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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, 2000 - 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
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None
Securities registered pursuant to Section 12(g) of the Act:
Title of class Name of each exchange on which registered
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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 $22.25 price on February 21, 2001, on the Nasdaq
National Market was $188,751,445. 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 21, 2001, 8,608,048 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 26, 2001 are incorporated by reference into Part III of this Form 10-K.
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The discussions set forth below and elsewhere herein contain 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 ("SEC"), 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," and
other expressions which predict or indicate future events and trends and which
do not relate to historical matters. The Company's actual results could differ
materially from those projected in the forward-looking statements as a result
of, among other factors, the factors listed under "Risk Factors and Factors
Affecting Forward Looking Statements," beginning on page 4. Readers should
carefully review the factors described under "Risk Factors and Factors Affecting
Forward Looking Statements" and should not place undue reliance on our
forward-looking statements. The Company assumes no obligations to update any
forward-looking statements.
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 ("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
present 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 Cape Cod Bank and Trust Company, N.A.
is located at 307 Main Street, Hyannis, Barnstable County, Massachusetts. There
are 27 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, 2000, the Bank employed 356 people on a
full-time basis and another 81 people on a part-time basis.
Financial information contained herein for periods and dates prior to
February 11, 1999 is that of the Bank. Since the Bank is the only 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 1999 and 1998 financial statements to
conform to the 2000 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 Company 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 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 Company, through its wholly-owned
subsidiary, Cape Cod Bank & Trust Company N.A., acquired 51% of the stock of
Murray & MacDonald Insurance Services, Inc. of Falmouth, Massachusetts, a full
service insurance Agency offering property, casualty, life, accident and health
products to clients on Cape Cod. The Agency has been in business since 1972 and
has license agreements with more than thirty insurance firms. As part of the
transaction, Murray & MacDonald President Douglas D. MacDonald will continue as
President of the Agency, and will direct all insurance activities for the Bank.
In addition to the acquisition of Murray & MacDonald Insurance Services,
Inc., the Company also completed its acquisition of two branch banking offices,
in Falmouth and Wareham, Massachusetts, from Fleet Bank during the second
quarter of 2000. These branches added approximately $55 million in deposits at a
15.5% premium, at June 30, 2000.
2.
Cape Cod Bank and Trust Company, N.A. is the largest commercial bank
headquartered in Barnstable County. It offers a wide range of commercial banking
services for individuals, businesses, non-profit organizations, governmental
units and fiduciaries. The Bank receives substantially all of its deposits from
and makes substantially all of its loans to individuals and businesses on Cape
Cod, although the Bank has some loans on properties outside its market area,
including some sizable participations in commercial mortgages. The Bank's core
market is comprised of retail, wholesale, and manufacturing businesses; primary
households (including a significant retirement population); and a growing number
of second homeowners. In addition, a substantial non-core vacation population
contributes to seasonal deposit growth.
The Company's principal sources of revenue are loans and investments, which
accounted for 85% of gross income during 2000. 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 32
automated teller machines which are connected to the AMEX, CIRRUS, NYCE, 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 commercial banks, other 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 such requirements of savers and
investors 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, and files with the Federal
Reserve Board an annual report and such additional reports as the Federal
Reserve Board may require. 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.
The Financial Services Modernization Legislation. On November 12, 1999,
President Clinton signed into law the Gramm-Leach-Bliley Act. The
Gramm-Leach-Bliley Act repeals provisions of the Glass-Steagall Act: Section 20,
which restricted the affiliation of Federal Reserve member banks with firms
"engaged principally" in specified securities activities; and Section 32, which
restricts officer, director, or employee interlocks between a member bank and
any company or person "primarily engaged" in specified securities activities. In
addition, the Gramm-Leach-Bliley Act also contains provisions that expressly
preempt any state law restricting the establishment of financial affiliations,
primarily related to insurance. The general effect of the law is to establish 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 a holding company
system, such as the Company, to engage in a full range of financial activities
through a new entity known as a Financial Holding Company. "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
3.
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.
Generally, the Gramm-Leach-Bliley Act:
o repeals historical restrictions on, and eliminates many federal and
state law barriers to, affiliations among banks, securities firms,
insurance companies, and other financial service providers;
o provides a uniform framework for the functional regulation of the
activities of banks, savings institutions, and their holding
companies;
o broadens the activities that may be conducted by national banks (and
derivatively state banks), banking subsidiaries of bank holding
companies, and their financial subsidiaries;
o provides an enhanced framework for protecting the privacy of consumer
information;
o adopts a number of provisions related to the capitalization,
membership, corporate governance, and other measures designed to
modernize the Federal Home Loan Bank system;
o modifies the laws governing the implementation of the Community
Reinvestment Act of 1977; and
o addresses a variety of other legal and regulatory issues affecting
both day-to-day operations and long-term activities of financial
institutions.
In order to engage in the new activities, a bank holding company, such as
the Company, must meet certain tests. Specifically, all of a bank holding
company's banks must be well-capitalized and well-managed, as measured by
regulatory guidelines, and all of the bank holding company's banks must have
been rated "satisfactory" or better in the most recent Community Reinvestment
Act evaluation of each bank. At this time, the Company has not determined
whether it will become a financial holding company.
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.
Federal Securities Laws. Upon consummation of the Reorganization, the
reporting obligations of the Bank under the Securities Exchange Act of 1934
("Exchange Act"), as administered by the FDIC, were replaced with substantially
identical obligations of the Company under the Exchange Act, as administered by
the SEC. In connection with the Reorganization, the Bank deregistered the Bank's
common stock under the Exchange Act.
Risk Factors And Factors Affecting Forward Looking Statements
The discussions set forth below and elsewhere herein contain certain
statements that may be considered forward-looking statements under the Private
Securities Litigation Reform Act of 1995. The Company may also make written or
oral forward-looking statements in other documents we file with the SEC, 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," and other
expressions which predict or indicate future events and trends and which do not
relate to historical matters. The Company's actual results could differ
materially from those projected in the forward-looking statements as a result
of, among other factors, the risk factors below, changes in the volume of loan
originations, fluctuations in prevailing interest rates, increases in costs to
borrowers of loans held,
4.
increases in costs of funds, and changes in assumptions used in making such
forward-looking statements. Readers should carefully review the factors
described under "Risk factors and Factors Affecting Forward Looking Statements"
and should not place undue reliance on our forward-looking statements. The
Company assumes no obligations to update any forward-looking statements.
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 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. 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.
5.
EXECUTIVE OFFICERS OF THE REGISTRANT
All officers were elected to their positions on April 27, 2000 to serve
until the annual meeting on April 26, 2001 and until their successors are duly
elected.
Age at Title and Area of Date Appointed Date of
Officer 12/31/00 Responsibility to Present Position Employment
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Stephen B. Lawson 59 President, Chief Executive Officer and Director 10/08/98 12/06/65
Robert T. Boon 46 Executive Vice President 01/04/01 04/01/85
John S. Burnett 54 Clerk 10/08/98 09/07/71
Robert R. Prall 57 Executive Vice President 01/04/01 06/01/93
Noal D. Reid 56 Chief Financial Officer and Treasurer 10/08/98 10/16/72
Larry K. Squire 53 Executive Vice President 01/04/01 05/17/71
Business Experience During the Past Five Years
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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)
6.
Item 2. Properties.
A. Properties held in fee - 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 mortgage liens 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 $56,199 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
$54,000 in 2001 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 2001 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 2001 and 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
$10,080 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 2001 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
$24,500 for Automated Teller Machines (ATMs) in 2001.
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.
7.
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 21, 2001. 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.
1999 2000
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First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
Market price: High $19 1/8 $19 3/8 $19 1/8 $17 $15 1/4 $15 15/16 $20 $18 13/16
Low $16 1/8 $15 7/8 $15 1/4 $14 15/16 $12 5/8 $13 1/8 $15 1/2 $17
Dividends declared
per share $0.14 $0.14 $0.14 $0.14 $0.16 $0.16 $0.16 $0.16
Item 6. Selected Consolidated Financial Data.
2000 1999 1998 1997 1996
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(Dollar amounts in thousands except per share amounts)
Total assets $1,403,919 $1,231,114 $1,177,530 $973,105 $817,884
Stockholders' equity 98,729 85,650 83,542 75,636 66,603
Net interest income 48,345 40,796 37,767 36,907 32,650
Provision for loan losses -- -- -- -- --
Non-interest income 16,211 18,268 17,036 20,174 13,873
Non-interest expense 38,226 32,517 34,196 35,642 30,985
Provision for income taxes 9,101 10,086 8,050 8,190 6,070
Net income 17,229 16,461 12,557 13,249 9,468
Book value per share $11.47 $9.95 $9.22 $8.35 $7.35
Basic earnings per share(1) 2.00 1.85 1.39 1.46 1.05
Diluted earnings per share 2.00 1.85 1.38 1.46 1.05
Cash dividends per share .64 .56 .50 .42 .35
Return on average assets 1.35% 1.35% 1.15% 1.45% 1.26%
Return on average stockholders' equity 19.3% 19.6% 15.8% 18.7% 15.2%
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(1) Based on average shares outstanding: 8,608,048 in 2000;8,876,776 in 1999;
9,061,064 in 1998 and in 1997; and 9,052,434 in 1996. (Adjusted for
two-for-one stock distributions in 1996 and in 1998.)
