SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001- 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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Capital Stock The Nasdaq Stock Market, Inc.
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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. |X|
The aggregate market value of the voting stock held by non-affiliates of
the registrant, based on the $25.65 price on February 28, 2002, on the Nasdaq
National Market was $190,462,069. Although Directors and executive officers of
the registrant were assumed to be "affiliates" of the registrant for the
purposes of this calculation, this classification is not to be interpreted as an
admission of such status.
As of February 28, 2002, 8,621,048 shares of the registrant's common stock
were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the CCBT Financial Companies, Inc. Notice of Annual Meeting and
definitive Proxy Statement for the Annual Meeting of Stockholders to be held on
April 25, 2002 are incorporated by reference into Part III of this Form 10-K.
FORWARD-LOOKING STATEMENTS
This report contains certain statements that may be considered "forward-looking
statements" under the Private Securities Litigation Reform Act of 1995. CCBT
Financial Companies, Inc. (the "Company" or the "Registrant") may also make
written or oral forward-looking statements in other documents we file with the
Securities and Exchange Commission, in our annual reports to stockholders, in
press releases and other written materials, and in oral statements made by our
officers, directors or employees. You can identify forward-looking statements by
the use of the words "believe," "expect," "anticipate," "intend," "estimate,"
"assume," "will," "should," the negatives of such words, and other similar
expressions which predict or indicate future events and trends and which do not
relate to historical matters. These forward-looking statements involve known and
unknown risks, uncertainties and other factors, some of which are beyond our
control. These risks, uncertainties and other factors may cause the Company's
actual results to materially differ from those projected in the forward-looking
statements. Some of the factors that might cause these differences include the
following: changes in the volume of loan originations, fluctuations in
prevailing interest rates, increases in costs to borrowers of loans held,
increases in costs of funds and changes in the assumptions used in making such
forward-looking statements. In addition, the factors listed under "Risk Factors
and Factors Affecting Forward Looking Statements," beginning on page 5 of this
report may result in these differences. Readers should carefully review the
factors described under "Risk Factors and Factors Affecting Forward Looking
Statements." You should be aware that there may be other factors that could
cause these differences. You should not place undue reliance on our
forward-looking statements.
The forward-looking statements contained in this report were based on
information, plans and estimates at the date of this report, and the Company
assumes no obligations to update any forward-looking statements to reflect new
information, future events or other changes.
PART I
Item 1. Business.
General.
The Company was incorporated under the laws of the Commonwealth of
Massachusetts on October 8, 1998 under the name CCBT Bancorp, Inc. at the
direction of the Board of Directors and management of Cape Cod Bank and Trust
Company (the "Bank") for the purpose of becoming a bank holding company for the
Bank. On February 11, 1999, the Company 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 the Company's common stock (the "Reorganization"). At a special
stockholders' meeting held July 29, 1999, CCBT Bancorp, Inc.'s name was changed
to CCBT Financial Companies, Inc. This name change became effective September
23, 1999. The Bank's charter was converted to a national bank on September 1,
1999. Currently, the Company's business activities are conducted primarily
through the Bank.
Cape Cod Bank and Trust Company, N.A. is the main operating subsidiary of
the Company and is a federally chartered commercial bank with trust powers. The
Bank is the result of a merger between the Hyannis Trust Company and the Cape
Cod Trust Company in 1964 and a subsequent merger with the Buzzards Bay National
Bank in 1974. The main office of the Bank is located at 307 Main Street,
Hyannis, Barnstable County, Massachusetts. There are 28 other banking offices
located in Barnstable and Plymouth Counties in Massachusetts. The Bank is a
member of the Federal Deposit Insurance Corporation, of the Federal Reserve
System and the Federal Home Loan Bank of Boston ("FHLB"). At December 31, 2001,
the Bank employed 376 people on a full-time basis and another 68 people on a
part-time basis.
Financial information contained in this report for periods and dates prior
to February 11, 1999 is that of the Bank. Since the Bank is the main operating
subsidiary of the Company, financial information contained in this report for
periods and dates after February 11, 1999 is essentially financial information
of the Bank. Certain amounts have been reclassified in the 2000 and 1999
financial statements to conform to the 2001 presentation.
During the quarter ended March 31, 1999, the Company's Board of Directors
authorized the repurchase of up to 5% of the Company's stock in the open market.
Consistent with that authorization, the Company repurchased 453,016 shares
(5.0%) during 1999, at an average cost of $16.33 per share.
During the second quarter of 1999, the Bank formed a real estate investment
trust as a subsidiary of the Bank to utilize several advantages afforded to the
Bank, such as a way of centralizing mortgages more efficiently, the flexibility
to raise additional capital and the beneficial tax treatment provided by the
structure of a real estate investment trust. Under the name of CCBT Preferred
Corp., this new corporation purchased 100% of the commercial mortgage loans of
the Bank on May 14, 1999, and retained the Bank as servicer of those loans.
During the second quarter of 2000, the Bank acquired 51% of the stock of
Murray & MacDonald Insurance Services, Inc. of Falmouth, Massachusetts (the
"Agency"), a full service insurance agency offering property, casualty,
2
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. As part of the transaction, Murray & MacDonald's President,
Douglas D. MacDonald, has continued to serve as President of the Agency, and he
directs all insurance activities for the Bank.
In addition to the acquisition of the Agency, the Bank 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.
The Bank 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 Bank's principal sources of revenue are loans and investments, which
accounted for 81% of gross income during 2001. Of the remaining portion, 2% was
received from service charges. The balance was derived from Trust Department
services income and other items. Banking services for individuals include
checking accounts, regular savings accounts, NOW accounts, money market deposit
accounts, certificates of deposit, club accounts, mortgage loans, consumer
loans, safe deposit services, trust services, discount brokerage and investment
services, and insurance services. The Company also owns and maintains 35
automated teller machines which are connected to the AMEX, CIRRUS, NYCE,
NOVUS/DISCOVER, MASTERCARD, VISA, MAESTRO and PLUS networks. Trust Department
services include estate, trust, tax returns, agency, investment management,
discount brokerage, custodial services, and IRA accounts. The Company has no
foreign operations.
Competition
The Company faces substantial competition for loan origination and for the
attraction and retention of deposits. Competition for loan origination arises
primarily from other commercial banks, thrift institutions, credit unions and
mortgage companies. The Company competes for loans on the basis of product
variety and flexibility, competitive interest rates and fees, service quality
and convenience.
Competition for the attraction and retention of deposits arises primarily
from other commercial banks, thrift institutions, co-operative banks, and credit
unions having a presence within and around the market area served by the Bank's
main office and its community branches and ATM network. There are approximately
twelve of these financial institutions in the Bank's market area. In addition,
the Company competes with regional and national firms that offer stocks, bonds,
mutual funds, and other investment alternatives to the general public. The
Company competes on its ability to satisfy savers' and investors' requirements,
such as product alternatives, competitive rates, liquidity, service quality,
convenience, and safety against loss of principal and earnings. Management
believes that the Company's emphasis on personal service and convenience,
coupled with active involvement within the communities it serves, contributes to
its ability to compete successfully. Moreover, under the Gramm-Leach-Bliley Act
of 1999 (the "Gramm-Leach-Bliley Act"), effective March 11, 2000, securities
firms, insurance companies and other financial services providers that elect to
become financial holding companies may acquire banks and other financial
institutions. The Gramm-Leach-Bliley Act may significantly change the
competitive environment in which the Company and its subsidiaries conduct
business. See "The Financial Services Modernization Legislation" below. The
financial services industry is also likely to become more competitive as further
technological advances enable more companies to provide financial services.
These technological advances may diminish the importance of depository
institutions and other financial intermediaries in the transfer of funds between
parties.
Supervision and Regulation
Regulation of the Company. The Company is a Massachusetts corporation and a
bank holding company subject to regulation and supervision by the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board") pursuant
to the Bank Holding Company Act of 1956, as amended (the "Bank Holding Company
Act"), and files with the Federal Reserve Board an annual report and such
additional reports as the Federal Reserve Board may require. The Federal Reserve
Board has the authority to issue orders to bank holding companies to cease and
desist from unsound banking practices and violations of conditions imposed by,
or violations of agreements with, the Federal Reserve Board. The Federal Reserve
Board is also empowered to assess civil money penalties against companies or
individuals who violate the Bank Holding Company Act, or orders or regulations
thereunder, to order termination of non-banking activities of non-banking
subsidiaries of bank holding companies, and to order termination of ownership
and control of a non-banking subsidiary by a bank holding company. As a bank
holding company, the Company's activities are limited to the business of banking
and activities closely related or incidental to banking. The Company may not
directly or indirectly acquire the ownership or control of more than 5 percent
of any class of voting shares or substantially all of the assets of any company
that is not engaged in activities closely related to banking and also generally
must provide notice to, or obtain approval of, the Federal Reserve Board in
connection with any such acquisition.
3
The Financial Services Modernization Legislation. The Gramm-Leach-Bliley
Act established a comprehensive framework to permit affiliations among
commercial banks, insurance companies, securities firms, and other financial
service providers by revising and expanding the Bank Holding Company Act
framework to permit bank holding companies that qualify and elect to be treated
as financial holding companies to engage in a range of financial activities
broader than would be permissible for traditional bank holding companies, such
as the Company, that have not elected to be treated as financial holding
companies. "Financial activities" is broadly defined to include not only
banking, insurance, and securities activities, but also merchant banking and
additional activities that the Federal Reserve Board, in consultation with the
Secretary of the Treasury, determines to be financial in nature, incidental to
such financial activities, or complementary activities that do not pose a
substantial risk to the safety and soundness of depository institutions or the
financial system generally.
In order to become a financial holding company, a bank holding company,
such as the Company, must meet certain tests and file an election form with the
Federal Reserve Board. Specifically, to qualify, all of a bank holding company's
subsidiary banks must be well-capitalized and well-managed, as measured by
regulatory guidelines. In addition, to engage in the new activities, each of the
bank holding company's banks must have been rated "satisfactory" or better in
the most recent federal Community Reinvestment Act evaluation of each bank. At
this time, the Company has not elected to become a financial holding company.
Capital Requirements. The Federal Reserve Board has adopted capital
adequacy guidelines pursuant to which it assesses the adequacy of capital in
examining and supervising a bank holding company and in analyzing applications
to it under the Bank Holding Company Act. These capital adequacy guidelines
generally require bank holding companies to maintain total capital equal to 8%
of total risk-adjusted assets and off-balance sheet items (the `Total Risk-Based
Capital Ratio'), with at least one-half of that amount consisting of Tier I or
core capital and the remaining amount consisting of Tier II or supplementary
capital. Tier I capital for bank holding companies generally consists of the sum
of common stockholders' equity and perpetual preferred stock (subject in the
case of the latter to limitations on the kind and amount of such stocks which
may be included as Tier I capital), less goodwill and other non-qualifying
intangible assets. Tier II capital generally consists of hybrid capital
instruments; perpetual preferred stock, which is not eligible to be included as
Tier I capital; term subordinated debt and intermediate-term preferred stock;
and, subject to limitations, general allowances for loan losses. Assets are
adjusted under the risk-based guidelines to take into account different risk
characteristics.
In addition to the risk-based capital requirements, the Federal Reserve
Board requires bank holding companies to maintain a minimum leverage capital
ratio of Tier I capital (defined by reference to the risk-based capital
guidelines) to total average assets (the `Leverage Ratio') of 3.0%. Total
average assets for this purpose does not include goodwill and any other
intangible assets and investments that the Federal Reserve Board determines
should be deducted from Tier I capital. The Federal Reserve Board has announced
that the 3.0% Leverage Ratio requirement is the minimum for the top-rated bank
holding companies without any supervisory, financial or operational weaknesses
or deficiencies or those, which are not experiencing or anticipating significant
growth.
The Company currently is in compliance with both the Risk Based Capital
Ratio and the Leverage Ratio requirements. At December 31, 2001, the Company had
a Tier I Risk Based Capital Ratio equal to 10.5% and a Total Risk Based Capital
Ratio equal to 11.6% and a Leverage Ratio equal to 7.3%. U.S. bank regulatory
authorities and international bank supervisory organizations, principally the
Basel Committee on Banking Supervision, currently are considering changes to the
risk-based capital adequacy framework which ultimately could affect the
appropriate capital guidelines, including changes (such as those relating to
lending to registered broker-dealers) that are of particular relevance to banks,
such as the Bank, that engage in significant securities activities.
Limitations on Acquisitions of Common Stock. The Federal Change in Bank
Control Act prohibits a person or group of persons from acquiring `control' of a
bank holding company unless the Federal Reserve Board has been given at least 60
days to review the proposal. Under a rebuttable presumption established by the
Federal Reserve Board, the acquisition of 10% or more of a class of voting stock
of a bank holding company, such as the Company, with a class of securities
registered under Section 12 of the Securities Exchange Act of 1934, as amended
(the `Exchange Act') would, under the circumstances set forth in the
presumption, constitute the acquisition of control.
In addition, any company, as that term is broadly defined in the statute,
would be required to obtain the approval of the Federal Reserve Board under the
Bank Holding Company Act before acquiring 25% (5% in the case of
4
an acquirer that is a bank holding company) or more, or such lesser percentage
of our outstanding common stock as the Federal Reserve Board deems to constitute
control over us.
Regulation of the Bank. As a nationally-chartered commercial bank, the Bank
is subject to regulation and examination by the Office of the Comptroller of the
Currency ("OCC"). Relevant statutes and regulations govern, among other things,
lending and investment powers, deposit activities, borrowings, maintenance of
surplus and reserve accounts, distribution of earnings, and payment of
dividends. The Bank is also subject to regulatory provisions covering such
matters as issuance of capital stock, branching, and mergers and acquisitions.
Federal Deposit Insurance Corporation ("FDIC"). The FDIC insures the Bank's
deposit accounts up to $100,000 per depositor.
Federal Reserve Board Regulations. Regulation D promulgated by the Federal
Reserve Board requires all depository institutions, including the Bank, to
maintain reserves against their transaction accounts (generally, demand
deposits, NOW accounts and certain other types of accounts that permit payments
or transfer to third parties) or non-personal time deposits (generally, money
market deposit accounts or other savings deposits held by corporations or other
depositors that are not natural persons, and certain other types of time
deposits), subject to certain exemptions. Because required reserves must be
maintained in the form of either vault cash, a non-interest bearing account at a
Federal Reserve Bank or a pass-through account as defined by the Federal Reserve
Board, the effect of this reserve requirement is to reduce the amount of the
institution's interest-bearing assets.
Community Reinvestment Act. The Community Reinvestment Act ("CRA") requires
the OCC to evaluate the Bank's performance in helping to meet the credit needs
of the community. Massachusetts has also enacted a similar statute that requires
the Commissioner to evaluate the Bank's performance in helping to meet community
credit needs. Management believes the Bank is currently in compliance with all
CRA requirements.
Customer Information Security. The Federal Reserve Board, the OCC and other
bank regulatory agencies have adopted final guidelines (the "Guidelines") for
safeguarding confidential customer information. The Guidelines require each
financial institution, under the supervision and ongoing oversight of its Board
of Directors, to create a comprehensive written information security program
designed to ensure the security and confidentiality of customer information,
protect against any anticipated threats or hazards to the security or integrity
of such information; and protect against unauthorized access to or use of such
information that could result in substantial harm or inconvenience to any
customer.
Privacy. The Gramm-Leach-Bliley Act requires financial institutions to
implement policies and procedures regarding the disclosure of nonpublic personal
information about consumers to nonaffiliated third parties. In general, the
statute requires the Company to explain to consumers the Company's policies and
procedures regarding the disclosure of such nonpublic personal information, and,
except as otherwise required by law, the Company is prohibited from disclosing
such information except as provided in the Company's policies and procedures.
