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, 1999
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.)
307 MAIN STREET, HYANNIS, MASSACHUSETTS 02601
(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 and (2): [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 9,061,064
shares of common stock outstanding as of September 30, 1999.
TABLE OF CONTENTS
SECTION DESCRIPTION PAGE NO.
- ------- ----------- --------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition 1
September 30, 1999 (Unaudited) and December 31, 1998
Consolidated Statements of Income (Unaudited) 2
Three and Nine Months Ended September 30, 1999 and 1998
Consolidated Statements of Cash Flows (Unaudited) 3
Nine Months Ended September 30, 1999 and 1998
Consolidated Statements of Changes in Stockholders' Equity (Unaudited) 4
Nine Months Ended September 30, 1999 and 1998
Consolidated Statements of Comprehensive Income (Unaudited) 4
Nine Months Ended September 30, 1999 and 1998
Notes to Consolidated Financial Statements 5-6
Item 2. Management's Discussion and Analysis of Financial Condition 6-20
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 21
PART II OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities and Use of Proceeds 21
Item 3. Defaults upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21-23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURES 24
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CCBT FINANCIAL COMPANIES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------------- -------------------
ASSETS (UNAUDITED)
Cash and due from banks $ 29,457,717 $ 29,383,227
Interest-bearing deposits in banks 714,973 43,888
Securities available for sale, at fair value 593,055,847 496,020,243
Federal Home Loan Bank stock, at cost 22,125,400 22,125,400
Federal Reserve Bank of Boston stock, at cost 1,096,700 ---
Loans
Commercial loans 68,675,170 70,766,629
Construction mortgage loans 61,133,296 47,939,708
Commercial mortgage loans 203,912,047 207,860,415
Industrial revenue bonds 1,207,536 1,344,336
Residential mortgage loans 285,251,278 254,320,484
Consumer loans 9,859,450 11,588,705
------------------- -------------------
Total loans 630,038,777 593,820,277
Less: Reserve for loan losses (11,314,064) (11,107,633)
------------------- -------------------
Net loans 618,724,713 582,712,644
------------------- -------------------
Loans held for sale 14,316,727 18,140,522
Premises and equipment 12,259,466 12,847,002
Deferred tax assets 5,040,793 4,992,690
Accrued interest receivable on securities 3,700,016 4,067,975
Principal and interest receivable on loans 2,992,213 3,596,836
Other real estate owned 1,500,000 ---
Other assets 5,077,004 3,599,734
------------------- -------------------
Total assets $ 1,310,061,569 $ 1,177,530,161
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand deposits $ 185,893,147 $ 160,966,042
NOW account deposits 117,966,817 114,210,098
Money market account deposits 151,786,020 141,316,906
Other savings deposits 171,819,084 160,125,653
Certificates of deposit of $100,000 or more 51,782,800 30,299,027
Other time deposits 120,212,620 120,979,249
------------------- -------------------
Total deposits 799,460,488 727,896,975
------------------- -------------------
Borrowings from the Federal Home Loan Bank 373,460,143 343,506,683
Other short-term borrowings 28,955,914 14,606,322
Current taxes payable 1,498,706 255,080
Interest payable on deposits 1,133,162 1,060,045
Interest payable on borrowings 1,537,831 1,437,695
Post retirement benefits payable 2,337,403 2,016,146
Employee profit sharing retirement and bonuses payable 1,425,975 1,783,350
Due to brokers securities settlement account 12,793,694 ---
Other liabilities 3,372,498 1,425,465
------------------- -------------------
Total liabilities 1,225,975,814 1,093,987,761
------------------- -------------------
Stockholders' equity
Common stock, $2.50 par value, 12,000,000 shares
authorized, 9,061,064 shares outstanding 22,652,660 22,652,660
Surplus 13,903,294 13,903,294
Undivided profits 53,541,785 46,704,129
------------------- -------------------
90,097,739 83,260,083
Treasury stock, at cost (378,800 shares) (6,244,288) ---
Accumulated other comprehensive income 232,304 282,317
------------------- -------------------
Total stockholders' equity 84,085,755 83,542,400
------------------- -------------------
Total liabilities and stockholders' equity $ 1,310,061,569 $ 1,177,530,161
=================== ===================
See accompanying notes to the unaudited consolidated financial statements.