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 within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. The Company's actual results could differ materially from those
projected in the forward-looking statements as a result, among other factors, of
changes in general, national or regional economic conditions, changes in loan
default and charge-off rates, reductions in deposit levels necessitating
increased borrowing to fund loans and investments, changes in interest rates,
changes in the size and nature of the Company's competition, and changes in the
assumptions used in making such forward-looking statements. Additional factors
that could cause or contribute to such differences include, but are not limited
to, those described under "Risk Factors".
The following discussion should be read in conjunction with the
accompanying consolidated financial statements and selected consolidated
financial data included within this report. Given that the Company's principal
activity currently is ownership of the Bank, for ease of reference, the term
"Company" in this Item generally will refer to the investments and activities of
the Company and the Bank, except where otherwise noted.
8.
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-eight 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 $804 million at December 31, 2000
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.
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. Management believes that the reserve is adequate to cover
the losses likely to result from loans in the current 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 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.
1999 COMPARED WITH 1998
Source and Use of Funds. At year-end 1999, total deposits of $766,064,000
were 5% greater than the prior
9.
year-end. Demand deposits increased $6,658,000 or 4% and NOW deposits increased
$6,097,000 or 5%. Money market accounts and Other savings declined by $3,029,000
or 2% and $1,984,000 or 1%, respectively, while Certificates of deposit greater
than $100,000 doubled, from $30,299,000 at year end 1998 to $60,666,000 at year
end 1999. This significant growth of large CDs began in August and continued
throughout the last trimester of the year. Management believes that this growth
is attributable to highly competitive rates offered during that period while the
weaker performance of other deposit types occurred largely in December and may
have been related to customers' Year 2000 concerns. On average for the year,
total deposits of $750,084,000 exceeded the prior year average by nearly 5%, led
by greater average demand deposits, up $18,343,000 or 12%, NOW accounts, up
$7,991,000 or 8%, and large denomination CDs, up $11,193,000 or 39%. Management
believes that these averages reflect the strong economy on the Cape during 1999.
As well, additional funds were raised through increased borrowings, notably the
FHLB. While FHLB borrowings increased only modestly from year-end to year-end,
1999 average outstandings increased $80,027,000 or 29% over the 1998 comparable
as the Bank continued to take long term advances to support fixed rate lending
as well as to take shorter term advances for the continued purpose of making
high quality investments with short effective duration.
At year end 1999, loans totaled $674,743,000 reflecting growth of
$80,923,000 or 14% over the 1998 year end. Loans secured by real estate,
including residential first mortgages, up $57,190,000 or 24% and construction
loans, up $20,900,000 or 44% accounted for this growth, as well as did increased
commercial loans, up $7,000,000 or 10% in the latter weeks of the year. These
growth statistics also reflect the strong Cape Cod economy during 1999. On
average, loans were $47,400,000 or 8% greater during 1999 than during 1998, with
most of that change occurring in residential mortgage outstandings. Also on the
asset side, securities averaged significantly higher during 1999 as compared to
1998, up $75,281,000 or 16% reflecting utilization of the FHLB advances taken
down for this purpose. In contrast, however, year end 1999 securities were
$30,164,000 or 6% lower than the 1998 year end comparable, as management used
maturities and paydowns to reduce FHLB advances, to respond to the late year
growth of commercial loans and to provide extra cash to respond to unusual
customer demands that might have arisen in relation to Year 2000 concerns.
Net Interest Income. On average, interest rates were lower in 1999 than
they were in 1998, which decreased the yields on the Bank's loans. The cost of
the Bank's deposits and borrowings also decreased by a comparable amount.
Because of the positive spread between the return on earning assets and the cost
of funds, as well as the overall growth of deposits, borrowings, loans and
investments discussed above, the Bank's net interest income increased.
Accordingly, net interest income increased by $3,029,000, an increase of 8%.
Provision for Loan losses. Recoveries on loans previously charged off
exceeded charge-offs during 1999. Management determined that additions to the
reserve for loan losses were unnecessary in 1999, notwithstanding the growth in
the loan portfolio.
Other Income and Expense. Non-interest income increased $5,233,000 or 31%
on increased Financial Advisor (Trust) fees, greater credit card merchant fees,
and the sale of the credit card merchant portfolio, which in itself produced a
pretax gain of $3,495,000. Operating expenses increased $2,322,000 or 7% over
1998 with most of this increase reflected in salaries and benefits expenses.
Provision for Income Taxes. As a result of higher pretax income, the
provisions for income taxes increased by 25%.
Net Income. As a result of the foregoing factors, net income for 1999 was
$16,461,093, an increase of 31% from the previous year.
MATURITY STRUCTURE OF ASSETS AND LIABILITIES
AND SENSITIVITY TO CHANGES IN INTEREST RATES
As of December 31, 2000 fixed rate debt securities and loans mature as
follows:
Fixed Rate
-----------------------------
Debt
Securities Loans
-----------------------------
Term to maturity: (Dollar amounts in thousands)
Three months or less $ 48,672 $ 44,266
Over three months through 12 months 27,147 45,812
Over one year through five years 54,515 122,244
Over five years 32,257 36,848
-------- --------
Totals $162,591 $249,170
======== ========
10.
Included in fixed rate debt securities are $136,959,000 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.
Included in loans maturing in three months or less are $880,000 of customer
account overdrafts.
As of December 31, 2000 floating rate debt securities, FHLB and FRB stock
and loans reprice as follows:
Floating Rate
-----------------------------------------------
Debt FHLB & FRB
Securities Stock Loans
---------- ----- -----
Term to repricing/maturity: (Dollar amounts in thousands)
Three months or less $251,744 $23,306 $151,160
Over three months through 12 months 8,699 -- 180,805
Over one year through five years 3,163 -- 261,302
Over five years 546 -- 6,053
Totals $264,152 $23,306 $599,320
Most residential mortgage loans are adjustable rate mortgages subject to
interest rate caps.
The Company's investment securities are subject to market risk in the
following ways. $287,458,000 of the investment securities owned as of December
31, 2000 are floating rate instruments tied to various indices, primarily the
3-month Treasury bill and LIBOR. Lesser amounts are tied to longer-term Treasury
rates and other indices. Almost all 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 less well than securities
tied to other indices. Most of the remaining $162,591,000 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 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.
The remaining maturity of time certificates of deposit as of December 31,
2000 was as follows:
Fixed Rate
----------------------------------------
Certificates of Deposit
$100,000 or more Less than $100,000
----------------------------------------
Remaining maturity: (Dollar amounts in thousands)
Three months or less $ 54,267 $ 52,040
Over three months through 12 months 34,917 145,708
Over one year through five years 6,820 31,006
Over five years 155 --
-------- --------
Totals $ 96,159 $228,754
======== ========
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.
11.
The remaining maturity of borrowings from the Federal Home Loan Bank as of
December 31, 2000 was as follows:
Fixed Rate
-----------------------------
FHLB Borrowings
-----------------------------
Remaining maturity: (Dollar amounts in thousands)
Three months or less $ 149,530
Over three months through 12 months 9,900
Over one year through five years 112,901
Over five years 18,956
---------
Totals $ 291,287
Rates paid on other interest-bearing liabilities change daily.
Reserve for Loan Losses
The reserve for loan losses is an estimate of the amount necessary to
absorb probable losses in the 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 and current economic conditions. 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.
In addition, the Company's reserve 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 reserve based upon judgments different from those of
management.
Non-performing Assets and Loan Loss Experience
Non-performing assets as of December 31 were as follows:
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(Dollar amounts in thousands)
Nonaccrual loans $2,192 $1,777 $7,468 $2,770 $3,679
Loans past due 90 days or more and still accruing -- -- -- -- 266
Property from defaulted loans 1,500 1,500 -- 621 430
------ ------ ------ ------ ------
Total non-performing assets $3,692 $3,277 $7,468 $3,391 $4,375
====== ====== ====== ====== ======
Restructured troubled debt performing in
accordance with amended terms, not included above $ 237 $ 626 $ 478 $1,131 $3,439
====== ====== ====== ====== ======
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.
Accordingly, for loans that are shown as past due 90 days or more and still
accruing, management expects that principal and interest will be repaid in full.
In some instances, the Company may also be repaid in full on nonaccrual loans.
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, 2000, $6,994,870 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, 2000, $3,530,420 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.
12.
