SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended June 30, 2001
Commission File No. 000-25381
CCBT FINANCIAL COMPANIES, INC.
(Exact name of Registrant as specified in its charter)
Massachusetts 04-3437708
(State of Incorporation) (I.R.S. Employer Identification No.)
495 Station Avenue, South Yarmouth, Massachusetts 02664
(Address of principal executive office) (Zip Code)
(Registrant's telephone #, incl. area code): 508-394-1300
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. (1) : Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date. There were 8,615,548
shares of common stock outstanding as of August 9, 2001.
TABLE OF CONTENTS
- -----------------
Section Description Page No.
- ------- ----------- --------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition (Unaudited) 3
June 30, 2001 and December 31, 2000
Consolidated Statements of Income (Unaudited) 4
Three and Six Months Ended June 30, 2001 and 2000
Consolidated Statements of Cash Flows (Unaudited) 5
Six Months Ended June 30, 2001 and 2000
Consolidated Statements of Comprehensive Income (Unaudited) 6
Six Months Ended June 30, 2001 and 2000
Consolidated Statements of Changes in Stockholders' Equity (Unaudited) 6
Six Months Ended June 30, 2001 and 2000
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition 7-18
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
PART II OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities and Use of Proceeds 19
Item 3. Defaults upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
2
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements
CONSOLIDATED STATEMENTS OF FINANCIAL
CONDITION
June 30, December 31,
2001 2000
--------------- ---------------
ASSETS
(Unaudited)
Cash and due from banks $ 55,480,037 $ 49,371,492
Short term interest-bearing deposits 382,969 16,843,538
Securities available for sale at fair value 444,098,037 426,742,801
Federal Home Loan Bank stock, at cost 22,125,400 22,125,400
Federal Reserve Bank stock, at cost 1,180,700 1,180,700
Total loans 918,591,270 848,490,319
Less: Reserve for loan losses (12,222,359) (12,153,944)
--------------- ---------------
Net loans 906,368,911 836,336,375
Loans held for sale 1,768,472 860,840
Premises and equipment 17,460,972 16,633,912
Deferred tax assets 3,241,634 4,512,589
Accrued interest receivable on securities 2,758,771 3,353,580
Principal and interest receivable on loans 4,523,438 4,331,987
Intangibles 8,763,756 9,555,425
Other assets 11,986,902 12,070,707
--------------- ---------------
Total assets $ 1,480,139,999 $ 1,403,919,346
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 927,015,564 $ 973,302,664
Borrowings from the Federal Home Loan Bank 403,651,359 291,286,797
Other short-term borrowings 30,648,821 24,520,157
Current taxes payable 316,857 2,267,117
Interest payable on deposits and borrowings 3,108,512 4,206,555
Post retirement benefits payable 3,086,505 2,830,386
Employee profit sharing retirement and bonuses payable 1,530,361 2,946,642
Other liabilities 3,206,315 3,705,815
--------------- ---------------
Total liabilities 1,372,564,294 1,305,066,133
--------------- ---------------
Minority interest 70,071 124,435
--------------- ---------------
Stockholders' equity
Common stock, $1.00 par value:
Authorized: 12,000,000 shares
Issued: 9,061,064 9,061,064 9,061,064
Surplus 27,494,890 27,494,890
Undivided profits 76,013,518 69,896,759
Treasury stock, at cost (453,016 shares) (7,399,628) (7,399,628)
Accumulated other comprehensive income (loss) 2,335,790 (324,307)
--------------- ---------------
Total stockholders' equity 107,505,634 98,728,778
--------------- ---------------
Total liabilities and stockholders' equity $ 1,480,139,999 $ 1,403,919,346
=============== ===============
The accompanying notes are an integral part of these unaudited, consolidated
financial statements.
