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 March 31, 2002
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 8,630,173
shares of common stock outstanding as of May 13, 2002.
1
TABLE OF CONTENTS
- -----------------
Section Description Page No.
- ------- ----------- --------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Financial Condition 3
March 31, 2002 and December 31, 2001
Consolidated Statements of Income 4
Three Months Ended March 31, 2002 and 2001
Consolidated Statements of Cash Flows 5
Three Months Ended March 31, 2002 and 2001
Consolidated Statements of Comprehensive Income 6
Three Months Ended March 31, 2002 and 2001
Consolidated Statements of Changes in Stockholders' Equity 6
Three Months Ended March 31, 2002 and 2001
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition 7-15
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
PART II OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
2
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, December 31,
2002 2001
---- ----
(Unaudited)
ASSETS
Cash and due from banks $ 68,490,925 $ 51,204,747
Short term interest-bearing deposits 14,526,891 10,857,540
Securities available for sale at fair value 385,751,120 438,349,833
Federal Home Loan Bank stock, at cost 23,502,600 23,502,600
Federal Reserve Bank stock, at cost 1,235,050 1,235,050
Total loans 882,131,830 884,291,338
Less: Allowance for loan losses (12,336,034) (12,251,907)
--------------- ---------------
Net loans 869,795,796 872,039,431
--------------- ---------------
Loans held for sale 5,058,188 8,349,342
Premises and equipment 18,794,166 18,496,280
Deferred tax assets 3,781,457 2,619,189
Accrued interest receivable on securities 2,107,237 2,632,117
Interest receivable on loans 3,789,879 3,736,071
Intangibles 7,647,837 7,972,088
Other assets 12,155,882 13,672,642
--------------- ---------------
Total assets $ 1,416,637,028 $ 1,454,666,930
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 908,082,290 $ 903,390,528
Borrowings from the Federal Home Loan Bank 327,244,404 384,314,318
Other short-term borrowings 18,096,082 30,735,238
Subordinated debt 5,000,000 5,000,000
Current taxes payable 3,793,218 2,064,060
Interest payable on deposits and borrowings 1,861,245 2,410,159
Post retirement benefits payable 3,387,865 3,293,458
Employee profit sharing retirement and bonuses payable 842,053 4,214,186
Due to broker securities settlement account 27,458,338 --
Other liabilities 3,532,771 3,925,378
--------------- ---------------
Total liabilities 1,299,298,266 1,339,347,325
--------------- ---------------
Minority interest (4) 3,602
--------------- ---------------
Commitments and contingencies
Stockholders' equity
Common stock, $1.00 par value:
Authorized: 12,000,000 shares
Issued: 9,061,064 9,061,064 9,061,064
Surplus 27,473,713 27,473,395
Undivided profits 86,566,152 83,156,834
Treasury stock, at cost (433,266 shares) in 2002
440,641 shares) in 2001 (7,077,029) (7,197,493)
Accumulated other comprehensive income 1,314,866 2,822,203
--------------- ---------------
Total stockholders' equity 117,338,766 115,316,003
--------------- ---------------
Total liabilities and stockholders' equity $ 1,416,637,028 $ 1,454,666,930
=============== ===============
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
For the Three Months Ended March 31,
2002 2001
---- ----
(Unaudited)
INTEREST & DIVIDEND INCOME
Interest and fees on loans $14,154,462 $17,134,782
Interest on short term interest-bearing deposits 78,029 188,534
Interest on federal funds sold 948 827
Taxable interest income on securities 4,539,605 8,089,562
Tax-exempt interest income on securities 184,750 236,997
Dividends on securities 238,813 417,942
----------- -----------
Total interest & dividend income 19,196,607 26,068,644
----------- -----------
INTEREST EXPENSE
Interest on deposits 3,337,490 7,773,716
Interest on borrowings from the Federal Home Loan Bank 3,717,226 4,966,384
Interest on other short-term borrowings 58,899 277,084
Interest on subordinated debt 71,955 --
----------- -----------
