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UNITED STATES
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, 2003
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 number, 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. |X| Yes |_| No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). |X| Yes |_| No
There were 8,420,198 shares of the issuer's common stock outstanding as of
November 7, 2003.
1
TABLE OF CONTENTS
Section Description Page No.
- ------- ----------- --------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at September 30, 2003 and December 31, 2002 3
Consolidated Statements of Operations for the 4
Three and Nine Months Ended September 30, 2003 and 2002
Consolidated Statements of Cash Flows for the 5
Nine Months Ended September 30, 2003 and 2002
Consolidated Statements of Comprehensive Income for the 6
Nine Months Ended September 30, 2003 and 2002
Consolidated Statements of Changes in Stockholders' Equity for the 6
Nine Months Ended September 30, 2003 and 2002
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial Condition 8-17
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
Item 4. Controls and Procedures 17-18
PART II OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 18
Item 3. Defaults upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
CERTIFICATIONS 20-23
2
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2003 2002
----------- -----------
(Unaudited)
(In thousands)
ASSETS
Cash and due from banks $ 73,834 $ 60,057
Short-term, interest-bearing deposits 25,380 741
Securities available for sale, at fair value 356,567 510,837
Securities held to maturity 51,767 --
Federal Home Loan Bank stock, at cost 23,503 23,503
Federal Reserve Bank stock, at cost 1,235 1,235
Loans held for sale 7,997 37,332
Total loans 772,212 801,402
Less: Allowance for loan losses (12,771) (12,384)
----------- -----------
Net loans 759,441 789,018
----------- -----------
Premises and equipment 20,780 20,602
Deferred tax asset, net 6,200 5,572
Accrued interest receivable on securities and loans 4,385 5,982
Intangible assets 5,559 6,314
Foreclosed real estate 1,500 1,500
Other assets 14,765 19,190
----------- -----------
Total assets $ 1,352,913 $ 1,481,883
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 1,029,819 $ 942,220
Federal Home Loan Bank borrowings - short-term 25,145 205,700
Other short-term borrowings 32,177 21,391
Federal Home Loan Bank borrowings - long-term 136,898 165,750
Subordinated debt 5,000 5,000
Accrued interest payable on deposits and borrowings 1,061 1,501
Post retirement benefits payable 4,040 3,710
Employee profit sharing retirement and bonuses payable 1,633 3,017
Due to broker for securities settlement 72 11,627
Other liabilities 2,982 3,286
----------- -----------
Total liabilities 1,238,827 1,363,202
----------- -----------
Minority interest 316 234
----------- -----------
Commitments and contingencies
Stockholders' equity
Common stock, $1.00 par value: 12,000,000 shares authorized;
9,061,064 shares issued 9,061 9,061
Surplus 27,512 27,484
Undivided profits 91,397 91,042
Treasury stock, at cost (640,866 shares -2003; 470,266 shares -2002) (12,161) (8,122)
Accumulated other comprehensive loss (2,039) (1,018)
----------- -----------
Total stockholders' equity 113,770 118,447
----------- -----------
Total liabilities and stockholders' equity $ 1,352,913 $ 1,481,883
=========== ===========
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 OPERATIONS
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
-------- -------- -------- -------
(Unaudited)
INTEREST AND DIVIDEND INCOME (In thousands)
Interest and fees on loans $ 11,467 $ 14,063 $ 34,998 $42,472
Interest on short-term, interest-bearing deposits 81 75 182 237
Taxable interest income on securities 1,831 5,110 8,554 14,662
Tax-exempt interest income on securities 129 144 425 451
Interest on securities held to maturity 242 -- 242 --
Dividends on securities 201 231 614 715
-------- -------- -------- -------
Total interest and dividend income 13,951 19,623 45,015 58,537
-------- -------- -------- -------
INTEREST EXPENSE
Interest on deposits 1,895 3,125 6,108 9,626
Interest on Federal Home Loan Bank borrowings 2,061 3,600 7,262 10,659
Interest on other short-term borrowings 36 87 157 199
Interest on subordinated debt 63 72 192 215
-------- -------- -------- -------
Total interest expense 4,055 6,884 13,719 20,699
-------- -------- -------- -------
Net interest income 9,896 12,739 31,296 37,838
Provision for loan losses -- -- -- --
-------- -------- -------- -------
Net interest income after provision for loan losses 9,896 12,739 31,296 37,838
-------- -------- -------- -------
NON-INTEREST INCOME
Financial advisor fees 1,884 1,676 5,824 5,142
Deposit account service charges 590 553 1,805 1,679
Branch banking fees 722 804 2,235 2,314
Electronic banking fees 772 747 2,225 1,955
Loan servicing and other loan fees (costs) (104) 5 (414) 72
Brokerage fees and commissions 433 388 1,283 1,096
Net gain (loss) on securities -- 538 (1,692) 3,179
Net gain on sales of loans 907 571 3,072 1,647
Insurance commissions 778 622 2,227 2,047
Other income (loss) (189) (75) 54 186
-------- -------- -------- -------
Total non-interest income 5,793 5,829 16,619 19,317
-------- -------- -------- -------
NON-INTEREST EXPENSE
Salaries 4,806 4,668 13,522 13,752
Employee benefits 1,644 2,581 5,276 6,659