3
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements (continued)
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended June 30, Six Months Ended June 30,
2001 2000 2001 2000
------------ ------------ ------------ ------------
INTEREST INCOME: (Unaudited) (Unaudited)
Interest and fees on loans $ 17,453,717 $ 14,718,174 $ 34,588,499 $ 28,433,790
Interest on short term interest-bearing deposits 134,334 229,134 323,695 302,950
Taxable interest income on securities 7,070,495 6,869,437 15,160,057 14,533,832
Tax-exempt interest income on securities 229,888 218,504 466,885 426,462
Dividends on securities 362,473 484,084 780,415 846,922
------------ ------------ ------------ ------------
Total interest income 25,250,907 22,519,333 51,319,551 44,543,956
------------ ------------ ------------ ------------
INTEREST EXPENSE
Interest on deposits 6,747,503 5,401,427 14,521,220 10,265,350
Interest on borrowings from the Federal Home Loan Bank 5,640,327 5,344,440 10,606,711 10,930,592
Interest on other short-term borrowings 199,680 331,321 476,764 590,446
------------ ------------ ------------ ------------
Total interest expense 12,587,510 11,077,188 25,604,695 21,786,388
------------ ------------ ------------ ------------
Net interest income 12,663,397 11,442,145 25,714,856 22,757,568
Provision for loan losses -- --
------------ ------------ ------------ ------------
------------ ------------
Net interest income after provision for loan losses 12,663,397 11,442,145 25,714,856 22,757,568
------------ ------------ ------------ ------------
NON-INTEREST INCOME
Financial Advisor fees 1,887,868 1,829,900 3,648,231 3,337,495
Deposit account service charges 539,891 485,407 1,041,637 973,586
Branch banking fees 819,913 766,538 1,537,309 1,480,610
Electronic banking fees 475,817 610,350 958,165 998,852
Loan servicing and other loan fees 42,520 130,318 102,192 185,903
Brokerage fees and commissions 240,331 250,096 489,451 533,641
Net gain (loss) on sales of securities 392,063 49,394 852,557 28,302
Net gain on sales of loans 280,409 4,597 422,040 27,654
Insurance commissions 420,093 194,592 886,741 194,592
Other income 276,248 128,040 387,710 268,946
------------ ------------ ------------ ------------
Total non-interest income 5,375,153 4,449,232 10,326,033 8,029,581
------------ ------------ ------------ ------------
NON-INTEREST EXPENSE
Salaries 4,381,449 3,529,577 8,327,408 6,686,895
Employee benefits 1,677,057 1,436,467 3,538,255 2,985,521
Building and equipment 1,421,257 1,170,409 2,751,104 2,288,379
Data processing 809,260 752,252 1,586,980 1,441,873
Accounting and legal fees 258,083 258,454 472,760 461,684
Other outside services 589,037 565,146 1,098,225 1,037,744
Amortization of intangibles 395,833 56,701 791,666 59,774
Delivery and communications 471,557 415,051 996,048 743,726
Directors' fees 85,800 88,250 171,600 175,750
Marketing and advertising 591,479 320,441 939,731 524,304
Printing and supplies 308,377 227,036 445,752 393,207
Insurance 109,918 92,423 247,388 188,243
All other expenses 363,663 357,090 772,496 964,831
------------ ------------ ------------ ------------
Total operating expense 11,462,770 9,269,297 22,139,413 17,951,931
------------ ------------ ------------ ------------
Minority Interest (17,753) (10,496) (5,584) (10,496)
------------ ------------ ------------ ------------
Net income before taxes 6,593,533 6,632,576 13,907,060 12,845,714
Applicable income taxes 2,207,861 2,279,237 4,691,404 4,391,326
------------ ------------ ------------ ------------
Net income $ 4,385,672 $ 4,353,339 $ 9,215,656 $ 8,454,388
============ ============ ============ ============
Average shares outstanding 8,608,048 8,608,048 8,608,048 8,608,048
Basic earnings per share
$ 0.51 $ 0.50 $ 1.07 $ 0.98
Diluted earnings per share
$ 0.51 $ 0.50 $ 1.07 $ 0.98
Cash dividends declared
$ 0.18 $ 0.16 $ 0.36 $ 0.32
The accompanying notes are an integral part of these unaudited, consolidated
financial statements.
4
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements (continued)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30,
2001 2000
------------- -------------
(Unaudited)
CASH PROVIDED BY OPERATING ACTIVITIES
Net income $ 9,215,656 $ 8,454,388
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses -- --
Depreciation and amortization 2,030,413 1,099,517
Net amortization of securities 460,380 13,645,606
Accretion of deferred loan fees (242,509) (235,135)
Net gain on sale of investment securities (852,557) (28,302)
Deferred (prepaid) income tax expense (3,221,215) (479,321)
Net gain on sale of loans (422,040) (27,654)
Net change in:
Loans held for sale (907,632) 200,000
Accrued interest receivable 403,358 (805,935)
Accrued expenses and other liabilities (2,757,705) (899,581)
Other, net 4,314,069 (7,118,894)
------------- -------------
Net cash provided by operating activities 8,020,218 13,804,689
------------- -------------
CASH USED BY INVESTING ACTIVITIES
Net increase in loans (104,163,380) (87,675,346)
Proceeds from sale of loans 34,618,367 6,453,313
Dispositions of property from defaulted loans -- 70,000
Maturities of securities 187,778,611 114,130,910
Purchase of available for sale securities (270,323,202) (147,307,413)
Sales of available for sale securities 67,467,964 57,060,977
Purchases of premises and equipment (2,857,831) (5,214,744)
------------- -------------
Net cash used by investing activities (87,479,471) (62,482,303)
------------- -------------
CASH PROVIDED BY FINANCING ACTIVITIES
Net (decrease) increase in deposits (46,287,100) 136,659,420
Net increase (decrease) in borrowings from the
Federal Home Loan Bank 112,364,562 (93,647,994)
Net increase in other short-term borrowings 6,128,664 5,685,220
Cash dividends paid on common stock (3,098,897) (2,758,896)
------------- -------------
Net cash provided by financing activities 69,107,229 45,937,750
------------- -------------
Net decrease in cash and cash equivalents (10,352,024) (2,739,864)
Cash and cash equivalents at beginning of year 66,215,030 45,622,428
------------- -------------
Cash and cash equivalents at end of period $ 55,863,006 $ 42,882,564
============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest $ 26,702,737 $ 22,475,774
Income taxes 7,179,819 4,467,843
Non-cash transactions:
Additions to property from defaulted loans $ -- $ 70,000
The accompanying notes are an integral part of these unaudited, consolidated
financial statements.