Total interest expense 7,185,570 13,017,184
----------- -----------
Net interest income 12,011,037 13,051,460
Provision for loan losses -- --
----------- -----------
Net interest income after provision for loan losses 12,011,037 13,051,460
----------- -----------
NON-INTEREST INCOME
Financial advisor fees 1,720,190 1,760,363
Deposit account service charges 558,556 501,746
Branch banking fees 746,860 717,396
Electronic banking fees 520,409 408,259
Loan servicing and other loan fees (costs) (53,563) 59,672
Brokerage fees and commissions 362,338 272,530
Net gain on sales of securities 1,678,815 460,494
Net gain on sales of loans 576,060 141,631
Insurance commissions 426,128 397,693
Gain on sale of credit card merchant portfolio 52,935 74,089
Other income 119,859 122,036
----------- -----------
Total non-interest income 6,708,587 4,915,909
----------- -----------
NON-INTEREST EXPENSE
Salaries 4,082,985 3,944,538
Employee benefits 2,055,256 1,861,198
Buildings and equipment 1,464,079 1,329,847
Data processing 655,350 777,720
Accounting and legal fees 224,831 214,678
Other outside services 552,781 509,188
Amortization of intangibles 324,251 395,833
Delivery and communications 576,968 524,491
Directors' fees 85,800 85,800
Marketing and advertising 310,141 348,252
Printing and supplies 172,084 137,375
Insurance 143,424 137,470
All other expenses 525,859 375,284
----------- -----------
Total non-interest expense 11,173,809 10,641,674
----------- -----------
Minority Interest (3,606) 12,169
----------- -----------
Net income before taxes 7,549,421 7,313,526
Applicable income taxes 2,502,223 2,483,542
----------- -----------
Net income $ 5,047,198 $ 4,829,984
----------- -----------
Average shares outstanding - basic 8,622,102 8,608,048
Average shares outstanding - diluted 8,657,417 8,639,583
Basic earnings per share $0.59 $0.56
Diluted earnings per share $0.58 $0.56
Cash dividends declared $0.19 $0.18
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 Three Months Ended March 31,
2002 2001
---- ----
(Unaudited)
-----------
CASH PROVIDED BY OPERATING ACTIVITIES
Net income $ 5,047,198 $ 4,829,984
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,047,334 1,069,120
Net amortization (accretion) of securities 4,272,932 (2,569,861)
Amortization of net deferred loan costs 340,542 263,910
Net gain on sales of securities (1,678,815) (460,494)
Net gain on sale of loans (576,060) (141,631)
Net change in:
Proceeds from sales (originations) of loans held for sale, net 3,867,214 (255,073)
Accrued interest receivable (471,072) (176,652)
Accrued expenses and other liabilities (4,212,717) (1,972,311)
Other, net 5,122,621 2,536,819
------------ ------------
Net cash provided by operating activities 12,759,177 3,123,811
------------ ------------
CASH PROVIDED (USED) BY INVESTING ACTIVITIES
Net decrease (increase) in loans 2,584,177 (30,615,864)
Maturities of available-for-sale securities 182,254,774 81,579,045
Purchase of available-for-sale securities (134,148,893) (160,730,569)
Sales of available-for-sale securities 25,061,669 19,399,620
Purchases of premises and equipment (1,020,968) (1,478,813)
------------ ------------
Net cash provided (used) by investing activities 74,730,759 (91,846,581)
------------ ------------
CASH PROVIDED (USED) BY FINANCING ACTIVITIES
Net increase (decrease) in deposits 4,691,762 (18,370,045)
Advances of borrowings from the Federal Home Loan Bank 367,393,508 472,121,000
Repayments of borrowings from the Federal Home Loan Bank (424,463,423) (369,936,411)
Net decrease in other short-term borrowings (12,639,156) (249,718)
Purchase of treasury stock -- --
Issuance of common stock under stock option plan 120,782 --
Cash dividends paid on common stock (1,637,880) (1,549,449)
------------ ------------
Net cash provided (used) by financing activities (66,534,407) 82,015,377
------------ ------------
Net increase (decrease) in cash and cash equivalents 20,955,529 (6,707,393)
Cash and cash equivalents at beginning of year 62,062,287 66,215,030
------------ ------------