The changes in the reserve for loan losses during the five years ended
December 31 were as follows:
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(Dollar amounts in thousands)
Balance, beginning of year $11,158 $11,108 $10,962 $11,417 $11,701
Provision for loan losses -- -- -- -- --
Charge-offs:
Commercial loans (108) (347) (353) -- (669)
Construction mortgage loans -- -- -- -- (39)
Commercial mortgage loans -- (186) (86) (69) --
Industrial revenue bonds -- -- -- -- --
Residential mortgage loans -- -- (1) (119) --
Consumer loans (60) (77) (166) (749) (637)
Recoveries on loans previously charged off:
Commercial loans 826 351 475 653 792
Construction mortgage loans 89 60 47 -- 43
Commercial mortgage loans 216 190 174 120 143
Industrial revenue bonds -- -- -- -- --
Residential mortgage loans 10 -- 23 8 1
Consumer loans 23 59 33 101 82
------- ------- ------- ------- -------
Balance, end of year $12,154 $11,158 $11,108 $10,962 $11,417
======= ======= ======= ======= =======
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(Dollar amounts in thousands)
Allocation of ending balance:
Commercial loans $ 1,502 $ 1,457 $ 1,578 $ 1,676 $ 2,872
Construction mortgage loans 802 755 705 521 792
Commercial mortgage loans 5,838 5,681 5,822 6,587 5,221
Industrial revenue bonds 16 20 23 28 33
Residential mortgage loans 3,361 2,725 2,460 1,610 1,484
Consumer loans 635 520 520 540 1,015
------- ------- ------- ------- -------
Balance, end of year $12,154 $11,158 $11,108 $10,962 $11,417
======= ======= ======= ======= =======
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Ratio of net charge-offs (recoveries) (0.13)% (0.01)% (0.03)% 0.09% 0.07%
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 2000, notwithstanding the growth in the loan portfolio. The
reserve represented 1.43% of total loans at December 31, 2000, 1.65% at December
31, 1999 and 1.87% at December 31, 1998. 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,
2000, 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
13.
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 may 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, 2000. 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 6.26%, 4.97% and 5.35% during 2000, 1999 and 1998 , respectively.
14.
Net Interest Income, Net Interest Margin
Years ended December 31,
--------------------------------------------------------------------------------------------
2000 1999 1998
----------------------------- ----------------------------- -----------------------------
Average Average Average Average Average Average
Balance Interest Yield Balance Interest Yield Balance Interest Yield
----------------------------- ----------------------------- -----------------------------
(Dollar amounts in thousands)
ASSETS
Securities:
Mortgage-backed securities $ 27,465 $ 2,173 7.91% $ 60,641 $ 3,394 5.60% $ -- $ -- --
U.S. Government CMOs 129,902 9,634 7.41% 154,257 7,893 5.12% 256,334 14,141 5.52%
U.S. Government agencies 26,362 1,775 6.73% 26,610 1,400 5.26% 36,949 2,039 5.52%
Other CMOs 49,417 3,555 7.19% 72,714 4,176 5.74% 53,619 3,110 5.80%
State and municipal obligations 19,678 921 4.68% 21,643 822 3.80% 17,494 806 4.61%
Other securities 209,580 14,621 6.97% 202,607 12,215 6.03% 98,795 5,624 5.69%
Total securities 462,404 32,679 7.07% 538,472 29,900 5.55% 463,191 25,720 5.55%
---------- ------- ---------- ------- ---------- -------
Loans:
Commercial 77,352 7,529 9.73% 73,487 6,650 9.05% 72,623 6,994 9.63%
Commercial construction 30,861 2,899 9.39% 14,937 1,342 8.98% 10,845 999 9.21%
Residential construction 52,789 3,316 6.28% 40,683 2,388 5.87% 33,711 2,033 6.03%
Commercial mortgages 219,690 20,298 9.24% 204,275 18,139 8.88% 207,207 19,317 9.32%
Industrial revenue bonds 1,382 114 8.25% 1,278 98 7.67% 1,678 148 8.82%
Residential mortgages 333,308 23,199 6.96% 263,935 17,672 6.70% 223,572 15,608 6.98%
Home equity 30,934 3,001 9.70% 21,480 1,876 8.73% 19,866 1,868 9.40%
Consumer 9,135 934 10.22% 10,032 1,042 10.39% 13,183 1,291 9.79%
---------- ------- ---------- ------- ---------- -------
Total loans 755,451 61,290 8.11% 630,107 49,207 7.81% 582,685 48,258 8.28%
---------- ------- ---------- ------- ---------- -------
Total earning assets 1,217,855 93,969 7.72% 1,168,579 79,107 6.77% 1,045,876 73,978 7.07%
------- ------- -------
Non-earning assets 61,027 52,179 47,457
---------- ---------- ----------
Total assets $1,278,882 $1,220,758 $1,093,333
========== ========== ==========
LIABILITIES & STOCKHOLDERS' EQUITY
Deposits:
NOW accounts $ 124,663 928 0.74% $ 113,855 936 0.82% $ 105,864 1,281 1.21%
Regular savings 148,790 4,639 3.12% 163,638 4,755 2.91% 161,749 5,234 3.24%
Money Market accounts 154,187 5,748 3.73% 145,033 4,484 3.09% 147,623 5,071 3.44%
Certificates of Deposit of
$100,000 or more 76,672 5,682 7.41% 39,765 2,021 5.08% 28,572 1,525 5.34%
Other time deposits 168,318 9,127 5.42% 119,071 5,832 4.90% 121,216 6,479 5.35%
---------- ------- ---------- ------- ---------- -------
Total interest bearing deposits 672,630 26,124 3.88% 581,362 18,028 3.10% 565,024 19,590 3.47%
---------- ------- ---------- ------- ---------- -------
Borrowings:
Federal Home Loan Bank 293,950 18,098 6.16% 356,276 19,405 5.45% 276,249 15,956 5.78%
Other short-term borrowings 25,579 1,402 5.48% 20,898 878 4.20% 14,890 665 4.47%
---------- ------- ---------- ------- ---------- -------
Total borrowings 319,529 19,500 6.10% 377,174 20,283 5.38% 291,139 16,621 5.71%
---------- ------- ---------- ------- ---------- -------
Total interest-bearing
liabilities 992,159 45,624 4.60% 958,536 38,311 4.00% 856,163 36,211 4.23%
------- ------- -------
Demand deposits 190,947 168,719 150,376
Non-interest bearing liabilities 6,614 9,348 7,237
Stockholders' equity 89,162 84,155 79,557
---------- ---------- ----------
Total liabilities & equity $1,278,882 $1,220,758 $1,093,333
========== ========== ==========
Net interest income/spread $48,345 3.12% $40,796 2.77% $37,767 2.84%
======= ======= =======
Net interest margin (NII/Avg. Earning Assets) 3.97% 3.49% 3.61%
15.
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 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. In 1999, lower interest rates reduced interest expense more than
interest income as security portfolio yields were stable to 1998 levels overall.
Greater volume in 1999 also contributed to improved net interest income.
2000 compared to 1999 1999 compared to 1998
------------------------------- ---------------------------------
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 $(2,211) $ 990 $(1,221) $ 1,697 $ 1,697 $ 3,394
U.S. Government CMOs (1,430) 3,171 1,741 (5,396) (852) (6,248)
U.S. Government agencies 3 372 375 (556) (83) (639)
Other CMOs (1,464) 843 (621) 1,119 (53) 1,066
State & municipal obligations (84) 183 99 175 (159) 16
Other securities 517 1,889 2,406 6,073 518 6,591
-------- -------- -------- --------- --------- ----------
Total securities (4,669) 7,448 2,779 3,112 1,068 4,180
-------- -------- -------- --------- --------- ----------
Loans:
Commercial 363 516 879 81 (425) (344)
Commercial construction 1,463 94 1,557 372 (29) 343
Residential construction 736 192 928 415 (60) 355
Commercial mortgages 1,397 762 2,159 (267) (911) (1,178)
Industrial revenue bonds 8 8 16 (33) (17) (50)
Residential mortgages 4,736 791 5,527 2,761 (696) 2,065
Home equity 871 254 1,125 146 (139) 7
Consumer (93) (15) (108) (318) 69 (249)
-------- -------- -------- --------- --------- ----------
Total loans 9,481 2,602 12,083 3,157 (2,208) 949
-------- -------- -------- --------- --------- ----------
Total interest income 4,812 10,050 14,862 6,269 (1,140) 5,129
-------- -------- -------- --------- --------- ----------
INTEREST BEARING LIABILITIES
Deposits:
NOW accounts 85 (93) (8) 81 (426) (345)
Regular savings (447) 331 (116) 58 (537) (479)
Money Market accounts 312 952 1,264 (85) (502) (587)
Certificates of deposit
of $100,000 or more 2,306 1,355 3,661 584 (88) 496
Other time deposits 2,541 754 3,295 (110) (537) (647)
-------- -------- -------- --------- --------- ----------
Total interest bearing deposits 4,797 3,299 8,096 528 (2,090) (1,562)
-------- -------- -------- --------- --------- ----------
Borrowings:
Federal Home Loan Bank (3,616) 2,309 (1,307) 4,491 (1,042) 3,449
Other short-term borrowings 227 297 524 260 (47) 213
-------- -------- -------- --------- --------- ----------
Total borrowings (3,389) 2,606 (783) 4,751 (1,089) 3,662
-------- -------- -------- --------- --------- ----------
Total interest bearing
liabilities 1,408 5,905 7,313 5,279 (3,179) 2,100
-------- -------- -------- --------- --------- ----------
Net changes due to volume/rate $ 3,404 $ 4,145 $ 7,549 $ 990 $ 2,039 $ 3,029
======== ======== ======== ========= ========= ==========
16.
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 senior
management and several Directors, 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, 2000, it is estimated that an increase in interest rates of 200
basis points (for example, an increase in the prime rate from 9.5% to 11.5%)
would reduce the value of net assets by $20,407,000. 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
9.5% to 7.5%) it is estimated that net interest income would decrease by
$4,261,000. On the other hand, if interest rates were to increase, net interest
income would increase.