5
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements (continued)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Six Months Ended June 30,
2001 2000
----------- ----------
(Unaudited)
Net income $9,215,656 $8,454,388
----------- ----------
Unrealized holding gains (losses) on securities available for sale 5,380,784 (31,096)
Reclassification of gains on securities realized in income (852,557) (28,302)
----------- ----------
Net unrealized gains (losses) 4,528,227 (59,398)
Related tax effect (1,868,130) 2,106
------------ -----------
Net other comprehensive income (loss) 2,660,097 (57,292)
------------ -----------
Comprehensive income $ 11,875,753 $8,397,096
============ ==========
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Six Months Ended June 30,
2001 2000
------------ -----------
(Unaudited)
COMMON STOCK
Balance, beginning of the year $ 9,061,064 $ 9,061,064
------------ -----------
Balance, June 30 9,061,064 9,061,064
------------ -----------
SURPLUS
Balance, beginning of the year 27,494,890 27,494,890
------------ -----------
Balance, June 30 27,494,890 27,494,890
------------ -----------
UNDIVIDED PROFITS
Balance, beginning of the year 69,896,759 58,181,480
Net income 9,215,656 8,454,388
Cash dividends declared (3,098,897) (2,758,896)
------------ -----------
Balance, June 30 76,013,518 63,876,972
------------ ----------
TREASURY STOCK
Balance, beginning of the year (7,399,628) (7,399,628)
------------- ------------
Balance, June 30 (7,399,628) (7,399,628)
------------- ------------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance, beginning of the year (324,307) (1,688,195)
Net other comprehensive income 2,660,097 (57,292)
------------ -----------
Balance, June 30 2,335,790 (1,745,487)
------------ -----------
TOTAL STOCKHOLDERS' EQUITY $107,505,634 $91,287,811
============ ===========
The accompanying notes are an integral part of these unaudited, consolidated
financial statements.
6
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements (continued)
CCBT FINANCIAL COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2001 and 2000 (Unaudited)
Business
CCBT Financial Companies, Inc. ("Company") was incorporated under the
laws of the Commonwealth of Massachusetts on October 8, 1998 under the name of
CCBT Bancorp, Inc. at the direction of the Board of Directors and management of
Cape Cod Bank and Trust Company ("Bank") for the purpose of becoming a bank
holding company for the Bank. On February 11, 1999, Bancorp became the holding
company for the Bank by acquiring 100% of the outstanding shares of the Bank's
common stock in a 1:1 exchange for Bancorp common stock. During 1999, the
Company's name was changed to CCBT Financial Companies, Inc. The Bank's charter
was converted to that of a national bank effective September 1, 1999. Currently,
the Company's business activities are conducted primarily through the Bank.
During the second quarter of 2000, the Company, through its
wholly-owned subsidiary, Cape Cod Bank and Trust Company N.A., acquired 51% of
the stock of Murray & MacDonald Insurance Services, Inc. (the "Agency") of
Falmouth, Massachusetts, a full service insurance Agency offering property,
casualty, life, accident and health products to clients on Cape Cod. The Agency
has been in business since 1972 and has license agreements with more than thirty
insurance firms. 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.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principals for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principals for complete
financial statements. Certain amounts have been reclassified in the June 30,
2000 financial statements to conform to the 2001 presentation. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
six months ended June 30, 2001 are not necessarily indicative of the results
that may be expected for the current fiscal year. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 2000.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
This Form 10Q 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.
7
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
The following discussion should be read in conjunction with the
accompanying consolidated financial statements and selected consolidated
financial data included within this report. Given that the Company's principal
activity currently is ownership of the Bank, for ease of reference, the term
"Company" in this item generally will refer to the investments and activities of
the Company and the Bank except where otherwise noted.
CCBT Financial Companies, Inc. is a bank holding company. Its sole
subsidiary, Cape Cod Bank and Trust Company, N.A. is the largest commercial bank
headquartered in Barnstable County. It offers a wide range of commercial banking
services for individuals, businesses, non-profit organizations, governmental
units and fiduciaries. The Bank receives substantially all of its deposits from
and makes substantially all of its loans to individuals and businesses on Cape
Cod, although the Bank has some loans on properties outside its market area,
including some sizable participations in commercial mortgages. The Bank's core
market is comprised of retail, wholesale, and manufacturing businesses; primary
households (including a significant retirement population); and a growing number
of second homeowners. In addition, a substantial non-core vacation population
contributes to seasonal deposit growth.
8
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (cont.)