USA Patriot Act. The Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the
"Patriot Act"), designed to deny terrorists and others the ability to obtain
anonymous access to the United States financial system, has significant
implications for depository institutions, brokers, dealers and other businesses
involved in the transfer of money. The Patriot Act mandates or will require
financial institutions to implement additional policies and procedures with
respect to, or additional measures designed to address, any or all of the
following matters, among others: money laundering; suspicious activities and
currency transaction reporting; and currency crimes.
Risk Factors And Factors Affecting Forward Looking Statements
The discussion set forth below contains certain statements that may be
considered "forward-looking statements." Forward-looking statements involve
known and unknown risks, uncertainties and other factors that may cause the
Company's actual results to materially differ from those projected in the
forward-looking statements. You should carefully review the factors below and
should not place undue reliance on our forward-looking statements. For further
information regarding forward-looking statements, you should review the
discussion under "FORWARD-LOOKING STATEMENTS" on page 2 of this report.
The Company's experience in banking activities may not aid the Company's
expansion into non-banking activities. 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.
See "Business - General." Although the Company has significant experience in
providing bank-related services, this expertise may not assist us in our
expansion into non-banking activities. As a result, we may be exposed to risks
associated with, among
5
other things, (1) a lack of market and product knowledge or awareness of other
industry related matters; and (2) an inability to attract and retain qualified
employees with experience in these non-banking activities. See "Business."
The Bank's business is seasonal and is largely dependent upon the market
area on Cape Cod. The Company experiences a wide swing in its liquidity each
year as a result of the dependence of its customer base on the seasonal tourist
and vacation business on Cape Cod. The Bank receives substantially all of its
deposits from and makes substantially all of its loans to individuals and
businesses on Cape Cod. A decline in the economy on Cape Cod, or in the United
States generally, may have a material adverse effect on the operating results of
the Company.
General business risks could adversely impact the Company's business. The
banking business is subject to various business risks. Continued success depends
in large part on the contributions of our senior management personnel. The
volume of loan originations is dependent upon demand for loans of the type
originated and serviced by the Company and the competition in the marketplace
for such loans. The level of consumer confidence, fluctuations in real estate
values, fluctuations in prevailing interest rates and fluctuations in investment
returns expected by the financial community could combine to make loans of the
type originated by the Company less attractive. In addition, the Company may be
adversely affected by other factors that could (a) increase the cost to the
borrower of loans held by the Company, (b) create alternative lending sources
for such borrowers or (c) increase the cost of funds of the Bank at a rate
faster than an increase in interest income, thereby narrowing net interest rate
margins. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
The Company could be adversely impacted by applicable regulatory changes or
modifications. The Company is subject to extensive regulation by federal and
state governmental authorities and is subject to various laws and judicial and
administrative decisions imposing requirements and restrictions on part or all
of its operations. There can be no assurance that these laws, rules and
regulations will not be modified in the future, which could make compliance much
more difficult or expensive, restrict ability to originate, broker or sell loans
or otherwise adversely affect business or prospects. See "Supervision and
Regulation."
Proposed legislation may result in increased regulation of the Company's
business. From time to time, various types of federal and state legislation have
been proposed that could result in additional regulation of, and modifications
of restrictions on, the business of the Company. It cannot be predicted whether
any legislation currently being considered will be adopted or how such
legislation or any other legislation that might be enacted in the future would
affect the business of the Company.
6
EXECUTIVE OFFICERS OF THE REGISTRANT
All officers were elected to their positions on April 26, 2001 to serve
until the annual meeting on April 25, 2002 and until their successors are duly
elected.
Age at Title and Area of Date Appointed Date of
Officer 12/31/01 Responsibility to Present Position Employment
- ---
Stephen B. Lawson 60 President, Chief Executive Officer and Director 10/08/98 12/06/65
Robert T. Boon 47 Executive Vice President 01/04/01 04/01/85
John S. Burnett 55 Clerk 10/08/98 09/07/71
Robert R. Prall 58 Executive Vice President 01/04/01 06/01/93
Noal D. Reid 57 Chief Financial Officer and Treasurer 10/08/98 10/16/72
Larry K. Squire 54 Executive Vice President 01/04/01 05/17/71
Business Experience During the Past Five Years
Stephen B. Lawson President, Chief Executive Officer, 7/01/92 (Bank)
President, CEO and Director, 10/08/98 (the Company)
Robert T. Boon Chief Trust Officer 10/13/95 (Bank)
Chief Investment Officer, 06/29/98 (Bank)
Executive Vice President, 01/04/01 (Bank)
John S. Burnett Vice President, 12/11/80 (Bank)
Clerk, 10/08/98 (the Company)
Robert R. Prall Sr. V.P., Loan Administration, 6/01/93 (Bank)
Chief Lending Officer, 1/01/97 (Bank)
Executive Vice President, 01/04/01 (Bank)
Noal D. Reid Chief Financial Officer and Treasurer, 9/15/95 (Bank)
Chief Financial Officer and Treasurer, 10/08/98 (the Company)
Chief Financial Officer and Cashier, 9/01/99 (Bank)
Larry K. Squire Chief Operating Officer, 9/15/95 (Bank)
Executive Vice President, 01/04/01 (Bank)
7
Item 2. Properties.
A. Properties owned by the Bank - Banking Offices of Cape Cod Bank and Trust
Company, N.A.:
1) 307 Main Street, Hyannis - Main Office
2) 835 Main Street, Osterville - Branch Office
3) 536 Main Street, Harwichport - Branch Office
4) 1095 Route 28, South Yarmouth - Branch Office
5) 40 Main Street, Orleans - Branch Office
6) Shank Painter Road, Provincetown - Branch Office
7) 121 Main Street, Buzzards Bay - Branch Office
8) 119 Route 6A, Sandwich - Branch Office
9) Route 6A and Underpass Road, Brewster - Branch Office
10) 700 Route 6A, Dennis - Branch Office
11) 397 Palmer Avenue, Falmouth - Branch Office
12) 693 Main Street, Chatham - Branch Office
13) Main Street, Wellfleet - Branch Office
14) 249 Worcester Court, Falmouth - Branch Office
15) 237 Main Street, Wareham - Branch office
16) 495 Station Avenue, South Yarmouth - Branch Office
None of the above offices is subject to any mortgage lien or any other
material encumbrance. The main office is located in Hyannis, Massachusetts, and
is a modern, two-story brick building located on approximately two acres of
land. The Harwichport office and the Buzzards Bay office are somewhat larger
than the remaining offices, having formerly been the main offices of the Cape
Cod Trust Company and the Buzzards Bay National Bank prior to merger. The Bank
also owns a house in Meredith, New Hampshire, one in Orlando, Florida, and one
in Killington, Vermont, which are used as vacation sites by its employees.
B. Rental of Bank Premises of Cape Cod Bank and Trust Company, N.A.: The
land on which the Hyannis Airport Rotary Office is located is leased from the
Barnstable Municipal Airport for $58,173 per year until 2005. The banking office
located in Pocasset on the corner of MacArthur Boulevard and Barlow's Landing
Road is leased from Paul J. Medeiros for $25,000 per year plus taxes and other
expenses under a lease expiring in 2005. A banking office at the intersection of
Route 28 and Camp Opechee Road, Centerville is leased for $59,000 in 2002 with
an increase of $2,500 per year plus taxes and other expenses under a lease
expiring in 2008 with right to renew for an additional ten-year period. The
Route 134, South Dennis branch office is leased from Chamberlain Realty for
$44,000 in 2002 and is adjusted annually with the Consumer Price Index ("CPI").
The lease expires in 2002 with right to renew for up to fifteen years. The
banking office at Skaket Corners, Orleans is leased from Skaket Associates for
$65,550 in 2002; $75,380 in 2003, 2004 and 2005; and $86,690 in 2006 and 2007
plus taxes and other expenses under a lease expiring in 2007. The Bank also
operates a Customer Service Center that is leased from the Davenport Realty
Trust, South Yarmouth for $111,972 per year (adjustable annually with CPI) plus
taxes and other expenses under a lease expiring in 2012. The banking office
located in the Village Green Shopping Center on Brackett Road, North Eastham is
leased from Alan G. Vadnais for $11,040 per year with a 5% increase annually
under a lease expiring in 2002. The Bank also rents a building next door to the
Customer Service Center from Davenport Realty Trust, South Yarmouth for $76,200
in 2002 to 2011 and $19,050 in 2012. In addition, the Bank also rents office
spaces from Stop & Shop for $476,000 per year under a lease expiring in 2005.
The Bank also pays rent of $26,400 for Automated Teller Machines (ATMs) in 2002.
Item 3. Legal Proceedings.
The Company is not involved in any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
8
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The common stock of the Company and, prior to the Reorganization, of the
Bank is quoted on the Nasdaq National Market System under the symbol "CCBT". The
table below shows the high and low trading prices of the stock for each quarter
in the past two years and the dividends declared each quarter. According to the
Company's transfer agent, there were approximately 1,000 stockholders of record
as of February 28, 2002. The number of holders of record does not reflect the
number of persons or entities who or which held their stock in nominee or
"street" name through various brokerage firms or other entities.
2000 2001
----------------------------------------- --------------------------------------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
------- ------- ------- ------- ------- ------- ------- -------
Market price: $15.25 $15.9375 $20 $18.8125 $22.75 $29.99 $30.96 $22.44
High
Low $12.625 $13.125 $15.50 $17 $18.625 $21.16 $23.70 $26
Dividends declared $0.16 $0.16 $0.16 $0.16 $0.18 $0.18 $0.18 $0.18
per share
Item 6. Selected Consolidated Financial Data.
2001 2000 1999 1998 1997
----------
(Dollar amounts in thousands except per share amounts)
Total assets $1,454,667 $1,403,919 $1,231,114 $1,177,530 $973,105
Stockholders' equity 115,316 98,729 85,650 83,542 75,636
Net interest income 53,200 48,345 40,796 37,767 36,907
Provision for loan losses -- -- -- -- --
Non-interest income 22,922 16,211 18,268 17,036 20,174
Non-interest expense 46,058 38,281 32,517 34,196 35,642
Provision for income taxes 10,622 9,101 10,086 8,050 8,190
Net income 19,464 17,229 16,461 12,557 13,249
Book value per share $13.38 $11.47 $9.95 $9.22 $8.35
Basic earnings per share(1) 2.26 2.00 1.85 1.39 1.46
Diluted earnings per share 2.25 2.00 1.85 1.38 1.46
Cash dividends per share .72 .64 .56 .50 .42
Return on average assets 1.32% 1.35% 1.35% 1.15% 1.45%
Return on average stockholders' equity 18.4% 19.3% 19.6% 15.8% 18.7%
Dividend payout ratio 31.86% 32.00% 30.27% 35.97% 28.77%
Equity to assets ratio 7.14% 6.97% 6.89% 7.28% 7.75%
(1) Based on average shares outstanding: 8,613,106 in 2001; 8,608,048 in 2000;
8,876,776 in 1999; 9,061,064 in 1998 and in 1997.
9
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation.
This Form 10-K contains certain statements that may be considered
"forward-looking statements." Forward-looking statements involve known and
unknown risks, uncertainties and other factors, including, but not limited to,
those factors described under the caption "Risk Factors and Factors Affecting
Forward-Looking Statements," that may cause the Company's actual results to
materially differ from those projected in the forward-looking statements. You
should not place undue reliance on our forward-looking statements. For further
information regarding forward-looking statements, you should review the
discussion under the caption "FORWARD LOOKING STATEMENTS" on page 2 of this
report.
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 discussion generally will refer to the investments and
activities of the Company and the Bank, except where otherwise noted.
Cape Cod Bank and Trust Company, N.A. is the largest commercial bank
headquartered on Cape Cod in Barnstable County, Massachusetts. The Bank's
twenty-nine banking offices are principally engaged in accepting deposits from
individuals and businesses, and in making loans. The Bank also has a substantial
Trust Department, managing assets in excess of $677 million at December 31, 2001
on behalf of its clients. 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.
2001 COMPARED WITH 2000
Source and Use of Funds. On average, deposits during 2001 increased from
the prior year by $74,452,000 or 9% with core deposits, consisting of demand,
NOW, money market, and savings accounts, accounting for $49,300,000, of this
increase and time deposits accounting for the remaining $25,152,000. In
contrast, total deposits of $903,391,000 at December 31, 2001 reflect a decrease
of $69,912,000 or 7% when compared to the prior year-end. Core deposits
increased by $50,682,000 or 8% while time deposits decreased by $120,594,000 or
37% from the prior year-end. The decrease in year end balances in time deposits
can be attributed to the maturity of a significant amount of one year
Certificates of Deposit during the year following a special interest rate
offered during 2000 as well as the decrease in the interest rate being offered
on these products. Additional funds were raised through increased borrowings.
Borrowings from the Federal Home Loan Bank increased in 2001, on average, by
$100,877,000 or 34%, compared to the prior year. At December 31, 2001, these
borrowings amounted to $384,314,000, an increase of $93,027,000 or 32% over
year-end 2000.
In addition, CCBT Statutory Trust I, a subsidiary of the Company, issued
$5,000,000 of Trust Preferred Securities during the third quarter of 2001. At
December 31, 2001, total loans including loans held for sale were $892,641,000,
an increase of $43,290,000 or 5.1% when compared to the prior year-end. This
increase was primarily in the Commercial Mortgage portfolio, which increased
$22,398,000 or 9%, as well as Home Equity lines of credit, which increased
$15,959,000 or 43%. Residential Mortgages, including loans held for sale, were
lower at year-end 2001 by $9,582,000 or 2% due to the sale of $168,648,000 of
Residential Mortgages during the year. On average, total loans increased
$139,047,000 or 18.4% over the prior year. Average loan growth was led by
Residential Mortgages, which increased $77,445,000 or 23%. Other loan
categories, which experienced significant average growth include Commercial
Mortgages, up $29,175,000 or 13%, and Commercial Construction loans, up
$17,600,000 or 57%. Home Equity lines of credit were higher, on average, by
$13,362,000 or 432% than the prior year. At December 31, 2001, securities,
including Federal Home Loan Bank and Federal Reserve Bank stock, were up by
$13,039,000 or 3% over the prior year-end. The increase in Other debt securities
of $22,118,000 or 12% was partially offset by declines in collateralized
mortgage obligations and U.S. Government agencies. On average, the increase in
securities was $54,039,000 or 12% with Other securities accounting for
$42,671,000 of this increase, or 20%. Collateralized mortgage obligations were
higher, on average, by $15,144,000 or 8% while U.S. Government agencies declined
by $9,457,000 or 36%.
Net Interest Income. Net interest income was $53,200,000 for the year ended
December 31, 2001 as compared to $48,345,000 for the prior year, an increase of
10%. Lower yields on earning assets were offset by the increased volume of
earning assets as well as lower yields on interest bearing liabilities. The
spread and net interest margin ratios were 3% and 4% respectively, for the year
ended December 31, 2001, compared to 3% and 4%, respectively for the year 2000.
Provision for Loan losses. Recoveries on loans previously charged off
exceeded charge-offs during 2001 by $98,000. Despite overall growth in the loan
portfolio in 2001, management's assessment of the risks in the loan portfolio at
December 31, 2001 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 in 2001. The allowance for loan losses was 1.39% and
1.43% of total loans at December 31,2001 and 2000, respectively.
10
Other Income and Expense. Non-interest income increased by $6,712,000 or
41% over the prior year-end. Of this increase, $2,103,000 and $2,867,000,
respectively, can be attributed to net gains on the sale of securities and
loans. Insurance commissions have increased $763,000 compared to the prior year
results, which only included the Agency's revenues from the date of purchase.
However, the increase in insurance commissions can also be attributed to
increased volume as a result of the referral of bank customers to the Agency.