At December 31, 1999, it was estimated that the value of the net assets of
the Company would decline by $6,156,000 if interest rates were to increase by
200 basis points and that the Company's net interest income would decline by
$6,506,000 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 Reports of Independent Certified Public Accountants
o Consolidated Statements of Condition at December 31, 2000, 1999 and
1998
o Consolidated Statements of Income for the Three Years Ended December
31, 2000
o Consolidated Statements of Cash Flows for the Three Years Ended
December 31, 2000
o Consolidated Statements of Comprehensive Income for the Three Years
Ended December 31, 2000
o Consolidated Statements of Changes in Stockholders' Equity for the
Three Years Ended December 31, 2000
o Notes to Consolidated Financial Statements
17.
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, 1999 and 1998, 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, 1999 and 1998, 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.
Grant Thornton LLP
Boston, Massachusetts
February 9, 2001
18.
CONSOLIDATED STATEMENTS OF CONDITION
December 31,
-----------------------------------------------------
ASSETS 2000 1999 1998
---- ---- ----
Cash and due from banks $ 49,371,492 $ 43,415,100 $ 29,383,227
Short term interest-bearing deposits 16,843,538 2,207,328 107,488
Securities available for sale at fair value 426,742,801 463,379,414 495,956,643
Federal Home Loan Bank stock, at cost 22,125,400 22,125,400 22,125,400
Federal Reserve Bank stock, at cost 1,180,700 1,096,700 --
Total loans 848,490,319 674,742,548 593,820,277
Less: Reserve for loan losses (12,153,944) (11,158,126) (11,107,633)
-------------- -------------- --------------
Net loans 836,336,375 663,584,422 582,712,644
Loans held for sale 860,840 200,000 18,140,522
Premises and equipment 16,633,912 12,396,729 12,847,002
Deferred tax assets 4,512,589 4,657,933 4,992,690
Accrued interest receivable on securities 3,353,580 2,850,366 4,067,975
Principal and interest receivable on loans 4,331,987 3,156,914 3,596,836
Intangibles 9,555,425 -- --
Other assets 12,070,707 12,044,040 3,599,734
-------------- -------------- --------------
Total assets $1,403,919,346 $1,231,114,346 $1,177,530,161
============== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 973,302,664 $ 766,063,617 $ 727,896,975
Borrowings from the Federal Home Loan Bank 291,286,797 347,962,999 343,506,683
Other short-term borrowings 24,520,157 19,345,885 14,606,322
Current taxes payable 2,267,117 1,721,187 255,080
Interest payable on deposits and borrowings 4,206,555 3,061,932 2,497,740
Post retirement benefits payable 2,830,386 2,442,736 2,016,146
Employee profit sharing retirement and bonuses payable 2,946,642 2,396,542 1,783,350
Other liabilities 3,705,815 2,469,837 1,425,465
-------------- -------------- --------------
Total liabilities 1,305,066,133 1,145,464,735 1,093,987,761
-------------- -------------- --------------
Minority interest 124,435 -- --
-------------- -------------- --------------
Stockholders' equity
Common stock, par value:
$1.00 in 2000 and 1999
$2.50 in 1998
Authorized: 12,000,000 shares
Issued: 9,061,064 9,061,064 9,061,064 22,652,660
Surplus 27,494,890 27,494,890 13,903,294
Undivided profits 69,896,759 58,181,480 46,704,129
Treasury stock, at cost (453,016 shares) (7,399,628) (7,399,628) --
Accumulated other comprehensive income (324,307) (1,688,195) 282,317
-------------- -------------- --------------
Total stockholders' equity 98,728,778 85,649,611 83,542,400
-------------- -------------- --------------
Total liabilities and stockholders' equity $1,403,919,346 $1,231,114,346 $1,177,530,161
============== ============== ==============
The accompanying notes are an integral part of these financial statements.
19.
CONSOLIDATED STATEMENTS OF INCOME
for the Years Ended December 31,
2000 1999 1998
---- ---- ----
INTEREST INCOME
Interest and fees on loans $61,289,410 $49,206,774 $48,258,130
Interest on short term interest-bearing deposits 934,679 675,357 428,027
Interest on federal funds sold 107,610 -- --
Taxable interest income on securities 28,996,374 26,993,403 23,345,153
Tax-exempt interest income on securities 910,454 775,355 740,344
Dividends on securities 1,730,510 1,456,359 1,206,296
----------- ------------ ------------
Total interest income 93,969,037 79,107,248 73,977,950
----------- ------------ ------------
INTEREST EXPENSE
Interest on deposits 26,123,306 18,028,054 19,589,900
Interest on borrowings from the Federal Home Loan Bank 18,097,810 19,405,176 15,955,929
Interest on other short-term borrowings 1,402,676 877,907 665,338
----------- ------------ ------------
Total interest expense 45,623,792 38,311,137 36,211,167
----------- ------------ ------------
Net interest income 48,345,245 40,796,111 37,766,783
Provision for loan losses -- -- --
----------- ------------ ------------
Net interest income after provision for loan losses 48,345,245 40,796,111 37,766,783
----------- ------------ ------------
NON-INTEREST INCOME
Financial Advisor fees 6,433,397 5,957,566 5,111,716
Deposit account service charges 1,967,843 1,915,777 1,513,856
Branch banking fees 3,073,595 3,049,663 3,031,343
Electronic banking fees 2,001,454 1,829,980 1,752,286
Loan servicing and other loan fees 232,815 167,504 164,173
Brokerage fees and commissions 981,233 992,652 1,140,189
Net gain on sales of securities 84,602 234,301 383,888
Net gain on sales of loans 88,063 219,587 332,579
Insurance commissions 878,261 -- --
Gain on sale of credit card merchant portfolio -- 3,494,733 --
Other income 469,290 405,776 330,774
----------- ------------ ------------
Total non-interest income 16,210,553 18,267,539 13,760,804
----------- ------------ ------------
NON-INTEREST EXPENSE
Salaries 14,399,574 12,381,649 11,578,347
Employee benefits 6,227,247 5,454,900 4,707,206
Building and equipment 4,889,482 4,340,295 4,137,912
Data processing 2,721,222 2,793,269 2,666,629
Accounting and legal fees 771,361 891,402 936,629
Other outside services 2,104,604 1,856,415 1,896,258
Amortization of goodwill 851,443 -- --
Delivery and communications 1,564,002 1,376,039 1,390,952
Directors' fees 280,125 294,691 329,300
Marketing and advertising 1,252,521 906,818 858,775
Printing and supplies 781,718 753,762 876,808
Insurance 376,081 285,681 336,143
Branch conversion expenses 283,218 -- --
All other expenses 1,778,009 1,181,246 1,205,848
----------- ------------ ------------
Total operating expense 38,280,607 32,516,167 30,920,807
----------- ------------ ------------
Minority Interest (54,504) -- --
----------- ------------ ------------
Net income before taxes 26,329,695 26,547,483 20,606,780
Applicable income taxes 9,100,946 10,086,390 8,049,834
----------- ------------ ------------
Net income $17,228,749 $16,461,093 $12,556,946
=========== =========== ===========
Average shares outstanding 8,608,048 8,876,776 9,061,064
Basic earnings per share $2.00 $1.85 $1.39
Diluted earnings per share 2.00 1.85 1.38
Cash dividends declared .64 .56 .50
The accompanying notes are an integral part of these financial statements
20.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
2000 1999 1998
---- ---- ----
CASH PROVIDED BY OPERATING ACTIVITIES
Net income $ 17,228,749 $ 16,461,093 $ 12,556,946
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses -- -- --
Depreciation and amortization 3,226,343 2,139,147 1,913,955
Net amortization of securities 4,891,652 3,020,243 1,979,750
(Accretion) amortization of deferred loan fees (48,784) 209,556 862,228
Net gain on sale of investment securities (84,602) (234,301) (383,888)
Deferred income tax (benefit) expense (622,294) 1,998,127 (664,597)
Net gain on sale of loans (88,063) (219,587) (332,579)
Net loss on disposal of premises and equipment 57,155 -- --
Gain on sale of credit card merchant portfolio -- (3,494,733) --
Net change in:
Loans held for sale (660,840) 17,940,522 (14,210,369)
Accrued interest receivable (1,619,663) 1,657,531 (776,650)
Accrued expenses and other liabilities 3,008,301 2,648,346 2,474,725
Other, net (243,069) 4,301,611 1,741,890
--------------- -------------- --------------
Net cash provided by operating activities 25,044,885 46,427,555 5,161,411
-------------- -------------- --------------
CASH USED BY INVESTING ACTIVITIES
Net increase in loans (176,228,729) (164,067,605) (159,465,444)
Proceeds from sale of loans 12,188,480 85,294,654 93,135,361
Dispositions of property from defaulted loans 70,000 115,000 809,674
Maturities of securities 248,979,523 496,592,930 490,955,326
Purchase of available for sale securities (312,851,725) (563,093,625) (866,352,399)
Sales of available for sale securities 97,908,163 82,270,203 243,852,925
Purchases of premises and equipment (4,199,951) (2,386,550) (2,130,960)
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 (99,409,279) (65,274,993) (199,195,517)
--------------- --------------- ---------------
CASH PROVIDED BY FINANCING ACTIVITIES
Net increase in deposits 151,972,396 38,166,642 18,812,489
Net (decrease) increase in borrowings from the
Federal Home Loan Bank (56,676,202) 4,456,316 172,211,409
Net increase in other short-term borrowings 5,174,272 4,739,563 2,943,962
Purchase of CCBT Financial Companies, Inc.