Net Interest Income, Net Interest Margin
Three Months Ended June 30,
-------------------------------------------------------------------------------
2001 2000
----------------------------------- ----------------------------------
Average Average Average Average
Balance Interest Yield Balance Interest Yield
----------------------------------- ----------------------------------
(Dollar amounts in thousands)
ASSETS
Securities:
Mortgage-backed securities $ 36,694 $ 518 5.65% $ 31,477 $ 570 7.24%
CMOs 187,016 2,850 6.10% 182,106 3,245 7.13%
U.S. Government agencies 15,916 152 3.87% 28,256 453 6.52%
State and municipal obligations 20,064 230 6.04% 20,710 226 5.77%
Other securities 261,502 4,047 6.27% 198,493 3,308 6.78%
------- ----- ------- -----
Total securities 521,192 7,797 6.08% 461,042 7,802 6.89%
------- ----- ------- -----
Loans:
Commercial 93,196 1,937 8.43% 85,155 2,058 9.56%
Commercial construction 48,320 943 7.83% 27,271 652 9.56%
Residential construction 48,835 818 6.62% 53,077 832 6.27%
Commercial mortgages 245,737 5,548 9.06% 216,547 4,930 9.11%
Industrial revenue bonds 1,300 21 9.16% 1,046 24 13.26%
Residential mortgages 415,091 7,134 6.88% 309,963 5,319 6.86%
Home equity 42,302 828 7.85% 28,555 689 9.64%
Consumer 8,702 225 10.90% 8,993 214 9.86%
------- ----- ------- -----
Total loans 903,483 17,454 7.75% 730,607 14,718 8.05%
------- ----- ------- -----
Total earning assets 1,424,675 25,251 7.11% 1,191,649 22,520 7.61%
--------- ---------
Cash and due from banks 37,552 35,760
Non-earning assets 30,713 20,543
---------- ----------
Total assets $1,492,940 $1,247,952
========== ==========
LIABILITIES & STOCKHOLDERS' EQUITY
Deposits:
NOW accounts $ 138,333 180 0.52% $119,999 217 0.72%
Regular savings 140,168 832 2.38% 146,989 1,135 3.10%
Money Market accounts 164,757 1,296 3.15% 142,975 1,315 3.69%
Certificates of Deposit of
$100,000 or more 105,731 1,557 5.91% 66,336 982 5.95%
Other time deposits 196,663 2,883 5.88% 127,435 1,753 5.53%
------- ----- ------- -----
Total interest bearing deposits 745,652 6,748 3.63% 603,734 5,402 3.59%
------- ----- ------- -----
Borrowings:
Federal Home Loan Bank 412,679 5,640 5.48% 347,059 5,344 6.19%
Other short-term borrowings 26,309 200 3.04% 24,315 331 5.48%
------- ----- ------- -----
Total borrowings 438,988 5,840 5.34% 371,374 5,675 6.14%
------- ----- ------- -----
Total interest-bearing liabilities 1,184,640 12,588 4.26% 975,108 11,077 4.56%
------ ------
Demand deposits 199,080 177,335
Non-interest bearing liabilities 6,347 7,792
Stockholders' equity 102,873 87,717
---------- ----------
Total liabilities & equity $1,492,940 $1,247,952
========== ==========
Net interest income/spread $12,663 2.85% $11,443 3.05%
======= =======
Net interest margin (NII/Avg. Earning Assets) 3.57% 3.86%
9
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (cont.)
RESULTS OF OPERATIONS
Three Months Ended June 30, 2001 vs. June 30, 2000
Source and Use of Funds
When compared to the second quarter of 2000, average interest bearing
deposits were higher by 23.5% or $141.9 million in the second quarter of 2001.
Significant growth occurred in time deposits with Certificates of Deposit
greater than $100,000 increasing 59.4% or $39.4 million and Other time deposits
increasing 54.3% or $69.2 million. This growth includes deposits acquired from
Fleet at the end of the second quarter of 2000 as well as the offering of a
7.20% APY on a one year certificate of deposit during the second and third
quarters of 2000. Non-interest bearing demand deposits increased 12.3% or $21.7
million in the second quarter of 2001 when compared to the same period in 2000.
Additional funds were raised through increased borrowings from the Federal Home
Loan Bank, up 18.9% or $65.6 million in the second quarter of 2001 as compared
to the same quarter of 2000.
On average, securities were higher by $60.2 million or 13.0% during the
second quarter of 2001 when compared to the second quarter of 2000. With the
most significant growth occuring in the Other Securities category which
increased, on average, $63.0 million or 31.7%. When compared to the second
quarter of 2000, average loans were higher in 2001 by 23.7% or $172.9 million.
Loan growth was spearheaded by residential mortgage lending, up $105.1 million
or 33.9% in a very active local market. Additionally, Home Equity loans were up
$13.7 million for a 48.1% increase for the second quarter of 2001 as compared to
2000.
Net interest income
Net interest income was $12.7 million for the three months ended June
30, 2001 as compared to $11.4 million for the same period in 2000 up 10.7%. The
spread and net interest margin ratios were 2.85% and 3.57%, respectively, for
the three months ended June 30, 2001 as compared to 3.05% and 3.86%,
respectively, for the comparable 2000 period.
Provision for loan losses
No provisions were made to the reserve for loan losses in the quarters
ended June 30, 2001 or 2000. Management believes that, upon continuing review of
loan payment and quality statistics, the current reserve continues to be
adequate to cover losses likely to result from loans in the current portfolio.