Non-interest expenses totaled $46,058,000 for the year ended December 31,
2001, a $7,778,000 or 20% increase from the comparable 2000 period. Salaries and
employee benefits rose $5,191,000 or 25% with commissions accounting for
$1,397,000 of this increase and salaries, in line with management expectations,
increasing $2,294,000. The increased benefits expense of $1,668,000 is largely
attributable to increases in performance-based compensation programs and
increases in medical and dental insurance costs. Increased expenses in other
categories include amortization of intangibles for acquisitions completed during
the second quarter of 2000, building and equipment expenses for additional
locations and depreciation and amortization related to upgraded computer
equipment and software, and marketing and advertising costs incurred for the
launch of the Company's new logo.
Provision for Income Taxes. For the year ended December 31, 2001, the
provision for income taxes was $10,622,000, an increase of 17% over the prior
year's provision of $9,101,000. These provisions reflect a combined effective
federal and state income tax rate of 35% in 2001 and 2000, respectively.
Net Income. Net income of $19,464,000 for the year ended December 31, 2001
reflects an increase over 2000 results of $2,236,000 or 13%. Basic earnings per
share of $2.26 represents a $.26 increase in 2001 compared to 2000 results.
2000 COMPARED WITH 1999
Source and Use of Funds. At year-end 2000, total deposits of $973,303,000
were $207,239,000, or 27% greater than at the prior year-end. Demand deposits
increased $34,280,000 or 20% and NOW deposits increased $19,145,000 or 16%.
Money Market deposits increased $25,506,000 or 18%, while Other Savings declined
by $14,903,000 or 9%. Significant deposit growth occurred in time deposits with
Certificates of Deposit greater than $100,000 increasing $35,493,000 or 59% and
Other Time Deposits increasing $107,718,000 or 89% from the prior year-end. The
growth in deposits can be attributed to the acquisition of approximately $55
million in deposits from Fleet Bank as well as the offering of a 7.20% APY on a
one year certificate of deposit during the year. Also, during the second quarter
of 2000, the Bank accepted $25 million in brokered deposits, which are included
in Other Time Deposits. On average for the year, total deposits of $863,577,000
exceeded the prior year average by $113,496,000 or 15%. Demand deposits were
higher on average by $22,228,000 or 13% and NOW deposits were higher on average
by $10,808,000 or 9%. Money market deposits were higher on average by $9,154,000
or 6%, while Other Savings were lower by $14,848,000 on average, for a decrease
of 9%. Average Certificates of Deposit greater than $100,000 increased by
$36,907,000 or 93% and average Other Time Deposits increased by $49,247,000 or
41%. During 2000, Securities decreased by $76,068,000 on average or 14%,
however, at year-end Securities were lower by $36,552,000 or 8% when compared to
the prior year-end as the Company's investment options were more favorable
during the fourth quarter of the year.
At year-end 2000, total loans of $848,490,000 were $173,748,000, or 26%
greater than at the prior year-end. Loans secured by real estate accounted for
this growth with Residential Mortgages up $102,852,000 or 35%, Equity Lines of
Credit up $14,342,000 or 62%, and Construction loans up $19,169,000 or 28%.
Additionally, Commercial Real Estate loans increased $38,548,000 or 19%. The
Company made a sizable investment in participation loans during the year, which
contributed $40,052,000 in total to the Commercial Mortgage and Commercial Loan
categories at December 31, 2000. On average for the year, total loans of
$755,451,000 exceeded the prior year average by $125,344,000 or 20%. Residential
Mortgages increased $69,373,000 on average or 26% and Equity Lines of Credit
increased $9,454,000 on average or 44%. Construction loans also contributed to
the growth in average loan balances, increasing $28,030,000 on average or 50%.
Additional funds were utilized by management to reduce Federal Home Loan Bank
borrowings, which decreased by $56,676,000 or 16% from the prior year-end.
Net Interest Income. On average, interest rates were higher in 2000 than
they were in 1999, which increased the yields on the Bank's securities and
loans. The cost of the Bank's deposits and borrowings also increased, but by a
smaller amount. Because of the positive spread between the return on earning
assets and the cost of funds, the Bank's net interest income increased.
Accordingly, net interest income increased by $7,549,000, an increase of 19%.
Provision for Loan losses. Recoveries on loans previously charged off
exceeded charge-offs during 2000. Management determined that additions to the
reserve for loan losses were unnecessary in 2000, notwithstanding the growth in
the loan portfolio. See "Reserve for Loan Losses" below.
Other Income and Expense. Non-interest income increased by $1,438,000 or
10% over the prior year-end results excluding the gain of $3,495,000 in 1999 on
the sale of the Merchant Credit Card portfolio. Increased Financial Advisor
(Trust) and Electronic Banking fees as well as the addition of revenues from
insurance activities contributed to
11
this increase. Operating expenses increased $5,764,000 or 18% over 1999.
Salaries and benefits, the largest combined category of expense, accounted for
$2.8 million of this increase. Increased expenses in other categories include
one time conversion expenses of new branches, amortization of intangibles
resulting from acquisitions and increased marketing and advertising costs to
support the Company's entrance into new markets.
Provision for Income Taxes. As a result of lower pretax income, the
provision for income taxes decreased by 10%.
Net Income. As a result of the foregoing factors, net income for 2000 was
$17,228,749, an increase of 5% from the previous year.
MATURITY STRUCTURE OF ASSETS AND LIABILITIES
AND SENSITIVITY TO CHANGES IN INTEREST RATES
Fixed Rate Securities
-----------------------------------------------------------------
U.S. Government State and Other
Agencies Municipal Securities
------------------- ---------------------- ---------------------
Weighted Weighted Weighted
Adjusted Average Adjusted Average Adjusted Average
Cost Yield Cost Yield Cost Yield
---- ----- ---- ----- ---- -----
Term to maturity: (Dollar amounts in thousands)
One year or less $60,852 4.42% $18,639 2.81% $142,703 6.70%
Over one year through five years 15,295 5.41% 4,525 4.64% 18,043 6.43%
Over five years 46 6.66% 950 4.83% 1,224 5.11%
------- ------- --------
Totals $76,193 4.62% $24,114 3.23% $161,970 6.66%
======= ======= ========
Included in fixed rate debt securities are $240,534,000 of collateralized
mortgage obligations, mortgage-backed securities, and other debt securities.
These have been distributed based on estimates of their principal cash flows
rather than their contractual final maturities. The balance, largely fixed rate
municipal securities, are distributed on the basis of contractual maturity.
Floating Rate Securities
-----------------------------------------------------------------
U.S. Government State and Other
Agencies Municipal Securities
------------------- ---------------------- ---------------------
Weighted Weighted Weighted
Adjusted Average Adjusted Average Adjusted Average
Cost Yield Cost Yield Cost Yield
---- ----- ---- ----- ---- -----
(Dollar amounts in thousands)
Term to repricing/maturity:
One year or less $44,103 3.74% -- -- $127,124 3.54%
Over one year through five years -- -- -- -- -- --
Over five years -- -- --
-- -- --
------- ------- --------
Totals $44,103 3.74% -- -- $127,124 3.54%
======= ======= ========
The Company's investment securities are subject to market risk in the
following ways. $171,227,000 of the investment securities owned as of December
31, 2001 are floating rate instruments tied to various indices, primarily LIBOR.
Lesser amounts are tied to Treasury rates and other indices. The majority of
these floating rate instruments are subject to interest rate caps that range
from 8% to 24%. If interest rates rise enough so that there is a significant
possibility that a given security will become subject to its interest rate cap,
the market value of that security will be reduced. This risk is greater to the
extent that the remaining life of the investment is longer. The Company's
floating rate investments have an average life of about two years. Market risk
may also result from the fact that various indices will not always move by the
same amount when interest rates increase. This may cause securities tied to one
index to perform
12
less well than securities tied to other indices. Most of the remaining
$262,277,000 of securities are fixed-rate collateralized mortgage obligations
("CMOs"), mortgage backed securities and other debt securities. Fixed-rate
investments have market risk because their rate of return does not change at all
with the general level of interest rates. Because homeowners are less likely to
refinance their mortgages at higher rates, an additional characteristic of CMOs
and mortgage-backed securities is that their principal payments tend to slow
when interest rates rise. If the fixed rate earned on the investment is lower
than the new market rate, this can result in a decline in the value of these
securities. Almost all of the Company's fixed-rate CMOs have very short average
lives and have interest rates above current market levels, which reduces the
market risk of these securities. The average life of the Company's fixed-rate
investments is less than two years.
Fixed Rate Loans
----------------
Commercial Construction Other
Loans Loans Loans
----- ----- -----
(Dollar amounts in thousands)
Term to maturity:
One year or less $7,668 $33,702 $25,483
Over one year through five years 7,648 19,208 122,545
Over five years 3,550 2,017 23,642
------- ------- --------
Totals $18,866 $54,927 $171,670
======= ======= ========
Included in fixed rate loans maturing in one year or less are $1,414,000 of
customer account overdrafts.
Floating Rate Loans
-------------------
Commercial Construction Other
Loans Loans Loans
----- ----- -----
(Dollar amounts in thousands)
Term to repricing/maturity:
One year or less $66,081 $40,259 $342,799
Over one year through five years -- -- 189,665
Over five years -- -- 24
------- ------- --------
Totals $66,081 $40,259 $532,488
======= ======= ========
Most residential mortgage loans are adjustable rate mortgages subject to
interest rate caps.
The remaining maturity of time certificates of deposit as of December 31, 2001
was as follows:
Fixed Rate
-----------------------
Certificates of Deposit
$100,000 or more Less than $100,000
---------------- ------------------
(Dollar amounts in thousands)
Remaining maturity:
Three months or less $33,104 $ 53,877
Over three months through six months 10,204 42,328
Over six months through 12 months 5,163 35,108
Over one year through five years 4,652 19,884
Over five years -- --
------- --------
Totals $53,123 $151,197
======= ========
Other deposits may be withdrawn by the customer without notice or penalty.
The rates paid thereon are reviewed each month and changed at the Company's
option as often as indicated by changing market conditions.
Generally, the Company's strategy is to price deposits that reflect market
rates, offering higher alternative rates based on increasing amounts deposited.
Interest rates paid are frequently reviewed and are modified to reflect changing
conditions.
13
The remaining maturity of borrowings from the Federal Home Loan Bank as of
December 31, 2001 was as follows:
Fixed Rate
-----------------------------
FHLB Borrowings
-----------------------------
Remaining maturity: (Dollar amounts in thousands)
Three months or less $207,000
Over three months through six months 2,065
Over six months through 12 months 10,000
Over one year through five years 146,571
Over five years 18,678
--------
Totals $384,314
========
Rates paid on other interest-bearing liabilities change daily.
Loans
The following is a summary of loans outstanding as of the dates indicated:
December 31,
-------------------------------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
(Dollar amounts in thousands)
Commercial loans $84,947 $76,275 $ 77,776 $70,767 $72,190
Construction mortgage loans 95,186 87,978 68,809 47,940 34,798
Commercial mortgage loans 264,934 242,536 203,988 207,860 198,944
Industrial revenue bonds 1,163 1,603 1,137 1,344 1,883
Residential mortgage loans 429,840 430,951 313,757 254,320 203,462
Consumer loans 8,221 9,147 9,275 11,589 15,903
-------- -------- -------- -------- --------
Total loans $884,291 $848,490 $674,742 $593,820 $527,180
======== ======== ======== ======== ========
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 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
Non-performing Assets and Loan Loss Experience
Non-performing assets as of December 31 were as follows:
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
(Dollar amounts in thousands)
Nonaccrual loans $1,802 $2,192 $1,777 $7,468 $2,770
Loans past due 90 days or more and still accruing -- -- -- -- --
Property from defaulted loans 1,500 1,500 1,500 -- 621
------ ------ ------ ------ ------
Total non-performing assets $3,302 $3,692 $3,277 $7,468 $3,391
====== ====== ====== ====== ======
Restructured troubled debt performing in
accordance with amended terms, not included above $ 224 $ 237 $ 626 $ 478 $1,131
====== ====== ====== ====== ======
Accrual of interest income on loans is discontinued when it is questionable
whether the borrower will be able to pay 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 in the process of collection.
Loans are classified "substandard" when they are not adequately protected
by the current sound worth and paying capacity of the debtor or of the
collateral. At December 31, 2001, $14,182,000 of loans were included in this
category, in addition to loans reported above. The Company's loan classification
system also includes a category for loans that are monitored for possible
deterioration in credit quality. At December 31, 2001, $2,323,000 of loans were
included in this category. In addition, it is possible that there may be losses
on other loans that have not been specifically identified.
The changes in the reserve for loan losses during the five years ended December
31 were as follows:
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
(Dollar amounts in thousands)
Balance, beginning of year $12,154 $11,158 $11,108 $10,962 $11,417
Provision for loan losses -- -- -- -- --
Charge-offs:
Commercial loans (275) (108) (347) (353) (400)
Construction mortgage loans -- -- -- -- --
Commercial mortgage loans -- -- (186) (86) (69)
Industrial revenue bonds -- -- -- -- --
Residential mortgage loans -- -- -- (1) (119)
Consumer loans (71) (60) (77) (166) (749)
Recoveries on loans previously charged off:
Commercial loans 321 826 351 475 653
Construction mortgage loans 84 89 60 47 --
Commercial mortgage loans 6 216 190 174 120
Industrial revenue bonds -- -- -- -- --
Residential mortgage loans -- 10 -- 23 8
Consumer loans 33 23 59 33 101
------- ------- ------- ------- -------
Balance, end of year $12,252 $12,154 $11,158 $11,108 $10,962
======= ======= ======= ======= =======
15
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
(Dollar amounts in thousands)
Allocation of ending balance:
Commercial loans $ 2,219 $ 1,502 $ 1,457 $1,578 $1,676
Construction mortgage loans 787 802 755 705 521
Commercial mortgage loans 5,903 5,838 5,681 5,822 6,587
Industrial revenue bonds 14 16 20 23 28
Residential mortgage loans 2,335 3,361 2,725 2,460 1,610
Consumer loans 994 635 520 520 540
------- ------- ------- ------- -------
Balance, end of year $12,252 $12,154 $11,158 $11,108 $10,962
======= ======= ======= ======= =======
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Ratio of net charge-offs (recoveries) -- (0.13)% (0.01)% (0.03)% 0.09%
to average loans outstanding
Recoveries on loans previously charged off exceeded charge-offs therefore
management determined that additions to the reserve for loan losses were
unnecessary in 2001, notwithstanding the growth in the loan portfolio. The
reserve represented 1.39% of total loans at December 31, 2001, 1.43% of total
loans at December 31, 2000 and 1.65% at December 31, 1999. Although management
believes that upon review of loan quality and payment statistics, the reserve is
adequate to cover losses likely to result from loans in the current portfolio at
December 31, 2001, there can be no assurance that the reserve is adequate or
that additional provisions might not become necessary.
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 spring.
With the exception of the year ended December 31, 1999, substantially all
of the amount shown as cash and due from banks at year end is made up of checks
and similar items in the process of collection or was needed to satisfy a
requirement to maintain a portion of deposits in an account at the Federal
Reserve. Accordingly, it does not represent a source of liquidity. At year end
December 31, 1999, however, a portion of cash and due from banks was accumulated
to honor potential customer demands arising from Year 2000 concerns. The Company
did not experience these potential customer demands.
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 also borrow from the Federal Reserve if necessary.
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY;
AVERAGE INTEREST RATES AND INTEREST SPREAD
The average amount outstanding for certain categories of interest-earning
assets and interest-bearing liabilities, the interest income or expense and the
average yields earned or rates paid thereon, are summarized in the following
table for the three years ended December 31, 2001. Nonaccrual loan balances have
been included in their respective loan categories, which reduces the calculated
yields. A portion of the income reported in certain of the asset categories is
not subject to federal income tax, making it relatively more valuable. The
computed yields shown have not been adjusted for taxable equivalency. As an
indication of the amount of change in the general level of interest rates
between years, the average rate on overnight federal funds traded among banks
was 3.88%, 6.26% and 4.97% during 2001, 2000 and 1999, respectively.