1
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
CCBT FINANCIAL COMPANIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
INTEREST AND DIVIDEND INCOME:
Interest and fees on loans $12,299,918 $12,484,077 $36,315,791 $36,501,830
Taxable interest income on securities 6,966,588 6,519,018 19,334,396 16,291,540
Tax-exempt interest income on securities 219,039 199,394 583,594 573,945
Dividends on securities 309,411 299,059 1,082,775 906,637
----------- ----------- ----------- -----------
Total interest and dividend income 19,794,956 19,501,548 57,316,556 54,273,952
----------- ----------- ----------- -----------
INTEREST EXPENSE:
Interest on deposits 4,553,343 4,899,763 13,095,992 14,982,209
Interest on borrowings from the Federal Home Loan Bank 4,633,261 4,786,634 14,378,087 10,779,720
Interest on other short-term borrowings 264,446 204,081 582,513 474,365
----------- ----------- ----------- -----------
Total interest expense 9,451,050 9,890,478 28,056,592 26,236,294
----------- ----------- ----------- -----------
Net interest income 10,343,906 9,611,070 29,259,964 28,037,658
Provision for loan losses -- -- -- --
----------- ----------- ----------- -----------
Net interest income after provision for loan losses 10,343,906 9,611,070 29,259,964 28,037,658
----------- ----------- ----------- -----------
NON-INTEREST INCOME:
Trust and Investment fees 1,419,403 1,288,812 4,328,516 3,848,184
Credit card merchant fees 1,963,744 1,680,527 3,493,602 2,951,711
MoneyCard interchange fees 148,852 121,394 440,674 311,325
Service charges on deposit accounts 480,074 367,112 1,456,362 1,133,945
Return and overdraft charges 543,674 499,077 1,649,269 1,489,406
ATM fees 190,337 240,895 451,818 487,239
Net gain on sale of loans 51,869 135,657 346,046 219,813
Net gain on sale of investment securities 223,779 89,231 282,883 320,133
Brokerage fees and commissions 216,134 190,040 741,242 895,273
Other 84,044 353,102 1,096,820 1,023,758
----------- ----------- ----------- -----------
Total non-interest income 5,321,910 4,965,847 14,287,232 12,680,787
----------- ----------- ----------- -----------
NON-INTEREST EXPENSE:
Salaries and wages 3,194,678 2,990,839 9,223,502 8,571,540
Employee benefits 1,329,615 1,137,058 3,668,201 3,373,059
Occupancy expense 695,724 522,944 1,810,981 1,659,110
Equipment rental and expense 470,971 505,150 1,462,429 1,487,393
Credit card processing expense 1,631,604 1,367,930 3,133,473 2,605,858
Advertising and marketing expense 179,949 224,934 605,077 617,577
Printing and supplies 190,620 249,741 559,627 683,284
Delivery and communication expense 357,711 324,708 995,000 1,005,711
Service charges correspondent banks 90,098 46,966 201,716 340,832
Directors' fees 75,250 75,500 226,250 227,000
Outside services 914,831 1,004,129 3,571,441 3,357,807
ATM network expense 142,164 122,059 400,488 296,356
Insurance expense 70,316 83,778 205,906 262,828
Other 290,302 299,574 862,348 1,083,595
----------- ----------- ----------- -----------
Total non-interest expense 9,633,833 8,955,310 26,926,439 25,571,950
----------- ----------- ----------- -----------
Income before income taxes 6,031,983 5,621,607 16,620,757 15,146,495
Provision for income taxes 2,181,763 2,237,542 6,012,077 6,038,465
----------- ----------- ----------- -----------
Net income $ 3,850,220 $ 3,384,065 $10,608,680 $ 9,108,030
=========== =========== =========== ===========
Average shares outstanding 8,887,753 9,061,064 8,957,493 9,061,064
Basic earnings per share $ 0.43 $ 0.37 $ 1.18 $ 1.01
Diluted earnings per share $ 0.43 $ 0.37 $ 1.18 $ 1.00
Cash dividends declared $ 0.14 $ 0.13 $ 0.42 $ 0.37
See accompanying notes to the unaudited consolidated financial statements.
2
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
CCBT FINANCIAL COMPANIES, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1999 1998
----------------- ------------------
CASH PROVIDED BY OPERATING ACTIVITIES (UNAUDITED)
Net income $ 10,608,680 $ 9,108,030
Adjustments to reconcile net income to net cash flow
provided by operating activities:
Provision for loan losses --- ---
Depreciation and amortization 1,620,726 1,665,815
Net amortization of securities (2,753,616) (36,324)
Amortization of deferred loan fees 148,128 811,117
Gain from Mortgage Servicing rights (493,509) (510,063)
Net gain on sale of investment securities (282,883) (320,132)
Net gain on sale of loans (346,046) (219,813)
Net change in:
Loans held for sale 3,823,795 (9,222,215)
Accrued interest receivable 972,582 (197,830)
Accrued expenses and other liabilities 14,877,862 26,964,012
Other, net 1,771,619 (7,020,298)
----------------- ------------------
Net cash provided by operating activities 29,947,338 21,022,299
----------------- ------------------
CASH USED BY INVESTING ACTIVITIES
Net increase in loans (111,570,024) (109,174,517)
Proceeds from sale of loans 74,288,570 61,685,004
Sales of property from defaulted loans 115,000 587,774
Purchase of money market funds (669,426,779) (603,450,000)
Sales of money market funds 655,490,379 603,450,000
Maturities of securities 443,039,938 325,218,368
Purchase of available for sale securities (586,457,139) (594,238,786)
Sales of available for sale securities 60,863,759 100,498,820
Purchase of premises and equipment (1,396,719) (1,964,499)
----------------- ------------------
Net cash used by investing activities (135,053,015) (217,387,836)
----------------- ------------------
(continued)
1999 1998
----------------- ------------------
CASH PROVIDED BY OPERATING ACTIVITIES (UNAUDITED)
Net increase in deposits 71,563,513 30,132,617
Net increase in borrowings from the Federal Home Bank 29,953,460 155,393,588
Net increase in other short-term borrowings 14,349,592 8,219,746
Purchase of CCBT Financial Companies, Inc. common stock
in open market (6,244,288) ---
Cash dividends paid on common stock (3,771,025) (3,352,594)
----------------- ------------------
Net cash provided by financing activities 105,851,252 190,393,357
----------------- ------------------
Net increase (decrease) in cash and cash equivalents 745,575 (5,972,180)
Cash and cash equivalents at beginning of period 29,427,115 34,087,493
----------------- ------------------
Cash and cash equivalents at end of period $ 30,172,690 $ 28,115,313
================= ==================
Cash equivalents include amounts due from banks and federal funds sold.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest $ 27,883,338 $ 25,467,000
Income taxes 4,360,000 7,050,000
Non-cash transactions:
Additions to property from defaulted loans $ 1,615,000 $ 188,900
Loans to finance OREO property 100,000 ---
See accompanying notes to the unaudited consolidated financial statements.
3
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
CCBT FINANCIAL COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1999 1998
----------------- -----------------
(UNAUDITED)
COMMON STOCK
Balance, beginning of the year $ 22,652,660 $ 11,326,330
100% stock dividend paid August 7, 1998 --- 11,326,330
----------------- -----------------
Balance, September 30 22,652,660 22,652,660
----------------- -----------------
SURPLUS
Balance, beginning of the year 13,903,294 25,229,624
100% stock dividend paid August 7, 1998 --- (11,326,330)
----------------- -----------------
Balance, September 30 13,903,294 13,903,294
----------------- -----------------
UNDIVIDED PROFITS
Balance, beginning of the year 46,704,129 38,677,715
Net Income 10,608,680 9,108,030
Dividends declared (3,771,024) (3,352,593)
----------------- -----------------
Balance, September 30 53,541,785 44,433,152
----------------- -----------------
TREASURY STOCK
Balance, beginning of the year --- ---
Purchase of Treasury stock (6,244,288) ---
----------------- -----------------
Balance, September 30 (6,244,288) ---
----------------- -----------------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance, beginning of the year 282,317 402,625
Net other comprehensive income (loss) (50,013) 1,349,803
----------------- -----------------
Balance, September 30 232,304 1,752,428
----------------- -----------------
TOTAL STOCKHOLDERS' EQUITY $ 84,085,755 $ 84,741,534
================= =================
See accompanying notes to the unaudited consolidated financial statements.