Building and equipment 1,400 1,596 4,587 4,659
Data processing 570 688 1,921 2,061
Accounting and legal fees 364 270 1,029 758
Other outside services 652 571 1,739 1,647
Amortization of intangibles 322 324 967 972
Delivery and communications 462 553 1,418 1,721
Marketing and advertising 455 440 1,235 1,290
All other expenses 1,190 921 3,630 2,992
-------- -------- -------- -------
Total non-interest expense 11,865 12,612 35,324 36,511
-------- -------- -------- -------
Minority Interest 35 17 82 161
-------- -------- -------- -------
Income before income taxes 3,789 5,939 12,509 20,483
Provision for income taxes 1,514 2,034 7,307 6,996
-------- -------- -------- -------
Net income $ 2,275 $ 3,905 $ 5,202 $13,487
======== ======== ======== =======
Basic earnings per share $ 0.27 $ 0.45 $ 0.61 $ 1.56
Diluted earnings per share $ 0.27 $ 0.45 $ 0.61 $ 1.56
Average shares outstanding - basic 8,420 8,611 8,478 8,621
Average shares outstanding - diluted 8,449 8,646 8,501 8,658
Cash dividends declared per share $ 0.19 $ 0.19 $ 0.57 $ 0.57
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,
2003 2002
---- ----
(Unaudited)
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 5,202 $ 13,487
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of fixed and intangible assets 3,204 3,232
Net amortization of securities 7,670 1,141
Amortization of net deferred loan costs 168 1,004
Net loss (gain) on securities 1,692 (3,179)
Net gain on sale of loans (3,072) (1,647)
Net change in:
Loans held for sale, net 32,407 (4,088)
Accrued interest receivable 1,597 418
Accrued expenses and other liabilities (1,798) 2,291
Other, net 3,174 (7,627)
----------- -----------
Net cash provided by operating activities 50,244 5,032
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in loans 29,409 13,653
Maturities of available-for-sale securities 474,610 472,749
Purchases of available-for-sale securities (396,231) (625,759)
Sales of available-for-sale securities 58,745 84,548
Purchases on held to maturity securities (55,568) --
Purchases of premises and equipment, net (2,914) (4,365)
----------- -----------
Net cash provided (used) by investing activities 108,051 (59,174)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 87,599 70,497
Federal Home Loan Bank borrowings 847,700 1,215,620
Repayments of Federal Home Loan Bank borrowings (1,057,106) (1,185,366)
Net increase (decrease) in other short-term borrowings 10,786 (894)
Purchase of treasury stock (4,308) (1,217)
Issuance of common stock under stock option plan 297 276
Cash dividends paid on common stock (4,847) (4,918)
----------- -----------
Net cash provided (used) by financing activities (119,879) 93,998
----------- -----------
Net increase in cash and cash equivalents 38,416 39,856
Cash and cash equivalents at beginning of period 60,798 62,062
----------- -----------
Cash and cash equivalents at end of period $ 99,214 $ 101,918
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest $ 14,154 $ 21,347
Income taxes 7,601 9,501
Non-cash transactions:
Net change in due to/from broker for securities settlement $ 11,555 $ 66,461
The accompanying notes are an integral part of these unaudited, consolidated
financial statements.
5
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements (continued)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Nine Months Ended September 30,
2003 2002
---- ----
(Unaudited)
(In thousands)
Net income $ 5,202 $ 13,487
------- --------
Unrealized holding losses on securities available for sale (3,341) (2,962)
Reclassification of losses (gains) on securities realized in income 1,692 (3,179)
------- --------
Net unrealized losses (1,649) (6,141)
Related tax effect 628 2,607
------- --------
Net other comprehensive loss (1,021) (3,534)
------- --------
Comprehensive income $ 4,181 $ 9,953
======= ========
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Nine Months Ended September 30,
2003 2002
---- ----
(Unaudited)
(In thousands)
COMMON STOCK
Balance, beginning and end of period $ 9,061 $ 9,061
--------- ---------
SURPLUS
Balance, beginning of period 27,484 27,473
Issuance of common stock under stock option plan 28 9
--------- ---------
Balance, end of period 27,512 27,482
--------- ---------
UNDIVIDED PROFITS
Balance, beginning of period 91,042 83,157
Net income 5,202 13,487
Cash dividends declared and paid (4,847) (4,918)
--------- ---------
Balance, end of period 91,397 91,726
--------- ---------
TREASURY STOCK
Balance, beginning of period (8,122) (7,197)
Purchase of treasury stock (187,100 and 47,500 shares) (4,308) (1,217)
Issuance of common stock under stock option plan
(16,500 and 16,375 shares, respectively) 269 267
--------- ---------
Balance, end of period (12,161) (8,147)
--------- ---------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance, beginning of period (1,018) 2,822
Net other comprehensive (loss) (1,021) (3,534)
--------- ---------
Balance, end of period (2,039) (712)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY, END OF PERIOD $ 113,770 $ 119,410
========= =========
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, 2003 and 2002 (Unaudited)
1. Business
CCBT Financial Companies, Inc. ("Company") was incorporated under the laws
of the Commonwealth of Massachusetts on October 8, 1998 and is the bank holding
company for Cape Cod Bank and Trust Company (the "Bank"), a national bank.