common stock in open market -- (7,399,628) --
Cash dividends paid on common stock (5,513,470) (4,983,742) (4,530,532)
--------------- -------------- ---------------
Net cash provided by financing activities 94,956,996 34,979,151 189,437,328
-------------- -------------- --------------
Net increase (decrease) in cash and cash equivalents 20,592,602 16,131,713 (4,596,778)
Cash and cash equivalents at beginning of year 45,622,428 29,490,715 34,087,493
-------------- -------------- --------------
Cash and cash equivalents at end of year $ 66,215,030 $ 45,622,428 $ 29,490,715
============== ============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest $ 44,479,170 $ 37,746,945 $ 35,545,921
Income taxes 8,967,843 6,599,480 9,476,298
Non-cash transactions:
Additions to property from defaulted loans $ 70,000 $ 1,615,000 $ 188,900
Loans to finance OREO property -- 100,000 137,500
For a description of assets acquired and liabilities assumed in connection with
the acquisition of Murray & MacDonald Insurance Services Inc., and the
acquisition of two branch offices from Fleet Bank, see notes 9 and 10,
respectively, of Notes to the Consolidated Financial Statements.
The accompanying notes are an integral part of these financial statements.
21.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Years Ended December 31,
2000 1999 1998
---- ---- ----
Net income $ 17,228,749 $16,461,093 $12,556,946
------------ ----------- -----------
Unrealized holding gains (losses) on securities available for sale 2,458,196 (2,937,312) 177,084
Reclassification of gains on securities realized in income (84,602) (234,301) (383,888)
------------ ----------- -----------
Net unrealized gains (losses) 2,373,594 (3,171,613) (206,804)
Related tax effect (1,009,706) 1,201,101 86,496
------------ ----------- -----------
Net other comprehensive income (loss) 1,363,888 (1,970,512) (120,308)
------------ ----------- -----------
Comprehensive income $ 18,592,637 $14,490,581 $12,436,638
============ =========== ===========
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended December 31,
2000 1999 1998
---- ---- ----
COMMON STOCK
Balance, beginning of the year $ 9,061,064 $22,652,660 $11,326,330
Two-for-one stock distribution -- -- 11,326,330
Stock exchange at Reorganization -- (13,591,596) --
------------- ------------ ------------
Balance, end of year 9,061,064 9,061,064 22,652,660
------------- ------------ ------------
SURPLUS
Balance, beginning of the year 27,494,890 13,903,294 25,229,624
Two-for-one stock distribution -- -- (11,326,330)
Stock exchange at Reorganization -- 13,591,596 --
------------- ------------ ------------
Balance, end of year 27,494,890 27,494,890 13,903,294
------------- ------------ ------------
UNDIVIDED PROFITS
Balance, beginning of the year 58,181,480 46,704,129 38,677,715
Net income 17,228,749 16,461,093 12,556,946
Cash dividends declared (5,513,470) (4,983,742) (4,530,532)
------------- ------------ ------------
Balance, end of year 69,896,759 58,181,480 46,704,129
------------- ------------ ------------
TREASURY STOCK
Balance, beginning of the year (7,399,628) -- --
------------- ------------ ------------
Purchase of Treasury stock -- (7,399,628) --
------------- ------------ ------------
Balance, end of year (7,399,628) (7,399,628) --
------------- ------------ ------------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance, beginning of the year (1,688,195) 282,317 402,625
Net other comprehensive income (loss) 1,363,888 (1,970,512) (120,308)
------------- ------------ ------------
Balance, end of year (324,307) (1,688,195) 282,317
------------- ------------ ------------
TOTAL STOCKHOLDERS' EQUITY $98,728,778 $85,649,611 $83,542,400
============= ============ ============
The accompanying notes are an integral part of these financial statements.
22.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
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 only 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 1999 and
1998 financial statements to conform to the 2000 presentation. The accompanying
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiary. All intercompany accounts have been eliminated upon
consolidation in the presentation of the consolidated financial statements.
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.
Use of estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles 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.
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 which might be sold prior to maturity to meet needs
for liquidity or for the purchase of alternative investments. These securities
are stated at market. Unrealized gains and losses on such securities, if any,
are credited or charged to stockholders' equity 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, 2000, 1999 and 1998,
the Company did not own any trading securities. Gains and losses on the sale of
securities are recorded on the trade date and are determined using the specific
identification method.
Loans -- Loans are reported at their principal outstanding, net of
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 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
23.
value of the collateral if the loan is collateral dependent.
Mortgage servicing rights -- On January 1, 1997, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 125 which requires that
the fair value of the right to service loans be capitalized when the loans are
sold to other investors and 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.
Reserve for loan losses -- The reserve 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 and current economic conditions. 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.
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.
Earnings per share -- Basic earnings per share is computed by dividing net
income by the 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 -- SFAS 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 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. Accordingly, all significant operating decisions
are based upon analysis of the Company as one operating segment or unit.
Reclassifications -- Certain amounts in the 1998 and 1999 financial
statements have been reclassified to conform to the 2000 presentation.
24.
New accounting pronouncements -- In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, ("SFAS 133") "Accounting for Derivative
Instruments and Hedging Activities" as amended in June, 1999 by SFAS 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133," and in June, 2000, by SFAS 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities,"
(collectively SFAS 133). SFAS 133 requires that entities recognize all
derivatives as either assets or liabilities in the statement of condition and
measure those instruments at fair value. Under SFAS 133 an entity may designate
a derivative as a hedge of exposure to either changes in: (a) fair value of a
recognized asset or liability or firm commitment, (b) cash flows of a recognized
or forecasted transaction, or (c) foreign currencies of a net investment in
foreign operations, firm commitments, available-for-sale securities or a
forecasted transaction. Depending upon the effectiveness of the hedge and/or the
transaction being hedged, any changes in the fair value of the derivative
instrument is either recognized in earnings in the current year, deferred to
future periods, or recognized in other comprehensive income. Changes in the fair
value of all derivative instruments not recognized as hedge accounting are
recognized in current year earnings. SFAS 133 is required for all fiscal years
beginning after June 15, 2000. The Company adopted SFAS 133 effective July 1,
2000. No adjustment was required as a result of the adoption of this
pronouncement.
Statement of Financial Accounting Standards No. 119 "Disclosure About
Derivative Financial Instruments and Fair Value of Financial Instruments" ("SFAS
119") requires disclosures about financial instruments, which are defined as
futures, forwards, swap and option contracts and other financial instruments
with similar characteristics. On balance sheet receivables and payables are
excluded from this definition. The Company did not hold any derivative financial
instruments as defined by SFAS 119 at December 31, 2000, 1999 or 1998.
In September 2000, the Financial Accounting Standards Board issued SFAS No.
140 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," replacing SFAS No. 125. This new statement
revises the standard for accounting and reporting for transfers and servicing of
financial assets and extinguishments of liabilities. The new standard is based
on consistent application of a financial-components approach that recognizes
financial and servicing assets it controls and the liabilities it has incurred,
derecognizes financial assets when control has been surrendered and derecognizes
liabilities when extinguished. The standard provides consistent guidelines for
distinguishing transfers of financial assets from transfers that are secured
borrowings. SFAS No. 140 is effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after March 31, 2001.
However, for recognition and reclassification of collateral and for disclosures
relating to securitizations transactions and collateral this statement is
effective for fiscal years ending after December 15, 2000 with earlier
application not allowed and is to be applied prospectively. The adoption of this
statement is not expected to have a material impact on the Company's
consolidated financial statements.
(2) Securities
The adjusted cost and estimated market values of securities which the
Company classified as available for sale as of December 31, 2000 were as
follows:
December 31, 2000
----------------------------------------------------------------------
Gross Gross Estimated
Adjusted Unrealized Unrealized Market
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 agencies 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
================ ================== ================ =================
The net unrealized loss on these securities is included net of tax in
stockholders' equity.
25.
Included in Other debt securities at December 31, 2000 are investments with
certain issuers that, in the aggregate, exceed 10% of stockholders' equity, as
follows:
Aggregate Aggregate Estimated
Issuer Adjusted Cost Market Value
------ ------------- -------------------
Evans Withycombe Finance Trust $11,960,000 $12,617,800
Merrill Lynch CLO Series 1998 - Delano - 1 11,584,372 10,927,847
Eagle CBO, Ltd. 10,235,204 10,354,688
St. George Holdings, Ltd. 9,984,621 10,000,000
Sterling Automobile Loan Securitization 12,996,625 12,996,625
First Dominion Funding II 10,000,000 10,025,000
Highland Legacy Limited CLO 9,990,841 10,031,025
The Company's investment securities are subject to market risk in the
following ways. $287,458,000 of the investment securities owned as of December
31, 2000 are floating rate instruments tied to various indices, primarily the
3-month Treasury bill and LIBOR. Lesser amounts are tied to longer-term Treasury
rates and other indices. Almost all of these floating rate instruments are
subject to interest rate caps which 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 less well than securities
tied to other indices. Most of the remaining $162,591,000 of securities are
fixed-rate collateralized mortgage obligations, 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 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.
