SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended September 30, 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): [X] Yes [_] 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 8,620,423
shares of common stock outstanding as of November 9, 2001.
TABLE OF CONTENTS
Section Description Page No.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition 3
September 30, 2001 (Unaudited) and December 31, 2000
Consolidated Statements of Income (Unaudited) 4
Three and Nine Months Ended September 30, 2001 and 2000
Consolidated Statements of Cash Flows (Unaudited) 5
Nine Months Ended September 30, 2001 and 2000
Consolidated Statements of Comprehensive Income (Unaudited) 6
Nine Months Ended September 30, 2001 and 2000
Consolidated Statements of Changes in Stockholders' Equity (Unaudited) 6
Nine Months Ended September 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
September 30, December 31,
2001 2000
---- ----
(Unaudited)
ASSETS
Cash and due from banks $ 33,709,066 $ 49,371,492
Short term interest-bearing deposits 457,442 16,843,538
Securities available for sale at fair value 508,669,050 426,742,801
Federal Home Loan Bank stock, at cost 22,125,400 22,125,400
Federal Reserve Bank stock, at cost 1,235,050 1,180,700
Total loans 877,360,089 848,490,319
Less: Reserve for loan losses (12,165,917) (12,153,944)
--------------- ---------------
Net loans 865,194,172 836,336,375
Loans held for sale 623,225 860,840
Premises and equipment 17,920,402 16,633,912
Deferred tax assets 1,769,330 4,512,589
Accrued interest receivable on securities 3,070,442 3,353,580
Principal and interest receivable on loans 4,306,330 4,331,987
Intangibles 8,367,922 9,555,425
Other assets 16,760,759 12,070,707
--------------- ---------------
Total assets $ 1,484,208,590 $ 1,403,919,346
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 935,432,739 $ 973,302,664
Borrowings from the Federal Home Loan Bank 370,926,054 291,286,797
Other short-term borrowings 35,453,049 24,520,157
Subordinated debt 5,000,000 --
Current taxes payable 934,427 2,267,117
Interest payable on deposits and borrowings 2,583,037 4,206,555
Post retirement benefits payable 3,188,675 2,830,386
Employee profit sharing retirement and bonuses payable 2,292,844 2,946,642
Due to broker securities settlement account 12,107,571 756,617
Other liabilities 3,786,733 2,949,198
--------------- ---------------
Total liabilities 1,371,705,129 1,305,066,133
--------------- ---------------
Minority interest 29,097 124,435
--------------- ---------------
Stockholders' equity
Common stock, $1.00 par value:
Authorized: 12,000,000 shares
Issued: 9,061,064 shares 9,061,064 9,061,064
Surplus 27,473,395 27,494,890
Undivided profits 79,476,177 69,896,759
Treasury stock, at cost (440,641 shares in 2001) (7,197,493) (7,399,628)
(453,016 shares in 2000)
Accumulated other comprehensive income (loss) 3,661,221 (324,307)
--------------- ---------------
Total stockholders' equity 112,474,364 98,728,778
--------------- ---------------
Total liabilities and stockholders' equity $ 1,484,208,590 $ 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 Sept. 30, Nine Months Ended Sept. 30,
2001 2000 2001 2000
---- ---- ---- ----
INTEREST INCOME: (Unaudited) (Unaudited)
Interest and fees on loans $ 16,730,597 $ 15,900,554 $ 51,319,096 $ 44,334,344
Interest on short term interest-bearing deposits 121,768 356,103 445,463 659,053
Interest on federal funds sold -- 29,975 -- 29,975
Taxable interest income on securities 5,757,443 7,339,386 20,917,500 21,873,218