Currently, the Company's business activities are conducted primarily through the
Bank.
2. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles 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 principles for complete
financial statements. Certain amounts have been reclassified in the September
30, 2002 financial statements to conform to the 2003 presentation. In the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three and nine months ended September 30, 2003 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, 2002.
3. REIT Tax Law Dispute With Massachusetts Department of Revenue
CCBT Preferred Corp. ("CCBT Preferred") was a real estate investment trust
("REIT") subsidiary formed by the Bank in the second quarter of 1999. Since that
time and prior to the enactment of the new tax legislation and settlement
discussed below, the Bank had taken a tax deduction under a Massachusetts
statute that provides for a dividends received deduction equal to 95% of certain
dividend distributions made by CCBT Preferred to the Bank. As previously
announced, the Bank received notices of assessment from the Commonwealth of
Massachusetts DOR for tax years ended December 31, 1999, 2000 and 2001 based on
the DOR's contention that dividend distributions by CCBT Preferred to the Bank
are fully taxable in Massachusetts.
In the first quarter of 2003, the Company accrued a liability of
approximately $5.1 million, representing an estimate of the additional state tax
liability, including interest (net of any federal and state tax deductions
associated with such taxes and interest), relating to the deduction for
dividends received from the REIT for the 1999 through 2001 fiscal years, and the
previously anticipated deduction for fiscal 2002, thus reducing earnings by $5.1
million in the first quarter of 2003. The accrued liability was the result of
legislation signed March 5, 2003 by the Governor of Massachusetts that amended
Massachusetts law to expressly disallow the deduction for dividends received
from a REIT. This amendment applied retroactively to tax years ending on or
after December 31, 1999. As a result of the enactment of this legislation, the
Company ceased recording the tax benefits associated with the dividends received
deduction effective for the 2003 tax year and accrued the liability described
above.
On June 23, 2003, the Company entered into a settlement with the
Massachusetts Department of Revenue ("DOR"), and agreed to pay approximately 50%
of the disputed tax liability which had previously been accrued. As a result of
the settlement, the Company recognized a reduction of income tax and related
interest expense of approximately $2.5 million in the second quarter of 2003.
The Company's settlement with the DOR is similar to settlements entered into by,
and in participation with numerous other financial institutions in
Massachusetts.
On July 31, 2003, the Company received approval from the Secretary of the
Commonwealth of Massachusetts to liquidate and dissolve CCBT Preferred and the
dissolution was effected on August 31, 2003.
4. Stock Compensation Plans
At September 30, 2003, the Company has two stock-based employee
compensation plans, which are described more fully in Note 6 of the Company's
annual report on Form 10-K for the year ended December 31, 2002. The Company
accounts for its stock option plans under the recognition and measurement
principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and
related
7
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements (continued)
Interpretations. No stock-based employee compensation cost is reflected in net
income, as all options granted under those plans had an exercise price equal to
the fair value of the underlying common stock on the date of grant.
Had the Company applied SFAS No. 123, "Accounting for Stock -Based
Compensation", for the quarter ended September 30, 2003, the additional net
after-tax expense of $67,000 would have resulted in pro-forma basic and diluted
earnings per share to be reported as $.26 as compared to $.27 per share. For the
quarter ended September 30, 2002, the additional net after-tax expense of
$59,000 would have resulted in pro-forma basic and diluted earnings per share
being reported as $.45 and $.44, respectively, as compared to the $.45 per share
reported.
Had the Company applied SFAS No. 123, "Accounting for Stock -Based
Compensation", for the nine months ended September 30, 2003, the additional net
after-tax expense of $194,000 would have resulted in pro-forma basic and diluted
earnings per share being reported as $.59 as compared to the $.61 per share
reported. For the nine months ended September 30, 2002, the additional net
after-tax expense of $176,000 would have resulted in pro-forma basic and diluted
earnings per share being reported as $1.54 as compared to the $1.56 per share
reported.