16
Net Interest Income, Net Interest Margin
Years ended December 31,
2001 2000 1999
--------------------------- --------------------------- ---------------------------
Average Average Average Average Average Average
Balance Interest Yield Balance Interest Yield Balance Interest Yield
------- -------- ----- ------- -------- ----- ------- -------- -----
(Dollar amounts in thousands)
ASSETS
Securities:
Mortgage-backed securities $ 29,253 $ 1,868 6.38% $27,465 $ 2,173 7.91% $60,641 $ 3,394 5.60%
CMOs 194,463 11,948 6.14% 179,319 13,189 7.36% 226,971 12,069 5.32%
U.S. Government agencies 16,905 869 5.14% 26,362 1,775 6.73% 26,610 1,400 5.26%
State and municipal obligations 23,571 948 5.23% 19,678 921 4.68% 21,643 822 3.80%
Other securities 252,251 14,689 5.82% 209,580 14,621 6.97% 202,607 12,215 6.03%
------- ------ ------- ------ ------- ------
Total securities 516,443 30,322 5.93% 462,404 32,679 7.07% 538,472 29,900 5.55%
------- ------ ------- ------ ------- ------
Loans:
Commercial 83,973 6,692 7.97% 77,352 7,529 9.73% 73,487 6,650 9.05%
Commercial construction 48,461 3,529 7.28% 30,861 2,899 9.39% 14,937 1,342 8.98%
Residential construction 48,513 3,038 6.26% 52,789 3,316 6.28% 40,683 2,388 5.87%
Commercial mortgages 248,865 22,064 8.87% 219,690 20,298 9.24% 204,275 18,139 8.88%
Industrial revenue bonds 1,324 91 9.65% 1,382 114 8.25% 1,278 98 7.67%
Residential mortgages 410,753 27,913 6.80% 333,308 23,199 6.96% 263,935 17,672 6.70%
Home equity 44,296 3,245 7.33% 30,934 3,001 9.70% 21,480 1,876 8.73%
Consumer 8,313 861 10.36% 9,135 934 10.22% 10,032 1,042 10.39%
------- ------ ------- ------ ------- ------
Total loans 894,498 67,433 7.54% 755,451 61,290 8.11% 630,107 49,207 7.81%
------- ------ ------- ------ ------- ------
Total earning assets 1,410,941 97,755 6.97% 1,217,855 93,969 7.72% 1,168,579 79,107 6.77%
------ ------ ------
Non-earning assets 67,263 61,027 52,179
--------- --------- ---------
Total assets $1,478,204 $1,278,882 $1,220,758
========== ========== ==========
LIABILITIES & STOCKHOLDERS' EQUITY
Interest bearing deposits:
NOW accounts $ 139,485 745 0.53% $ 124,663 928 0.74% $113,855 936 0.82%
Regular savings 146,656 3,247 2.21% 148,790 4,639 3.12% 163,638 4,755 2.91%
Money Market accounts 173,675 4,828 2.78% 154,187 5,748 3.73% 145,033 4,484 3.09%
Certificates of Deposit of
$100,000 or more 86,255 4,708 5.46% 76,672 5,682 7.41% 39,765 2,021 5.08%
Other time deposits 183,887 10,024 5.45% 168,318 9,127 5.42% 119,071 5,832 4.90%
------- ------ ------- ----- ------- -----
Total interest bearing deposits 729,958 23,552 3.23% 672,630 26,124 3.88% 581,362 18,028 3.10%
------- ------ ------- ----- ------- -----
Borrowings:
Federal Home Loan Bank 394,827 20,090 5.09% 293,950 18,098 6.16% 356,276 19,405 5.45%
Other short-term borrowings 30,854 913 2.96% 25,579 1,402 5.48% 20,898 878 4.20%
------- ------ ------- ----- ------- -----
Total borrowings 425,681 21,003 4.93% 319,529 19,500 6.10% 377,174 20,283 5.38%
------- ------ ------- ----- ------- -----
Total interest-bearing 1,155,639 44,555 3.86% 992,159 45,624 4.60% 958,536 38,311 4.00%
------ ----- -----
liabilities
Demand deposits 208,071 190,947 168,719
Non-interest bearing liabilities 8,878 6,614 9,348
Stockholders' equity 105,616 89,162 84,155
---------- ---------- ----------
Total liabilities & equity $1,478,204 $1,278,882 $1,220,758
========== ========== ==========
Net interest income/spread $53,200 3.11% $48,345 3.12% $40,796 2.77%
======= ======= =======
Net interest margin (NII/Avg. Earning Assets) 3.77% 3.97% 3.49%
17
CHANGES IN NET INTEREST INCOME DUE TO
CHANGES IN VOLUME AND RATE
The effect on net interest income from changes in interest rates and in the
amounts of interest-earning assets and interest-bearing liabilities is
summarized in the following table. These amounts were calculated directly from
the amounts included in the preceding table. The amount allocated to change in
volume was calculated by multiplying the change in volume by the average of the
interest rates earned or paid in the two periods. The amount allocated to change
in rate was calculated by multiplying the change in rate by the average volume
over the two periods. In 2001, declining rates had a negative impact on net
interest income. However, the growth in earning assets exceeded the growth in
interest bearing liabilities resulting in an increase in net interest income
when compared to 2000. In 2000, higher interest rates increased interest income
more than interest expense because the Company had more earning assets than
interest-bearing liabilities and the rates paid on many types of deposits were
not increased by as much as investment rates increased. Repayments of Federal
Home Loan Bank borrowings by the Company also contributed to reduced interest
expense.
2001 compared to 2000 2000 compared to 1999
----------------------------- ---------------------------------
Change Due to Increase Change Due to Increase
(Decrease) (Decrease)
----------------------------- ---------------------------------
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
(Dollar amounts in thousands)
EARNING ASSETS
Securities:
Mortgage-backed securities $ 128 $ (433) $ (305) $(2,211) $ 990 $(1,221)
CMOs 1,022 (2,263) (1,241) (2,894) 4,014 1,120
U.S. Government agencies (561) (345) (906) 3 372 375
State & municipal obligations 193 (166) 27 (84) 183 99
Other securities 2,729 (2,661) 68 517 1,889 2,406
----- ------ ------ ------ ----- -----
Total securities 3,511 (5,868) (2,357) (4,669) 7,448 2,779
----- ------ ------ ------ ----- -----
Loans:
Commercial 586 (1,423) (837) 363 516 879
Commercial construction 1,467 (837) 630 1,463 94 1,557
Residential construction (268) (10) (278) 736 192 928
Commercial mortgages 2,642 (876) 1,766 1,397 762 2,159
Industrial revenue bonds (5) (18) (23) 8 8 16
Residential mortgages 5,328 (614) 4,714 4,736 791 5,527
Home equity 1,138 (894) 244 871 254 1,125
Consumer (85) 12 (73) (93) (15) (108)
----- ------ ------ ------ ----- -----
Total loans 10,803 (4,660) 6,143 9,481 2,602 12,083
----- ------ ------ ------ ----- -----
Total earning assets 14,314 (10,528) 3,786 4,812 10,050 14,862
----- ------ ------ ------ ----- -----
INTEREST BEARING LIABILITIES
Interest bearing deposits:
NOW accounts 94 (277) (183) 85 (93) (8)
Regular savings (57) (1,335) (1,392) (447) 331 (116)
Money Market accounts 634 (1,554) (920) 312 952 1,264
Certificates of deposit 617 (1,591) (974) 2,306 1,355 3,661
of $100,000 or more
Other time deposits 846 51 897 2,541 754 3,295
----- ------ ------ ------ ----- -----
Total interest bearing deposits 2,134 (4,706) (2,572) 4,797 3,299 8,096
----- ------ ------ ------ ----- -----
Borrowings:
Federal Home Loan Bank 5,644 (3,652) 1,992 (3,616) 2,309 (1,307)
Other short-term borrowings 223 (712) (489) 227 297 524
----- ------ ------ ------ ----- -----
Total borrowings 5,867 (4,364) 1,503 (3,389) 2,606 (783)
----- ------ ------ ------ ----- -----
Total interest bearing 8,001 (9,070) (1,069) 1,408 5,905 7,313
----- ------ ------ ------ ----- -----
liabilities
Net changes due to volume/rate $ 6,313 $ (1,458) $ 4,855 $ 3,404 $ 4,145 $ 7,549
======= ======== ======= ======= ======= =======
18
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Market risk is the risk of loss from adverse changes in market prices. In
particular, the market prices of interest-earning assets may be affected by
changes in interest rates. Since net interest income (the difference or spread
between the interest earned on loans and investments and the interest paid on
deposits and borrowings) is the Company's primary source of revenue, interest
rate risk is the most significant non-credit related market risk to which the
Company is exposed. Net interest income is affected by changes in interest rates
as well as fluctuations in the level and duration of the Company's assets and
liabilities.
Interest rate risk is the exposure of net interest income to adverse
movements in interest rates. In addition to directly impacting net interest
income, changes in interest rates can also affect the amount of new loan
originations, the ability of borrowers to repay variable rate loans, the volume
of loan prepayments and refinancings, the carrying value of investment
securities classified as available for sale and the flow and mix of deposits.
The Company's Asset/Liability Management Committee, 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.
The Company is subject to interest rate risk in the event that rates either
increase or decrease. In the event that interest rates increase, the value of
net assets (the liquidation value of stockholders' equity) would decline. At
December 31, 2001, it is estimated that an increase in interest rates of 200
basis points (for example, an increase in the prime rate from 4.5% to 6.5%)
would reduce the value of net assets by $19,420,000. On the other hand, if
interest rates were to decrease, the value of net assets would increase.
Although the value of net assets is subject to risk if interest rates rise
(but not if rates fall) the opposite is true of the Company's earnings. If
interest rates were to increase, net interest income would increase because the
Company has more interest-earning assets than it has interest-bearing
liabilities and because much of this excess amount reprices within a short
period of time. As a result, net interest income is instead subject to the risk
of a decline in rates. Not only are there fewer interest-bearing liabilities to
reprice, but many of these liabilities could not reprice much lower because the
rates paid on them are already low. Accordingly, if interest rates were to
decrease by 200 basis points (for example, a decrease in the prime rate from
4.5% to 2.5%) it is estimated that net interest income would decrease by
$6,014,000. On the other hand, if interest rates were to increase, net interest
income would increase.
At December 31, 2000, it was estimated that the value of the net assets of
the Company would decline by $20,407,000 if interest rates were to increase by
200 basis points and that the Company's net interest income would decline by
$4,261,000 if interest rates were to decline by 200 basis points. The
year-to-year change in these estimates is a result of a lengthening of the
duration of the net assets of the Company.
Item 8. Financial Statements and Supplementary Data.
FINANCIAL STATEMENTS INDEX
o Independent Auditors' Reports
o Consolidated Statements of Condition at December 31, 2001, 2000 and 1999
o Consolidated Statements of Income for the Three Years Ended December 31,
2001
o Consolidated Statements of Cash Flows for the Three Years Ended December
31, 2001
o Consolidated Statements of Comprehensive Income for the Three Years Ended
December 31, 2001
o Consolidated Statements of Changes in Stockholders' Equity for the Three
Years Ended December 31, 2001
o Notes to Consolidated Financial Statements
19
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of
CCBT Financial Companies, Inc.
We have audited the accompanying consolidated statement of condition of
CCBT Financial Companies, Inc. and subsidiaries as of December 31, 2001, and the
related consolidated statements of income, cash flows, comprehensive income and
changes in stockholders' equity, for the year then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CCBT
Financial Companies, Inc. and subsidiaries as of December 31, 2001, and the
results of their operations and their cash flows for the year then ended, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Wolf & Company, P.C.
- ------------------------
Boston, Massachusetts
February 1, 2002
20
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
CCBT Financial Companies, Inc.
We have audited the consolidated statements of condition of CCBT Financial
Companies, Inc. as of December 31, 2000 and 1999, and the related consolidated
statements of income, cash flows, comprehensive income and changes in
stockholders' equity, for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of CCBT Financial
Companies, Inc. as of December 31, 2000 and 1999, and the consolidated results
of its operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.
/s/ Grant Thornton LLP
- ----------------------
Boston, Massachusetts
February 9, 2001
21
CONSOLIDATED STATEMENTS OF CONDITION
December 31,
-----------------------------------------------------
ASSETS 2001 2000 1999
------------- --------------- ----------------
Cash and due from banks $ 51,204,747 $ 49,371,492 $ 43,415,100
Short term interest-bearing deposits 10,857,540 16,843,538 2,207,328
Securities available for sale at fair value 438,349,833 426,742,801 463,379,414
Federal Home Loan Bank stock, at cost 23,502,600 22,125,400 22,125,400
Federal Reserve Bank stock, at cost 1,235,050 1,180,700 1,096,700
Total loans 884,291,338 848,490,319 674,742,548
Less: Allowance for loan losses (12,251,907) (12,153,944) (11,158,126)
------------- --------------- ----------------
Net loans 872,039,431 836,336,375 663,584,422
------------- --------------- ----------------
Loans held for sale 8,349,342 860,840 200,000
Premises and equipment 18,496,280 16,633,912 12,396,729
Deferred tax assets 2,619,189 4,512,589 4,657,933
Accrued interest receivable on securities 2,632,117 3,353,580 2,850,366
Interest receivable on loans 3,736,071 4,331,987 3,156,914
Intangibles 7,972,088 9,555,425 --
Other assets 13,672,642 12,070,707 12,044,040
-------------- --------------- ----------------
Total assets $1,454,666,930 $1,403,919,346 $1,231,114,346
============== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 903,390,528 $ 973,302,664 $ 766,063,617
Borrowings from the Federal Home Loan Bank 384,314,318 291,286,797 347,962,999
Other short-term borrowings 30,735,238 24,520,157 19,345,885
Subordinated debt 5,000,000 -- --
Current taxes payable 2,064,060 2,267,117 1,721,187
Interest payable on deposits and borrowings 2,410,159 4,206,555 3,061,932
Post retirement benefits payable 3,293,458 2,881,892 2,501,480
Employee profit sharing retirement and bonuses payable 4,214,186 2,946,642 2,396,542
Other liabilities 3,925,378 3,654,309 2,411,093
------------- ------------- -------------
Total liabilities 1,339,347,325 1,305,066,133 1,145,464,735
------------- ------------- -------------
Minority interest 3,602 124,435 --
------------- ------------- -------------
Commitments and contingencies (Notes 5 and 12)
Stockholders' equity
Common stock, $1.00 par value:
Authorized: 12,000,000 shares
Issued: 9,061,064 9,061,064 9,061,064 9,061,064
Surplus 27,473,395 27,494,890 27,494,890
Undivided profits 83,156,834 69,896,759 58,181,480
Treasury stock, at cost (440,641 shares in 2001)
(453,016 shares in 2000 and 1999) (7,197,493) (7,399,628) (7,399,628)
Accumulated other comprehensive income (loss) 2,822,203 (324,307) (1,688,195)
----------- ---------- ----------
Total stockholders' equity 115,316,003 98,728,778 85,649,611
----------- ---------- ----------
Total liabilities and stockholders' equity $1,454,666,930 $1,403,919,346 $1,231,114,346
============== ============== ==============
The accompanying notes are an integral part of these financial statements.