Tax-exempt interest income on securities 255,465 264,348 722,350 690,810
Dividends on securities 328,445 451,558 1,108,860 1,298,480
------------ ------------ ------------ ------------
Total interest income 23,193,718 24,341,924 74,513,269 68,885,880
------------ ------------ ------------ ------------
INTEREST EXPENSE
Interest on deposits 5,116,844 7,636,029 19,638,064 17,901,379
Interest on borrowings from the Federal Home Loan Bank 4,858,045 3,487,223 15,464,756 14,417,815
Interest on other short-term borrowings 198,133 412,674 674,897 1,003,120
Interest on subordinated debt 63,677 -- 63,677 --
------------ ------------ ------------ ------------
Total interest expense 10,236,699 11,535,926 35,841,394 33,322,314
------------ ------------ ------------ ------------
Net interest income 12,957,019 12,805,998 38,671,875 35,563,566
Provision for loan losses -- -- -- --
------------ ------------ ------------ ------------
Net interest income after provision for loan losses 12,957,019 12,805,998 38,671,875 35,563,566
------------ ------------ ------------ ------------
NON-INTEREST INCOME
Financial Advisor fees 1,574,269 1,442,366 5,222,500 4,779,861
Deposit account service charges 523,051 495,650 1,564,688 1,469,236
Branch banking fees 804,882 832,337 2,342,191 2,312,947
Electronic banking fees 493,683 429,933 1,451,848 1,428,785
Loan servicing and other loan fees 27,558 39,330 129,750 225,233
Brokerage fees and commissions 230,741 218,575 720,192 752,216
Net gain on sales of securities 292,426 44,931 1,144,983 73,233
Net gain on sales of loans 1,770,946 31,144 2,192,986 58,798
Insurance commissions 471,316 304,722 1,358,057 499,315
Other income 219,549 150,278 607,259 419,224
------------ ------------ ------------ ------------
Total non-interest income 6,408,421 3,989,266 16,734,454 12,018,848
------------ ------------ ------------ ------------
NON-INTEREST EXPENSE
Salaries 4,496,761 3,799,920 12,824,169 10,486,815
Employee benefits 1,687,779 1,624,850 5,226,034 4,610,371
Building and equipment 1,426,065 1,277,941 4,177,169 3,566,320
Data processing 830,660 759,273 2,417,640 2,201,146
Accounting and legal fees 231,506 209,846 704,266 671,530
Other outside services 609,009 509,830 1,707,234 1,547,574
Amortization of intangibles 395,833 395,835 1,187,499 455,609
Delivery and communications 586,781 386,234 1,582,829 1,129,960
Directors' fees 85,800 86,250 257,400 262,000
Marketing and advertising 392,854 318,103 1,332,585 842,407
Printing and supplies 222,802 210,845 668,554 604,052
Insurance 111,948 98,081 359,336 286,324
Branch conversion expenses -- 249,808 -- 249,808
All other expenses 518,594 308,282 1,291,090 1,273,114
------------ ------------ ------------ ------------
Total operating expense 11,596,392 10,235,098 33,735,805 28,187,030
------------ ------------ ------------ ------------
Minority interest 7,780 (6,917) 2,196 (17,413)
------------ ------------ ------------ ------------
Net income before taxes 7,761,268 6,567,083 21,668,328 19,412,797
Applicable income taxes 2,749,161 2,199,774 7,440,565 6,591,100
------------ ------------ ------------ ------------
Net income $ 5,012,107 $ 4,367,309 $ 14,227,763 $ 12,821,697
============ ============ ============ ============
Average shares outstanding 8,615,738 8,608,048 8,610,640 8,608,048
Basic earnings per share $ 0.58 $ 0.51 $ 1.65 $ 1.49
Diluted earnings per share
$ 0.58 $ 0.51 $ 1.65 $ 1.49
Cash dividends declared
$ 0.18 $ 0.16 $ 0.54 $ 0.48
The accompanying notes are an integral part of these unaudited, consolidated
financial statements.
