About Us

2008 Annual Report

A MESSAGE FROM THE TREASURER

Throughout 2008, Cape Cod Five faced a deteriorating national economic environment that culminated in a severe liquidity and credit crisis in the fourth quarter. The country experienced the failure of Bear Stearns, IndyMac and Lehman Bros., while other major financial institutions were weakened and needed assistance from the Treasury. In this unparalleled economic downturn, which continues to the present day, the Bank recorded net income of $9.0 million for the year-ended December 31, 2008 for an annualized return on average assets of 52 basis points. As a result of the overall weakness in the local and national economic climate, the Bank assessed the possibility of future duress on its loan portfolio and recorded a provision for loan losses of $3.2 million thus improving its reserve for loan loss coverage to 0.97%. Net income and changes in accumulated other comprehensive income in 2008 allowed the Bank’s capital to increase to $174.4 million or 6.0% at December 31, 2008 and tier 1 capital to average-weighted assets ratio stood at 9.6%. The Bank’s capital adequacy was categorized at the highest regulatory definition of well capitalized under all quantitative measures.

Total assets grew to $1.78 billion in 2008 up $124.8 million or 7.5%. With a reputation as a financially sound community based institution in a period of economic turmoil, and faced with a highly competitive deposit rate environment, Cape Cod Five was able to attract and grow deposits and maintain its first place market share level on Cape Cod. At year-end, deposits exceeded $1.5 billion, increasing $98.5 million or 7.0% in 2008. With deposit growth and the increases in capital and total borrowings of $9.9 million and $14.4 million, respectively, the Bank generated $122.8 million in resources. The resources were utilized in growing net loans $79 million or 6.1% to $1.37 billion. Year over year, the Bank recorded total net commercial loan growth of $38.3 million or 11.0% and increased its percentage of total loans to 28.0%. Net residential mortgage and home equity loan balances grew by $22.1 million and $21 million, respectively. In a mortgage market where overall sales have declined, the Bank closed mortgage loans totaling over $400 million for the year of 2008 up from $350 million in 2007. This level of residential lending at the Bank made it the largest provider of residential mortgages on Cape Cod in 2008. Remaining resources were primarily allocated to the increase of $45.4 million in federal funds sold providing for strong liquidity in uncertain economic times.

Despite falling rates and economic challenges, year-over-year, net interest income grew $6.6 million driven by strong earning asset growth and improved spread and margin. Increases in net gain on sale of mortgage loans and investments primarily account for the $1.5 million or 14.0% growth in non-interest income. These positive factors in 2008 were offset by the increases in non-interest expenses and provision for loan losses of $5.2 million and $3.0 million, respectively. The primary cause for the non-interest expense increase is due to increased salaries and employee benefit expense due to merit increases, de novo expansion and rising benefit costs. The $3.0 million increase in the provision for loan losses was attributable to a combination of potential future loan losses, loan growth and higher net charge-offs in 2008. These factors resulted in net income of $9.0 million for 2008 as compared with the $9.2 million recorded for 2007.

In 2008, Cape Cod Five maintained consistent earnings in one of the most challenging economic environments since the Depression and achieved new balance sheet levels. Economic weakness and uncertainties still lie ahead and will continue to present challenges for Cape Cod Five and the financial industry in general. Our financial statements offer additional detail and insight on the 2008 performance.

Phillip W. Wong
Executive Vice President, Chief Financial Officer & Treasurer