Non-interest Income and Expense
Non-interest income totaled $5.4 million for the three months ended
June 30, 2001, up 20.8% compared to the $4.4 million earned during the same
period in 2000. Net gains on the sale of securities and loans as well as the
addition of revenues from insurance activities contributed significantly to this
increase.
During the second quarter of 2001, non-interest expenses totaled $11.5
million, greater than the $9.3 million expended during the comparable period
last year by $2.2 million or 23.7%. Salaries and employee benefits rose $1.1
million or 22.0%. Increased expenses in other categories include amortization of
intangibles resulting from acquisitions, increased building and equipment
expenses attributable to the addition of two branch offices and the new South
Yarmouth headquarters, and marketing and advertising costs incurred for a
campaign to launch the Company's new logo.
10
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (cont.)
Income taxes
Applicable State and Federal income tax expense of $2.2 million for the
quarter ended June 30, 2001 was 3.1% less than the $2.3 million recorded for the
same quarter in 2000, a reflection of lower pretax net income. The combined
effective State and Federal tax rate was 34% of pretax net income for each
period presented.
Net income
Consolidated net income was $4.4 million representing earnings per
share of $0.51 for the three months ended June 30, 2001 as compared to $4.4
million or $0.50 per share for the comparable three months ended June 30, 2000.
Annualized returns on average assets and average equity were 1.18% and 17.10%,
respectively, for the three months ended June 30, 2001 as compared to 1.40% and
19.96%, respectively, for the three months ended June 30, 2000.
11
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (cont.)
Net Interest Income, Net Interest Margin
Six Months Ended June 30,
-------------------------------------------------------------------------------
2001 2000
----------------------------------- ----------------------------------
Average Average Average Average
Balance Interest Yield Balance Interest Yield
----------------------------------- ----------------------------------
(Dollar amounts in thousands)
ASSETS
Securities:
Mortgage-backed securities $ 37,061 $ 1,219 6.58% $31,611 $ 1,220 7.72%
CMOs 182,421 6,282 6.89% 198,131 7,019 7.09%
U.S. Government agencies 19,091 510 5.41% 28,892 916 6.45%
State and municipal obligations 21,087 481 6.01% 20,205 434 5.68%
Other securities 253,789 8,240 6.58% 200,314 6,521 6.62%
------- ------- ------- -------
Total securities 513,449 16,732 6.62% 479,153 16,110 6.83%
------- ------ ------- -------
Loans:
Commercial 86,756 3,758 8.78% 83,175 3,958 9.67%
Commercial construction 45,241 1,868 8.33% 25,112 1,163 9.31%
Residential construction 49,180 1,590 6.43% 49,691 1,543 6.14%
Commercial mortgages 241,153 10,957 9.16% 213,739 9,665 9.09%
Industrial revenue bonds 1,432 53 10.53% 1,085 48 12.57%
Residential mortgages 407,810 14,230 6.98% 304,133 10,365 6.82%
Home equity 40,145 1,691 8.50% 26,716 1,259 9.47%
Consumer 8,611 441 10.73% 9,019 433 10.04%
------- ------- ------- -------
Total loans 880,328 34,588 7.90% 712,670 28,434 8.02%
------- ------- ------- -------
Total earning assets 1,393,777 51,320 7.44% 1,191,823 44,544 7.56%
------ ------
Cash and due from banks 37,185 32,175
Non-earning assets 30,835 20,895
---------- ----------
Total assets $1,461,797 $1,244,893
========== ==========
LIABILITIES & STOCKHOLDERS' EQUITY
Deposits:
NOW accounts $135,369 405 0.60% $115,575 436 0.76%
Regular savings 141,856 1,860 2.64% 150,305 2,304 3.08%
Money Market accounts 163,091 2,752 3.40% 140,333 2,466 3.53%
Certificates of Deposit of
$100,000 or more 114,062 3,461 6.12% 62,963 1,813 5.79%
Other time deposits 199,997 6,043 6.09% 123,174 3,247 5.30%
------- ----- ------- -----
Total interest bearing deposits 754,375 14,521 3.88% 592,350 10,266 3.49%
------- ----- ------- -----
Borrowings:
Federal Home Loan Bank 378,700 10,606 5.65% 365,706 10,930 6.01%
Other short-term borrowings 26,122 478 3.68% 22,487 590 5.28%
------- ----- ------- -----
Total borrowings 404,822 11,084 5.52% 388,193 11,520 5.97%
------- ------ ------- ------
Total interest-bearing liabilities 1,159,197 25,605 4.45% 980,543 21,786 4.47%
------ ------
Demand deposits 193,995 169,455
Non-interest bearing liabilities 8,301 7,984
Stockholders' equity 100,304 86,911
---------- ----------
Total liabilities & equity $1,461,797 $1,244,893
========== ==========
Net interest income/spread $25,715 2.99% 22,758 3.09%
======= ======
Net interest margin (NII/Avg. Earning Assets) 3.72% 3.84%
12
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (cont.)