4
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements (continued)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30,
2001 2000
---- ----
(Unaudited)
CASH PROVIDED BY OPERATING ACTIVITIES
Net income $ 14,227,763 $ 12,821,697
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses -- --
Depreciation and amortization 3,067,370 1,726,808
Net amortization of securities 4,015,751 5,126,638
Accretion of deferred loan fees (430,380) (97,509)
Net gain on sale of investment securities (1,144,983) (73,233)
Prepaid income tax expense (4,075,949) (1,046,754)
Net gain on sale of loans (2,192,986) (58,798)
Net change in:
Loans held for sale 237,615 35,230
Accrued interest receivable 308,795 (1,402,854)
Accrued expenses and other liabilities 10,269,462 1,046,526
Other, net (4,752,749) (2,986,764)
------------- -------------
Net cash provided by operating activities 19,529,709 15,090,987
------------- -------------
CASH USED BY INVESTING ACTIVITIES
Net increase in loans (137,220,055) (130,355,375)
Proceeds from sale of loans 110,375,126 8,749,600
Dispositions of property from defaulted loans -- 70,000
Maturities of securities 321,793,992 546,702,601
Purchases of available for sale securities (479,927,573) (783,033,661)
Sales of available for sale securities 84,746,392 297,988,862
Purchases of premises and equipment (4,399,992) (5,608,672)
------------- -------------
Net cash used by investing activities (104,632,110) (65,486,645)
------------- -------------
CASH PROVIDED BY FINANCING ACTIVITIES
Net (decrease) increase in deposits (37,869,925) 217,412,024
Net increase (decrease) in borrowings from the
Federal Home Loan Bank 79,639,257 (135,427,962)
Net increase in other short-term borrowings 10,932,892 12,851,082
Proceeds from issuance of Subordinated debt 5,000,000 --
Cash dividends paid on common stock (4,648,345) (4,136,183)
------------- -------------
Net cash provided by financing activities 53,053,879 90,698,961
------------- -------------
Net (decrease) increase in cash and cash equivalents (32,048,522) 40,303,303
Cash and cash equivalents at beginning of year 66,215,030 45,622,428
------------- -------------
Cash and cash equivalents at end of period $ 34,166,508 $ 85,925,731
============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest $ 37,528,588 $ 33,085,019
Income taxes 8,779,819 7,067,843
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 Nine Months Ended September 30,
2001 2000
---- ----
(Unaudited)
Net income $ 14,227,763 $ 12,821,697
------------ ------------
Unrealized holding gains (losses) on securities available for 7,956,354 (356,893)
sale
Reclassification of gains on securities realized in income (1,144,983) (73,233)
------------ ------------
Net unrealized gains (losses) 6,811,371 (430,126)
Related tax effect (2,825,843) 144,743
------------ ------------
Net other comprehensive income (loss) 3,985,528 (285,383)
------------ ------------
Comprehensive income $ 18,213,291 $ 12,536,314
============ ============
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Nine Months Ended September 30,
2001 2000
---- ----
(Unaudited)
COMMON STOCK
Balance, beginning of the year $ 9,061,064 $ 9,061,064
------------- -------------
Balance, September 30 9,061,064 9,061,064
------------- -------------
SURPLUS
Balance, beginning of the year 27,494,890 27,494,890
Issuance of common stock under stock option plan (21,495) --
------------- -------------
Balance, September 30 27,473,395 27,494,890
------------- -------------
UNDIVIDED PROFITS
Balance, beginning of the year 69,896,759 58,181,480
Net income 14,227,763 12,821,697
Cash dividends declared (4,648,345) (4,136,183)
------------- -------------
Balance, September 30 79,476,177 66,866,994
------------- -------------
TREASURY STOCK
Balance, beginning of the year (7,399,628) (7,399,628)
Issuance of common stock under stock option plan 202,135 --
------------- -------------
Balance, September 30 (7,197,493) (7,399,628)
------------- -------------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance, beginning of the year (324,307) (1,688,195)
Net other comprehensive income (loss) 3,985,528 (285,383)
------------- -------------
Balance, September 30 3,661,221 (1,973,578)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY $ 112,474,364 $ 94,049,742
============= =============
The accompanying notes are an integral part of these unaudited, consolidated
financial statements.
6
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements (continued)
CCBT FINANCIAL COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Nine Months Ended September 30, 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 principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. Certain amounts have been reclassified in the September
30, 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 nine months ended September 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. The Company is
the sole stockholder of Cape Cod Bank and Trust Company, N.A. which 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 only subsidiary other than the Bank is CCBT Statutory
Trust I.
(The remainder of this page intentionally left blank.)
8
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (cont.)