Cash and cash equivalents at end of period $ 83,017,816 $ 59,507,637
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest $ 7,729,372 $ 12,375,792
Income taxes 766,630 1,429,819
Non-cash transactions:
Unsettled trades $ 27,451,808 $ 513,645
Additions to property from defaulted loans -- --
Loans to finance OREO property -- --
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 Three Months Ended March 31,
2002 2001
---- ----
(Unaudited)
Net income $5,047,198 $4,829,984
---------- ----------
Unrealized holding (losses) gains on securities available for (941,224) 3,691,604
sale
Reclassification of gains on securities realized in income (1,678,815) (460,494)
---------- ----------
Net unrealized (losses) gains (2,620,039) 3,231,110
Related tax effect 1,112,702 (1,337,305)
---------- ----------
Net other comprehensive (loss) income (1,507,337) 1,893,805
---------- ---------
Comprehensive income $3,539,861 $6,723,789
========== ==========
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Three Months Ended March 31,
2002 2001
---- ----
(Unaudited)
COMMON STOCK
Balance, beginning of quarter $ 9,061,064 $ 9,061,064
------------- -------------
Balance, March 31 9,061,064 9,061,064
------------- -------------
SURPLUS
Balance, beginning of quarter 27,473,395 27,494,890
Issuance of common stock under stock option plan 318 --
------------- -------------
Balance, March 31 27,473,713 27,494,890
------------- -------------
UNDIVIDED PROFITS
Balance, beginning of quarter 83,156,834 69,896,759
Net income 5,047,198 4,829,984
Cash dividends declared (1,637,880) (1,549,449)
------------- -------------
Balance, March 31 86,566,152 73,177,294
------------- -------------
TREASURY STOCK
Balance, beginning of quarter (7,197,493) (7,399,628)
Issuance of common stock under stock option plan
120,464 --
------------- -------------
Balance, March 31 (7,077,029) (7,399,628)
------------- -------------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance, beginning of quarter 2,822,203 (324,307)
Net other comprehensive (loss) income (1,507,337) 1,893,805
------------- -------------
Balance, March 31 1,314,866 1,569,498
------------- -------------
TOTAL STOCKHOLDERS' EQUITY, END OF QUARTER $ 117,338,766 $ 103,903,118
============= =============
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
Three months ended March 31, 2002 and 2001 (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. 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 March 31,
2001 financial statements to conform to the 2002 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 three months ended March 31, 2002 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 31,2001.
On June 30, 2001, the FASB issued SFAS No. 141, "Business
Combinations," and No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. With the adoption of SFAS No. 142,
effective January 1, 2002, goodwill is no longer subject to amortization over
its estimated useful life, but will be subject to at least an annual assessment
for impairment by applying a fair value based test. The first impairment
evaluation must be completed by June 30, 2002. Additionally, under SFAS No. 142,
acquired intangible assets (such as core deposit intangibles) should be
separately recognized if the benefit of the intangible asset is obtained through
contractual or other legal rights, or if the intangible asset can be sold,
transferred, licensed, rented, or exchanged, regardless of intent to do so.
Unidentified intangible assets pertaining to branch acquisitions will continue
to be amortized as such transactions are outside the scope of SFAS No. 142. As a
result, effective January 1, 2002, the Company's goodwill will no longer be
amortized but will be evaluated for impairment and the Company's core deposit
intangibles will continue to be amortized over their estimated useful lives.
7
PART I FINANCIAL INFORMATION
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.
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 main
operating 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.