22
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31,
--------------------------------
2001 2000 1999
---- ---- ----
INTEREST & DIVIDEND INCOME
Interest and fees on loans $67,433,306 $61,289,410 $49,206,774
Interest on short term interest-bearing deposits 509,594 934,679 675,357
Interest on federal funds sold 3,909 107,610 --
Taxable interest income on securities 27,488,845 28,996,374 26,993,403
Tax-exempt interest income on securities 934,219 910,454 775,355
Dividends on securities 1,384,945 1,730,510 1,456,359
---------- ---------- ----------
Total interest & dividend income 97,754,818 93,969,037 79,107,248
---------- ---------- ----------
INTEREST EXPENSE
Interest on deposits 23,552,091 26,123,306 18,028,054
Interest on borrowings from the Federal Home Loan Bank 20,089,588 18,097,810 19,405,176
Interest on other short-term borrowings 765,525 1,402,676 877,907
Interest on subordinated debt 147,975 -- --
---------- ---------- ----------
Total interest expense 44,555,179 45,623,792 38,311,137
---------- ---------- ----------
Net interest income 53,199,639 48,345,245 40,796,111
Provision for loan losses -- -- --
---------- ---------- ----------
Net interest income after provision for loan losses 53,199,639 48,345,245 40,796,111
---------- ---------- ----------
NON-INTEREST INCOME
Financial advisor fees 6,909,406 6,433,397 5,957,566
Deposit account service charges 2,129,856 1,967,843 1,915,777
Branch banking fees 3,110,268 3,073,595 3,049,663
Electronic banking fees 1,749,624 1,705,453 1,829,980
Loan servicing and other loan fees 59,342 232,815 167,504
Brokerage fees and commissions 1,311,197 1,032,582 1,041,553
Net gain on sales of securities 2,187,219 84,602 234,301
Net gain on sales of loans 2,955,530 88,063 219,587
Insurance commissions 1,573,101 809,931 --
Gain on sale of credit card merchant portfolio 248,166 296,001 3,494,733
Other income 688,449 486,271 356,875
---------- ---------- ----------
Total non-interest income 22,922,158 16,210,553 18,267,539
---------- ---------- ----------
NON-INTEREST EXPENSE
Salaries 17,653,413 14,399,574 12,381,649
Employee benefits 8,164,248 6,227,247 5,454,900
Building and equipment 5,434,329 4,889,482 4,340,295
Data processing 2,987,162 2,721,222 2,793,269
Accounting and legal fees 954,684 771,361 891,402
Other outside services 2,407,688 2,217,641 1,966,130
Amortization of intangibles 1,583,333 851,443 --
Delivery and communications 1,898,007 1,564,002 1,376,039
Directors' fees 278,971 280,125 294,691
Marketing and advertising 1,774,334 1,252,521 906,818
Printing and supplies 872,002 781,718 753,762
Insurance 473,146 376,081 285,681
Branch conversion expenses -- 283,218 --
All other expenses 1,576,940 1,664,972 1,071,531
---------- ---------- ----------
Total non-interest expense 46,058,257 38,280,607 32,516,167
---------- ---------- ----------
Minority interest (23,299) (54,504) --
---------- ---------- ----------
Net income before taxes 30,086,839 26,329,695 26,547,483
Applicable income taxes 10,622,422 9,100,946 10,086,390
---------- ---------- ----------
Net income $19,464,417 $17,228,749 $16,461,093
=========== =========== ===========
Average shares outstanding - basic 8,613,106 8,608,048 8,876,776
Basic earnings per share $2.26 $2.00 $1.85
Diluted earnings per share $2.25 $2.00 $1.85
$ .72 $ .64 $ .56
The accompanying notes are an integral part of these financial statements
23
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
--------------------------------
2001 2000 1999
---- ---- ----
CASH PROVIDED BY OPERATING ACTIVITIES
Net income $ 19,464,417 $ 17,228,749 $ 16,461,093
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,283,720 3,226,343 2,139,147
Net (accretion) amortization of securities (5,610,231) 4,891,652 3,020,243
Amortization of net deferred loan costs 1,308,577 744,250 595,459
Net gain on sales of securities (2,187,219) (84,602) (234,301)
Deferred income tax (benefit) expense (369,967) (622,294) 1,998,127
Net gain on sale of loans (2,955,530) (88,063) (219,587)
Net loss on disposal of premises and equipment -- 57,155 --
Gain on sale of credit card merchant portfolio (248,166) (296,001) (3,494,733)
Net change in:
Proceeds from sales (originations) of loans held for sale, net (5,709,420) (660,840) 17,940,522
Accrued interest receivable (1,317,379) (1,619,663) 1,657,531
Accrued expenses and other liabilities 153,782 3,008,301 2,648,346
Other, net (1,287,972) 136,932 5,398,311
---------------- -------------- --------------
Net cash provided by operating activities 5,524,612 25,921,919 47,910,158
---------------- -------------- --------------
CASH USED BY INVESTING ACTIVITIES
Net increase in loans (86,431,069) (177,021,763) (164,453,508)
Proceeds from sale of portfolio loans 52,840,954 12,188,480 85,294,654
Dispositions of property from defaulted loans -- 70,000 115,000
Maturities of available-for-sale securities 514,544,235 248,979,523 496,592,930
Purchase of available-for-sale securities (656,605,300) (312,851,725) (563,093,625)
Sales of available-for-sale securities 143,661,360 97,908,163 82,270,203
Purchases of premises and equipment (4,562,749) (4,199,951) (2,386,550)
Purchase of Federal Home Loan Bank stock (1,377,200) -- --
Purchase of Federal Reserve Bank stock (54,350) (84,000) (1,096,700)
Sale of premises and equipment -- 50,000 --
Acquisition of banking offices -- 35,874,054 --
Acquisition of 51% of Murray & MacDonald
Insurance Services, Inc.
-- (1,199,094) --
---------------- -------------- --------------
Net cash used by investing activities (37,984,119) (100,286,313) (66,757,596)
---------------- -------------- --------------
CASH PROVIDED BY FINANCING ACTIVITIES
Net (decrease) increase in deposits (69,912,136) 151,972,396 38,166,642
Advances of borrowings from the Federal Home Loan Bank 1,855,224,404 2,001,323,981 1,062,525,072
Repayments of borrowings from the Federal Home Loan Bank (1,762,196,883) (2,058,000,183) (1,058,068,756)
Net increase in other short-term borrowings 6,215,081 5,174,272 4,739,563
Proceeds from issuance of subordinated debt 5,000,000 -- --
Purchase of treasury stock -- -- (7,399,628)
Issuance of common stock under stock option plan 180,640 -- --
Cash dividends paid on common stock (6,204,342) (5,513,470) (4,983,742)
---------------- -------------- --------------
Net cash provided by financing activities 28,306,764 94,956,996 34,979,151
---------------- -------------- --------------
Net increase (decrease) in cash and cash equivalents (4,152,743) 20,592,602 16,131,713
Cash and cash equivalents at beginning of year 66,215,030 45,622,428 29,490,715
---------------- -------------- --------------
Cash and cash equivalents at end of year $ 62,062,287 $ 66,215,030 $ 45,622,428
=============== =============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest $ 46,403,510 $ 44,479,170 $ 37,746,945
Income taxes 11,049,819 8,967,843 6,599,480
Non-cash transactions:
Additions to property from defaulted loans -- 70,000 1,615,000
Loans to finance OREO property -- -- 100,000
The accompanying notes are an integral part of these financial statements.
24
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Years Ended December 31,
2001 2000 1999
---- ---- ----
Net income $19,464,417 $17,228,749 $16,461,093
----------- ----------- -----------
Unrealized holding gains (losses) on securities available for sale 7,597,096 2,458,196 (2,937,312)
Reclassification of gains on securities realized in income (2,187,219) (84,602) (234,301)
----------- ----------- -----------
Net unrealized gains (losses) 5,409,877 2,373,594 (3,171,613)
Related tax effect (2,263,367) (1,009,706) 1,201,101
----------- ----------- -----------
Net other comprehensive income (loss) 3,146,510 1,363,888 (1,970,512)
----------- ----------- -----------
Comprehensive income $22,610,927 $18,592,637 $14,490,581
=========== =========== ===========
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended December 31,
2001 2000 1999
---- ---- ----
COMMON STOCK
Balance, beginning of year $ 9,061,064 $ 9,061,064 $ 22,652,660
Stock exchange at reorganization -- -- (13,591,596)
----------- ----------- -----------
Balance, end of year 9,061,064 9,061,064 9,061,064
----------- ----------- -----------
SURPLUS
Balance, beginning of year 27,494,890 27,494,890 13,903,294
Stock exchange at reorganization -- -- 13,591,596
Issuance of common stock under stock option plan (21,495) -- --
----------- ----------- -----------
Balance, end of year 27,473,395 27,494,890 27,494,890
----------- ----------- -----------
UNDIVIDED PROFITS
Balance, beginning of year 69,896,759 58,181,480 46,704,129
Net income 19,464,417 17,228,749 16,461,093
Cash dividends declared (6,204,342) (5,513,470) (4,983,742)
----------- ----------- -----------
Balance, end of year 83,156,834 69,896,759 58,181,480
----------- ----------- -----------
TREASURY STOCK
Balance, beginning of year (7,399,628) (7,399,628) --
Purchase of treasury stock -- -- (7,399,628)
Issuance of common stock under stock option plan 202,135 -- --
----------- ----------- -----------
Balance, end of year (7,197,493) (7,399,628) (7,399,628)
----------- ----------- -----------
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Balance, beginning of year (324,307) (1,688,195) 282,317
Net other comprehensive income (loss) 3,146,510 1,363,888 (1,970,512)
----------- ----------- -----------
Balance, end of year 2,822,203 (324,307) (1,688,195)
----------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY, END OF YEAR $115,316,003 $98,728,778 $85,649,611
============ =========== ===========
The accompanying notes are an integral part of these financial statements.
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
Nature of business -- The Company was incorporated under the laws of the
Commonwealth of Massachusetts on October 8, 1998 under the name 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, the Company 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 the Company's common stock (the "Reorganization").
Pursuant to the Plan of Reorganization, each issued and outstanding share of the
Bank's common stock, par value of $2.50 per share, automatically and without
consideration was converted into and exchanged for one share of the common
stock, par value $1.00 per share (the "Common Stock"), of the Company. At a
special stockholders' meeting held July 29, 1999, CCBT Bancorp, Inc.'s name was
changed to CCBT Financial Companies, Inc. This name change became effective
September 23, 1999. The Bank's charter was converted to a national bank on
September 1, 1999. Currently, the Company's business activities are conducted
primarily through the Bank. The Bank provides loan, deposit, trust and
investment services, and insurance products, to businesses and consumers
primarily located in southeastern Massachusetts.
Principles of consolidation -- Financial information contained herein for
periods and dates prior to February 11, 1999 is that of the Bank. Since the Bank
is the main operating subsidiary of the Company, financial information contained
herein for periods and dates after February 11, 1999 is essentially financial
information of the Bank. Certain amounts have been reclassified in the 2000 and
1999 financial statements to conform to the 2001 presentation. The accompanying
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiary. All inter-company accounts have been eliminated upon
consolidation in the presentation of the consolidated financial statements.
Use of estimates -- The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. Material estimates that are particularly susceptible to
significant change in the near term relate to the determination of the allowance
for loan losses and the valuation of foreclosed real estate.
Cash and cash equivalents -- Cash and cash equivalents include amounts due
from banks, short term interest-bearing deposits and federal funds sold, all of
which mature within 90 days.
Securities -- Securities held for investment that the Company has the
positive intent and ability to hold to maturity are stated at cost, adjusted for
amortization of premiums and accretion of discounts. Available for sale
securities are securities that might be sold prior to maturity to meet needs for
liquidity or for the purchase of alternative investments. These securities are
stated at market value. Unrealized gains and losses on such securities, if any,
are credited or charged to other comprehensive income net of any related tax
effect. Trading securities are securities which are bought and held principally
for the purpose of selling them in the near term. At December 31, 2001, 2000 and
1999, the Company did not own any held to maturity or trading securities. Gains
and losses on the sale of securities are recorded on the trade date and are
determined using the specific identification method. Purchase premiums and
discounts are recognized in interest income using the interest method over the
terms of the securities.
Loans -- Loans are reported at their principal balance outstanding,
adjusted for deferred fees and costs and charge-offs. Loan fees, net of the
direct cost of origination, are deferred and taken into income over the life of
the loan using the interest method.
Interest income on loans is recognized when accrued. Accrual of interest
income on loans is discontinued when it is doubtful whether the borrower will be
able to pay 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.
Interest previously accrued but not collected is reversed and charged against
interest income at the time the related loan is placed on nonaccrual status.
Interest collected on nonaccrual loans is credited to interest income when
received. When doubt exists as to the ultimate collection of principal on a
loan, the estimated loss is included in the provision for loan losses.
Loans held for sale -- Loans originated and intended for sale in the
secondary market are carried at the lower of cost or estimated fair value in the
aggregate. Net unrealized losses, if any, are recognized through a valuation
allowance by charges to income.
Impaired loans -- A loan is considered impaired when, based on current
information and events, it is probable that a creditor will be unable to collect
the scheduled payments of principal or interest when due according to the
contractual terms of the loan agreement. Factors considered by management in
determining impairment include payment status, collateral value, and the
probability of collecting scheduled principal and interest payments when due.
Loans that experience insignificant payment delays and payment shortfalls
generally are not classified as impaired. Management determines the significance
of payment delays and payment shortfalls on a case-by-case basis, taking into
consideration
26
all of the circumstances surrounding the loan and the borrower, including the
length of the delay, the reasons for the delay, the borrower's prior payment
record, and the amount of the shortfall in relation to the principal and
interest owed. Impairment is measured on a loan by loan basis for commercial and
construction loans by either the present value of expected future cash flows
discounted at the loan's effective interest rate, the loan's obtainable market
price, or the fair value of the collateral if the loan is collateral dependent.
Mortgage servicing rights -- The fair value of the right to service loans
is capitalized when loans are sold to other investors and is amortized against
servicing income over the estimated life of the underlying loans. Servicing
assets are evaluated for impairment based upon the fair value of the rights as
compared to amortized cost. Impairment is determined by stratifying rights by
predominant characteristics, such as interest rates and terms. Fair value is
determined using prices for similar assets with similar characteristics, when
available, or based upon discounted cash flows using market-based assumptions.
Impairment is recognized through a valuation allowance for an individual
stratum, to the extent that fair value is less than the capitalized amount for
the stratum.
Allowance for loan losses -- The allowance for loan losses is an estimate
of the amount necessary to provide an adequate reserve to absorb probable losses
in the current loan portfolio. This amount is determined by management based on
a regular evaluation of the loan portfolio and considers such factors as loan
loss experience, nature and volume of the loan portfolio, adverse situations
that may affect the borrowers ability to repay, estimated value of any
underlying collateral and current economic conditions. This evaluation is
inherently subjective, as it requires estimates that are susceptible to
significant revision as more information becomes available. Loan losses are
charged against the reserve when management believes the collectibility of the
principal is unlikely. Recoveries on loans previously charged off are credited
to the reserve. The reserve 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.
The allowance consists of specific, general and unallocated components. The
specific component relates to loans that are classified as doubtful, substandard
or special mention. For such loans that are also classified as impaired, an
allowance is established when the discounted cash flows (or collateral value or
observable market price) of the impaired loan is lower than the carrying value
of that loan. The general component covers non-classified loans and is based on
historical loss experience adjusted for qualitative factors. An unallocated
component is maintained to cover uncertainties that could affect management's
estimate of probable losses. The unallocated component of the allowance reflects
the margin of imprecision inherent in the underlying assumptions used in the
methodologies for estimating specific and general losses in the portfolio.
Property from defaulted loans -- Property from defaulted loans is carried
at the lower of the amount of the related loan or the estimated market value of
the assets received, less estimated selling costs. Property from defaulted loans
includes foreclosed properties where the Company has actually received title or
taken possession. Provisions or losses subsequent to acquisition, operating
income and expenses, and gains or losses from the sale of properties are
credited or charged to income, while costs relating to improving real estate are
capitalized.