(continued)
CCBT FINANCIAL COMPANIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1999 1998
---------------- ----------------
(UNAUDITED)
Net income $ 10,608,680 $ 9,108,030
----------------- -----------------
Holding gains on securities held for sale 184,767 2,548,752
Reclassification of gains on securities held in income (282,883) (320,132)
----------------- -----------------
Net unrealized gains (losses) (98,116) 2,228,620
Related tax effect 48,103 (878,817)
----------------- -----------------
Net other comprehensive income (loss) (50,013) 1,349,803
----------------- -----------------
Comprehensive income $ 10,558,667 $ 10,457,833
================= =================
See accompanying notes to the unaudited consolidated financial statements.
4
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
CCBT FINANCIAL COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
NOTE 1. BASIS OF PRESENTATION
GENERAL
CCBT Financial Companies, Inc. ("Company") was incorporated under the laws of
the Commonwealth of Massachusetts under the name CCBT Bancorp, Inc. ("Bancorp")
on October 8, 1998 at the direction of the Board of Directors and management of
Cape Cod Bank and Trust Company, N.A. ("Bank") for the purpose of becoming a
bank holding company for the Bank. On February 11, 1999, Bancorp acquired 100%
of the outstanding shares of the Bank's common stock in a 1:1 exchange for
Bancorp common stock (the "Reorganization").
At a special stockholders meeting held July 29, 1999, Bancorp's name was changed
to CCBT Financial Companies, Inc. This name change became effective September
23, 1999. On August 26, 1999, the Directors of the Company voted to amend the
charter of the Bank to that of a National Bank, effective September 1, 1999.
On September 16, 1999, the Bank announced that it had entered into a purchase
agreement with Fleet Bank to acquire two of Fleet's banking offices, in Falmouth
and Wareham, Massachusetts. Contingent upon regulatory approvals, these
acquisitions are expected to be concluded in the Spring of 2000.
Financial information contained herein for periods and dates prior to February
11, 1999 is that of the Bank. Since the Bank is the only subsidiary of the
Company, financial information contained herein for periods and dates after
February 11, 1999 is essentially financial information of the Bank. Certain
amounts have been reclassified in the September 30, 1998 financial statements to
conform to the 1999 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. 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 and nine months ended
September 30, 1999 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, 1998.
EARNINGS PER SHARE
On August 7, 1998, the Company paid a 100% stock dividend to shareholders of
record on July 20, 1998. Prior period per share data have been restated herein
to reflect this dividend.
NOTE 2. COMMITMENTS
The Company had outstanding commitments to originate new residential and
commercial mortgages of $37.8 million at September 30, 1999, including a $10.0
million participation with a leading New England financial institution to
finance a project in Boston, MA, and $25.6 million at December 31, 1998 which
are not reflected on the consolidated statement of financial condition.
Additional unadvanced funds on various loan types at September 30, 1999 are
shown in the following schedule.
5
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Additional Unadvanced Loan Commitments
September 30, December 31,
1999 1998
--------------------------------------------
(in thousands)
Commercial loans
Dealer floor plan $ 10,667 $ 7,352
Lines of credit 51,966 44,960
Other 1,379 943
Commercial mortgage
Construction 10,835 3,084
Other 521 711
Residential mortgage
Home equity 31,761 26,321
Consumer lines of credit 1,977 1,858
------------- ------------------
Total $ 109,106 $ 85,229
============= ==================
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
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, uncertainties relating to the ability of the
Company and its suppliers, vendors and other third parties to resolve Year 2000
issues in a timely manner, 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.
During the second quarter of 1999, the Company formed a real estate investment
trust as a subsidiary of Cape Cod Bank and Trust Company to utilize income tax
advantages available under Massachusetts tax law. Under the name of CCBT
Preferred Corp., this new corporation purchased 100% of the commercial mortgage
loans of the Bank on May 14, 1999, and retained the Bank as servicer of those
loans.
Cape Cod Bank and Trust Company, N.A. is a commercial bank with twenty-six
banking offices located in Barnstable County, Massachusetts. As such, its
principal business activities are the acceptance of deposits from businesses and
individuals and the making of loans. The Bank also has a sizable Trust
Department operation. The Bank's market area is heavily dependent on the tourist
and vacation business on Cape Cod.
6
PART I FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
COMPARATIVE ANALYSIS OF SELECTED PERIOD-END ASSETS, LIABILITIES AND CAPITAL
The Company had $1.31 billion of consolidated total assets, $799.5 million of
deposits and $84.1 million of stockholders' equity at September 30, 1999. Its
capital to assets ratio was 6.42%, exceeding all regulatory requirements. As
compared to reported balances at December 31, 1998, investment securities, at
fair value at September 30, 1999, increased $97.0 million or 19.6%, total loans
increased $36.2 million or 6.1%, deposits increased $71.6 million or 9.8% and
borrowed funds increased $44.3 million or 12.4%.