(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
Quarters Ended March 31,
---------------------------------------------------------------------------
2002 2001
------------------------------------- ----------------------------------
Average Average Average Average
Balance Interest Yield Balance Interest Yield
------------------------------------- ----------------------------------
(Dollar amounts in thousands)
ASSETS
Securities:
Mortgage-backed securities $ 17,672 $ 234 5.30% $ 37,450 $ 700 7.48%
CMOs 158,828 2,007 5.06% 177,802 3,432 7.72%
U.S. Government agencies 17,607 200 4.53% 22,291 358 6.51%
State and municipal obligations 23,499 185 4.09% 22,118 251 5.98%
Other securities 247,217 2,416 3.96% 246,053 4,193 6.91%
--------- ------ --------- ------
Total securities 464,823 5,042 4.42% 505,714 8,934 7.18%
--------- ------ --------- ------
Loans:
Commercial 85,779 1,233 5.75% 80,275 1,821 9.20%
Commercial construction 53,122 693 5.22% 42,139 925 8.90%
Residential construction 43,986 599 5.44% 49,522 772 6.24%
Commercial mortgages 264,530 5,055 7.64% 236,536 5,409 9.27%
Industrial revenue bonds 1,135 16 7.90% 1,565 32 11.68%
Residential mortgages 371,009 5,693 6.14% 400,472 7,095 7.09%
Home equity 54,880 683 5.04% 37,971 863 9.22%
Consumer 7,016 183 11.42% 8,522 218 10.23%
--------- ------ --------- ------
Total loans 881,457 14,155 6.43% 857,002 17,135 8.06%
--------- ------ --------- ------
Total earning assets 1,346,280 19,197 5.74% 1,362,716 26,069 7.74%
--------- ------ --------- ------
Cash and due from banks 38,726 36,813
Non-earning assets 31,131 30,964
---------- ----------
Total assets $1,416,137 $1,430,493
========== ==========
LIABILITIES & STOCKHOLDERS' EQUITY
Interest bearing deposits:
NOW accounts $ 146,518 168 0.47% $ 132,395 226 0.69%
Regular savings 75,736 213 1.14% 64,924 286 1.79%
Money Market accounts 271,633 1,215 1.81% 240,044 2,198 3.71%
Certificates of Deposit of 48,335
$100,000 or more 390 3.28% 122,486 1,904 6.30%
Other time deposits 146,247 1,351 3.75% 203,340 3,160 6.30%
--------- ------ --------- ------
Total interest bearing deposits 688,469 3,337 1.97% 763,189 7,774 4.13%
--------- ------ --------- ------
Borrowings:
Federal Home Loan Bank 370,915 3,718 4.07% 344,518 4,966 5.85%
Other short-term borrowings 26,781 59 0.89% 25,930 277 4.33%
Subordinated debt 5,000 72 5.84% -- --
--------- ------ --------- ------
Total borrowings 402,696 3,849 3.88% 370,448 5,243 5.74%
--------- ------ --------- ------
Total interest-bearing 1,091,165 7,186 2.67% 1,133,637 13,017 4.66%
liabilities ------ ------
Demand deposits 199,400 188,873
Non-interest bearing liabilities 10,471 10,267
Stockholders' equity 115,101 97,716
---------- ----------
Total liabilities & equity $1,416,137 $1,430,493
========== ==========
Net interest income/spread $12,011 3.07% $13,052 3.08%
======= =======
Net interest margin (NII/Avg. Earning Assets) 3.62% 3.88%
9
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (cont.)
Source and Use of Funds
On average, borrowings from the Federal Home Loan Bank during the first
quarter of 2002 were higher by $26,397,000 or 7.7% than in the first quarter of
2001. Additional funds were raised by the issuance of $5 million of Trust
Preferred Securities during the third quarter of 2001 by CCBT Statutory Trust I,
a subsidiary of the Company. In contrast, average interest bearing deposits
declined by $74,720,000 or 9.8% during the first quarter of 2002 when compared
to the same period in the prior year. This decline can be attributed to time
Certficates of Deposit which decreased by $131,243,000 or 40.3% as a result of
the maturity of a significant amount of one year Certificates of Deposit during
the third quarter of 2001 and the reduction of interest rates being offered on
these products. Partially offsetting the decrease in time deposits were
increases in Money Market accounts of $31,589,000 or 13.2%, NOW accounts up
$14,123,000 or 10.7%, and Regular Savings up $10,812,000 or 16.7%. Average
non-interest bearing demand deposits also increased 5.6% or $10,527,000 for the
first quarter of 2002 as compared to 2001.
When compared to the first three months of 2001, average loans were
higher in 2002 by 2.9% or $24,455,000. On average, Commercial Construction and
mortgage loans grew by 14.0% or $38,977,000 while Residential Construction and
mortgage loans declined by $34,999,000 or 7.8% as a result of sales of
Residential Mortgages. During the first quarter of 2002 as compared to 2001,
Commercial Loans increased $5,504,000 or 6.9% on average and Home Equity loans,
on average, increased $16,909,000 or 44.5% as a result of lower rates on this
prime-based product. When compared to the first quarter of 2001, average
securities were lower in the first quarter of 2002 by $40,891,000 or 8.1% with
significant declines occurring in Mortgage-backed Securities, down $19,778,000
or 52.8%, and CMOs, down $18,974,000 or 10.7% due to prepayments on these
securities as a result of the impact of declining interest rates.