RESULTS OF OPERATIONS
Six Months Ended June 30, 2001 vs. June 30, 2000
Source and Use of Funds
Average interest bearing deposits increased $162.0 million or 27.4%
when comparing the first half of 2001 with the same period in 2000. Significant
growth occurred in average Time deposits with Certificates of Deposit greater
than $100,000 increasing $51.1 milllion or 81.2%, and Other time deposits
increasing $76.8 million or 62.4%. This growth includes deposits acquired from
Fleet at the end of the second quarter of 2000 as well as the offering of a
7.20% APY on a one year certificate of deposit during the second and third
quarters of 2000. Non-interest bearing demand deposits increased $24.6 million
or 14.5% on average, in the first six months of 2001 when compared to the same
period in 2000. Average borrowings increased by $16.6 million or 4.3% in the
2001 period.
When compared to the first six months of 2000, average loans were higher in
2001 by $167.7 million or 23.5%. Residential mortgages contributed significantly
to this growth, up $103.7 million or 34.1%, while commercial construction and
mortgage loans increased $47.5 million or 19.9%. Additionally, Home Equity loans
were up $13.4 million for a 50.3% increase for the first six months of 2001 as
compared to 2000. On average, Securities increased $34.3 million or 7.2% during
the first half of 2001 when compared to the same period in 2000. This growth was
led by an increase of $53.5 million, or 26.7%, on average, in Other securities.
Net interest income
Net interest income was $25.7 million for the six months ended June 30,
2001 as compared to $22.8 million for the same period in 2000 up 13.0%. The
spread and net interest margin ratios were 2.99% and 3.72%, respectively, for
the six months ended June 30, 2001 as compared to 3.09% and 3.84%, respectively,
for the comparable 2000 period.
Provision for loan losses
No provisions were made to the reserve for loan losses in the quarters
ended June 30, 2001 or 2000. Management believes that, upon continuing review of
loan payment and quality statistics, the current reserve continues to be
adequate to cover losses likely to result from loans in the current portfolio.
Non-interest Income and Expense
Non-interest income totaled $10.3 million for the six months ended June
30, 2001, up 28.6% compared to the $8.0 million earned during the same period in
2000. Net gains on the sale of securities and loans as well as the addition of
revenues from insurance activities contributed significantly to this increase.
During the first six months of 2001, non-interest expenses totaled
$22.1 million, greater than the $18.0 million expended during the comparable
period last year by $4.1 million or 23.3%. Salaries and employee benefits rose
$2.2 million or 22.7%. Increased expenses in other categories include
amortization of intangibles resulting from acquistions, increased building and
equipment expenses attributable to the addition of two branch offices and the
new South Yarmouth headquarters, and marketing and advertising costs incurred
for a campaign to launch the Company's new logo.
13
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (cont.)
Income taxes
Applicable State and Federal income tax expense of $4.7 million for the
six months ended June 30, 2001 was 6.8% greater than the $4.4 million recorded
for the same period in 2000, a reflection of higher pretax net income. The
combined effective State and Federal tax rate was 34% of pretax net income for
each period presented.
Net income
Consolidated net income was $9.2 million representing earnings per
share of $1.07 for the six months ended June 30, 2001 as compared to $8.5
million or $0.98 per share for the comparable six months ended June 30, 2000.
Annualized returns on average assets and average equity were 1.27% and 18.53%,
respectively, for the six months ended June 30, 2001 as compared to 1.37% and
19.56%, respectively, for the six months ended June 30, 2000.
COMPARATIVE ANALYSIS OF SELECTED PERIOD-END ASSETS,
LIABILITIES AND CAPITAL
The Company had $1.48 billion consolidated total assets, $927.0 million
deposits and $107.5 million stockholders' equity at June 30, 2001. Its capital
to assets ratio was 7.3%, exceeding all regulatory requirements. As compared to
reported balances at December 31, 2000, securities available for sale at fair
value increased $17.4 million or 4.10%, gross loans increased $70.1 million or
8.3%, deposits decreased $46.3 million or 4.8% and borrowed funds increased
$118.5 million or 37.5%.
Investment Securities
The adjusted cost and estimated market values of investment securities
which the Company classified as available for sale at June 30, 2001 and December
31, 2000 were as follows:
June 30, 2001
--------------------------------------------------------------
Gross Gross Estimated
Adjusted Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
(Dollar amounts in thousands)
U.S. Government agency CMOs $155,173 $1,798 $1,032 $155,939
Other U.S. Government agencies 11,087 20 1 11,106
Other collateralized mortgage obligations 50,167 1,164 234 51,097
State and municipal obligations 26,928 -- -- 26,928
Other debt securities 196,779 2,450 201 199,028
-------- ------ ------ --------
Totals $440,134 $5,432 $1,468 $444,098
======== ====== ====== ========
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
======== ====== ====== ========
14
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (cont.)
Investment securities available for sale increased $17.4 million, from
$426.7 million at December 31, 2000 to $444.1 million at June 30, 2001. Net
gains from security sales were $392 thousand and during the quarter and six
months ended June 30, 2001, respectively, compared to net gains of $49 thousand
and $28 thousand, respectively, during the same periods in 2000.