Net Interest Income, Net Interest Margin
Three Months Ended September 30,
-------------------------------------------------------------------------------
2001 2000
----------------------------------- ----------------------------------
Average Average Average Average
Balance Interest Yield Balance Interest Yield
----------------------------------- ----------------------------------
(Dollar amounts in thousands)
ASSETS
Securities:
Mortgage-backed securities $ 19,858 $ 306 6.17% $ 25,380 $ 477 7.52%
CMOs 188,609 2,466 5.23% 167,842 3,255 7.76%
U.S. Government agencies 12,777 172 5.46% 25,935 454 7.12%
State and municipal obligations 26,321 255 5.12% 20,288 256 6.67%
Other securities 244,412 3,264 5.34% 214 826 4,000 7.45%
----------- ------- ---------- -------
Total securities 491,977 6,463 5.32% 454,271 8,442 7.51%
----------- ------- ---------- -------
Loans:
Commercial 84,930 1,699 7.83% 72,479 1,796 9.70%
Commercial construction 51,533 922 7.00% 35,152 842 9.37%
Residential construction 48,173 776 6.44% 57,747 943 6.53%
Commercial mortgages 252,175 5,461 8.47% 220,570 5,158 9.15%
Industrial revenue bonds 1,246 19 8.71% 1,716 34 11.07%
Residential mortgages 431,542 6,820 6.32% 343,793 6,025 7.01%
Home equity 46,231 817 7.01% 34,269 858 9.96%
Consumer 8,514 217 10.74% 9,443 244 10.28%
----------- ------- ---------- -------
Total loans 924,344 16,731 7.16% 775,169 15,900 8.12%
----------- ------- ---------- -------
Total earning assets 1,416,321 23,194 6.51% 1,229,440 24,342 7.90%
------- -------
Cash and due from banks 39,432 38,932
Non-earning assets 26,749 32,499
----------- ----------
Total assets $ 1,482,502 $1,300,871
=========== ==========
LIABILITIES & STOCKHOLDERS' EQUITY
Deposits:
NOW accounts $ 143,054 172 0.48% $ 133,146 244 0.73%
Regular savings 148,212 756 2.02% 148,456 1,159 3.11%
Money Market accounts 180,293 1,202 2.65% 165,402 1,617 3.89%
Certificates of Deposit of
$100,000 or more 62,979 736 4.64% 111,955 1,874 6.66%
Other time deposits 176,316 2,251 5.06% 177,767 2,741 6.13%
----------- ------- ---------- -------
Total interest bearing deposits 710,854 5,117 2.86% 736,726 7,635 4.12%
----------- ------- ---------- -------
Borrowings:
Federal Home Loan Bank 391,857 4,857 4.92% 217,149 3,488 6.39%
Other short-term borrowings 34,825 263 2.98% 29,016 413 5.66%
----------- ------- ---------- -------
Total borrowings 426,682 5,120 4.76% 246,165 3,901 6.30%
----------- ------- ---------- -------
Total interest-bearing liabilities 1,137,536 10,237 3.57% 982,891 11,536 4.67%
------- -------
Demand deposits 229,346 221,020
Non-interest bearing liabilities 7,789 6,971
Stockholders' equity 107,831 89,989
----------- ----------
Total liabilities & equity $ 1,482,502 $1,300,871
=========== ==========
Net interest income/spread $12,957 2.94% $12,806 3.23%
======= =======
Net interest margin (NII/Avg. Earning Assets) 3.63% 4.14%
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 September 30, 2001 vs. September 30, 2000
Source and Use of Funds
Borrowings from the Federal Home Loan Bank were the primary source of funds
during the third quarter of 2001, resulting in an increase of 80.5% or $174.7
million, on average, when compared to the same quarter of 2000. Average interest
bearing deposits were lower by 3.5% or $25.9 million in the third quarter of
2001 as compared to 2000. A significant reduction occurred in Certificates o f
Deposit of $100,000 or more which decreased 43.7% or $49.0 million during the
third quarter of 2001 when compared to the same quarter of 2000. This reduction
can be attributed to the maturity of a significant amount of one year
certificates of deposit during the third quarter of 2001. In contrast, average
interest bearing transaction accounts increased for the third quarter of 2001 as
compared to 2000 with Money Market accounts up $14.9 million or 9.0% and NOW
accounts increasing $9.9 million or 7.4%. Average Non-interest bearing demand
deposits increased 3.8% or $8.3 million for the third quarter of 2001 as
compared to 2000.