Net interest income
Net interest income was $12.0 million for the three months ended March
31, 2002 as compared to $13.1 million for the same period in 2001, a decline of
8.4%. The spread and net interest margin ratios were 3.07% and 3.62%,
respectively, for the three months ended March 31, 2002 as compared to 3.08% and
3.88%, respectively, for the comparable 2001 period. These results reflect the
significant decline in interest rates over the last year. The Company is
negatively impacted by the current low interest rate environment since a high
percentage of the Company's deposits are not subject to repricing.
Provision for loan losses
Recoveries on loans previously charged off exceeded charge-offs during
the three months ended March 31, 2002 by $84,000. Management's assessment of the
risks in the loan portfolio at March 31, 2002 as well as the Company's recent
loss experiene, whereby recoveries have actually exceeded charge-offs since
1997, resulted in no provision for loan losses during the first quarter of 2002.
The allowance for loan losses was 1.40% and 1.38% of total loans at March 31,
2002 and 2001, respectively.
Non-interest Income and Expense
Non-interest income totaled $6,709,000 for the three months ended March
31, 2002, an increase of 36.5% compared to the 4,916,000 earned during the same
period in 2001. Net gain on sales of securities contributed $1,219,000 to this
increase while net gains on sales of loans increased $434,000.
During the first quarter of 2002, non-interest expenses totaled
$11,174,000, an increase of 5.0% or $532,000 over the $10,642,000 expended
during the comparable period in 2001. Salaries increased by $138,000 or 3.5%
while employee benefits increased by $194,000 or 10.4%. Increases in building
and equipment expense of $134,000 or 10.1% can be attributed to costs associated
with the opening of two new financial service offices in March 2002 as well as
amortizaton 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 was $2,502,000 for the
quarter ended March 31, 2002 and $2,484,000 for the same quarter in 2001. The
combined effective State and Federal tax rate was 33% and 34% of pretax net
income for the first quarter of 2002 and 2001, respectively.
Net income
Consolidated net income was $5,047,198 representing earnings per basic
share of $0.59 for the three months ended March 31, 2002 as compared to
$4,829,984 or $0.56 per share for the comparable three months ended March 31,
2001. Annualized returns on average assets and average equity were 1.43% and
17.54%, respectively, for the three months ended March 31, 2002 as compared to
1.35% and 19.77%, respectively, for the three months ended March 31, 2001.
COMPARATIVE ANALYSIS OF SELECTED PERIOD-END ASSETS,
LIABILITIES AND CAPITAL
The Company had $1.42 billion consolidated total assets, $908.1 million
deposits and $117.3 million stockholders' equity at March 31, 2002. Its capital
to assets ratio was 8.28%, exceeding all regulatory requirements. As compared to
reported balances at December 31, 2001, gross loans decreased $2.2 million or
...24%, deposits increased $4.7 million or .52% and borrowed funds decreased $69.7
million or 16.8%.
Securities
The adjusted cost and estimated market values of securities which the
Company classified as available for sale at March 31, 2002 and December 31, 2001
were as follows:
March 31, 2002
-------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
(Dollar amounts in thousands)
U.S. Government agency CMOs $60,123 $1,049 $568 $ 60,604
Other U.S. Government agency obligations 21,732 47 214 21,565
Other collateralized mortgage obligations 49,561 1,092 366 50,287
State and municipal obligations 14,144 -- -- 14,144
Other debt securities 237,964 2,166 979 239,151
-------- ----- ------ --------
Totals $383,524 $4,354 $2,127 $385,751
======== ====== ====== ========
December 31, 2001
-------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
(Dollar amounts in thousands)
U.S. Government agency CMOs $116,949 $2,362 $921 $118,390
Other U.S. Government agency obligations 14,254 158 48 14,364
Other collateralized mortgage obligations 66,356 1,720 289 67,787
State and municipal obligations 24,114 -- -- 24,114
Other debt securities 211,831 2,672 808 213,695
-------- ----- ------ --------
Totals $433,504 $6,912 $2,066 $438,350
======== ====== ====== ========
11
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (cont.)