Loans
The following is a summary of the Company's outstanding loan balances as of the
dates indicated:
June 30, December 31,
2001 2000
------------- -------------
Mortgage loans on real estate
Residential $422,480,663 $393,574,418
Commercial 247,776,045 242,535,682
Construction 100,308,751 87,978,360
Equity lines of credit 44,103,592 37,377,120
Other loans
Commercial 94,100,820 76,274,801
Industrial revenue bonds 1,273,509 1,602,973
Consumer 8,547,890 9,146,965
------------- -------------
Total loans 918,591,270 848,490,319
Less: Reserve for loan losses (12,222,359) (12,153,944)
------------ ------------
Total portfolio loans, net $906,368,911 $836,336,375
============ ============
Loans held for sale $ 1,768,472 $ 860,840
============ ============
As shown in the table above, total loans increased $70.1 million or
8.26% to $918.6 million at June 30, 2001 as compared to December 31, 2000, with
significant growth occuring in the residential mortgage and commercial loan
portfolios, up $28.9 and $17.8 million, respectively. New residential mortgage
originations of $23.4 million fixed rate and $61.9 million adjustable rate were
achieved in the second quarter 2001. During the same period, the Company sold
$24.2 million residential mortgages, producing net gains of $312.3 thousand.
Non performing assets and loan loss experience
As shown in the following table non-performing assets were $3.3 million
or .22% of total assets at June 30, 2001 compared to $3.7 million or .26% of
total assets at December 31, 2000. Accrual of interest income on loans is
discontinued when it is questionable whether the borrower will be able to pay
the principal and interest in full and/or when loan payments are 60 days past
due, or 90 days past due if the loan is fully secured by real estate or other
collateral held by the Bank.
June 30, December 31,
2001 2000
------ ------
(Dollar amounts in thousands)
Nonaccrual loans $1,802 $2,192
Loans past due 90 days or more and still accruing -- --
Property from defaulted loans 1,500 1,500
------ ------
Total non-performing assets $3,302 $3,692
====== ======
Restructured troubled debt performing in
accordance with amended terms, not included above $ 233 $ 237
====== =======
15
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (cont.)
The following is a summary of the activity in the reserve for loan losses for
the indicated periods:
Six Months Ended June 30,
2001 2000
-------- --------
Balance, beginning of the period $ 12,154 $ 11,158
Provision for loan losses -- --
Charge-offs (114) (57)
Recoveries on loans previously charged off 182 567
-------- --------
Balance, end of the period $ 12,222 $ 11,668
======== ========
Management believes that, upon review of loan quality and payment
statistics, provisions from current income were unnecessary in the indicated
periods, notwithstanding growth in the loan portfolio. The reserve represented
1.33% of total loans at June 30, 2001, 1.43% at December 31, 2000, and 1.54% at
June 30,2000. Management considers the reserve to be adequate at June 30, 2001,
although there can be no assurance that the reserve is adequate or that
additional provisions might be necessary.
The Company had outstanding commitments to originate new residential
and commercial mortgages of $55.4 million at June 30, 2001 and $57.8 million at
December 31, 2000 which are not reflected on the consolidated statements of
financial condition. Additional unadvanced loan funds are summarized as follows
for the indicated periods:
June 30, December 31,
2001 2000
-------- --------
(Dollar amounts in thousands)
Commercial loans
Dealer floor plan $ 9,579 $ 9,134
Lines of credit 35,344 46,743
Other 3,711 3,657
Commercial mortgages
Construction 19,260 14,129
Other 11,692 2,896
Residential mortgages
Home equity 51,255 45,733
Consumer loans
Lines of credit 2,996 2,861
-------- --------
Total $133,837 $125,153
======== ========
16
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (cont.)
Deposits
The following table is a summary of deposits outstanding as of the dates
indicated:
June 30, 2001 December 31, 2000
------------- -----------------
Deposits
Demand $216,129,578 $201,904,120
NOW 140,036,174 139,452,453
Money market 169,774,077 163,793,368
Other savings 140,476,255 143,239,002
Certificates of deposit greater than $100,000 73,899,345 96,159,335
Other time 186,700,135 228,754,386
----------- -----------
Total deposits $927,015,564 $973,302,664
============ ============
Reflecting the maturity of $25 million in brokered deposits and the
seasonal nature of Cape Cod economy as discussed in "Liquidity" on page 18
herein, total deposits at June 30, 2001 are $46.3 million or 4.8% lower than
total deposits at December 31, 2000. Generally, the Company's strategy is to
price deposits according to local market rates, offering higher alternative
rates based on increasing amounts deposited. Interest rates paid are frequently
reviewed and are modified to reflect changing conditions.
Borrowed Funds
Historically, the Company has selectively engaged in short and long
term borrowings from the Federal Home Loan Bank of Boston, and has sold
securities under agreements to repurchase, to fund loans and investments. At
June 30, 2001, borrowed funds totaled $434.3 million, up 37.5% or $118.5 million
compared to borrowed funds at December 31,2000. This increase offsets the
seasonal deposit decline described under the section entitled "Deposits" above
and contributes to the support of heretofore described loan growth.
Stockholders' Equity
The Company's capital to assets ratio was 7.26% at June 30, 2001
compared to 7.03% at December 31, 2000.