The adjusted cost and estimated market values of securities which the
Company classified as available for sale as of December 31, 1999 and 1998 were
as follows:
December 31, 1999
----------------------------------------------------------------------
Gross Gross Estimated
Adjusted Unrealized Unrealized Market
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 agencies 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
======== ====== ====== ========
December 31, 1998
----------------------------------------------------------------------
Gross Gross Estimated
Adjusted Unrealized Unrealized Market
Cost Gains Losses Value
----------------- ----------------- ---------------- -----------------
(Dollar amounts in thousands)
U.S. Government agency CMOs $266,397 $1,506 $ 850 $267,053
Other U.S. Government agencies 18,554 124 235 18,443
Other collateralized mortgage obligations 79,107 617 176 79,548
State and municipal obligations 16,416 -- -- 16,416
Other debt securities 114,997 138 638 114,497
-------- ------ ------ --------
Totals $495,471 $2,385 $1,899 $495,957
======== ====== ====== ========
26.
Gross proceeds from the sale of available for sale securities were
$97,908,163 in 2000. Gross gains of $409,737 and gross losses of $325,135 were
realized on those sales.
Gross proceeds from the sale of available for sale securities were
$82,270,203 in 1999. Gross gains of $334,394 and gross losses of $100,093 were
realized on those sales.
Gross proceeds from the sale of available for sale securities were
$243,852,925 in 1998. Gross gains of $394,397 and gross losses of $10,509 were
realized on those sales.
The amount of income tax expense attributable to net gains in 2000, 1999
and 1998 was $35,385, $97,996 and $161,584, respectively.
The adjusted cost and estimated market value of debt securities which the
Company classified as available for sale at December 31, 2000 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.
Adjusted Estimated
Cost Market Value
------------ ----------------
(Dollar amounts in thousands)
Due in one year or less $ 41,527 $ 42,134
Due after one year through five years 49,806 49,623
Due after five years through ten years 96,557 96,172
Due after ten years 262,722 262,120
-------- --------
Totals $450,612 $450,049
======== ========
At December 31, 2000, securities carried at $24,520,000 were pledged to
secure public deposits and borrowings from the U.S. Treasury. Federal Home Loan
Bank stock of $22,125,400 is pledged to secure FHLB borrowings.
(3) Loans
The following is a summary of loans outstanding as of the dates indicated:
December 31,
-----------------------------------------------------
2000 1999 1998
---- ---- ----
Mortgage loans on real estate
Residential $ 393,574,418 $ 290,722,415 $ 233,533,062
Commercial 242,535,682 203,987,613 207,860,415
Construction 87,978,360 68,809,298 47,939,708
Equity lines of credit 37,377,120 23,035,447 20,787,422
Other loans
Commercial 76,274,801 77,775,782 70,766,629
Industrial revenue bonds 1,602,973 1,137,423 1,344,336
Consumer 9,146,965 9,274,570 11,588,705
------------- ------------- -------------
Total loans 848,490,319 674,742,548 593,820,277
Less: Allowance for loan losses (12,153,944) (11,158,126) (11,107,633)
------------- ------------- -------------
Total portfolio loans, net $ 836,336,375 $ 663,584,422 $ 582,712,644
============= ============= =============
Loans held for sale $ 860,840 $ 200,000 $ 18,140,522
============= ============= =============
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, 2000, 1999
and 1998 was $5,885,182, $5,552,278 and $11,248,796, respectively. During 2000,
$8,454,582 in new loans were made to Directors and Officers and there were
$8,121,678 in repayments. The total amount of deposits from Directors and
Officers at December 31, 2000, 1999 and 1998 was $5,557,794, $3,829,135 and
$8,010,955, respectively.
Nonaccrual loans at December 31, 2000, 1999 and 1998 amounted to
$2,192,000, $1,777,000 and $7,468,000, 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, 2000 was $162,000.
Interest income recognized on
27.
nonaccrual loans in 2000 amounted to $20,871.
The amount of restructured troubled debt which was performing in accordance
with amended terms at December 31, 2000, 1999 and 1998 was $237,000, $626,000
and $478,000, 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.
Loans to finance other real estate owned in accordance to SFAS No. 66 for
the years ended December 31, 2000, 1999 and 1998 was $0., $100,000 and $137,500,
respectively.
Included in the consumer loan totals for the years ended December 31, 2000,
1999 and 1998 are customer account overdrafts that the Company reclassified as
loans in the amounts of $880,138, $499,900 and $407,700, respectively.
The Company also has participated in loans with other entities. As of
December 31, 2000 gross participation loans totaled $50,361,716 of which
$5,038,166 was participated out. As of December 31, 1999 gross participation
loans totaled $5,439,522 of which $793,948 was participated out. December 31,
1998, gross participation loans totaled $1,777,084 of which $1,001,080 was
participated out.
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 $160,104,000, $168,260,000 and $122,908,000 at December
31, 2000, 1999 and 1998, respectively.
The following summarizes mortgage servicing rights capitalized and
amortized, along with the aggregate activity in related valuation allowances:
December 31,
----------------------------------
2000 1999 1998
---- ---- ----
(Dollar amounts in thousands)
Mortgage servicing rights capitalized $ 42 $528 $687
==== ==== ====
Mortgage servicing rights amortized $147 $194 $123
==== ==== ====
Mortgage servicing rights included in Other Assets at December 31, 2000,
1999, and 1998, were $1,123,000, $1,228,000, and $894,000, respectively. The
fair value balance of capitalized servicing rights was determined using a
discount rate of 8% and a prepayment speed of 7%.
(4) Reserve for Loan Losses
The changes in the reserve for loan losses during the three years ended
December 31, 2000 were as follows:
2000 1999 1998
---- ---- ----
Balance, beginning of year $11,158,126 $11,107,633 $10,962,345
Provision for loan losses -- -- --
Charge-offs (167,875) (610,238) (606,686)
Recoveries on loans previously charged off 1,163,693 660,731 751,974
----------- ----------- -----------
Balance, end of year $12,153,944 $11,158,126 $11,107,633
=========== =========== ===========
28.
The following is a summary of information pertaining to impaired loans:
2000 1999 1998
---- ---- ----
Impaired loans without a valuation allowance $ -- $ -- $ --
Impaired loans with a valuation allowance:
Commercial loans $ 441,686 $ 559,345 $ 537,661
Commercial mortgage loans 328,164 419,245 2,277,262
Residential mortgage loans -- -- 474,000
---------- --------- -----------
Total impaired loans $ 769,850 $ 978,590 $ 3,288,923
========== ========= ===========
FASB 114 reserves on impaired loans $ 352,747 $ 448,810 $ 998,827
========== ========= ===========
Average investment in impaired loans $1,051,918 $2,397,106 $ 1,645,505
========== ========== ===========
Interest income recognized on impaired loans $ 182,559 $ 200,157 $ 309,131
========== ========== ===========
Interest income recognized on a cash basis on impaired loans $ 182,559 $ 200,157 $ 309,131
========== ========== ===========
(5) Bank Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation
and amortization of $15,736,000 at December 31, 2000, $13,332,000 at December
31, 1999, and $11,540,000 at December 31, 1998. Certain banking premises are
leased under non-capitalized operating leases expiring at various dates through
2012. Annual rental expenses under these leases were $959,000 in 2000, $914,000
in 1999 and $808,000 in 1998. The total rental commitments under non-cancelable
leases for future years are $5,818,000 not including amounts payable under
Consumer Price Index escalator provisions in three such leases which become
effective in 2001 and later years. Annual commitments are $969,390 in 2001,
$921,920 in 2002, $887,280 in 2003, $880,800 in 2004, $642,250 in 2005, and a
total of $1,516,590 for the years 2006 through 2012. Certain of these leases
also contain renewal options.
December 31,
--------------------------------------
2000 1999 1998
---- ---- ----
(Dollar amounts in thousands)
Premises:
Land $ 2,769 $ 1,511 $ 1,390
Buildings 9,516 7,094 7,781
Leasehold improvements 4,513 4,375 4,114
Equipment 15,572 12,749 11,102
Accumulated depreciation (15,736) (13,332) (11,540)
-------- -------- --------
$ 16,634 $ 12,397 $ 12,847
======== ======== ========
Depreciation and amortization expense for the years ended December 31,
2000, 1999 and 1998 amounted to $2,375,000, $1,938,000 and $1,780,000,
respectively.
(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 $1,154,000 in 2000, $1,102,000 in 1999 and
$1,068,000 in 1998. Also in 2000, 1999 and 1998, bonuses were accrued under the
provisions of the Company's Profit Incentive Plan totaling $1,750,000,
$1,280,000, and $706,000 respectively, and paid in the year following.
The Company's Employee Stock Ownership Plan holds 38,367 shares of the
Company's common stock. At December 31, 2000, 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.
29.
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.