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 prevailing
interest rates and increases in mortgage prepayments which may reduce interest
margin, 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 consolidated financial statements and selected consolidated
financial data 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, Massachusetts. It offers a
wide range of banking and financial 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 and
wholesale businesses; primary households (including a significant retirement
population); and a growing number of second homeowners. In addition, a
substantial non-core vacation population causes 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
Quarters Ended September 30,
-----------------------------------------------------------------------------------
2003 2002
-------------------------------------- ---------------------------------------
Average Average Average Average
Balance Interest Yield Balance Interest Yield
-------------------------------------- ---------------------------------------
(Dollars in thousands)
ASSETS
Securities:
Mortgage-backed securities $ 37,438 $ 303 3.24% $ 8,508 $ 137 6.46%
CMOs 125,921 (378) (1.20)% 211,766 2,031 3.84%
U.S. Government agencies 13,965 81 2.33% 46,699 393 3.36%
State and municipal obligations 20,817 129 2.47% 18,111 144 3.17%
Other debt securities 261,555 2,349 3.56% 245,967 2,855 4.61%
---------- ---------- ---------- ----------
Total securities 459,696 2,484 2.14% 531,051 5,560 4.17%
---------- ---------- ---------- ----------
Loans:
Commercial 90,530 1,115 4.82% 84,270 1,177 5.47%
Commercial construction 67,650 787 4.55% 59,281 786 5.18%
Residential construction 31,730 405 5.11% 45,260 646 5.71%
Commercial mortgages 289,209 5,318 7.20% 277,986 5,241 7.38%
Industrial revenue bonds 826 12 5.66% 1,023 15 5.70%
Residential mortgages 226,357 2,859 5.05% 357,440 5,220 5.84%
Home equity 73,361 838 4.53% 62,372 813 5.17%
Consumer 4,815 132 10.85% 6,089 165 10.75%
---------- ---------- ---------- ----------
Total loans 784,478 11,466 5.76% 893,721 14,063 6.22%
---------- ---------- ---------- ----------
Total earning assets 1,244,174 13,950 4.43% 1,424,772 19,623 5.46%
---------- ---------- ---------- ----------
Non-earning assets 79,627 66,545
---------- ----------
Total assets $1,323,801 $1,491,317
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits:
NOW accounts $ 186,114 70 0.15% $ 158,692 198 0.50%
Regular savings 100,502 115 0.46% 87,109 252 1.15%
Money market accounts 303,397 715 0.94% 298,687 1,380 1.83%
Certificates of deposit of
$100,000 or more 39,575 276 2.77% 38,913 281 2.87%
Other time deposits 114,572 720 2.49% 128,504 1,014 3.13%
---------- ---------- ---------- ----------
Total interest-bearing deposits 744,160 1,896 1.01% 711,905 3,125 1.74%
---------- ---------- ---------- ----------
Borrowings:
Federal Home Loan Bank 157,942 2,059 5.17% 371,337 3,601 3.85%
Other short-term borrowings 26,503 36 0.54% 30,419 87 1.14%
Subordinated debt 5,000 63 4.97% 5,000 71 5.67%
---------- ---------- ---------- ----------
Total borrowings 189,445 2,158 4.52% 406,756 3,759 3.67%
---------- ---------- ---------- ----------
Total interest-bearing liabilities 933,605 4,054 1.72% 1,118,661 6,884 2.44%
---------- ---------- ---------- ----------
Demand deposits 270,614 241,870
Non-interest bearing liabilities 7,124 9,424
Stockholders' equity 112,458 121,362
---------- ----------
Total liabilities and equity $1,323,801 $1,491,317
========== ==========
Net interest income/spread $ 9,896 2.70% $ 12,739 3.02%
========== ==========
Net interest margin (NII/Avg. Earning Assets) 3.16% 3.55%
9
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,
--------------------------------------------------------------------------------
2003 2002
------------------------------------ --------------------------------------
------------------------------------ --------------------------------------
Average Average Average Average
Balance Interest Yield Balance Interest Yield
------------------------------------ --------------------------------------
(Dollars in thousands)
ASSETS
Securities:
Mortgage-backed securities $ 17,173 $ 479 3.72% $ 11,936 $ 509 5.68%
CMOs 137,480 84 0.08% 167,662 6,461 5.14%
U.S. Government agencies 18,456 249 1.80% 28,951 820 3.78%
State and municipal obligations 22,274 425 2.55% 18,346 451 3.28%
Other debt securities 275,528 8,780 4.26% 249,271 7,823 4.20%
---------- ---------- ---------- ----------
Total securities 470,911 10,017 2.84% 476,166 16,064 4.50%
---------- ---------- ---------- ----------
Loans:
Commercial 89,662 3,385 4.98% 87,349 3,722 5.62%
Commercial construction 62,079 2,176 4.62% 55,609 2,178 5.16%
Residential construction 33,709 1,372 5.43% 44,897 1,935 5.75%
Commercial mortgages 285,185 15,290 7.07% 268,648 15,362 7.54%
Industrial revenue bonds 871 37 5.66% 1,077 46 5.66%
Residential mortgages 242,756 9,876 5.42% 364,479 16,458 6.02%
Home equity 70,532 2,451 4.65% 59,228 2,254 5.09%
Consumer 5,164 411 10.65% 6,584 518 10.52%
---------- ---------- ---------- ----------
Total loans 789,958 34,998 5.87% 887,871 42,473 6.34%
---------- ---------- ---------- ----------
Total earning assets 1,260,869 45,015 4.74% 1,364,037 58,537 5.70%
---------- ---------- ---------- ----------
Non-earning assets 77,434 68,903
---------- ----------
Total assets $1,338,303 $1,432,940
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits:
NOW accounts $ 175,298 250 0.19% $ 152,075 547 0.48%
Regular savings 94,869 405 0.57% 80,891 691 1.14%
Money market accounts 296,267 2,292 1.03% 282,776 3,855 1.82%
Certificates of deposit of
$100,000 or more 38,900 817 2.81% 42,921 992 3.09%
Other time deposits 117,836 2,344 2.66% 137,120 3,541 3.45%
---------- ---------- ---------- ----------
Total interest-bearing deposits 723,170 6,108 1.13% 695,783 9,626 1.85%
---------- ---------- ---------- ----------
Borrowings:
Federal Home Loan Bank 219,836 7,262 4.42% 357,153 10,659 3.99%
Other short-term borrowings 27,676 157 0.76% 26,435 199 1.01%
Subordinated debt 5,000 192 5.12% 5,000 215 5.75%
---------- ---------- ---------- ----------
Total borrowings 252,512 7,611 4.03% 388,588 11,073 3.81%
---------- ---------- ---------- ----------
Total interest-bearing liabilities 975,682 13,719 1.88% 1,084,371 20,699 2.55%
---------- ---------- ---------- ----------
Demand deposits 237,884 219,072
Non-interest bearing liabilities 11,556 11,590
Stockholders' equity 113,181 117,907
---------- ----------
Total liabilities and equity $1,338,303 $1,432,940
========== ==========
Net interest income/spread $ 31,296 2.86% $ 37,838 3.15%
========== ==========
Net interest margin (NII/Avg. Earning Assets) 3.32% 3.71%
10
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (cont.)
