 $6,489 $565,991
======== ====== ====== ========
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 increased $127.6 million, from $438.3 million
at December 31, 2001 to $566.0 million at September 30, 2002. Net gains from
sales were $538 thousand and $3.2 million during the quarter and nine months
ended September 30, 2002, respectively, compared to net gains of $292 thousand
and $1.1 million, respectively, during the same periods in 2001.
The investment securities portfolio is subject to changing valuations
resulting from both changes in interest rates, and in credit quality during weak
economic periods. Gross unrealized losses on other collateralized mortgage
obligations and other debt securities increased from $0.5 and $1.1 million at
June 30, 2002 to $2.8 and $2.9 million at September 30, 2002, respectively. Each
of these categories includes an individual security that experienced a
significant decrease in fair value as a result of market factors within the
quarter. Collateralized mortgage obligations include an inverse interest-only
security with an amortized cost of $3.0 million and a fair value of $0.9
million. Other debt securities include an asset-backed security with an
amortized cost of $4.8 million and a fair value of $2.8 million for which there
has been a credit downgrade. This security is supported by subordinate tranches
that must absorb all credit losses before this security would be affected. This
security is not in default as to either principal or interest, and if payments
continue as they have been, it is anticipated that the security will pay out
entirely within one year. Although management's assessment of these securities
at September 30, 2002 supports their amortized costs, changes in future market
conditions may result in the recognition of loss.
Loans
The following is a summary of the Company's outstanding loan balances as of the
dates indicated:
September 30, December 31,
2002 2001
---- ----
Mortgage loans on real estate
Residential $335,709 $376,504
Commercial 280,808 264,934
Construction 102,369 95,186
Equity lines of credit 63,865 53,336
Other loans
Commercial 82,258 84,947
Industrial revenue bonds 977 1,163
Consumer 5,992 8,221
-------- --------
Total loans 871,978 884,291
Less: Allowance for loan losses (12,422) (12,252)
-------- --------
Total portfolio loans, net $859,556 $872,039
======== ========
Loans held for sale $ 14,084 $ 8,349
======== ========
As shown in the table above, total loans decreased $12.3 million or 1.39%
to $872.0 million at September 30, 2002 as compared to December 31, 2001,
despite significant growth in the commercial mortgage, equity lines of credit
and construction loan portfolios, up $15.9, $10.5 and $7.2 million,
respectively. New residential mortgage originations of $39.3 million fixed rate
and $34.0 million adjustable rate were achieved in the third quarter 2002.
During the same period, the Company, consistent with its strategy of generally
selling fixed rate mortgages, sold $46.2 million residential mortgages,
producing net gains of $571.4 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
15
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (cont.)
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 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 $3.5 million or
..22% of total assets at September 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.
September 30, December 31,
2002 2001
---- ----
(Dollar amounts in thousands)
Nonaccrual loans $1,999 $1,802
Loans past due 90 days or more and still accruing -- --
Property from defaulted loans 1,500 1,500
------ ------
Total non-performing assets $3,499 $3,302
====== ======
Restructured troubled debt performing in
accordance with amended terms, not included above $ 213 $ 224
====== ======
The following is a summary of the activity in the allowance for loan losses for
the indicated periods:
Nine Months Ended September 30,
2002 2001
---- ----
(Dollar amounts in thousands)
Balance, beginning of period $12,252 $12,154
Provision for loan losses -- --
Charge-offs (137) (276)
Recoveries on loans previously charged off 307 288
-------- -------
Balance, end of period $ 12,422 $12,166
======== =======
Recoveries on loans previously charged off exceeded charge-offs therefore
management determined that additions to the allowance for loan losses were
unnecessary in 2002. The allowance represented 1.42% of total loans at September
30, 2002, 1.39% at December 31, 2001, and 1.39% at September 30, 2001. Although
management believes that upon review of loan quality and payment statistics, the
allowance is adequate to cover losses likely to result from loans in the current
portfolio at September 30, 2002, there can be no assurance that the allowance 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 $25.2 million at September 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:
September 30, 2002 December 31, 2001
------------------ -----------------
Commercial loans (Dollar amounts in thousands)
Dealer floor plan $ 9,324 $ 9,997
Lines of credit 55,337 45,469
Other 3,492 4,845
Commercial mortgages
Construction 37,308 25,685
Other 7,736 10,346
Residential mortgages
Home equity 73,125 61,891
Consumer loans
Lines of credit 3,108 2,969
-------- --------
Total $189,430 $161,202
======== ========
Deposits
The following table is a summary of deposits outstanding as of the dates
indicated:
September 30, 2002 December 31, 2001
------------------ -----------------
Deposits
Demand $244,643 $209,551
NOW 164,468 149,109
Money market 311,458 185,156
Other savings 87,150 155,255
Certificates of deposit greater than $100,000 38,946 53,123
Other time 127,223 151,197
-------- --------
Total deposits $973,888 $903,391
======== ========
Reflecting somewhat the seasonal nature of Cape Cod economy as discussed in
"Liquidity" on page 18 herein, total deposits at September 30, 2002 are $70.5
million or 7.8% 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 September 30,
2002, borrowed funds totaled $444.4 million, up 7.1% or $29.4 million compared
to borrowed funds at December 31,2001.
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 7.37% at September 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 September 30, 2002.
Minimum September 30, 2002
Regulatory -----------------------
Guidelines Company Bank
-------------------------------------------
Tier 1 leverage capital 4.00% 8.01% 7.88%
Tier 1 capital to risk-weighted assets 4.00% 11.14% 10.95%
Total capital to risk-weighted assets 8.00% 12.30% 12.11%
The Company's book value at September 30, 2002 was $13.90 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 September 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
On August 14, 2002 a report on Form 8-K was filed by the Company
pertaining to the "Regulation FD Disclosure".
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: November 14, 2002
---------------------------------------------------------------------------
/s/ STEPHEN B. LAWSON, President and Chief Executive Officer
-----------------------------------------------------------------------------
Stephen B. Lawson, President and Chief Executive Officer
/s/ PHILLIP W. WONG, Executive Vice President and Chief Financial Officer
-----------------------------------------------------------------------------
Phillip W. Wong, Executive Vice President and Chief Financial Officer
20
CERTIFICATIONS
- --------------
I, Stephen B. Lawson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of CCBT Financial
Companies, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consoloditated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee or registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002
-----------------
/s/ STEPHEN B. LAWSON, President and Chief Executive Officer
--------------------------------------------------------------
Stephen B. Lawson, President and Chief Executive Officer
21
CERTIFICATIONS
- --------------
I, Phillip W. Wong, certify that:
1. I have reviewed this quarterly report on Form 10-Q of CCBT Financial
Companies, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee or registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002
-----------------
/s/ PHILLIP W. WONG, Executive Vice President & Chief Financial Officer
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Phillip W. Wong, Executive Vice President and Chief Financial Officer