On average, securities were higher by $37.7 million or 8.3% during the
third quarter of 2001 when compared to the third quarter of 2000 with
significant growth occuring in the Other Securities category which increased
$29.6 million or 13.8% and in CMO's which increased $20.8 million or 12.4%. When
compared to the third quarter of 2000, average loans were higher in 2001 by
19.2% or $149.2 million. Loan growth was spearheaded by residential mortgage
lending, up $87.7 million or 25.5% in a very active local market. On average
commercial construction and mortgage loans also increased in the third quarter
of 2001 by $48.0 million or 18.8% when compared to the same period in the prior
year.
Net interest income
Net interest income was $13.0 million for the three months ended September
30, 2001 as compared to $12.8 million for the same period in 2000, up 1.2%. The
spread and net interest margin ratios were 2.94% and 3.63%, respectively, for
the three months ended September 30, 2001 as compared to 3.23% and 4.14%,
respectively, for the comparable 2000 period.
Provision for loan losses
A slowing economy increased management's concern regarding the potential
for future loan losses. However, seasonal paydowns of commercial loans and the
sale of residential mortgages decreased the size of the loan portfolio.
Accordingly on balance no provisions were made to the reserve for loan losses in
the quarters ended September 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 $6.4 million for the three months ended
September 30, 2001, up 60.6% compared to the $4.0 million earned during the same
period in 2000. Net gains on the sale of Residential Mortgage loans contributed
$1.7 million to this increase while net gains on the sale of securities
increased $247 thousand. Financial Advisor Fees increased $132 thousand despite
the negative effects of the Stock Market decline, reflecting a significant
increase in new business while insurance commissions, largely due to referrals
of bank customers, have increased $167 thousand.
During the third quarter of 2001, non-interest expenses totaled $11.6 million,
greater than the $10.2 million expended during the comparable period last year
by $1.4 million or 13.3%. Salaries and employee benefits rose $760 thousand or
14.0%, with $404 thousand of this increase attributable to commissions.
Increased expenses in other categories include delivery and communications
expenses, and building and equipment expenses. These increases are a result of
increased utilities costs, real estate tax increases, and a significant increase
in amortization expense of computer software.
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 $2.7 million for the
quarter ended September 30, 2001 was 24.9% more than the $2.2 million recorded
for the same quarter in 2000, a reflection of higher pretax net income. The
combined effective State and Federal tax rate was 35% and 34% of pretax net
income for the third quarter of 2001 and 2000, respectively.
Net income
Consolidated net income was $5.0 million representing earnings per share of
$0.58 for the three months ended September 30, 2001 as compared to $4.4 million
or $0.51 per share for the comparable three months ended September 30, 2000.
Annualized returns on average assets and average equity were 1.34% and 18.44%,
respectively, for the three months ended September 30, 2001 as compared to 1.34%
and 19.31%, respectively, for the three months ended September 30, 2000.
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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
Nine Months Ended September 30,
-------------------------------------------------------------------------------
2001 2000
----------------------------------- ----------------------------------
Average Average Average Average
Balance Interest Yield Balance Interest Yield
----------------------------------- ----------------------------------
(Dollar amounts in thousands)
ASSETS
Securities:
Mortgage-backed securities $ 31,263 $ 1,525 6.50% $ 29,519 $ 1,697 7.67%
CMOs 184,507 8,748 6.32% 187,961 10,274 7.29%
U.S. Government agencies 16,963 682 5.43% 27,899 1,369 6.65%
State and municipal obligations 22,851 736 5.66% 20,233 691 6.02%
Other securities 250,629 11,503 6.12% 205,186 10,521 6.84%