RESULTS OF OPERATIONS
Three and Nine Months Ended September 30, 2003 vs September 30, 2002
Net Income. Net income was $2.3 million or $0.27 per share and $5.2
million or $0.61 per share for the three and nine months ended September 30,
2003 as compared to $3.9 million or $0.45 per share and $13.5 million or $1.56
per share for the respective periods in 2002. Following is a discussion of the
major factors affecting the results of operations for the periods.
Net Interest Income. Net interest income was $9.9 million and $31.3
million for the three and nine months ended September 30, 2003 as compared to
$12.7 million and $37.8 million for the same periods in 2002, representing
decreases of 22.3% and 17.3%, respectively. The net interest spread and net
interest margin ratios were 2.7% and 3.2%, respectively, for the quarter ended
September 30, 2003, as compared to 3.0% and 3.6%, respectively, for the prior
year. The net interest spread and net interest margin ratios were 2.9% and 3.2%,
respectively, for the nine months ended September 30, 2003, as compared to 3.2%
and 3.7%, respectively, for the prior year. The decline in net interest income
for the comparative periods can be attributed to the lower levels of average
earning assets and interest bearing liabilities due to pre-payments and
refinancings coupled with the narrowing of interest rate spreads and margins.
The extended period of lower rates, declining since 2001, has effectively
decreased the yield on all earning asset classes in both the three and nine
months ended September 30, 2003 when compared with the same prior year periods.
With the Federal Open Market Committee's (FOMC) targeted federal funds rate at
1.00%, the current interest rate environment is at a 45-year low. Lower mortgage
rates, in particular, have substantially accelerated pre-payments on both
residential mortgage loans and investment securities backed by housing
collateral. In this low-rate environment, residential mortgage borrowers have
refinanced from adjustable-rate to fixed-rate mortgages, which are sold to
mitigate future interest rate risk. This activity in the residential mortgage
portfolio has significantly reduced the average balance of residential mortgages
outstanding for both the three and nine months ended September 30, 2003 when
compared to the comparable periods in 2002 and has more than offset the positive
growth in the Company's other loan categories. Investment securities backed by
housing collateral (Mortgage Backed Securities (MBS) and Collateralized Mortgage
Obligations (CMOs)) have also been subject to accelerated pre-payments of
principal during this low rate environment and combined average balances in
these categories for the three and nine months ended September 30, 2003 are
lower in comparison to the comparable periods in 2002. As loans and investments
have declined, average borrowings have correspondingly decreased. This funding
decline has been partially offset by increases in average deposits during both
the three and nine months ended September 30, 2003 and reflect organic growth in
core deposits as the year-round Cape Cod region population continues to
increase.
As previously stated, lower mortgage rates have been an incentive for
mortgage borrowers to refinance their loans and thus accelerated pre-payments on
both residential mortgage loans and investment securities backed by housing
collateral (MBS and CMOs), resulting in reinvestment of the principal proceeds
at much lower rates. Interest income, in these categories, has also been reduced
as accelerated pre-payments have stepped up the write-off of deferred costs on
residential mortgage loans and hastened the amortization of premiums paid on
mortgage related investment securities. The Company's CMO securities, in
particular, have experienced a significant negative impact upon their yield,
(1.20%) and 0.08% for the three and nine months ended September 30, 2003, as the
acceleration in the amortization of premiums outpaced receipt of interest
income. The Company has lowered its funding costs, however at a pace not equal
to the decline in average earning asset yields given its substantial mix of non
and low-interest average core deposits.