Premises and equipment -- Premises and equipment are reported at cost less
accumulated depreciation. Depreciation is computed on a straight-line basis by
charges to income in amounts estimated to recover the cost of premises and
equipment over their estimated useful lives, which range between 3 and 8 years
for furniture and fixtures and up to 40 years for Bank premises and leasehold
improvements.
Intangibles -- The core deposit intangible arising from the acquisition of
two branch banking offices during 2000 is being amortized on a straight-line
basis over 7 years. Goodwill arising from the acquisition of Murray & MacDonald
Insurance Services, Inc., is being amortized on a straight-line basis over 5
years.
Marketing expense -- The Company charges to marketing expense any
advertising related expenses at the time they are incurred.
Provision for income taxes -- The provision for income taxes includes
deferred income taxes arising as a result of reporting some items of revenue and
expense in different years for tax and financial reporting purposes. Deferred
tax assets and liabilities are reflected at currently enacted income tax rates
applicable to the period in which they are expected to be settled.
Earnings per share -- Basic earnings per share is computed by dividing net
income by the weighted average shares outstanding for the period. Diluted
earnings per share reflects the potential dilution that could occur if options
to purchase common stock were exercised resulting in the issuance of common
stock that then shared in the earnings of the Company.
Segments -- Statement of Financial Accounting Standards ("SFAS") No. 131
establishes standards for the way public business enterprises report information
about operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in subsequent
interim financial reports issued to shareholders. It also establishes standards
for related disclosure about products and services, geographic areas, and major
customers. The statement requires that a public business enterprise report
financial and descriptive information about its reportable operating segments.
Operating segments are components of an enterprise about which separate
financial
27
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and assess performance. The
statement also requires that public enterprises report a measure of segment
profit or loss, certain specific revenue and expense items and segment assets.
It also requires that information be reported about revenues derived from the
enterprises' products or services, or about the countries in which the
enterprises earn revenues and holds assets, and about major customers,
regardless of whether that information is used in making operating decisions.
The Company has one reportable segment, "Community Banking." All of the
Company's activities are interrelated, and each activity is dependent and
assessed based on how each of the activities of the Company supports the others.
For example, commercial lending is dependent upon the ability of the Bank to
fund itself with retail deposits and other borrowings and to manage interest
rate and credit risk. This situation is also similar for consumer and
residential mortgage lending. The Company's brokerage and insurance activities
are not material to the Company's consolidated financial statements. Net income
(loss) for the year ended December 31, 2001 for such activities amounted to
$180,000 and $(24,000), respectively. Accordingly, all significant operating
decisions are based upon analysis of the Company as one operating segment or
unit.
Subsequent accounting change -- 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 will be subject to at least an
annual assessment for impairment by applying a fair value based test. The first
impairment evaluation must be completed by June 30, 2002. 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 will no
longer be amortized but will be evaluated for impairment and the Company's core
deposit intangibles will continue to be amortized over their estimated useful
lives.
(2) Securities
The amortized cost and estimated fair values of securities, which the
Company classified as available for sale as of December 31, 2001, 2000 and
1999 were as follows:
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
======== ====== ====== ========
December 31, 2000
--------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
(Dollar amounts in thousands)
U.S. Government agency CMOs $140,472 $1,412 $2,437 $139,447
Other U.S. Government agency obligations 22,663 31 200 22,494
Other collateralized mortgage obligations 47,746 526 529 47,743
State and municipal obligations 25,479 3 -- 25,482
Other debt securities 190,946 1,484 853 191,577
-------- ------ ------ --------
Totals $427,306 $3,456 $4,019 $426,743
======== ====== ====== ========
28
December 31, 1999
--------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
(Dollar amounts in thousands)
U.S. Government agency CMOs $176,935 $2,234 $4,444 $174,725
Other U.S. Government agency obligations 16,819 3 266 16,556
Other collateralized mortgage obligations 79,425 535 677 79,283
State and municipal obligations 20,596 -- -- 20,596
Other debt securities 172,542 429 752 172,219
-------- ------ ------ --------
Totals $466,317 $3,201 $6,139 $463,379
======== ====== ====== ========
The net unrealized gain or loss on securities is included net of tax in
other comprehensive income.
Gross proceeds from the sale of available for sale securities were
$143,661,000. Gross gains of $2,464,000 and gross losses of $277,000 were
realized on those sales.
Gross proceeds from the sale of available for sale securities were
$97,908,000 in 2000. Gross gains of $410,000 and gross losses of $325,000 were
realized on those sales.
Gross proceeds from the sale of available for sale securities were
$82,270,000 in 1999. Gross gains of $334,000 and gross losses of $100,000 were
realized on those sales.
The amount of income tax expense attributable to net gains in 2001, 2000
and 1999 was $915,000, $35,000 and $98,000, respectively.
The amortized cost and estimated fair value of debt securities, which the
Company classified as available for sale at December 31, 2001 by contractual
maturity, are shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
Amortized Estimated
Cost Fair Value
---- ----------
(Dollar amounts in thousands)
Due in one year or less $ 30,360 $30,318
Due after one year through five years 63,085 63,351
Due after five years through ten years 97,883 98,610
Due after ten years 242,176 246,071
-------- --------
Totals $433,504 $438,350
======== ========
At December 31, 2001, securities carried at $30,735,000 were pledged
to secure borrowings from the U.S. Treasury and securities sold subject to
agreements to repurchase.
(3) Loans
The following is a summary of loans outstanding as of the dates indicated:
December 31,
---------------------------------------------------
2001 2000 1999
---- ---- ----
(Dollar amounts in thousands)
Mortgage loans on real estate
Residential $376,504 $393,574 $290,722
Commercial 264,934 242,536 203,988
Construction 95,186 87,978 68,809
Equity lines of credit 53,336 37,377 23,035
Other loans
Commercial 84,947 76,275 77,776
Industrial revenue bonds 1,163 1,603 1,137
Consumer 8,221 9,147 9,275
-------- -------- --------
Total loans 884,291 848,490 674,742
Less: Allowance for loan losses (12,252) (12,154) (11,158)
-------- -------- --------
Total portfolio loans, net $872,039 $836,336 $663,584
======== ======== ========
Loans held for sale $ 8,349 $ 861 $ 200
======== ======== ========
29
The Company enters into banking transactions in the ordinary course of its
business with directors, officers, principal stockholders and their associates,
on the same terms, including interest rates and collateral on loans, as those
prevailing at the same time for comparable transactions with others. The total
amount of loans outstanding to Directors and Officers at December 31, 2001, 2000
and 1999 was $4,895,000, $5,885,000 and $5,552,000, respectively. During 2001,
$2,666,000 in new loans were made to Directors and Officers and there were
$3,656,000 in repayments. The total amount of deposits from Directors and
Officers at December 31, 2001, 2000 and 1999 was $3,257,000, $5,558,000 and
$3,829,000, respectively.
Nonaccrual loans at December 31, 2001, 2000 and 1999 amounted to
$1,802,000, $2,192,000, and $1,777,000, respectively. Interest income, which
would have been accrued on nonaccrual loans, had they performed in accordance
with the terms of their contracts, for the year ended December 31, 2001 was
$127,000. Interest income recognized on nonaccrual loans in 2001 amounted to
$38,000.
The amount of restructured troubled debt which was performing in accordance
with amended terms at December 31, 2001, 2000 and 1999 was $224,000, $237,000
and $626,000, respectively. For each of these years, the difference between the
amount of income recorded on these loans and the amount of income that would
have been recognized had the loans performed in accordance with their original
terms was not material.
The Company's business is primarily in southeastern Massachusetts, and many
of the Company's loan customers are involved in real estate construction or the
hotel and restaurant industry. This can cause a number of them to be similarly
affected by economic conditions.
Loans serviced for others are not included in the accompanying consolidated
balance sheets. The unpaid principal balances of mortgage and other loans
serviced for others were $197,553,000, $160,104,000, and $168,260,000 at
December 31, 2001, 2000 and 1999, respectively.
The following summarizes mortgage servicing rights capitalized and
amortized:
December 31,
-----------------------------------------------
2001 2000 1999
---- ---- ----
(Dollar amounts in thousands)
Mortgage servicing rights capitalized $585 $ 42 $528
==== ==== ====
Mortgage servicing rights amortized $357 $147 $194
==== ==== ====
Mortgage servicing rights included in Other Assets at December 31, 2001,
2000, and 1999, were $1,351,000, $1,123,000, and $1,228,000, respectively. The
fair values of these rights were $1,433,000, $1,201,000 and $1,388,000,
respectively. The fair value balance of capitalized servicing rights was
determined using a discount rate of 8% and a prepayment speed of 7%.
(4) Allowance for Loan Losses
The changes in the allowance for loan losses during the three years ended
December 31, 2001 were as follows:
2001 2000 1999
---- ---- ----
(Dollar amounts in thousands)
Balance, beginning of year $12,154 $11,158 $11,107
Provision for loan losses -- -- --
Charge-offs (347) (168) (610)
Recoveries on loans previously charged off 445 1,164 661
------- ------- -------
Balance, end of year $12,252 $12,154 $11,158
======= ======= =======
30
The following is a summary of information pertaining to impaired loans:
2001 2000 1999
---- ---- ----
(Dollar amounts in thousands)
Impaired loans without a valuation allowance $ -- $ -- $ --
==== ===== ======
Commercial loans $468 $ 442 $ 559
Commercial mortgage loans 148 328 419
---- ----- -----
Total impaired loans $616 $ 770 $ 978
==== ===== ======
Valuation allowance $347 $ 353 $ 449
==== ===== ======
Average investment in impaired loans $528 $1,052 $2,397
==== ====== ======
Interest income recognized on impaired loans $112 $ 183 $ 200
==== ====== ======
Interest income recognized on a cash basis on impaired loans $112 $ 183 $ 200
==== ====== ======
(5) Bank Premises and Equipment
The cost and accumulated depreciation and amortization of premises and
equipment are as follows:
December 31,
--------------------------------------------------------
2001 2000 1999
---- ---- ----
(Dollar amounts in thousands)
Premises:
Land $ 2,769 $ 2,769 $ 1,511
Buildings 10,188 9,516 7,094
Leasehold improvements 4,513 4,513 4,375
Equipment 19,447 15,572 12,749
Accumulated depreciation and amortization (18,421) (15,736) (13,332)
------- ------- -------
$18,496 $ 16,634 $ 12,397
======= ======== ========
Depreciation and amortization expense for the years ended December 31,
2001, 2000 and 1999 amounted to $2,700,000, $2,375,000 and $1,938,000,
respectively.
Certain banking premises are leased under non-capitalized operating leases
expiring at various dates through 2012. Annual rental expenses under these
leases were $1,003,000 in 2001, $959,000 in 2000 and $914,000 in 1999. The total
rental commitments under non-cancelable leases for future years are $5,251,000
not including amounts payable under Consumer Price Index escalator provisions in
three such leases which become effective in 2002 and later years. Annual
commitments are $999,000 in 2002, $1,007,000 in 2003, $960,000 in 2004, $703,000
in 2005, $380,000 in 2006, and a total of $1,203,000 for the years 2007 through
2012. Certain of these leases also contain renewal options.
(6) Employee Benefits
The Company has a defined contribution Profit Sharing Retirement Plan
covering substantially all employees following two years of service. Each year,
the Company contributes amounts equal to 8% of each participant's compensation
plus 4.3% of compensation over one-half the social security wage base. Profit
sharing retirement expense was $1,091,000 in 2001, $1,154,000 in 2000 and
$1,102,000 in 1999. Also in 2001, 2000 and 1999, bonuses were accrued under the
provisions of the Company's Profit Incentive Plan totaling $1,810,000,
$1,750,000 and $1,280,000, respectively, and paid in the year following.
The Company's Employee Stock Ownership Plan holds 36,691 shares of the
Company's common stock. At December 31, 2001, all shares were allocated to
employees.
The Company has an unfunded plan for providing medical and life insurance
coverage for retired employees who meet age and service requirements. For an
employee retiring at age 65 with 30 or more years of service, the Company pays
100% of the cost of his or her medical insurance and 50% of the cost of the
medical insurance of his or her dependents. The Company also pays for the cost
of life insurance in an amount between $5,000 and $25,000 based on the earnings
of the employee and the number of years since retirement. Lesser benefits are
provided for employees who retire at a younger age or with fewer years of
service. The Company's share of increases in the cost of providing
post-retirement medical insurance is limited to 5% per year for employees who
retire after 1993.
SFAS No. 106 requires that the expected expense be recognized over the
period that employees render the service making them eligible for this benefit
rather than when the premiums are actually paid following retirement. SFAS No.
106 will increase the amount of expense over the transitional period during
which expense will be charged for both the expense of current premiums and to
build up a reserve of approximately $3,600,000 for future premiums.
31
The following table sets forth the plan's funded status reconciled with the
amount included in the Company's statement of condition at December 31, 2001,
2000 and 1999:
Accumulated post-retirement benefit obligation: 2001 2000 1999
---- ---- ----
Retirees $1,080,678 $ 967,586 $ 748,889
Fully eligible active plan participants 1,032,301 976,271 695,194
Other plan participants 1,538,627 1,689,082 1,595,339
--------- --------- ---------
3,651,606 3,632,939 3,039,422
Plan assets at fair value -- -- --
Accumulated post-retirement benefit obligation
in excess of plan assets 3,651,606 3,632,939 3,039,422
Unrecognized net gain from past experience different
from that assumed and from changes in assumptions 859,577 515,647 831,364
Unrecognized prior service cost -- -- --
Unrecognized net obligation at transition (1,208,350) (1,318,200) (1,428,050)
--------- --------- ---------
Unfunded accrued post-retirement benefit expense $3,302,833 $2,830,386 $2,442,736
========== ========== ==========
Net periodic post-retirement benefit for 2001, 2000 and 1999 included the
following components:
2001 2000 1999
---- ---- ----
Service cost - benefits attributed to service during the $221,960 $172,394 $202,281
year
Interest cost on accumulated post-retirement 268,073 234,489 211,806
benefit obligation
Actual return on plan assets -- -- --
Amortization of transition obligation over 20 years 109,850 109,850 109,850
Amortization of gain (515,647) (831,364) (563,568)
Asset gain deferred 507,628 807,416 563,568
------- ------- -------
Net periodic post-retirement benefit cost $591,864 $492,785 $523,937
======== ======== ========
For measurement purposes, a 5.5% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 2002; the rate was assumed
to decrease to 5% by 2003 and remain level thereafter. The health care cost
trend rate assumption has a significant effect on the amounts reported. To
illustrate, increasing the assumed health care cost trend rates by one
percentage point in each year would increase the accumulated post-retirement
benefit obligation as of December 31, 2001 by $70,000 and the aggregate service
and interest cost components of net periodic post-retirement benefit cost for
the year then ended by $5,000.
The weighted-average discount rate used in determining the accumulated
post-retirement benefit obligation was 7.%.
Post-employment benefits are all types of benefits provided to former or
inactive employees, their beneficiaries and covered dependents. Post-employment
benefits include, but are not limited to, salary continuation, supplemental
unemployment benefits, severance benefits, disability-related benefits
(including workers' compensation), job training and counseling, and continuation
of benefits such as health care benefits and life insurance coverage.
In 1997, the Company adopted a Stock Option Plan for Employees and in 2001,
the Company adopted a Stock Option Plan for Directors. Options on up to 620,000
shares may be granted under these plans. Options become exercisable over a
period of four years at the rate of 25% per year and expire after 10 years. The
Company measures compensation cost for plans such as this using the intrinsic
value based method of accounting prescribed by APB Opinion No. 25. Accordingly,
no compensation cost was recognized on these options.
The table below shows the number of stock options that were outstanding at
the beginning and end of each year, and how many were exercised, granted,
forfeited or expired.