----------- ------- ---------- -------
Total securities 506,213 23,194 6.17% 470,798 24,552 7.02%
----------- ------- ---------- -------
Loans:
Commercial 86,140 5,456 8.35% 79,584 5,754 9.50%
Commercial construction 47,362 2,790 7.77% 28,483 2,005 9.25%
Residential construction 48,841 2,365 6.46% 52,396 2,486 6.33%
Commercial mortgages 244,867 16,418 8.84% 216,032 14,823 9.02%
Industrial revenue bonds 1,369 73 9.97% 1,297 82 11.87%
Residential mortgages 415,807 21,049 6.75% 317,450 16,390 6.88%
Home equity 42,196 2,508 7.95% 29,252 2,117 9.67%
Consumer 8,579 660 10.28% 9,161 677 9.87%
----------- ------- ---------- -------
Total loans 895,161 51,319 7.61% 733,655 44,334 8.00%
----------- ------- ---------- -------
Total earning assets 1,401,374 74,513 7.11% 1,204,453 68,886 7.56%
------- -------
Cash and due from banks 37,942 34,444
Non-earning assets 29,585 24,792
----------- ----------
Total assets $ 1,468,901 $1,263,689
=========== ==========
LIABILITIES & STOCKHOLDERS' EQUITY
Deposits:
NOW accounts $ 137,959 577 0.56% $ 121,475 680 0.75%
Regular savings 143,998 2,616 2.43% 149,684 3,463 3.09%
Money Market accounts 168,888 3,954 3.13% 148,750 4,083 3.67%
Certificates of Deposit of
$100,000 or more 96,856 4,197 5.79% 79,413 3,687 6.20%
Other time deposits 192,008 8,294 5.78% 141,504 5,988 5.65%
----------- ------- ---------- -------
Total interest bearing deposits 739,709 19,638 3.55% 640,826 17,901 3.73%
----------- ------- ---------- -------
Borrowings:
Federal Home Loan Bank 383,134 15,464 5.40% 315,825 14,418 6.10%
Other short-term borrowings 29,055 739 3.40% 24,680 1,003 5.43%
----------- ------- ---------- -------
Total borrowings 412,189 16,203 5.26% 340,505 15,421 6.05%
----------- ------- ---------- -------
Total interest-bearing liabilities 1,151,898 35,841 4.16% 981,331 33,322 4.54%
------- -------
Demand deposits 205,908 186,769
Non-interest bearing liabilities 8,168 7,644
Stockholders' equity 102,927 87,945
----------- ----------
Total liabilities & equity $1,468,901 $1,263,689
========== ==========
Net interest income/spread $38,672 2.95% $35,564 3.02%
======= =======
Net interest margin (NII/Avg. Earning Assets) 3.69% 3.94%
12
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (cont.)
RESULTS OF OPERATIONS
Nine Months Ended September 30, 2001 vs. September 30, 2000
Source and Use of Funds
Average interest bearing deposits increased $98.9 million or 15.4% when
comparing the first nine months of 2001 with the same period in 2000.
Significant growth occurred in average Time deposits with Certificates of
Deposit greater than $100,000 increasing $17.4 million or 22.0%, and Other time
deposits increasing $50.5 million or 35.7%. Interest bearing transaction
accounts also increased in the 2001 period with Money Market accounts up 13.5%
or $20.1 million and NOW accounts up 13.6% or $16.5 million. Non-interest
bearing demand deposits increased $19.1 million or 10.2% on average, in the
first nine months of 2001 when compared to the same period in 2000. Additional
funds were raised through increased borrowings from the Federal Home Loan Bank,
up $67.3 million or 21.3% in the 2001 period when compared to the same period of
2000.
When compared to the first nine months of 2000, average loans were higher
in 2001 by $161.5 million or 22.0%. Residential mortgages contributed
significantly to this growth, up $98.4 million or 31.0%, while commercial
construction and mortgage loans increased $47.7 million or 19.5%. Additionally,
Home Equity loans were up $12.9 million for a 44.2% increase for the first nine
months of 2001 as compared to 2000. On average, Securities increased $35.4
million or 7.5% during the first nine months of 2001 when compared to the same
period in 2000, with growth in Other Securities of $45.4 million, or 22.1%,
while U. S. Government agencies declined $10.9 million or 3.9%.
Net interest income
Net interest income was $38.7 million for the nine months ended September
30, 2001 as compared to $35.6 million for the same period in 2000 up 8.7%. The
spread and net interest margin ratios were 2.95% and 3.69%, respectively, for
the nine months ended September 30, 2001 as compared to 3.02% and 3.94%,
respectively, for the comparable 2000 period.