INVESTMENT SECURITIES
The adjusted cost and estimated market values of investment securities which the
Company considers to be available for sale at September 30, 1999 and December
31, 1998 were as follows:
September 30, 1999
(in thousands)
-----------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------- -------- -------- --------
U. S. Government agency CMOs $215,316 $ 1,999 $ 1,432 $215,883
Other U. S. Government agencies 32,598 13 276 32,335
Other collateralized mortgage obligations 92,687 534 79 93,142
State and municipal obligations 26,131 -- -- 26,131
Other debt securities 225,937 450 822 225,565
-------- -------- -------- --------
Totals $592,669 $ 2,996 $ 2,609 $593,056
======== ======== ======== ========
December 31, 1998
(in thousands)
-----------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------- -------- -------- --------
U. S. Government agency CMOs $266,397 $ 1,506 $ 850 $267,053
Other U. S. Government agencies 18,554 124 235 18,443
Other collateralized mortgage obligations 79,107 617 176 79,548
State and municipal obligations 16,416 -- -- 16,416
Other debt securities 115,060 138 638 114,560
-------- -------- -------- --------
Totals $495,534 $ 2,385 $ 1,899 $496,020
======== ======== ======== ========
7
PART I FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Investment securities increased $97.0 million to $593.1 million at September 30,
1999, funded by increases in deposits and short term borrowings. Generally,
continuing efforts to maximize yield while maintaining portfolio liquidity are
reflected in the changing portfolio mix, while State and municipal obligations
approached seasonally high levels at September 30, 1999. Also on that date,
Other debt securities, up $111.0 million since the 1998 year end, consisted of
approximately $90.5 million floating rate and $119.9 million short term fixed
rate securities, nearly all backed by assets other than residential mortgages,
and $15.2 million of money market investments readily convertible into cash.
Sales of securities produced net gains of $224 thousand during the quarter ended
September 30, 1999 compared to net gains of $89 thousand during the same period
in 1998. Net gains on security sales have amounted to $283 thousand and $320
thousand for the nine months ended September 30, 1999 and 1998, respectively.
LOANS
The following is a summary of the Company's outstanding loan balances as of the
dates indicated:
September 30, December 31,
1999 1998
-------- --------
(in thousands)
Mortgage loans on real estate:
Residential $263,701 $233,533
Commercial 203,912 207,860
Construction 61,133 47,940
Equity lines of credit 21,551 20,787
-------- --------
550,297 510,120
-------- --------
Other loans
Commercial 68,675 70,767
Industrial revenue bonds 1,208 1,344
Consumer and other 9,859 11,589
-------- --------
79,742 83,700
-------- --------
Total loans 630,039 593,820
Less: Allowance for loan losses (11,314) (11,108)
-------- --------
Loans, net $618,725 $582,712
======== ========
Total loans increased $36.2 million or 6.1% to $630 million at September 30,
1999 as compared to December 31, 1998, led by residential mortgage loans, up
$30.2 million or 12.9%. New residential loan volume was strong, with
originations of $49.2 million fixed rate and $129.5 million adjustable rate
mortgages. During the first nine months of 1999, the Company sold $58.5 million
residential mortgages, producing net gains of $346 thousand. Construction loans
increased $13.2 million or nearly 28% while all other loan categories remained
relatively constant with the 1998 year end levels.
8
PART I FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Non performing assets and loan loss experience:
As shown in the table below, non-performing assets were $3.4 million or 0.26% of
total assets at September 30, 1999 compared to $7.5 million or 0.63% of total
assets at December 31, 1998. All of these amounts represent non accruing loans.
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. The
Company recently acquired one property from a defaulted commercial real estate
loan which property is being actively marketed for sale.
September 30, December 31,
1999 1998
------ ------
(in thousands)
Nonaccrual loans $1,891 $7,468
Loans past due 90 days or more and still accruing -- --
Property from defaulted loans 1,500 --
------ ------
Total non-performing assets $3,391 $7,468
====== ======
Restructured troubled debt performing in accordance
with amended terms, not included above $ 644 $ 478
====== ======
The following is a summary of the activity in the reserve for loan losses for
the indicated periods:
Nine months ended September 30,
1999 1998
------- -------
(in thousands)
Balance at the beginning of the period $11,108 $10,962
Provisions -- --
Recoveries 542 565
------- -------
11,650 11,527
Less: Charge-offs (336) (416)
------- -------
Balance at the end of the period $11,314 $11,111
======= =======
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 1.80% of
total loans at September 30, 1999 and 1.87% at December 31, 1998. Management
considers the reserve to be adequate at September 30, 1999, although there can
be no assurance that the reserve is adequate or that additional provisions might
be necessary.
9
PART I FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
DEPOSITS
The following table is a summary of deposits outstanding as of the dates
indicated:
September 30, December 31,
1999 1998
-------- --------
(in thousands)
Demand deposits $185,893 $160,966
NOW accounts 117,967 114,210
Other savings deposits 171,819 160,126
Money market accounts 151,786 141,317
Certificates of deposit > $100,000 51,783 30,299
Other time deposits 120,212 120,979
-------- --------
Total deposits $799,460 $727,897
======== ========
Reflecting the seasonal nature of the Cape Cod economy as discussed in
"Liquidity" on page 19 herein, total deposits at September 30, 1999 were $71.6
million or 9.8% higher than total deposits at December 31, 1998, led by
seasonally-high Demand deposits, up $24.9 million or 15.5% and large
Certificates of deposit, up $21.5 million or 70.9%. Generally, the Company's
strategy is to price deposits that reflect national 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,
1999, borrowed funds totaled $402.4 million, up $44.3 million or 12.4% compared
to borrowed funds at December 31, 1998. This increase has been utilized to
support heretofore described loan and investment growth.
STOCKHOLDERS' EQUITY
The Company's capital to assets ratio was 6.42% at September 30, 1999 versus
7.09% at December 31, 1998.
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, 1999:
10
PART I FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Minimum September 30, 1999
Regulatory
Guidelines Company Bank
---------- ------- ------
Tier 1 leverage capital 3.00% 6.92% 6.89%
Tier 1 capital to risk-weighted assets 4.00% 9.65% 9.61%
Total capital to risk-weighted assets 8.00% 10.90% 10.86%
During the quarter ended March 31, 1999, the Company's Board of Directors
authorized the repurchase of up to 5% of the Company's stock in the open market
(the "Program"). Consistent with that authorization, the Company repurchased
378,800 shares (4.2%) between February and September 1999, at an average cost of
$16.48 per share. The Company expects to continue these repurchases as
acceptable opportunities are presented, and until the Program is complete.