32
2001 2000 1999
-------------------------- -------------------------- --------------------------
Weighted Average Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
------ -------------- ------ -------------- ------ --------------
Outstanding, beginning of year 159,500 $17.22 104,000 $16.72 57,000 $17.41
Granted 157,000 $24.24 61,500 $18.00 52,500 $16.07
Exercised (12,375) $14.60 -- -- -- --
Forfeited (3,500) $20.94 (6,000) $16.60 (5,500) $17.66
------ ------ ------
Outstanding, end of year 300,625 $20.95 159,500 $17.22 104,000 $16.72
======= ======= =======
Exercisable, end of year 69,625 $17.23 42,500 $16.47 18,375 $16.18
====== ====== ======
The following table summarizes information about stock options outstanding
at December 31, 2001:
Remaining Years in
Exercise Price Number Outstanding Contractual Life Number Exercisable
-------------- ------------------ ---------------- ------------------
$13.38 12,000 5.35 12,000
$20.75 20,500 6.12 15,000
$19.25 5,500 6.87 4,000
$17.38 16,000 7.04 8,000
$16.38 9,125 7.84 4,375
$15.06 22,000 7.92 11,000
$18.00 61,000 8.93 15,250
$22.44 35,000 9.68 --
$24.80 119,500 9.93 --
-------
300,625 69,625
======= ======
A value at the time of grant was calculated for each option using the
Black-Scholes option pricing model with an estimated average option life of 5
years and using the five-year averages of price volatility of the Company's
common stock, dividend yield, and a risk-free rate equal to the five-year
Treasury rate. The table below shows these assumptions and the weighted-average
fair value of the options which were granted during each year as well as what
the effect would have been if the Company had adopted the fair value method of
accounting for stock options described in SFAS No. 123.
2001 2000 1999
---- ---- ----
Weighted average volatility 28.82% 27.03% 25.86%
Weighted average dividend 3.11% 3.16% 2.77%
Weighted average risk-free rate 4.48% 5.26% 5.58%
Weighted average fair value of options $ 5.77 $ 4.26 $ 3.94
granted during the year
Additional expense had the Company
adopted SFAS No. 123 $ 181,635 $ 106,606 $ 67,883
Related tax benefit $ 75,969 $ 44,588 $ 28,392
Pro-forma net income $19,358,751 $17,166,731 $16,421,602
Pro-forma basic earnings per share $ 2.25 $ 1.99 $ 1.85
Pro-forma diluted earnings per share $ 2.24 $ 1.99 $ 1.85
The Company has also entered into stock appreciation rights agreements with
selected employees who are paid the amount by which a certain number of shares
exceeds its value at the time the agreement was entered into. Stock appreciation
rights mature ten years after their issuance and are not ordinarily exercisable
prior to maturity. Compensation expense applicable to stock appreciation rights
is not material. The table below shows the amount of stock appreciation rights
which were outstanding at the beginning and end of each year, and how many were
exercised, granted, forfeited, or expired.
33
2001 2000 1999
-------------------------- ------------------------ ------------------------
Weighted Average Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
------ -------------- ------ -------------- ------ --------------
Outstanding, beginning of year 14,700 $ 17.82 8,100 $ 17.62 3,700 $ 19.25
Granted 6,900 $ 24.52 7,100 $ 18.00 4,600 $ 16.38
Exercised -- -- -- -- -- --
Forfeited (700) $ 18.13 (500) $ 16.95 (200) $ 19.25
------ ------ -----
Outstanding, end of year 20,900 $ 20.03 14,700 $ 17.82 8,100 $ 17.62
====== ====== =====
The following table summarizes information about stock appreciation rights
outstanding at December 31, 2001:
Remaining Years in
Exercise Price Number Outstanding Contractual Life Number Exercisable
-------------- ------------------ ---------------- ------------------
$19.25 3,200 6.86 --
$16.38 4,100 7.84 --
$18.00 6,700 8.93 --
$24.52 6,900 9.97 --
------
20,900
======
(7) Deposits and Borrowed Funds
The following summarizes deposits and borrowed funds outstanding as of the
dates indicated:
December 31,
-------------------------------------------------
2001 2000 1999
---- ---- ----
(Dollar amounts in thousands)
Deposits
Demand $209,551 $201,904 $167,624
NOW 149,109 139,453 120,308
Money market 185,156 163,793 138,288
Other savings 155,255 143,239 158,142
Certificates of deposit greater than $100,000 53,123 96,159 60,666
Other time 151,197 228,755 121,036
-------- -------- --------
Total deposits $903,391 $973,303 $766,064
======== ======== ========
Maturities of time certificates of deposit as of December 31, 2001 are
$179,784,000 in 2002, $12,454,000 in 2003, $2,901,000 in 2004, $5,982,000 in
2005, and $3,198,000 in 2006.
Historically, the Company has maintained a significant level of core
deposits from within its market area, serviced through its branch and ATM
networks.
December 31,
-------------------------------------------------
2001 2000 1999
---- ---- ----
(Dollar amounts in thousands)
Borrowed funds
Federal Home Loan Bank $384,314 $291,287 $347,963
Other short term borrowings 30,735 24,520 19,346
Subordinated debt 5,000 -- --
-------- -------- --------
Total borrowed funds $420,049 $315,807 $367,309
======== ======== ========
The contractual maturities of borrowings from the Federal Home Loan Bank of
Boston as of December 31, 2001, are $219,065,000 in 2002, $47,650,000 in 2003,
$20,645,000 in 2004, $29,410,000 in 2005, $48,866,000 in 2006, and $18,678,000
in years thereafter. These borrowings bore interest rates between 2.18% and
7.35% with a weighted average interest rate of 4.45%. The balance at October 31,
2001 of $452,257,000 was the maximum amount outstanding at any month end during
2001. These borrowings are collateralized by the Company's residential mortgage
loans and securities. The Company also has an IDEAL Way Line of Credit with the
Federal Home Loan Bank of Boston. The unused balance at December 31, 2001 and
2000 was $5,000,000 and at December 31, 1999 it was $12,963,000. In addition,
the Company
34
established a line of credit in 2001 of $7,000,000 for the purchase of federal
funds from SunTrust Bank. The Company may also borrow from the Federal Reserve
if necessary.
Other short-term borrowings at December 31, 2001, 2000 and 1999 consisted
of a demand note payable to the U.S. Treasury of $4,709,000, $2,339,000 and
$1,913,000, respectively, and securities sold subject to agreements to
repurchase of $26,027,000, $22,181,000 and $17,433,000, respectively, which
mature overnight. The weighted average interest rate on these borrowings was
.87% as of December 31, 2001. These borrowings are collateralized by the pledge
of securities.
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.
(8) Stockholders' Equity
The Company (on a consolidated basis) and the Bank are required to meet
certain Regulatory capital requirements administered by the federal banking
agencies. Failure to meet minimum capital requirements can initiate certain
mandatory and possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the Company's and the Bank's
financial statements. As of December 31, 2001, 2000 and 1999, the Company and
the Bank met all regulatory capital requirements and satisfied the requirements
of the "well-capitalized" category under the Federal Deposit Insurance
Corporation Improvement Act. Management believes that there have been no events
or conditions that have affected the well-capitalized category of the Company or
the Bank.
The Company and the Bank are required to maintain a Tier 1 leverage capital
ratio, Tier 1 Capital to average assets, of at least 4%. For the Bank to be
considered well-capitalized, this ratio must be at least 5%. At December 31,
2001, 2000 and 1999, the Tier 1 leverage capital ratios of the Company were
7.3%, 6.7% and 6.9%, respectively, and the Bank's ratios were 7.1%, 6.6% and
6.5%, respectively. At December 31, 2001, Tier 1 capital amounts for the Company
and the Bank were $109,239,000 and $107,193,000, respectively.
Risk-based capital requirements also apply.
Some loan commitments, lines of credit and financial guarantees are subject
to capital requirements in addition to assets shown on the statement of
condition. The risk-based capital regulations assign one of four weights to
assets -- 0%, 20%, 50% or 100%. Full capital must be maintained to support
assets with 100% risk weight, with proportionally lower capital required for
assets assigned a lower weight. For the periods presented, most of the
investment securities are assigned a 20% risk weight, and residential mortgages
are assigned a 50% risk weight. Most other assets are assigned to the 100% risk
category. At December 31, 2001, 2000 and 1999 the net risk-weighted assets were
$1,044,191,000, $956,893,000 and $870,850,000 while the net risk-weighted assets
of the Bank were $1,043,796,000, $954,143,000 and $865,438,000.
Stockholders' equity and a portion of the reserve for loan losses can all
be used to meet capital requirements. The reserve for loan losses used to meet
risk-based capital requirements cannot be more than 1.25% of total risk-weighted
assets. At December 31, 2001, 2000 and 1999, respectively $12,252,000,
$11,930,000 and $10,822,000 of the reserve for loan losses could be used toward
risk-based capital requirements. Accordingly, at December 31, 2001, 2000 and
1999 the Bank's total capital for risk-based capital purposes was $119,445,000,
$98,538,000 and $92,441,000 equal to 11.4%, 10.3% and 10.7%, respectively, of
risk-weighted assets. The Company had total capital for risk-based capital
purposes of $121,491,000, $101,473,000 and $98,037,000 equal to 11.6%, 10.6% and
11.3% at December 31, 2001, 2000 and 1999. This ratio is required to be at least
8%, and for the Bank to be considered well capitalized, it must be at least 10%.
Tier 1 capital is required to be at least 4% of net risk-weighted assets.
For the Bank to be considered well-capitalized, this ratio must be at least 6%.
At December 31, 2001, 2000 and 1999, the Company's Tier 1 capital to net
risk-weighted assets was 10.5%, 9.4% and 10.0%, respectively. The Bank's Tier 1
capital to net risk-weighted assets was 10.3%, 9.1% and 9.4% for the years ended
December 31, 2001, 2000 and 1999, respectively.
The risk-based capital ratio focuses on broad categories of credit risk.
However, the ratio does not take account of many other factors that can affect
financial condition. These factors include overall interest rate risk exposure,
liquidity, funding and market risks, the quality and level of earnings,
investment or loan portfolio concentrations, the quality of loans and
investments, the effectiveness of loan and investment policies, and management's
overall ability to monitor and control financial and operating risks. In
addition to evaluating capital ratios, an overall assessment of capital adequacy
35
must take into account each of these other factors, including, in particular,
the level and severity of problem and adversely classified assets. In light of
these other considerations, banks generally are expected to operate above the
minimum risk-based capital ratio and additional requirements may be set by bank
examiners.
In addition, dividends paid by the Bank to the Company would be prohibited
if the effect thereof would cause the Bank's capital to be reduced below
applicable minimum capital requirements.
(9) Acquisition of Murray & MacDonald Insurance Services, Inc.
On May 2, 2000, the Company acquired 51% of the stock of Murray & MacDonald
Insurance Services, Inc., for a purchase price of $1,199,000. Murray & MacDonald
Insurance Services, Inc. is a full service insurance agency offering property,
casualty, life, accident, and health insurance products. The Agency has been in
business since 1972 and has license agreements with more than thirty insurance
companies. The business combination was accounted for by the purchase method.
Assets acquired were $292,000 while liabilities assumed were $525,000, resulting
in net liabilities assumed of $233,000. Goodwill of $1,432,000 is being
amortized on a straight-line basis over a 5-year period. The Company's
Consolidated Statement of Income includes the results of operations of Murray &
MacDonald Insurance Services, Inc. since the date of acquisition. If the
acquisition had occurred at the beginning of the period, total revenues would be
$110,585,000, operating income would be $26,256,000 and net income would be
$17,179,000. Earnings per share of $2.00 would remain unchanged.
(10) Acquisition of Branches
In June 2000, the Company completed its acquisition of two branch offices
from Fleet Bank. The acquired branches are located in Falmouth and Wareham,
Massachusetts. The acquisition was accounted for by the purchase method of
accounting. The core deposit intangible is being amortized over 7 years on a
straight-line basis. The Company's Consolidated Statement of Income includes the
results of operations relating to the acquired branches since the date of
acquisition.
The acquisition was allocated as follows:
Loans $ 8,490,408
Premises and equipment 2,330,496
Core deposit intangible 8,572,834
Interest receivable on loans 58,624
Other assets 3,394
----------
Assets acquired 19,455,756
----------
Deposits 55,266,651
Interest payable on deposits and borrowings 40,473
Other liabilities 22,686
Liabilities assumed 55,329,810
----------
Net liabilities assumed $35,874,054
===========
Cash received, including cash acquired of $819,386,
in connection with the acquisition $35,874,054
===========
(11) Provision for Income Taxes
The provision for income taxes for the three years ended December 31,
2001, 2000 and 1999, consists of the following:
2001 2000 1999
---- ---- ----
Current federal income tax $10,351,436 $9,338,924 $ 7,388,341
Current state income tax 640,953 384,316 699,922
----------- ---------- ------------
10,992,389 9,723,240 8,088,263
----------- ---------- ------------
Deferred federal income tax (benefit) expense (294,450) (466,070) 1,496,505
Deferred state income tax (benefit) expense (75,517) (156,224) 501,622
----------- ---------- ------------
(369,967) (622,294) 1,998,127
----------- ---------- ------------
$10,622,422 $9,100,946 $10,086,390
=========== ========== ===========
36
Deferred income tax (benefit) expense results from the recognition of
income or expense items in different periods for income tax purposes than when
they are accrued, such as interest earned on nonaccrual loans and the provision
for loan losses.
The following reconciles the provision for income taxes with the statutory
federal income tax rate of 35%.
2001 2000 1999
---- ---- ----
Tax at statutory rate $10,530,394 $9,215,393 $ 9,291,619
Reduction due to tax-exempt income (315,117) (314,613) (274,945)
State taxes, net of federal tax benefit 367,534 148,260 781,004
Other, net 39,611 51,906 288,712
----------- ---------- -----------
$10,622,422 $9,100,946 $10,086,390
=========== ========== ===========
At December 31, 2001, 2000 and 1999, the net deferred tax asset consisted of the
following:
2001 2000 1999
---- ---- ----
Future bad debt deductions $5,124,360 $5,083,387 $4,666,886
Nonaccrual loan interest 128,490 87,049 132,057
Unfunded accrued benefits 1,565,471 1,463,780 1,274,509
Unearned Revenues Murray and MacDonald 311,226 242,067 --
Unrealized loss on securities -- 239,411 1,249,117
--------- --------- ---------
Gross deferred tax asset 7,129,547 7,115,694 7,322,569
--------- --------- ---------
Unrealized gain on securities 2,023,956 -- --
Gain on sale of credit card merchant portfolio 900,927 1,135,837 1,264,982
Mortgage servicing rights 565,041 469,756 513,646
Other 1,020,434 997,512 886,008
--------- --------- ---------
Deferred tax liability 4,510,358 2,603,105 2,664,636
--------- --------- ---------
Net deferred tax asset $2,619,189 $4,512,589 $4,657,933
========== ========== ==========
(12) Commitments and Contingencies
In the normal course of business, various commitments are entered into by
the Company, such as standby letters of credit and commitments to extend credit,
which are not reflected in the consolidated financial statements. Management
does not anticipate any material losses as a result of these transactions. At
December 31, 2001, 2000 and 1999, the Company had the following commitments
outstanding:
2001 2000 1999
---- ---- ----
(Dollar amounts in thousands)
Standby letters of credit $ 943 $ 1,095 $ 1,627
Commitments to extend credit at fixed rates 10,684 10,470 5,242
Other commitments to extend credit 190,803 172,522 152,547
------- ------- -------
Total commitments $202,430 $184,087 $159,416
======== ======== ========
In the event that interest rates increase during the period of the
commitment, commitments to extend credit at a fixed rate of interest could
result in the extension of credit at less than a prevailing rate of interest,
with accompanying loss of value to the Company. Although the commitments shown
above are not carried on the statement of condition as loans, their risk is
comparable to that of loans which are carried on the statement of condition. The
Company evaluates each customer's credit-worthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the Company upon extension
of credit, is based on management's credit evaluation of the customer.