Provision for Loan Losses. Recoveries on loans previously charged-off
exceeded charge-offs during the three and nine months ended September 30, 2003
by $91,000 and $387,000, respectively. Management's assessment of the risks in
the loan portfolio at September 30, 2003 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 for the three and nine months ended
September 30, 2003. The allowance for loan losses as a percentage of total loans
was 1.65% and 1.42% at September 30, 2003 and 2002, respectively, representing
management's consideration of qualitative factors, primarily the weakness in
local and national economic trends, and growth in higher-risk commercial loans.
Non-Interest Income. Non-interest income totaled $5.8 million for the
quarter ended September 30, 2003, unchanged from the same period in the prior
year. Increases in financial advisor fees of $208,000, brokerage fees and
commissions of $45,000 and insurance commissions of $156,000, represented an
aggregate increase of 13.4% and reflect the Company's efforts to increase fee
revenues. Net gain on sales of loans increased $336,000. These positive results
were primarily offset by activity in net (loss) gain on securities and changes
in other non-interest income. There were no net gains (losses) on securities
recorded during the quarter ended September 30, 2003 as compared with a net gain
of $538,000 during the same period in 2002. In the three months ended September
30, 2003, the Company recognized a net loss of approximately $400,000 on fixed
assets related to the closure of nine Stop & Shop transaction offices.
Non-interest income of $16.6 million reflected a decline of $2.7 million
during the first nine months of 2003 as compared to the corresponding period in
the prior year due primarily to the unfavorable change in the net gain(loss) on
securities of $4.9 million. Security losses of $1.7 million were recorded during
the 2003 period, including a $1.3 million impairment loss recognized on an asset
backed security as well as losses from the sale of interest-only CMO's. By
contrast, during the 2002 period, $3.2 million of gains were reported as a
result of the sale of securities. The increase in net gain on sales of loans of
$1.4 million and fee-based revenues of $1.1 million (financial advisor,
brokerage and insurance commissions) during the first nine months of 2003 as
compared to the same 2002 period helped to partially offset the unfavorable
change in the net gain(loss) on securities.
11
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (cont.)
Non-Interest Expense. During the third quarter of 2003, non-interest
expense of $11.9 million reflected a decrease of $747,000 as compared to the
third quarter of 2002. Decreases in salaries and employee benefits, down a
combined $799,000, attributable to lower incentive related program costs,
primarily account for the reduction in non-interest expenses for the comparative
quarters. Other categories of non-interest expense within the quarter are
reflective of the combination of changes in levels of activity as well as the
effect of inflationary costs.
Non-interest expense decreased $1.2 million or 3.3% from the first nine
months of 2002 to the same period in 2003. A decrease in salaries and employee
benefits of $1.6 million during the 2003 period as compared to 2002 can be
attributed to the accrual of $506,000 of costs associated with an early
retirement program during the 2002 period, the increase of $1.2 million in the
2003 period for the net deferral of salaries under FAS 91, largely due to the
increased volume of residential mortgage originations and lower incentive
related program costs. Partially offsetting these changes in salaries and
benefits were increased costs related to annual merit increases and increases in
benefit costs. In the first nine months of 2003, there was also a significant
increase in all other expenses of $638,000 over the 2002 level primarily as a
result of the $443 thousand of interest expenses on a state tax assessment which
is the result of a retroactive amendment to state tax law during the first half
of 2003.
Provision for Income Taxes. The provision for income taxes decreased by
25.6% from $2.0 million in the third quarter of the prior year to $1.5 million
in the comparable period in 2003 as income before income taxes decreased from
$5.9 million to $3.8 million for the respective periods.
The provision for income taxes increased from $7.0 million for the nine
months ended September 30, 2002 to $7.3 million for the nine months ended
September 30, 2003. This increase, despite the decrease in income before taxes,
is due to the previously disclosed settlement in June 2003 of the REIT tax law
dispute with the Massachusetts Department of Revenue. The settlement resulted in
a net increase of $2.3 million in the income tax provision and an effective tax
rate of 58.4% for the nine months ended September 30, 2003. The adjusted
effective income tax rates for the three and nine months ended September 30,
2003 are 40.0% as compared with 34.2% for the comparable periods in 2002. The
higher rate reflects the loss of the REIT tax advantage.
(The remainder of this page intentionally left blank.)
12
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (cont.)
COMPARATIVE ANALYSIS OF SELECTED PERIOD-END ASSETS,
LIABILITIES AND CAPITAL
The Company had $1.35 billion of consolidated total assets, $1.03 billion
in deposits and $113.8 million in stockholders' equity at September 30, 2003.
Its capital to assets ratio was 8.41%, exceeding all regulatory requirements. As
compared to reported balances at December 31, 2002, investment securities
decreased $102.5 million or 20.1%, loans decreased $29.2 million or 3.6%,
deposits increased $87.6 million or 9.3% and borrowed funds decreased $198.6
million or 49.9%.