The Company's book value at September 30, 1999 was $9.68 per share compared to
$9.22 per share at December 31, 1998.
(The remainder of this page intentionally left blank)
11
PART I FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
CCBT FINANCIAL COMPANIES, INC.
AVERAGE BALANCE SHEETS, INTEREST RATES and SPREAD
Three Months ended September 30,
1999 1998
-------------------------------------- -------------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Paid Balance Expense Rate Paid
------- ------- --------- ------- ------- ---------
(Dollar amounts in thousands)
ASSETS
Securities
Mortgage-backed securities $ 52,191 $ 487 3.73% $ 52,382 $ 706 5.39%
U.S. Government CMOs 158,446 2,263 5.71% 245,370 2,667 4.35%
U.S. Government agencies 30,659 470 6.13% 32,713 453 5.54%
Other CMOs 74,840 1,067 5.70% 77,808 1,468 7.55%
State & municipal agencies 28,475 226 4.40% 18,219 200 5.71%
Other securities 211,799 2,982 5.63% 97,892 1,523 6.22%
---------- ---------- ---------- ----------
Total securities 556,410 7,495 5.45% 524,384 7,017 5.40%
---------- ---------- ---------- ----------
Loans
Commercial 70,906 1,644 9.27% 67,743 1,683 9.94%
Commercial construction 14,331 322 8.99% 10,302 245 9.41%
Residential construction 41,901 608 5.80% 39,503 591 6.00%
Commercial mortgages 203,001 4,492 8.85% 212,095 5,031 9.38%
Industrial revenue bonds 1,248 24 10.77% 1,630 35 12.10%
Residential mortgages 285,201 4,953 6.95% 252,718 4,589 7.26%
Consumer loans 9,903 257 10.38% 12,541 310 9.89%
Overdrafts 730 --- 988 ---
---------- ---------- ---------- ----------
Total loans 627,221 12,300 7.85% 597,520 12,484 8.33%
---------- ---------- ---------- ----------
Total interest earning assets 1,183,631 19,795 6.72% 1,121,904 19,501 6.96%
Non-earning assets 61,047 ---------- 46,270 ----------
---------- ----------
Total assets $1,244,678 $1,168,174
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
NOW accounts $ 116,193 $ 240 0.82% $ 106,548 $ 315 1.19%
Regular savings 169,486 1,228 2.87% 165,064 1,324 3.22%
Money market accounts 149,419 1,169 3.10% 147,354 1,274 3.47%
Time certificates of deposit 156,612 1,916 4.85% 147,961 1,987 5.39%
---------- ---------- ---------- ----------
Total interest bearing deposits 591,710 4,553 3.05% 566,927 4,900 3.47%
---------- ---------- ---------- ----------
Borrowings
FHLB 335,477 4,633 5.48% 327,027 4,786 5.87%
Other short-term borrowings 25,090 265 4.19% 18,232 204 4.49%
---------- ---------- ---------- ----------
Total borrowings 360,567 4,898 5.39% 345,259 4,990 5.80%
---------- ---------- ---------- ----------
Total interest bearing liabilities 952,277 9,451 3.94% 912,186 9,890 4.35%
Demand deposits 193,429 167,154
Non-interest bearing liabilities 11,187 8,186
Stockholders' equity 87,785 80,648
---------- ----------
Total liabilities and stockholders' equity $1,244,678 $1,168,174
========== ==========
Net interest income/spread $ 10,344 2.79% $ 9,611 2.61%
========== ==========
Net interest margin (NII/Average Earning Assets) 3.47% 3.44%
12
PART I FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
CCBT FINANCIAL COMPANIES, INC.
VOLUME/ RATE ANALYSIS
Three Months ended September 30, 1999 vs September 30, 1998
Changes in income/expense due to
--------------------------------
Volume Rate Total
------ ---- -----
EARNING ASSETS
Securities
Mortgage-backed securities $ -2 $ -217 $ -219
U.S. Government CMOs -1,102 698 -404
U.S. Government agencies -30 47 17
Other CMOs -50 -352 -401
State & municipal agencies 131 -105 26
Other securities 1,702 -242 1,459
-------- ------- ----------
Total securities 649 -171 478
-------- ------- ----------
Loans
Commercial 77 -116 -39
Commercial construction 93 -16 77
Residential construction 36 -19 17
Commercial mortgages -209 -330 -539
Industrial revenue bonds -11 0 -11
Residential mortgages 582 -218 364
Consumer loans -67 14 -53
Overdrafts --- --- ---
-------- ------- ----------
Total loans 501 -685 -184
-------- ------- ----------
Total earning assets $ 1,150 $ -856 $ 294
-------- ------- ----------
INTEREST BEARING LIABILITIES
NOW accounts $ 24 $ -99 $ -75
Regular savings 34 -130 -96
Money Market accounts 17 -122 -105
Time certificates of deposit 112 -183 -71
-------- ------- ----------
Total interest bearing deposits 187 -534 -347
-------- ------- ----------
Borrowings
FHLB 121 -274 -153
Other short-term borrowings 75 -14 61
-------- ------- ----------
Total borrowings 196 -288 -92
-------- ------- ----------
Total interest bearing liabilities $ 383 $ -822 $ -439
-------- ------- ----------
Net changes due to volume/rate $ 767 $ -34 $ 733
======== ======= ==========
13
PART I FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 VS. THREE MONTHS ENDED
SEPTEMBER 30, 1998
SOURCES OF FUNDS
As shown in the table on page 12, average interest bearing deposits outstanding
increased $24.8 million or 4.4% during the third quarter 1999 versus the third
quarter 1998. The cost of those funds declined in the 1999 period, however, as
management reduced deposit rates in response to generally declining market
rates. Average borrowed funds also increased in the 1999 period. The rates paid
on these borrowed funds were less in the 1999 period when compared to 1998,
again reflecting the general decline in market rates. The remaining sources of
funds, i.e., non-interest bearing demand deposits, other liabilities and
capital, averaged 14.2% higher in the 1999 period under discussion when compared
to the 1998 comparable period, including demand deposit growth of $26.3 million
or 15.7%. In total, average sources of funds increased nearly $76.5 million or
6.5% period to period, while the average cost of interest bearing funds declined
from 4.35% to 3.94%.