Collateral held varies, but may include accounts receivable, inventory,
property, plant and equipment, residential property and income producing
commercial properties. In the event that no collateral is required, or the
collateral proved to be of no value to the Company, the Company would be exposed
to possible credit loss up to the maximum amount of these contingent
liabilities.
Since many of the commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily represent future cash
requirements.
37
The Bank has entered into special termination agreements with the President
and certain senior executives. The agreements generally provide for certain
monthly severance payments within a two-year period following a "change in
control", as defined in the agreements.
(13) Disclosure about the Fair Value of Financial Instruments
SFAS No. 107 requires the disclosure of the fair value of financial
instruments for which it is practicable to estimate that value. At December 31
the estimated fair values of the Company's financial instruments were as
follows:
2001 2000 1999
------------------- -------------------- ---------------------
Carrying Fair Carrying Fair Carrying Fair
Amount Value Amount Value Amount Value
------ ----- ------ ----- ------ -----
(Dollar amounts in thousands)
Financial assets:
Cash and cash equivalents $ 62,062 $ 62,062 $ 66,215 $ 66,215 $ 44,242 $ 44,242
Securities 463,087 463,087 450,049 450,049 486,601 486,601
Net loans and loans held for sale 880,389 904,873 837,197 837,666 663,784 666,762
Accrued interest receivable 3,736 3,736 4,332 4,332 3,157 3,157
Financial liabilities:
Deposits 903,391 908,247 973,303 972,811 766,064 766,189
Borrowings from 384,314 391,688 291,287 290,338 347,963 345,027
Federal Home Loan Bank
Other short-term borrowings 30,735 30,735 24,520 24,520 19,346 19,346
Subordinated debt 5,000 5,000 -- -- -- --
Accrued interest payable 2,410 2,410 4,207 4,207 3,062 3,062
The carrying value of cash and cash equivalents, short-term borrowings and
accrued interest approximate fair value because of the short maturity of these
financial instruments.
Fair values of commitments not reflected in the financial statements are
not materially different from their carrying amounts because they are short term
in nature and/or generally priced at variable interest rates.
Fair values of securities are based on quoted market prices, if available.
If a quoted market price is not available, fair value is estimated using quoted
market prices for similar securities.
Because no market exists for a significant portion of the Company's loans,
fair value estimates were based on judgments regarding estimated future cash
flows, current economic conditions, expected loss experience, risk
characteristics of various kinds of loans, and other such factors. Estimated
cash flows are discounted using current rates for similar loans. These estimates
are subjective in nature and involve uncertainties and matters of significant
judgment and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates. Accordingly, unrealized
gains or losses are not expected to be realized.
Fair values of deposits and borrowings from FHLB have been determined by
applying discounted cash flow techniques at replacement market rates.
As required by SFAS No. 107, the fair value of deposits does not include
the value of the ongoing relationships with depositors, sometimes referred to as
the "core deposit intangible," although it is likely that some amount would be
received for this relationship on an actual sale of deposits. Similarly, the
fair value of loans does not include any value assigned to customer
relationships.
(14) Earnings per Share
The following reconciles the calculation of basic and diluted earnings per
share for the three years ending December 31, 2001, 2000 and 1999:
2001
----------------------------------------------
Income Shares Per Share
(numerator) (denominator) Amount
----------- ------------- ------
Basic earnings per share $19,464,417 8,613,106 $2.26
Effect of dilutive stock options -- 33,519 (0.01)
----------- --------- -----
Diluted earnings per share $19,464,417 8,646,625 $2.25
=========== ========= =====
38
2000
----------------------------------------------
Income Shares Per Share
(numerator) (denominator) Amount
----------- ------------- ------
Basic earnings per share $17,228,749 8,608,048 $2.00
Effect of dilutive stock options -- 6,015 --
----------- --------- -----
Diluted earnings per share $17,228,749 8,614,063 $2.00
=========== ========= =====
1999
----------------------------------------------
Income Shares Per Share
(numerator) (denominator) Amount
----------- ------------- ------
Basic earnings per share $16,461,093 8,876,776 $1.85
Effect of dilutive stock options -- 4,748 --
----------- --------- -----
Diluted earnings per share $16,461,093 8,881,524 $1.85
=========== ========= =====
(15) Selected Quarterly Financial Data (Unaudited)
The table below shows supplemental financial data for each quarter in 2001
and 2000.
2001
---------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
(Dollar amounts in thousands except per share amounts)
Interest income $26,069 $25,251 $23,194 $23,242
Interest expense 13,017 12,588 10,237 8,714
-------- -------- ------- -------
Net interest income 13,052 12,663 12,957 14,528
Provision for loan losses -- -- -- --
Non-interest income 4,951 5,375 6,333 6,264
Non-interest expense 10,677 11,462 11,521 12,398
Minority interest 12 (18) 8 (25)
-------- -------- ------- -------
Income before income taxes 7,314 6,594 7,761 8,419
Provision for income taxes 2,484 2,208 2,749 3,182
-------- -------- ------- -------
Net income $ 4,830 $ 4,386 $ 5,012 $ 5,237
======== ======== ======= =======
Average shares outstanding 8,608,048 8,608,048 8,615,738 8,620,423
Net income per share - basic $0.56 $0.51 $0.58 $0.61
Cash dividends declared per share $0.18 $0.18 $0.18 $0.18
2000
---------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
(Dollar amounts in thousands except per share amounts)
Interest income $22,025 $22,519 $24,342 $25,083
Interest expense 10,709 11,077 11,536 12,301
-------- -------- ------- -------
Net interest income 11,316 11,442 12,806 12,782
Provision for loan losses -- -- -- --
Non-interest income 3,580 4,449 3,989 4,192
Non-interest expense 8,683 9,269 10,235 10,094
Minority interest -- (10) (7) (37)
-------- -------- ------- -------
Income before income taxes 6,213 6,632 6,567 6,917
Provision for income taxes 2,112 2,279 2,200 2,510
-------- -------- ------- -------
Net income $ 4,101 $ 4,353 $ 4,367 $ 4,407
======== ======== ======== ========
Average shares outstanding 8,608,048 8,608,048 8,608,048 8,608,048
Net income per share - basic $0.48 $0.50 $0.51 $0.51
Cash dividends declared per share $0.16 $0.16 $0.16 $0.16
Due to the seasonal nature of the economy in the Company's market area,
demand deposits and business activity follow a somewhat seasonal cycle with
their low point ordinarily being reached in February and their high point in
August. As a result of this cycle, operating income has usually been at its high
during the third quarter each year.
39
(16) Parent Company Financial Information
Condensed financial information for CCBT Financial Companies, Inc. is as
follows:
STATEMENTS OF CONDITION
December 31,
---------------------------------------------------
2001 2000 1999
---- ---- ----
ASSETS (Dollar amounts in thousands)
Cash in subsidiary $ 28 $ 50 $ 2
Short term interest-bearing deposits 1,900 218 40
Securities 15 2,468 5,288
Investment in subsidiaries 118,275 95,824 80,065
Other assets 305 169 255
-------- ------- -------
Total assets $120,523 $98,729 $85,650
======== ======= =======
LIABILITIES
Subordinated debt $ 5,155 $ -- $ --
Other liabilities 52 -- --
-------- ------- -------
Total liabilities $ 5,207 $ -- $ --
-------- ------- -------
STOCKHOLDERS' EQUITY
Stockholders' equity $115,316 $98,729 $85,650
-------- ------- -------
Total stockholders' equity $115,316 $98,729 $85,650
-------- ------- -------
Total liabilities and stockholders' equity $120,523 $98,729 $85,650
======== ======= =======
STATEMENTS OF INCOME
For the Years Ended December 31,
2001 2000 1999
---- ---- ----
(Dollar amounts in thousands)
Interest income $ 83 $ 182 $ 147
Interest expense 148 -- --
------ ------ -----
Net interest income (expense) (65) 182 147
Operating income 298 -- --
Operating expenses 196 293 360
------ ------ -----
Income (loss) before taxes, dividends and
undistributed income from subsidiaries 37 (111) (213)
Applicable income taxes 13 (26) (55)
Dividends from subsidiary 2,100 5,700 10,600
Undistributed income from subsidiaries 17,340 11,614 6,019
------ ------ -----
Net Income $19,464 $17,229 $16,461
======= ======= =======
40
STATEMENTS OF CASH FLOW
For the Years Ended December 31,
2001 2000 1999
---- ---- ----
(Dollar amounts in thousands)
Cash flows from operating activities
Net income $ 19,464 $ 17,229 $16,461
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of securities (298) -- --
Undistributed income from subsidiaries (17,340) (11,614) (6,019)
Other, net (86) 80 874
------- ------- ------
Net cash provided by operating activities 1,740 5,695 11,316
------- ------- ------
Cash flows from investing activities
Purchase of securities (15) (1,623) (12,515)
Sales, maturities and repayments of securities 2,765 4,463 7,356
Investment in subsidiaries (1,966) (2,800) --
------- ------- ------
Net cash provided (used) by investing activities 784 40 (5,159)
------- ------- ------
Cash flows from financing activities
Proceeds from issuance of long term debt 5,155 -- --
Contribution to capital by subsidiaries -- -- 5,000
Proceeds from issuance of common stock 181 -- --
Purchase of treasury stock -- -- (7,400)
Cash dividends paid to stockholders (6,200) (5,509) (3,715)
------- ------- ------
Net cash used by financing activities (864) (5,509) (6,115)
------- ------- ------
Net increase in cash and cash equivalents 1,660 226 42
Cash and cash equivalents at beginning of year 268 42 --
------- ------- ------
Cash and cash equivalents at end of year $1,928 $ 268 $ 42
====== ======= =======
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
On May 17, 2001, the accounting firm Grant Thornton LLP was dismissed by
the Company's Audit Committee and the accounting firm Wolf & Company, P.C. was
hired to replace them. The financial statements for the past two years did not
contain an adverse opinion or a disclaimer of opinion nor were the opinions
qualified as to uncertainty, audit scope or accounting principles. During the
past two years and the subsequent interim period preceding the dismissal, there
were no disagreements with the former accountant on any matter of accounting
principles or practice, financial statement disclosure, or auditing scope or
procedure. . There were no disagreements with Accountants on accounting and
financial disclosures as defined by Item 304 of Regulation S-K.
PART III
Item 10. Directors and Executive Officers of the Registrant.
With the exception of certain information regarding the executive officers
of the Company and the Bank which is contained in Item 1 of Part 1 to this Form
10-K under the caption "Executive Officers of the Registrant," the response to
this item is incorporated by reference from the discussion under the captions
"Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the
Company's definitive Proxy Statement for the Annual Meeting of Stockholders
("Proxy Statement") to be held on April 25, 2002, filed with the SEC pursuant to
Regulation 14A of the Exchange Act Rules.
Item 11. Executive Compensation.
The response to this item is incorporated by reference from the discussion
under the captions "Executive Compensation" and "The Board of Directors, its
Committees and Compensation" in the Company's Proxy Statement.
41
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The response to this item is incorporated by reference from the discussion
under the caption "Ownership by Management and Other Stockholders" in the
Company's Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
The Company enters into banking transactions in the ordinary course of its
business with directors, officers, principal stockholders and their associates,
on the same terms including interest rates and collateral on loans, as those
prevailing at the same time for comparable transactions with others. The total
amount of loans outstanding to Directors and Officers at December 31, 2001, 2000
and 1999, was $4,895,000, $5,885,000 and $5,552,000 respectively. During 2001,
$2,666,000 in new loans were made to Directors and Officers and there were
$3,656,000 in repayments.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) (1) See "Financial Statements Index" on page 19 of this Form 10-K.
(2) Schedules other than those listed in the Financial Statements Index
have been omitted since they either are not required or the
information required is included in the financial statements or the
notes thereto.
(3) The following is a complete list of Exhibits filed or incorporated by
reference as part of this Form 10-K.
Exhibit Description
------- -----------
2.1 Plan of Reorganization and Acquisition dated as of October 8, 1998
between the Company and the Bank (Incorporated by reference to Exhibit
2.1 to the Company's Report on Form 8-K filed with the SEC on February
11,1999)
3.1 Restated Articles of Organization of the Company (Incorporated by
reference to Exhibit 3.1 to the Company's Form 10-Q for the quarter
ended September 30, 1999 that was filed with the SEC on November 15,
1999)
3.2 Amended By-laws of the Company (Incorporated by reference to Exhibit
3.1 to the Company's Form 10-Q for the quarter ended September 30,
1999 that was filed with the SEC on November 15, 1999)
4.1 Specimen certificate for shares of Common Stock of the Company
(Incorporated by reference to Exhibit 4.1 to the Company's Form 10-K
for the year ended December 31, 1999)
10.1 Amended and Restated Special Termination Agreement with Stephen B.
Lawson. (Incorporated by reference to Exhibit 10.1 to the Annual
Report on Form 10-K for the year ended December 31, 1998)
10.2 Amended and Restated Special Termination Agreement with Noal D. Reid.
(Incorporated by reference to Exhibit 10.2 to the Annual Report on
Form 10-K for the year ended December 31, 1998)
10.3 Amended and Restated Special Termination Agreement with Larry K.
Squire. (Incorporated by reference to Exhibit 10.3 to the Annual
Report on Form 10-K for the year ended December 31, 1998)
10.4 Change of Control Agreement with Robert T. Boon. (Incorporated by
reference to Exhibit 10.1 on Form 10-Q for the quarter ended March 31,
2001 that was filed with the SEC on May 15, 2001)
10.5 Amended and Restated Change of Control Agreement with Robert R. Prall.
(Incorporated by reference to Exhibit 10.2 on Form 10-Q for the
quarter ended March 31, 2001 that was filed with the SEC on May 15,
2001)
10.6 CCBT Financial Companies, Inc. Stock Option Plan (Incorporated by
reference to Exhibit 4.2 to the Company's Registration Statement on
Form S-8 filed with the SEC on February 18, 1999)
42
10.7 Cape Cod Bank and Trust Company Employee Stock Ownership and Plan and
Trust, as amended
21.1 Subsidiaries of the Company -- The Company has two subsidiaries, Cape
Cod Bank and Trust Company, N.A., a federally-chartered commercial
bank and CCBT Statutory Trust I. Cape Cod Bank and Trust Company,
N.A., has eight subsidiaries: CCBT Securities Corp. which is a
securities corporation; CCB&T Brokerage Direct, Inc., an investment
broker/dealer; CCBT Preferred Corp., a real estate investment trust;
TBM Development Corp., RAFS Ltd. Partnership, Osterville Concorde Ltd.
and Osterville DC9 Ltd. Partnership, which are all inactive; and a 51%
ownership interest in Murray & MacDonald Insurance Services, Inc., an
insurance agency.
23.1 Consents of Wolf & Company, P.C. and Grant Thornton LLP (Filed
herewith)
(b) Reports on Form 8-K:
None.
43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
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By (Signature and Title)* /s/ STEPHEN B. LAWSON.
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President and Chief Executive Officer
Date March 21, 2002
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Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By (Signature and Title)*/s/ NOAL D. REID, Treasurer and Chief Financial Officer
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Date March 21, 2002
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SIGNATURES OF THE BOARD OF DIRECTORS
/s/ STEPHEN B. LAWSON /s/ GEORGE D. DENMARK
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Stephen B. Lawson George D. Denmark
/s/ JOHN OTIS DREW /s/ JOHN F. AYLMER
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John Otis Drew, Chairman John F. Aylmer
/s/ DANIEL A. WOLF
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Daniel A. Wolf
Date March 21, 2002
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