The following table sets forth the plan's funded status reconciled with the
amount shown in the Company's statement of condition at December 31, 2000, 1999
and 1998:
Accumulated post-retirement benefit obligation:
2000 1999 1998
---- ---- ----
Retirees $ 967,586 $ 748,889 $ 796,448
Fully eligible active plan participants 976,271 695,194 564,518
Other plan participants 1,689,082 1,595,339 1,629,512
---------- ---------- ----------
3,632,939 3,039,422 2,990,478
Plan assets at fair value -- -- --
Accumulated post-retirement benefit obligation
in excess of plan assets 3,632,939 3,039,422 2,990,478
Unrecognized net gain from past experience different
from that assumed and from changes in assumptions 515,647 831,364 563,568
Unrecognized prior service cost -- -- --
Unrecognized net obligation at transition (1,318,200) (1,428,050) (1,537,900)
---------- ---------- ----------
Unfunded accrued post-retirement benefit expense $2,830,386 $2,442,736 $2,016,146
========== ========== ==========
Net periodic post-retirement benefit for 2000, 1999 and 1998 included the
following components:
2000 1999 1998
---- ---- ----
Service cost - benefits attributed to service during the
during the year $172,394 $202,281 $153,799
Interest cost on accumulated post-retirement
benefit obligation 234,489 211,806 171,024
Actual return on plan assets -- -- --
Amortization of transition obligation over 20 years 109,850 109,850 109,850
Amortization of gain (831,364) (563,568) (550,854)
Asset gain deferred 807,416 563,568 518,754
-------- -------- --------
Net periodic post-retirement benefit cost $492,785 $523,937 $402,573
======== ======== ========
For measurement purposes, a 6% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 2001; the rate was assumed
to decrease gradually 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, 2000 by $58,055 and the aggregate service
and interest cost components of net periodic post-retirement benefit cost for
the year then ended by $4,534.
The weighted-average discount rate used in determining the accumulated
post-retirement benefit obligation was 7.5%.
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. Options on up to 400,000
shares may be granted under the plan. 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.
30.
The table below shows the number of stock options which were outstanding at
the beginning and end of each year, and how many were exercised, granted,
forfeited or expired.
2000 1999 1998
------------------------- ------------------------ ------------------------
Weighted Average Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
------- -------------- -------- -------------- -------- --------------
Outstanding, beginning of year 104,000 $16.72 57,000 $17.41 26,000 $13.38
Granted 61,500 $18.00 52,500 $16.07 35,000 $20.34
Exercised -- -- -- -- -- --
Forfeited (6,000) $16.60 (5,500) $17.66 (4,000) $17.06
------- ------- ------
Outstanding, end of year 159,500 $17.22 104,000 $16.72 57,000 $17.41
======= ======= ======
The following table summarizes information about stock options outstanding
at December 31, 2000:
Remaining Years in
Exercise Price Number Outstanding Contractual Life Number Exercisable
-------------- ------------------ ---------------- ------------------
$13.38 22,000 6.35 16,500
$20.75 22,000 7.12 11,000
$19.25 6,000 7.87 3,000
$17.38 16,000 8.04 4,000
$16.38 10,000 8.84 2,500
$15.06 22,000 8.92 5,500
$18.00 61,500 9.93 --
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.
2000 1999 1998
---- ---- ----
Weighted average volatility 27.03% 25.86% 26.90%
Weighted average dividend 3.16% 2.77% 2.65%
Weighted average risk-free rate 5.26% 5.58% 5.23%
Weighted average fair value of options $ 4.26 $ 3.94 $ 5.12
granted during the year
Additional expense had the Company
adopted SFAS No. 123 $ 106,606 $ 67,883 $ 39,628
Related tax benefit $ 44,588 $ 28,392 $ 16,575
Pro-forma net income $17,166,731 $16,421,602 $12,532,870
Pro-forma basic and diluted earnings per share $ 1.99 $ 1.85 $ 1.38
31.
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. A total of $84,375 was charged to compensation expense in
1997 for these rights. 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.
2000 1999 1998
--------------------------- ------------------------ --------------------------
Weighted Average Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
------ -------------- ----- -------------- ----- --------------
Outstanding, beginning of year 8,100 $17.62 3,700 $19.25 -- --
Granted 7,100 18.00 4,600 $16.38 3,700 $19.25
Exercised -- -- -- -- -- --
Forfeited (500) $16.95 (200) $19.25 -- --
------ ----- -----
Outstanding, end of year 14,700 $17.82 8,100 $17.62 3,700 $19.25
====== ===== =====
The following table summarizes information about stock appreciation rights
outstanding at December 31, 2000:
Remaining Years in
Exercise Price Number Outstanding Contractual Life Number Exercisable
- -------------- ------------------ ---------------- ------------------
$19.25 3,400 7.86 --
$16.38 4,200 8.84 --
$18.00 7,100 9.93 --
(7) Deposits and Borrowed Funds
The following summarize deposits and borrowed funds outstanding as of the
dates indicated:
December 31,
----------------------------------------------------
2000 1999 1998
---- ---- ----
Deposits
Demand $201,904,120 $167,624,319 $160,966,042
NOW 139,452,453 120,307,407 114,210,098
Money market 163,793,368 138,287,456 141,316,906
Other savings 143,239,002 158,141,665 160,125,653
Certificates of deposit greater than $100,000 96,159,335 60,666,301 30,299,027
Other time 228,754,386 121,036,469 120,979,249
------------- ------------- ------------
Total deposits $973,302,664 $766,063,617 $727,896,975
============= ============= ============
Maturities of time certificates of deposit as of December 31, 2000 are
$286,932,000 in 2001, $25,477,000 in 2002, $5,325,000 in 2003, $1,569,000 in
2004, $5,456,000 in 2005, and $155,000 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. 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.
December 31,
---------------------------------------------------
2000 1999 1998
---- ---- ----
Borrowed funds
Federal Home Loan Bank $291,286,797 $347,962,999 $343,506,683
Other short term borrowings 24,520,157 19,345,885 14,606,322
------------ ------------ ------------
Total borrowed funds $315,806,954 $367,308,884 $358,113,005
============ ============ ============
The contractual maturities of borrowings from the Federal Home Loan Bank as
of December 31, 2000, are $159,430,000 in 2001, $19,065,000 in 2002, $45,350,000
in 2003, $18,900,000 in 2004, $29,586,000 in 2005, and $18,956,000 in years
thereafter. These borrowings bore interest rates between 3.07% and 7.35% with a
weighted average interest rate of 6.32%. The balance at February 29, 2000 of
$397,898,388 was the maximum amount outstanding at any month end during 2000.
These borrowings are collateralized by the Company's commercial and residential
mortgage
32.
loans and securities. The Company also has an IDEAL Way Line of Credit with
Federal Home Loan Bank of Boston. The unused balance at December 31, 2000 was
$5,000,000 and at December 31, 1999 and 1998 it was $12,963,000.
Other short-term borrowings at December 31, 2000, 1999 and 1998 consisted
of a demand note payable to the U.S. Treasury of $2,338,819, $1,912,887 and
$212,748, respectively, and securities sold subject to agreements to repurchase
of $22,181,338, $17,432,998 and $14,393,574, respectively. These borrowings are
collateralized by the pledge of securities.
(8) Stockholders' Equity
On August 7, 1998, the Bank issued 4,530,532 shares of common stock in the
form of a 100% stock dividend. The effect of this transaction was to increase
the outstanding shares of common stock from 4,530,532 to 9,061,064. Net income
and dividends per share have been restated for all periods presented to reflect
this transaction.
As a member of the Federal Deposit Insurance Corporation, the Bank is
required to meet certain capital requirements. 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 Bank's financial statements. As of December 31, 2000,
1999 and 1998, 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
Bank.
The Bank is required to maintain a leverage ratio, stockholders' equity to
total assets, of at least 3%. For the Bank to be considered well-capitalized,
this ratio must be at least 5%. At December 31, 2000, the Bank's leverage ratio
was 7.0%.
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 Bank's statement of
condition. The risk-based capital regulations assign one of four weights to
assets of the Bank -- 0%, 20%, 50% and 100%. Full capital must be maintained to
support assets with 100% risk weight, with proportionally lower capital required
for assets assigned a lower weight. Most of the Bank's 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, 2000, the Bank's total risk-weighted assets were $954,367,000 and its net
risk-weighted assets were $954,143,000.
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, 2000, $11,930,000 of the reserve for loan losses could
be used toward risk-based capital requirements. Accordingly, at December 31,
2000, total capital for risk-based capital purposes was $98,538,000 equal to
10.3% of risk-weighted assets.
This ratio is required to be at least 8%, and for the Bank to be considered
well-capitalized, it must be at least 10%.
Stockholders' equity alone 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, 2000, the Bank's stockholders' equity was
9.1% of net risk-weighted assets.
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 a
bank's 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
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.
33.
(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 $1,199,094. 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 $292,009 while liabilities assumed were $524,570, resulting
in net liabilities assumed of $232,561. Goodwill of $1,431,655 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
$110,585,200, operating income would be $26,255,970 and net income would be
$17,178,985. 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
Principal and 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, 2000,
1999 and 1998, consists of the following:
2000 1999 1998
---- ---- ----
Current federal income tax $9,338,924 $ 7,388,341 $6,756,489
Current state income tax 384,316 699,922 1,957,942
---------- ----------- ----------
9,723,240 8,088,263 8,714,431
---------- ----------- ----------
Deferred federal income tax (benefit) expense (466,070) 1,496,505 (523,786)
Deferred state income tax (benefit) expense (156,224) 501,622 (140,811)
---------- ----------- ----------
(622,294) 1,998,127 (664,597)
---------- ----------- ----------
$9,100,946 $10,086,390 $8,049,834
========== =========== ==========
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.