USES OF FUNDS
When compared to the third quarter of 1998, average loans and investments were
higher in 1999 by 5.0% and 6.1%, respectively, and on a combined basis,
approximated 95% of average total assets in each period. Loan growth was
spearheaded by residential mortgage and related construction lending, up $34.9
million or 11.9% in a very active local market. Investment growth of $32.0
million or 6.1% primarily occurred in the Other Securities category (see
Investment Securities on pp 7-8 herein). Consistent with generally declining
market rates, the average yield on earning assets declined to 6.72% for the
three months ended September 30, 1999 from the 6.95% reported for the comparable
period in 1998.
NET INTEREST INCOME
Net interest income was $10.3 million for the three months ended September 30,
1999 as compared to $9.6 million for the same period in 1998, up 7.9%. The
spread and net interest margin ratios were 2.79% and 3.47%, respectively, for
the three months ended September 30, 1999 as compared to 2.61% and 3.44%,
respectively, for the comparable 1998 period. In each of the quarters reported,
the seasonally high levels of demand and other deposits had a positive effect on
both spread and margin. As shown on the Volume/Rate Analysis on page 13, the
Company's net interest income improved on volume increases and covered the
effect of changes in rates.
PROVISION FOR POSSIBLE LOAN LOSSES
No provisions were made to the reserve for possible loan losses in the quarters
ended September 30, 1999 or 1998. Management believes that, upon continuing
review of loan payment and quality statistics, the current reserve continues to
be adequate to cover possible losses.
NON-INTEREST INCOME
Non-interest income totaled $5.32 million for the three months ended September
30, 1999, up $356 thousand or 7.2% compared to the $4.97 million earned during
the same period in 1998 due to a general increase in volumes. Higher trust and
investment fees, increased deposit activity fees and greater net gains on sales
of securities contributed to this increase, along with increased credit card
merchant and interchange fees increase. The latter, which reflect the continuing
strength of the tourist season in our marketplace, are partially offset by
increased expenses, as discussed below.
14
PART I FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
NON-INTEREST EXPENSES
During the third quarter of 1999, non-interest expenses totaled $9.63 million,
$679 thousand or 7.6% greater than the expenses of the comparable period last
year. Salaries and benefits, the largest combined category of expense, rose $396
thousand or 9.6% to total $4.5 million. Credit card processing expense increased
$264 thousand in conjunction with high activity and strong fee income growth. In
total, all other expense categories were even quarter-to-quarter, reflecting
continued expense control within the Company.
INCOME TAXES
The combined State and Federal income tax expense of $2.2 million for the
quarter ended September 30, 1999 was virtually equal to that recorded for the
same quarter in 1998. The combined effective State and Federal tax expense
declined to 36.1% of pretax income in the third quarter of 1999 reflecting the
state tax savings brought about by the Bank's real estate investment trust
subsidiary (see "General" on page 5 herein). The combined effective tax rate was
39.8% of pretax net income for the 1998 third quarter.
NET INCOME
Consolidated net income was $3.85 million representing earnings per share of
$0.43 for the three months ended September 30, 1999 as compared to $3.38 million
or $0.37 per share for the comparable three months of 1998. Annualized returns
on average assets and average equity were 1.23% and 17.40%, respectively, for
the three months ended September 30, 1999 as compared to 1.15% and 16.65%,
respectively, for the same three months in 1998.
(The remainder of this page intentionally left blank)
15
PART I FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
CCBT FINANCIAL COMPANIES, INC.
AVERAGE BALANCE SHEETS, INTEREST RATES and SPREAD
Nine Months ended September 30,
1999 1998
--------------------------------------- ------------------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Paid Balance Expense Rate Paid
------------- ----------- ------------ ---------- ------- ---------
(Dollar amounts in thousands)
ASSETS
Securities
Mortgage-backed securities $ 67,636 $ 2,446 4.82% $ 22,867 $ 948 5.53%
U.S. Goverment CMO's 149,747 5,566 4.96% 195,930 7,684 5.23%
U.S. Government agencies 27,420 1,166 5.67% 42,526 1,764 5.53%
Other CMO's 67,989 2,724 5.34% 56,370 2,792 6.60%
State & municipal agencies 21,742 610 4.86% 17,495 574 5.69%
Other securities 198,939 8,489 5.69% 92,115 4,010 5.80%
------------- ----------- -------------- ----------
Total securities 533,473 21,001 5.29% 427,303 17,772 5.60%
------------- ----------- -------------- ----------
Loans
Commercial 74,212 5,043 9.06% 73,932 5,482 9.89%
Commercial construction 13,451 893 8.85% 11,404 788 9.21%
Residential construction 39,031 1,712 5.85% 32,037 1,497 6.23%
Commercial mortgages 204,553 13,593 8.86% 206,832 14,689 9.47%
Industrial revenue bonds 1,312 74 10.52% 1,730 108 11.65%
Residential mortgages 277,227 14,212 6.84% 236,642 12,941 7.29%
Consumer loans 10,418 789 30.30% 13,710 997 9.70%
Overdrafts 645 --- 1,372 ---
------------- ----------- -------------- ----------
Total loans 620,849 36,316 8.14% 577,659 36,502 8.44%
------------- ----------- -------------- ----------
Total earning assets 1,154,322 57,317 6.83% 1,004,962 54,274 7.23%
----------- ----------
Non - earning assets 55,410 46,296
------------- --------------
Total assets $ 1,209,732 $ 1,051,258
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
NOW accounts $ 112,355 $ 690 0.82% $ 104,447 $ 1,035 1.32%
Regular savings 162,185 3,488 2.87% 160,775 4,022 3.34%
Money market accounts 143,788 3,314 3.07% 146,345 3,874 3.53%
Time certificates of deposit 153,158 5,604 4.88% 149,799 6,051 5.39%
------------- ----------- -------------- ----------
Total interest bearing deposits 571,486 13,096 3.06% 561,366 14,982 3.56%
------------- ----------- -------------- ----------
Borrowings
FHLB 356,294 14,378 5.38% 244,820 10,780 5.87%
Other short-term borrowings 19,287 583 4.03% 13,524 474 4.67%
------------- ----------- -------------- ----------
Total borrowings 375,581 14,961 5.31% 258,344 11,254 5.81%
------------- ----------- -------------- ----------
Total interest bearing liabilities 947,067 28,057 3.95% 819,710 26,236 4.27%
----------- ----------
Demand deposits 167,692 146,980
Non-interest bearing liabilities 9,783 6,281
Stockholders' equity 85,190 78,287
------------- --------------
Total liabilities and stockholders' equity $ 1,209,732 $ 1,051,258
============= ==============
Net interest income/ spread $ 29,260 2.88% $ 28,038 2.96%
=========== ==========
Net interest margin (NII/Average Earning Assets) 3.39% 3.73%
16
PART I FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
CCBT FINANCIAL COMPANIES, INC.