The Company (on a consolidated basis) and the Bank are subject to
various regulatory capital requirements administered by the federal banking
agencies. Failure to meet minimum capital requirements can initiate certain
mandatory and possible additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the Company's and the Bank's
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and/or the Bank must meet
specific capital guidelines that involve quantitative measures of their assets,
liabilities and certain off-balance-sheet items as calculated under regulatory
accounting practices. Holding companies, such as the Company, are not subject to
prompt corrective action provisions. The capital amounts and classification are
also subject to qualitative judgments by the regulators about components, risk
weightings, and other factors. Quantitative measures established by regulation
to ensure capital adequacy require the Company and the Bank to maintain minimum
amounts of total and Tier 1 capital (as defined) to average assets (as defined).
The following schedule displays these capital guidelines and the ratios of the
Company and the Bank as of June 30, 2001.
17
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (cont.)
Minimum June 30, 2001
Regulatory ------------------------------
Guidelines Company Bank
------------------------------------------------------
Tier 1 leverage capital 4.00% 6.44% 6.43%
Tier 1capital to risk-weighted assets 4.00% 9.37% 9.35%
Total capital to risk-weighted assets 8.00% 10.56% 10.53%
The Company's book value at June 30, 2001 was $12.49 per share compared
to $11.47 per share at December 31, 2000.
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 high in late summer and early fall and the annual low point
is usually in the early spring. The Bank's investment portfolio is of high
quality and is highly marketable although a gain or loss would be realized if
the market value of securities sold were not equal to their adjusted book value
at date of sale. Alternately, the Bank can borrow funds using investment
securities as collateral. The Bank has an available line of credit of $5.0
million from the Federal Home Loan Bank of Boston. The Bank may borrow from the
Federal Reserve Bank if necessary.
ASSET/LIABILITY MANAGEMENT
Through the Company's Asset/Liability Management Committee ("ALCO"),
which is comprised of senior management and several Directors, the Company
monitors the level and general mix of earning assets and interest bearing
liabilities, with particular attention to those assets and liabilities which are
rate-sensitive. The primary objective of ALCO is to manage interest rate risk in
accordance with policies approved by the Board of Directors regarding acceptable
levels of interest rate risk, liquidity and capital. The committee meets monthly
and sets the rates paid on deposits, approves loan pricing and reviews
investment transactions.
Given the substantial liquidity from cash flow and maturities of the
Company's investment portfolio, the sizable proportion of rate sensitive loans
to total loans, and the large core deposit base, ALCO believes the Company to be
moderately asset-sensitive to changes in interest rates. Nevertheless, the
Company's strategy has included the funding of certain fixed rate loans with
medium term borrowed funds in order to mitigate a margin squeeze should interest
rates rise.
The Cape Cod market is one in which competing financial institutions
frequently offer a wide range of yields for similar deposit products. Within
this market, the Company finds it necessary, from time to time, to offer higher
rates than it would otherwise justify, thereby increasing pressure on net
interest income. In order to offset this pressure somewhat, the Company is
strategically focusing on customer relationship profitability.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, Business
Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. These
Statements change the accounting for business combinations and goodwill and
intangible assets. SFAS No. 141 requires that the purchase method of accounting
be used for all business combinations initiated after June 30, 2001. Use of the
pooling-of-interests method is prohibited. SFAS No. 142, which is effective
January 1, 2002, changes the accounting for goodwill from an amortization method
to an impairment-only approach. In addition, this Statement requires that
acquired intangible assets, as defined, be amortized over their useful lives.
Management is currently evaluating the impact of adopting this Statement on the
consolidated financial statements.
18
PART I FINANCIAL INFORMATION
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
For a discussion of the Company's management of market risk exposure,
see "Asset/Liability Management" in Item 2 of Part I of this report and Item 7A
of Part II of the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000 (the "2000 Annual Report").
For quantitative information about market risk, see Item 7A of Part II
of the Company's 2000 Annual Report.
There have been no material changes in the quantitative and qualitative
disclosures about market risk as of June 30, 2001 from those presented in the
Company's 2000 Annual Report.
PART II OTHER INFORMATION
ITEM 1. Legal proceedings
There are no material legal proceedings to which the Company is a party
or to which any of its property is subject, although the Company is a party to
ordinary routine litigation incidental to its business.
ITEM 2. Changes in securities and use of proceeds
Not applicable
ITEM 3. Defaults upon senior securities
Not applicable
ITEM 4. Submission of matters to a vote of security holders
Not applicable
ITEM 5. Other information
Not applicable
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
On May 22, 2001, a report on Form 8-K was filed by
the Company pertaining to a change in the Company's
independent auditors.
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
(Registrant): CCBT Financial Companies, Inc.
------------------------------
Date: August 14, 2001
---------------
/s/STEPHEN B. LAWSON, President and Chief Executive Officer
-----------------------------------------------------------
Stephen B. Lawson, President and Chief Executive Officer
/s/NOAL D. REID, Chief Financial Officer and Treasurer
------------------------------------------------------
Noal D. Reid, Chief Financial Officer and Treasurer
20