Securities available for sale decreased $52.6 million, from $438.3
million at December 31, 2001 to $385.8 million at March 31, 2002. Net gains from
security sales were $1.7 million during the quarter ended March 31, 2002
compared to $460 thousand during the same period in 2001.
Loans
The following is a summary of the Company's outstanding loan balances as of the
dates indicated:
March 31, 2002 December 31, 2001
-------------- -----------------
Mortgage loans on real estate
Residential $ 362,391 $ 376,504
Commercial 265,467 264,934
Construction 100,742 95,186
Equity lines of credit 56,585 53,336
Other loans
Commercial 89,154 84,947
Industrial revenue bonds 1,111 1,163
Consumer 6,682 8,221
--------- ---------
Total loans 882,132 884,291
Less: Allowance for loan losses (12,336) (12,252)
--------- ---------
Total portfolio loans, net $ 869,796 $ 872,039
========= =========
Loans held for sale $ 5,058 $ 8,349
========= =========
As shown in the table above, total loans decreased $2.2 million or .24%
to $882.1 million at March 31, 2002 as compared to December 31, 2001, with
balanced growth between commercial and commercial construction mortgage loans,
up $4.2 and $5.6 million, respectively. New residential mortgage originations of
$36.3 million fixed rate and $37.8 million adjustable rate were achieved in the
first quarter 2002. During the same period, the Company sold $53.4 million
residential mortgages, producing net gains of $653 thousand.
Allowance for Loan Losses
The allowance for loan losses is an estimate of the amount necessary to
absorb probable losses in the loan portfolio. The allowance consists of
specific, general and unallocated components. Commercial real estate and
commercial business loans are evaluated individually for allowance purposes.
Other categories of loans are generally evaluated as a group. The specific
component relates to loans that are classified as doubtful, substandard or
special mention. Loans classified as doubtful are considered impaired in
accordance with SFAS No. 114, and an allowance is determined using a discounted
cash flow calculation. Loss factors for substandard loans are based on a loss
migration database, while loss factors for all other categories of loans are
based on the Company's historical loss experience with similar loans of similar
quality as determined by the Company's internal rating system. Loss factors are
then adjusted for additional points that consider qualitative factors such as
current economic trends (both local and national), concentrations, growth and
performance trends, and the results of risk management assessments. Accordingly,
increases or decreases in the amount of each loan category as well as the
ratings of the loans within each category are considered in calculating the
overall allowance. The allowance is an estimate, and ultimate losses may vary
from current estimates. As adjustments become necessary, they are reported in
earnings of the periods in which they become known.
In addition, the Company's allowance for loan losses is periodically
reviewed by the OCC as part of their examination process. The OCC may require
the Company to make additions to the allowance based upon judgments different
from those of management.
12
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (cont.)
Non performing assets and loan loss experience
As shown in the following table non-performing assets were $3.3 million
or .23% of total assets at March 31, 2002 compared to $3.3 million or .23% of
total assets at December 31, 2001. 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.
March 31, December 31,
2002 2001
---- ----
(Dollar amounts in thousands)
Nonaccrual loans $1,815 $1,802
Loans past due 90 days or more and still accruing -- --
Property from defaulted loans 1,500 1,500
------ ------
Total non-performing assets $3,315 $3,302
====== ======
Restructured troubled debt performing in accordance
With amended terms, not included above $ 223 $ 224
====== ======
The following is a summary of the activity in the allowance for loan losses for
the indicated periods:
Three Months Ended March 31,
2002 2001
---- ----
(Dollar amounts in thousands)
Balance, beginning of period $12,252 $12,154
Provision for loan losses -- --
Charge-offs (27) (98)
Recoveries on loans previously charged off 111 85
------- -------
Balance, end of period $12,336 $12,141
======= =======
Recoveries on loans previously charged off exceeded charge-offs
therefore management determined that additions to the reserve for loan losses
were unnecessary in 2002, notwithstanding the growth in the loan portfolio. The
reserve represented 1.40% of total loans at March 31, 2002, 1.39% at December
31, 2001, and 1.38% at March 31, 2001. Although management believes that upon
review of loan quality and payment statistics, the reserve is adequate to cover
losses likely to result from loans in the current portfolio at March 31, 2002,
there can be no assurance that the reserve is adequate or that additional
provisions might not become necessary.