Provision for loan losses
Although the size of the loan portfolio grew during the nine months ended
September 30, 2001 and there was increasing concern about the possible effects
of a weakening economy, non-performing assets declined during this period and
recoveries on loans previously charged off exceeded new charge-offs. Accordingly
on balance no provisions were made to the reserve for loan losses in the nine
months ended September 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 results from loans in the
current portfolio.
Non-interest Income and Expense
Non-interest income totaled $16.7 million for the nine months ended
September 30, 2001, up 39.2% compared to the $12.0 million earned during the
same period in 2000. Of this increase $1.1 million and $2.2 million,
respectively, can be attributable to net gains on the sale of securities and
loans. Insurance commissions have increased $859 thousand compared to prior year
results which only included the agency's revenues from the date of purchase.
However, the increase in insurance commissions also reflects the positive impact
of the referral of bank customers to the agency.
During the first nine months of 2001, non-interest expenses totaled $33.7
million, greater than the $28.2 million expended during the comparable period
last year by $5.5 million or 19.7%. Salaries and employee benefits rose $3.0
million or 19.6% with commissions accounting for $884 thousand of this increase
and salaries, in line with Management expectations, increasing $1,723 thousand.
Increased expenses in other categories include amortization of intangibles for
acquisitions completed during the second quarter of 2000, building and equipment
expenses for additional locations and depreciation and amortization related to
upgraded computer equipment and software, and marketing and advertising costs
incurred for 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 $7.4 million for the
nine months ended September 30, 2001 was 12.9% greater than the $6.6 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 $14.2 million representing earnings per share
of $1.65 for the nine months ended September 30, 2001 as compared to $12.8
million or $1.49 per share for the comparable nine months ended September 30,
2000. Annualized returns on average assets and average equity were 1.29% and
18.48%, respectively, for the nine months ended September 30, 2001 as compared
to 1.36 % and 19.47%, respectively, for the nine months ended September 30,
2000.
COMPARATIVE ANALYSIS OF SELECTED PERIOD-END ASSETS,
LIABILITIES AND CAPITAL
The Company had $1.48 billion consolidated total assets, $935.4 million
deposits and $112.5 million stockholders' equity at September 30, 2001. Its
capital to assets ratio was 7.6%, exceeding all regulatory requirements. As
compared to reported balances at December 31, 2000, securities available for
sale at fair value increased $81.9 million or 19.2%, gross loans increased $28.9
million or 3.4%, deposits decreased $37.9 million or 3.9% and borrowed funds
increased $95.6 million or 30.3%.
Securities
The adjusted cost and estimated market values of securities which the
Company classified as available for sale at September 30, 2001 and December 31,
2000 were as follows:
September 30, 2001
----------------------------------------------------------------------
Gross Gross Estimated
Adjusted Unrealized Unrealized Market
Cost Gains Losses Value
---------------- ------------------ ---------------- -----------------
(Dollar amounts in thousands)
U.S. Government agency CMOs $177,974 $1,879 $ 941 $178,912
Other U.S. Government agencies 13,456 82 13 13,525
Other collateralized mortgage obligations 62,935 2,987 199 65,723
State and municipal obligations 28,676 -- -- 28,676
Other debt securities 219,380 3,023 570 221,833
-------- ------ ------ --------
Totals $502,421 $7,971 $1,723 $508,669
======== ====== ====== ========
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.)
Securities available for sale increased $81.9 million, from $426.7 million
at December 31, 2000 to $508.7 million at September 30, 2001. Net gains from
security sales were $292 thousand and $1,145.0 thousand during the quarter and
nine months ended September 30, 2001, respectively, compared to net gains of $45
thousand and $73 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:
September 30, December 31,
2001 2000
---- ----
(Dollar amounts in thousands)
Mortgage loans on real estate
Residential $ 385,516 $ 393,574
Commercial 258,513 242,536
Construction 96,980 87,978
Equity lines of credit 49,095 37,377
Other loans
Commercial 78,091 76,275
Industrial revenue bonds 1,223 1,603
Consumer 7,942 9,147
--------- ---------
Total loans 877,360 848,490
Less: Reserve for loan losses (12,166) (12,154)
--------- ---------
Total portfolio loans, net $ 865,194 $ 836,336
========= =========
Loans held for sale $ 623 $ 861
========= =========
As shown in the table above, total loans increased $28.9 million or 3.40%
to $877.4 million at September 30, 2001 as compared to December 31, 2000, with
significant growth occuring in commercial mortgages up $16.0 million, equity
lines of credit up $11.7 million, and construction mortgage loans up $9.0
million. New residential mortgage originations of $24.5 million fixed rate and
$49.8 million adjustable rate were achieved in the third quarter 2001. During
the same period, the Company sold $75.8 million residential mortgages, producing
net gains of $1.8 million.