VOLUME/ RATE ANALYSIS
Nine Months ended September 30, 1999 vs September 30, 1998
Changes in income/expense due to
--------------------------------
Volume Rate Total
------ ---- -----
EARNING ASSETS
Securities
Mortgage-backed securities $ 1,733 $ -235 $ 1,498
U.S. Government CMOs -1,759 -359 -2,118
U.S. Government agencies -633 35 -598
Other CMOs 519 -587 -68
State & municipal agencies 168 -131 36
Other securities 4,592 -115 4,479
----------- ---------- ----------
Total securities 4,620 -1,392 3,229
----------- ---------- ----------
Loans
Commercial 20 -459 -439
Commercial construction 138 -33 105
Residential construction 316 -101 215
Commercial mortgages -156 -940 -1,096
Industrial revenue bonds -35 1 -34
Residential mortgages 2,144 -873 1,271
Consumer loans -492 284 -208
Overdrafts --- --- ---
----------- ---------- ----------
Total loans 1,935 -2,121 -186
----------- ---------- ----------
Total earning assets $ 6,555 $ -3,513 $ 3,043
----------- ---------- ----------
INTEREST BEARING LIABILITIES
NOW accounts $ 63 $ -409 $ -345
Regular savings 33 -567 -534
Money Market accounts -63 -497 -560
Time certificates of deposit 129 -576 -447
----------- ---------- ----------
Total interest bearing deposits 162 -2,049 -1,886
----------- ---------- ----------
Borrowings
FHLB 4,691 -1,093 3,598
Other short-term borrowings 188 -79 109
----------- ---------- ----------
Total borrowings 4,879 -1,172 3,707
----------- ---------- ----------
Total interest bearing liabilities $ 5,041 $ -3,221 $ 1,821
----------- ---------- ----------
Net changes due to volume/rate $ 1,514 $ -292 $ 1,222
17
PART I FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 VS NINE MONTHS ENDED SEPTEMBER 30, 1998
SOURCES OF FUNDS
As shown in the table on the page 16, average interest bearing deposits
outstanding increased $10.1 million when comparing the first nine months of 1999
with the same period in 1998. The cost of those funds was significantly less in
the 1999 period, however, as management reduced deposit rates in response to
generally declining market rates. On the other hand, average borrowed funds
increased substantially in the 1999 period-to-date in order to fund increases in
both loans and securities. The rates paid on these borrowed funds were less in
the 1999 period when compared to 1998, again reflecting the general decline in
market rates. The remaining sources of funds, i.e., non-interest bearing demand
deposits, other liabilities and capital, averaged 13.4% higher in the 1999
period under discussion when compared to the 1998 comparable period, including
demand deposit growth of $20.7 million or 14.1%. In total, average sources of
funds increased $158 million or 15.1% period to period, while the average cost
of interest bearing funds declined from 4.27% during the nine months ended
September 30, 1998 to 3.95% in 1999.
USES OF FUNDS
Loans and investments were higher in 1999 by 7.5% and 24.8%, respectively, and
on a combined basis, approximated 95% of average total assets during each
period. Loan growth was spearheaded by residential mortgage and related
construction lending, up $47.6 million or 17.7% in very active local market.
Investment growth of $106.2 million or 24.8% primarily occurred in Other
Securities (see Investment Securities on pp 7-8 herein). Consistent with
generally declining market rates, the average yield on earning assets declined
to 6.83% for the nine months ended September 30, 1999 from the 7.23% reported
for the comparable period in 1998.
NET INTEREST INCOME
Net interest income was $29.3 million for the nine months ended September 30,
1999 as compared to $28.0 million for the same period in 1998, up 4.4%. The
spread and net interest margin ratios were 2.88% and 3.39%, respectively, for
the current nine month period as compared to 2.96% and 3.73%, respectively, for
the comparable 1998 period. Consumer attraction to lower residential mortgage
rate opportunities lowered yields on the residential mortgage portfolio and the
securities portfolio. These, along with intense local competitive pressure for
quality commercial loans throughout 1998 and into 1999, are the primary factors
contributing to these results. As shown on the Volume/Rate analysis on page 17,
the Company's net interest income improved on volume increases but declined as a
result of the narrower spread.
PROVISION FOR POSSIBLE LOAN LOSSES
No provisions were made to the reserve for possible loan losses in the quarters
ended September 30, 1999 or 1998. Management believes that, upon continuing
review of loan payment and quality statistics, the current reserve continues to
be adequate to cover possible losses.
NON-INTEREST INCOME
Non-interest income totaled $14.3 million for the nine months ended September
30, 1999, up $1.6 million or 12.7% compared to the $12.7 million earned during
the same period in 1998 due to a general increase in volumes. Higher trust and
investment fees and increased deposit activity fees contributed to this
increase, along with increased credit card merchant and interchange fees
increase. The latter, which reflect a strong summer tourist season , are
partially offset by increased expenses, as discussed below.