Securities
The amortized cost and estimated fair values of securities at September
30, 2003 and December 31, 2002 were as follows:
September 30, 2003
------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
Securities Available for Sale (In thousands)
- -----------------------------
U.S. Government agency CMOs $ 59,176 $ 225 $ 73 $ 59,328
Other U.S. Government agency obligations 21,615 15 -- 21,630
Other collateralized mortgage obligations 71,154 187 233 71,108
Interest-only securities 2,185 441 646 1,980
State and municipal obligations 18,319 -- -- 18,319
Other debt securities 187,544 1,158 4,500 184,202
-------- ------ ------ --------
Totals $359,993 $2,026 $5,452 $356,567
======== ====== ====== ========
Securities Held to Maturity
- ---------------------------
Mortgage-backed securities $ 51,767 $ 138 $ 343 $ 51,562
======== ====== ====== ========
December 31, 2002
------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
Securities Available for Sale (In thousands)
- -----------------------------
U.S. Government agency CMOs $ 63,131 $ 685 $ 22 $ 63,794
Other U.S. Government agency obligations 24,635 51 41 24,645
Other collateralized mortgage obligations 105,136 238 258 105,116
Interest-only securities 14,444 1,359 2,206 13,597
State and municipal obligations 19,798 -- -- 19,798
Other debt securities 285,470 2,472 4,055 283,887
-------- ------ ------ --------
Totals $512,614 $4,805 $6,582 $510,837
======== ====== ====== ========
The Company invests in various investment grade structures, including
mortgage securities (MBS and CMO's) and asset-backed securities, usually with
short effective durations. These securities are subject to changes in market
values and possibility of loss resulting from substantial changes in interest
rates and from changes in credit risk arising from weak economic conditions.
During this historic period of low interest rates, securities backed by mortgage
collateral have experienced high levels of accelerated principal pre-payments
with a corresponding acceleration of amortization of premiums. The acceleration
in amortization of premiums on the Company's CMO securities, in particular, has
had a significant negative impact upon their yield. No security gains or losses
were recorded during the
13
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (cont.)
quarter ended September 30, 2003. During the same period in 2002, the Company
reported $538 thousand of gains. Securities available for sale decreased $154.3
million, from $510.8 million at December 31, 2002 to $356.6 million at September
30, 2003. In the quarter, the Company purchased moderate effective duration
mortgage-backed securities with an amortized cost of $51.8 million at September
30, 2003 and designated them held as to maturity.
Loans
The following is a summary of the Company's outstanding loan balances as of the
dates indicated:
September 30, 2003 December 31, 2002
------------------ -----------------
Mortgage loans on real estate: (In thousands)
Residential $ 206,648 $ 262,095
Commercial 296,984 283,458
Construction 98,672 99,544
Equity lines of credit 78,927 65,794
Other loans:
Commercial 85,592 83,953
Consumer 4,582 5,629
Industrial revenue bonds 807 929
--------- ---------
Total loans 772,212 801,402
Less: Allowance for loan losses (12,771) (12,384)
--------- ---------
Total loans, net $ 759,441 $ 789,018
========= =========
Loans held for sale $ 7,997 $ 37,332
========= =========
As shown in the table above, total loans decreased $29.2 million or 3.6%
to $772.2 million at September 30, 2003 as compared to December 31, 2002.
Historically low mortgage rates have motivated mortgage borrowers to refinance
into fixed rate mortgages resulting in significant levels of residential
mortgage originations thus far this year. Fixed-rate residential mortgages are
sold to the secondary mortgage market to mitigate future interest rate risk. As
a result, total residential mortgage loans outstanding have declined $55.4
million during the nine months ended September 30, 2003. Net decreases in
residential mortgage loans have more than offset the positive growth results
realized in commercial mortgages, equity lines of credit and commercial loans,
up $13.5, $13.1 and $1.6 million, respectively. During the quarter ended
September 30, 2003, $84.1 million (fixed rate) and $42.1 million (adjustable
rate) in residential mortgages were originated. During the same period, the
Company sold $96.0 million in fixed-rate residential mortgages, producing net
gains of $907 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
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 Office of the Comptroller of Currency ("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.
14
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (cont.)
Non performing assets and loan loss experience
As shown in the following table non-performing assets were $3.3 million or
..25% of total assets at September 30, 2003 compared to $2.8 million or .19% of
total assets at December 31, 2002. This increase can be accounted for primarily
by residential mortgage loans which, the Company believes, are adequately
collateralized. 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, unless the loan is fully
secured by real estate or other collateral and is in the process of collection.
September 30, December 31,
2003 2002
------ ------
(In thousands)
Nonaccrual loans $1,836 $1,348
Loans past due 90 days or more and still accruing -- --
Property from defaulted loans 1,500 1,500
------ ------
Total non-performing assets $3,336 $2,848
====== ======
Restructured troubled debt performing in accordance
with amended terms, not included above $ 200 $ 210
====== ======
The following is a summary of the activity in the allowance for loan losses for
the indicated periods:
Nine Months Ended September 30,
2003 2002
-------- --------
(In thousands)
Balance, beginning of period $ 12,384 $ 12,252
Provision for loan losses -- --
Charge-offs (56) (137)
Recoveries on loans previously charged off 443 307
-------- --------
Balance, end of period $ 12,771 $ 12,422
======== ========
Recoveries on loans previously charged off exceeded charge-offs therefore
management determined that additions to the allowance for loan losses were
unnecessary in 2003. The allowance represented 1.65% of total loans at September
30, 2003, 1.55% at December 31, 2002, and 1.42% at September 30, 2002. 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, 2003, there can be no assurance that the allowance is
adequate or that additional provisions might not become necessary.