Non performing assets and loan loss experience
As shown in the following table non-performing assets were $3.4 million or
.23% of total assets at September 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.
September 30, December 31,
2001 2000
------ ------
(Dollar amounts in thousands)
Nonaccrual loans $1,891 $2,192
Loans past due 90 days or more and still accruing -- --
Property from defaulted loans 1,500 1,500
------ ------
Total non-performing assets $3,391 $3,692
====== ======
Restructured troubled debt performing in
accordance with amended terms, not included above $ 227 $ 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:
Nine Months Ended September 30,
2001 2000
-------- --------
(Dollar amounts in thousands)
Balance, beginning of the period $ 12,154 $ 11,158
Provision for loan losses -- --
Charge-offs (276) (151)
Recoveries on loans previously charged off 288 966
-------- --------
Balance, end of the period $ 12,166 $ 11,973
======== ========
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
1.39% of total loans at September 30, 2001, 1.43% at December 31, 2000, and
1.50% at September 30,2000. Management considers the reserve to be adequate at
September 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 $52.9 million at September 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:
September 30, 2001 December 31, 2000
------------------ -----------------
Commercial loans (Dollar amounts in thousands)
Dealer floor plan $ 11,893 $ 9,134
Lines of credit 44,900 46,743
Other 3,713 3,657
Commercial mortgages
Construction 25,997 14,129
Other 9,958 2,896
Residential mortgages
Home equity 55,620 45,733
Consumer loans
Lines of credit 3,010 2,861
-------- --------
Total $155,091 $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:
September 30, 2001 December 31, 2000
------------------ -----------------
(Dollar amounts in thousands)
Deposits
Demand $223,776 $201,904
NOW 148,549 139,453
Money market 182,604 163,794
Other savings 148,814 143,239
Certificates of deposit greater than $100,000 61,154 96,159
Other time deposits 170,536 228,754
-------- --------
Total deposits $935,433 $973,303
======== ========
Reflecting the maturity of $25 million in brokered deposits and the
seasonal nature of the Cape Cod economy as discussed in "Liquidity" on page 18
herein, total deposits at September 30, 2001 are $37.9 million or 3.9% 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 September 30,
2001, borrowed funds totaled $406.4 million, up 28.7% or $90.6 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.
During the third quarter of 2001, CCBT Statutory Trust I was formed for the
purpose of issuing trust preferred securities and investing the proceeds of the
sale of these securities in subordinated debentures issued by the Company. A
total of $5 million of floating rate Trust Preferred Securities were issued and
are scheduled to mature in 2031, callable at the option of the Company after
7/31/06. Distributions on these securities are payable quarterly in arrears on
the last day of April, July, October and January. The Trust Preferred Securities
are presented in the consolidated statements of financial condition of the
Company as Subordinated Debt. The Company records distributions payable on the
Trust Preferred Securities as Interest on subordinated debt in its consolidated
statements of income.
Stockholders' Equity
The Company's capital to assets ratio was 7.58% at September 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 September 30, 2001.
17
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (cont.)
Minimum September 30, 2001
Regulatory -----------------------
Guidelines Company Bank
-------------------------------------
Tier 1 leverage capital 4.00% 6.76% 6.85%
Tier 1 capital to risk-weighted assets 4.00% 9.59% 9.70%
Total capital to risk-weighted assets 8.00% 10.75% 10.87%
The Company's book value at September 30, 2001 was $13.05 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. As
a result, effective January 1, 2002, the Company's goodwill will no longer be
amortized but will be evaluated for impairment and the Company's core deposit
intangibles will continue to be amortized over their estimated useful lives.
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 September 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
None
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: November 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