The Company had outstanding commitments to originate new residential
and commercial mortgages of $15.2 million at March 31, 2002 and $40.3 million at
December 31, 2001 which are not reflected on the consolidated statement of
financial condition. Additional unadvanced loan funds are summarized as follows
for the indicated periods:
13
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (cont.)
March 31, 2002 December 31, 2001
-------------- ------------------
(Dollar amounts in thousands)
Commercial loans
Dealer floor plan $ 6,693 $ 9,997
Lines of credit 48,904 45,469
Other 3,450 4,845
Commercial mortgages
Construction 38,800 25,685
Other 17,387 10,346
Residential mortgages
Home equity 65,449 61,891
Consumer loans
Lines of credit 3,071 2,969
-------- --------
Total $183,754 $161,202
======== ========
Deposits
The following table is a summary of deposits outstanding as of the dates
indicated:
March 31, 2002 December 31, 2001
-------------- -----------------
Deposits
Demand $204,748 $209,551
NOW 156,503 149,109
Money market 195,449 185,156
Other savings 161,963 155,255
Certificates of deposit greater than $100,000 46,206 53,123
Other time 143,213 151,197
-------- --------
Total deposits $908,082 $903,391
======== ========
Reflecting somewhat the seasonal nature of Cape Cod economy as
discussed in "Liquidity" on page 15 herein, total deposits at March 31, 2002 are
$4.7 million or .52% higher than total deposits at December 31, 2001. 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
March 31, 2002, borrowed funds totaled $350.3 million, down 16.6% or $69.7
million compared to borrowed funds at December 31, 2001. This decrease 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 8.28% at March 31, 2002
compared to 7.93% at December 31, 2001.
14
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (cont.)
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 March 31, 2002.
Minimum March 31, 2002
Regulatory --------------------------
Guidelines Company Bank
-----------------------------------------
Tier 1 leverage capital 4.00% 8.01% 7.98%
Tier 1 capital to risk-weighted assets 4.00% 12.27% 12.22%
Total capital to risk-weighted assets 8.00% 13.52% 13.47%
The Company's book value at March 31, 2002 was $13.60 per share
compared to $13.38 per share at December 31, 2001.
LIQUIDITY
The Company normally experiences a wide swing in its liquidity each
year as a result of the seasonal nature of the economy in its market area.
Liquidity is usually at its high in late summer and early fall and the annual
low point is usually in the spring. The Bank's investment securities could be
sold if necessary to meet liquidity needs. In that event, a gain or loss would
be realized if the market value of the securities sold was not equal to their
cost, adjusted for the amortization of premium or accretion of discount. The
Bank can also borrow funds using investment securities as collateral, and it has
a line of credit of $5,000,000 from the Federal Home Loan Bank of Boston. The
Bank has also established a line of credit of $7,000,000 for the purchase of
federal funds from SunTrust Bank and may also borrow from the Federal Reserve if
necessary.
ASSET/LIABILITY MANAGEMENT
The Company's Asset/Liability Management Committee ("ALCO"), which is
comprised of several Directors with senior management, is responsible for
managing interest rate risk in accordance with policies approved by the Board of
Directors regarding acceptable levels of interest rate risk, liquidity and
capital. The committee meets monthly and sets the rates paid on deposits,
approves loan pricing and reviews investment transactions.
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
15
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (cont.)
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.
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, 2001 (the "2001 Annual Report").
For quantitative information about market risk, see Item 7A of Part II
of the Company's 2001 Annual Report.
There have been no material changes in the quantitative and qualitative
disclosures about market risk as of March 31, 2002 from those presented in the
Company's 2001 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
No reports on Form 8-K were filed by the Company
during the three month period ended March 31, 2002
16
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: May 15, 2002
-----------------------------------------------------
/s/ STEPHEN B. LAWSON
-----------------------------------------------------------
Stephen B. Lawson, President and Chief Executive Officer
/s/ NOAL D. REID
-----------------------------------------------------------
Noal D. Reid, Chief Financial Officer and Treasurer
17