The Company had outstanding commitments to originate new residential and
commercial mortgages of $46.5 million at September 30, 2003 and $44.0 million at
December 31, 2002 which are not reflected on the consolidated statement of
financial condition. Additional unadvanced loan funds are summarized as follows
for the indicated periods:
September 30, 2003 December 31, 2002
------------------ -----------------
Commercial loans (In thousands)
Dealer floor plan $ 7,812 $ 6,618
Lines of credit 45,766 54,267
Other 1,372 3,231
Commercial mortgages
Construction 27,886 32,480
Other 9,786 8,485
Residential mortgages
Home equity 85,887 79,480
Consumer loans
Lines of credit 3,471 3,388
-------- --------
Total $181,980 $187,949
======== ========
15
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (cont.)
Deposits
The following table is a summary of deposits outstanding as of the dates
indicated:
September 30, 2003 December 31, 2002
------------------ -----------------
Deposits (In thousands)
Demand $ 266,927 $229,033
NOW 189,988 171,084
Money market 318,605 294,295
Other savings 99,429 88,503
Certificates of deposit greater than $100,000 41,247 37,344
Certificates of deposit $100,000 or less 113,623 121,961
---------- --------
Total deposits $1,029,819 $942,220
========== ========
Reflecting somewhat the seasonal nature of the Cape Cod economy as
discussed in "Liquidity" on page 17 herein, total deposits at September 30, 2003
were $87.6 million or 9.3% higher than total deposits at December 31, 2002.
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 ("FHLBB"), and has sold
securities under agreements to repurchase, to fund loans and investments. At
September 30, 2003, borrowed funds totaled $199.2 million, down 49.9% or $198.6
million compared to borrowed funds totalling $397.8 million at December 31,
2002. Borrowings with the FHLBB are collateralized by residential mortgage loans
and securities. At September 30, 2003, the Company had approximately $120
million available in unused borrowing capacity with the FHLBB.
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 July 31, 2006.
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 balance sheets 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.
Stockholders' Equity
The Company's capital to assets ratio was 8.41% at September 30, 2003
compared to 7.99% at December 31, 2002.
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, 2003.
Minimum September 30, 2003
Regulatory ------------------------
Guidelines Company Bank
-----------------------------------------
Tier 1 leverage capital 4.00% 8.65% 8.45%
Tier 1 capital to risk-weighted assets 4.00% 11.64% 11.37%
Total capital to risk-weighted assets 8.00% 12.89% 12.62%
16
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (cont.)
The Company's book value at September 30, 2003 was $13.51 per share
compared to $13.79 per share at December 31, 2002.
LIQUIDITY
The Company normally experiences changes 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 spring.
In general, investment securities could also 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 fee income growth from increasing customer
relationship cross-selling.
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, 2002 (the "2002 Annual Report").
For quantitative information about market risk, see Item 7A of Part II of
the Company's 2002 Annual Report.
There have been no material changes in the quantitative and qualitative
disclosures about market risk as of September 30, 2003 from those presented in
the Company's 2002 Annual Report.
ITEM 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. The Company's chief
executive officer and chief financial officer, after evaluating the
effectiveness of the Company's disclosure controls and procedures (as
defined in Sections 13a-14(c) and 15d-14(c) of the Securities Exchange Act
of 1934, as amended), as of the end of the period covered by this
quarterly report, (the "Evaluation Date") have concluded that as of the
Evaluation Date, the Company's disclosure controls and procedures were
adequate and are designed to ensure that material information relating to
the Company would be made known to such officers by others within the
Company on a timely basis.
(b) Changes in internal controls. There were no significant changes in the
Company's internal controls or in other factors that could significantly
affect these controls subsequent to the Evaluation Date.
17
PART I FINANCIAL INFORMATION
ITEM 4. Controls and Procedures (continued)
(c) Changes in internal control over financial reporting. There were no
significant changes in the Company's internal control over financial reporting
that occurred during the most recent fiscal quarter that has materially affected
or is reasonably likely to materially affect, the Company's internal control
over the financial reporting.
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
Exhibit Description
------- -----------
31.1 Certification of President of CCBT Financial Companies,
Inc., pursuant to rules 13(a)-15(e) and 15d-15(e), as
adopted 1 pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
31.2 Certification of Chief Financial Officer of CCBT
Financial Companies, Inc., pursuant to rules 13(a)-15(e)
and 5d-15(e), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certification of President of CCBT Financial Companies,
Inc., pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
32.2 Certification of Chief Financial Officer of CCBT
Financial Companies, Inc., pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
On July 17, 2003 a report on Form 8-K was filed by the Company under
Item 9 "Regulation FD Disclosure" reporting that a press release was
issued announcing the Company's earnings for the second quarter 2003
and filing as an exhibit under Item 7 thereby, the press release
dated July 17, 2003.
18
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 7, 2003
/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
19