34.
The following reconciles the provision for income taxes with the statutory
federal income tax rate of 35%.
2000 1999 1998
---- ---- ----
Tax at statutory rate $9,215,393 $ 9,291,619 $7,209,146
Reduction due to tax-exempt income (314,613) (274,945) (293,139)
State taxes, net of federal tax benefit 148,260 781,004 1,112,989
Other, net 51,906 288,712 20,838
---------- ----------- ----------
$9,100,946 $10,086,390 $8,049,834
========== =========== ==========
At December 31, 2000, 1999 and 1998, the net deferred tax asset consisted
of the following:
2000 1999 1998
---- ---- ----
Future bad debt deductions $5,083,387 $4,666,886 $4,645,768
Nonaccrual loan interest 87,049 132,057 675,093
Unfunded accrued benefits 1,463,780 1,274,509 1,081,774
Unearned Revenues Murray and MacDonald 242,067 -- --
Unrealized loss on securities 239,411 1,249,117 --
---------- ---------- ----------
Gross deferred tax asset 7,115,694 7,322,569 6,402,635
Valuation reserve -- -- --
---------- ---------- ----------
Deferred tax asset 7,115,694 7,322,569 6,402,635
Deferred tax liability 2,603,105 2,664,636 1,409,945
---------- ---------- ----------
Net deferred tax asset $4,512,589 $4,657,933 $4,992,690
========== ========== ==========
(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, 2000, 1999 and 1998, the Company had the following commitments
outstanding:
2000 1999 1998
---- ---- ----
Standby letters of credit $ 1,094,752 $ 1,627,000 $ 2,356,000
Commitments to extend credit at fixed rates 10,469,800 5,242,500 9,465,067
Other commitments to extend credit 172,522,589 152,546,500 101,334,933
------------ ------------ ------------
Total commitments $184,087,141 $159,416,000 $113,156,000
============ ============ ============
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.
35.
(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:
2000 1999 1998
---- ---- ----
Carrying Fair Carrying Fair Carrying Fair
Amount Value Amount Value Amount Value
-------- -------- -------- -------- -------- --------
(Dollar amounts in thousands)
Financial assets:
Cash and cash equivalents $ 66,215 $ 66,215 $ 44,242 $ 44,242 $ 29,427 $ 29,427
Investment securities 426,743 426,743 463,379 463,379 495,957 495,957
Net loans 837,197 837,666 663,784 666,762 600,853 608,962
Financial liabilities:
Deposits 973,303 972,811 766,064 766,189 727,897 729,704
Borrowings from 291,287 290,338 347,963 345,027 343,507 344,434
Federal Home Loan Bank
Other short-term borrowings 24,520 24,520 19,346 19,346 14,606 14,606
The carrying value of cash and cash equivalents and short-term borrowings
approximates 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 priced at variable interest rates.
Fair values of investment 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. 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 unlikely 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, 2000, 1999 and 1998:
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
=========== =========== =====
36.
1998
-----------------------------------------------
Income Shares Per Share
(numerator) (denominator) Amount
----------- ----------- -----
Basic earnings per share $12,556,946 9,061,064 $1.39
Effect of dilutive stock options -- 7,926 (0.01)
----------- ----------- -----
Diluted earnings per share $12,556,946 9,068,990 $1.38
=========== =========== =====
(15) Selected Quarterly Financial Data (Unaudited)
The table below shows supplemental financial data for each quarter in 2000
and 1999.
2000
---------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
Interest income $ 22,024,623 $ 22,519,333 $ 24,341,924 $ 25,083,157
Interest expense 10,709,200 11,077,188 11,535,926 12,301,478
------------ ------------ ------------ ------------
Net interest income 11,315,423 11,442,145 12,805,998 12,781,679
Provision for loan losses -- -- -- --
Non-interest income 3,580,349 4,449,232 3,989,267 4,191,705
Non-interest expense 8,682,634 9,269,297 10,235,099 10,093,577
Minority interest -- (10,496) (6,917) (37,091)
------------ ------------ ------------ ------------
Income before income taxes 6,213,138 6,632,576 6,567,083 6,916,898
Provision for income taxes 2,112,089 2,279,237 2,199,774 2,509,846
------------ ------------ ------------ ------------
Net income $ 4,101,049 $ 4,353,339 $ 4,367,309 $ 4,407,052
============ ============ ============ ============
Average shares outstanding 8,608,048 8,608,048 8,608,048 8,608,048
Net income per share $0.48 $0.50 $0.51 $0.51
Cash dividends declared $0.16 $0.16 $0.16 $0.16
1999
---------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
Interest income $ 18,345,260 $ 19,176,340 $ 19,794,956 $ 21,790,692
Interest expense 9,248,081 9,357,460 9,451,050 10,254,546
------------ ------------ ------------ ------------
Net interest income 9,097,179 9,818,880 10,343,906 11,536,146
Provision for loan losses -- -- -- --
Non-interest income 3,416,940 3,767,719 3,969,101 7,113,779
Non-interest expense 7,477,626 8,034,319 8,281,022 8,723,200
------------ ------------ ------------ ------------
Income before income taxes 5,036,493 5,552,280 6,031,985 9,926,725
Provision for income taxes 1,987,635 1,842,679 2,181,763 4,074,313
------------ ------------ ------------ ------------
Net income $ 3,048,858 $ 3,709,601 $ 3,850,222 $ 5,852,412
============ ============ ============ ============
Average shares outstanding 9,045,270 8,941,188 8,887,753 8,637,257
Net income per share $0.34 $0.41 $0.43 $0.67
Cash dividends declared $0.14 $0.14 $0.14 $0.14
As a result of continuing improvement in the quality of the loan portfolio,
no provision for loan losses was made during 2000, 1999, or 1998.
Non-interest income in the fourth quarter of 1999 was increased by
$3,494,733 gain on sale of the Company's credit card merchant portfolio.
Because of 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 in past years has usually
been at its high during the third quarter of each year.
37.
(16) Parent Company Financial Information
Condensed financial information for CCBT Financial Companies, Inc. is as
follows (in thousands):
Statement of Condition
December 31, 2000
Assets
Cash $ 50,352
Investment Securities 2,685,753
Investment in subsidiary 95,824,093
Other assets 168,580
--------------
Total assets $ 98,728,778
==============
Stockholders' equity
Stockholders' equity $ 98,728,778
--------------
Total stockholders' equity $ 98,728,778
==============
Statement of Income
Year ended December 31, 2000
Interest income $ 181,894
Operating income 169
Operating expenses 293,049
-------------
Loss before taxes, dividends and
undistributed income from subsidiary (110,986)
Applicable income taxes (credit) (26,228)
Dividends from subsidiary 5,700,000
Undistributed income from subsidiary 11,613,507
-------------
Net income $ 17,228,749
=============
Statement of Cash Flows
Year ended December 31, 2000
Cash flows from operating activities
Net income $17,228,749
Adjustments to reconcile net income to net
cash provided by operating activities:
Dividends received from subsidiary 5,700,000
Earnings from subsidiary (17,313,507)
Other, net 80,273
-----------
Net cash provided by operating activities 5,695,515
-----------
Cash flows from investing activities
Purchase of investments (1,800,769)
Maturities and repayments of investments 4,462,975
Investment in subsidiary (2,800,000)
-----------
Net cash used by investing activities (137,794)
-----------
Cash flows from financing activities
Cash dividends paid to stockholders (5,509,151)
-----------
Net cash used by financing activities (5,509,151)
-----------
Net increase in cash and cash equivalents 48,570
Cash at beginning of period 1,782
-----------
Cash at end of period $ 50,352
===========
38.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
There were no changes in or 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 26, 2001, 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.
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 of the Company at December
31, 2000 and 1999, was $2,400,295 and $586,287 respectively, and for the Bank in
1998 was $11,248,796. During 2000, $1,986,788 in new loans were made to
Directors and Officers and there were $172,780 in repayments.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) (1) See "Financial Statements Index" or page 17 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 Current 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)
39.
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 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)
10.5 Cape Cod Bank and Trust Company Employee Stock Ownership and
Plan and Trust, as amended
21.1 Subsidiaries of the Company -- The Company has one direct
subsidiary, Cape Cod Bank and Trust Company, N.A., a
federally chartered commercial bank. 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 Consent of Grant Thornton LLP (Filed herewith)
(b) Reports on Form 8-K:
None.
40.
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.
-------------------------------------------------------------------
By (Signature and Title)* /s/ STEPHEN B. LAWSON
-----------------------------------------------------
President and Chief Executive Officer
Date March 16, 2001
------------------
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
Date March 16, 2001
------------------
SIGNATURES OF THE BOARD OF DIRECTORS
/s/ STEPHEN B. LAWSON /s/ GEORGE D. DENMARK
- ---------------------------------- --------------------------------
Stephen B. Lawson George D. Denmark
/s/ JOHN OTIS DREW /s/ JOHN F. AYLER
- ---------------------------------- --------------------------------
John Otis Drew, Chairman John F. Aylmer
/s/ WILLIAM C. SNOW /s/ WILLIAM R. ENLOW
- ---------------------------------- --------------------------------
William C. Snow William R Enlow
Date March 16, 2001
---------------------
41.