18
PART I FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
NON-INTEREST EXPENSES
During the first nine months of 1999, non-interest expenses totaled $26.9
million, $1.4 million or 5.3% greater than the expenses of the comparable period
last year. Salaries and benefits, the largest combined category of expense, rose
$947 thousand or 7.9% to total $12.9 million thus far in 1999. Credit card
processing expense increased $528 thousand, or 20.2%, in conjunction with strong
fee income growth while, in total, all other expense categories were very near
1998 levels in accordance with the Company's expectations.
INCOME TAXES
Despite higher pretax income in 1999, the combined State and Federal income tax
expense of $6.0 million nearly equaled that recorded for the same period in
1998. The combined effective State and Federal tax expense equalled 36.2% of
pretax income for the first nine months of 1999 reflecting the state tax savings
brought about by the Bank's real estate investment trust subsidiary (see
"General", page 5 herein). The combined effective tax rate was 39.9% of pretax
net income for the comparable 1998 period.
NET INCOME
Consolidated net income was $10.6 million representing earnings per share of
$1.18 for the nine months ended September 30, 1999 as compared to $9.1 million
or $1.01 per share for the comparable 1998 period. Annualized returns on average
assets and average equity were 1.17% and 16.65%, respectively, for the current
nine month period as compared to 1.16% and 15.55%, respectively, for the
comparable 1998 period.
LIQUIDITY
The Bank normally experiences a wide swing in its liquidity each year due to 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 $13.0 million from the
Federal Home Loan Bank of Boston, has established a line of credit for the
purchase of federal funds from a regional bank and may borrow from the Federal
Reserve Bank if necessary.
ASSET/LIABILITY MANAGEMENT
Through the Bank's Asset/Liability Management Committee ("ALCO"), which is
comprised of senior management and several Directors, the Company and the Bank
monitor 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.
19
PART I FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
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.
COMPUTER PROCESSING IN THE YEAR 2000
The statements in the following section include "Year 2000 readiness disclosure"
within the meaning of the Year 2000 Information and Readiness Act of 1998.
Much computer software has been written which allows the year in a date to be
recognized and/or stored based on a two-digit number, i.e., "12/31/99", clearly
recognizable as meaning December 31, 1999. The same is true of a variety of
hardware devices with built-in clock-calendars, such as computers. In some
cases, this could create problems at the turn of the century because "01/01/00"
could be interpreted to mean January 1, 1900 rather than January 1, 2000. If
such circumstances are not identified and corrected in advance, they could cause
system failure or erroneous calculations of such items as interest income or
expense. This could potentially have a significant impact on the Bank's ability
to do business.
For the Bank's internal computer processing, it was determined to be necessary
to replace some of its computers and to acquire more recent versions of certain
software. $800,000 was spent for this purpose in 1998 and an additional $500,000
is expected to be spent in 1999. These costs have been or will be capitalized
and depreciated over the useful lives of the items purchased.
The Bank relies on outside vendors for much of its critical data processing.
These vendors have assured the Bank that they are Year 2000 compliant. The
Bank's testing has confirmed this, to the extent that the Bank's testing is
complete. As of September 30, 1999, testing is complete on those systems that
the Bank considers to be critical or high risk. Contingency plans for processing
of the Bank's work in the event of failure of any of these systems are
essentially complete.
The Bank is also dependent on other providers in the conduct of its business,
most notably for electrical power and telecommunications. Should these providers
experience Year 2000 problems, disruption of service, especially if prolonged,
could seriously effect the Bank's ability to conduct business as usual.
Certain of the Bank's customers may also be subject to Year 2000 problems which
impact their ability to do business. Among other repercussions, this could
reduce a customer's ability to make loan payments to the Bank. Year 2000 risk
still needs to be evaluated for a number of the Bank's significant customer
relationships.
Other customers may withdraw funds from the Bank in anticipation of possible
Year 2000 disruptions. The Bank has traditionally maintained a substantial
liquidity position in the normal course of doing business, and has developed
contingency plans to cover any unusual deposit activity.
Please refer to the statement regarding "Forward-Looking Information" at the
beginning of Part II, Item 7 of this 10Q entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations" with regard to any
forward-looking statements in this section. Although management of the Bank and
the Company believe that their responses to the Year 2000 issue are appropriate,
neither the Bank nor the Company can guarantee their Year 2000 readiness, nor
that of material vendors or customers, nor the effectiveness of contingency
plans in the event of a failure in any of the Bank's computer systems.
20
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, 1998 (the "1998 Annual Report").
For quantitative information about market risk, see Item 7A of Part II of the
Company's 1998 Annual Report.
There have been no material changes in the quantitative and qualitative
disclosures about market risk as of September 30, 1999 from those presented in
the Company's 1998 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
A special meeting of shareholders of the Company was held on July 29,
1999, at which twelve proposals regarding changes to the Company's Articles of
Organization and By-laws were presented. Proposals One and Three through Twelve
were ratified and approved in all respects. A stockholder proposal to cancel the
holding company structure was not approved by the stockholders. Shareholders
representing 88.51% of the shares of Common Stock outstanding and eligible to
vote were present in person or by proxy. The proposals and the votes cast (with
percentages of shares outstanding and eligible to vote) are as follows:
PROPOSALS #1-5: TO APPROVE AND ADOPT AMENDED AND RESTATED ARTICLES OF
ORGANIZATION
1. Change the name of the Company to CCBT Financial Companies, Inc.
FOR: 7,556,884.644 VOTES, 84.36%; AGAINST: 338,649.423 VOTES, 3.78%;
ABSTENTIONS AND BROKER NONVOTES: 33,064.396 votes, 0.37%.
2. Authorize the Board of Directors to issue up to 2 million shares of
preferred stock.
FOR: 5,502,808.431 VOTES, 61.43%; AGAINST: 1,611,392.143 VOTES, 17.99%;
ABSTENTIONS AND BROKER NONVOTES: 814,397.888 votes, 9.09%.
3. Limit the monetary liability of directors under certain
circumstances.
FOR: 7,339,644.520 VOTES, 81.94%; AGAINST: 409,034.832 VOTES, 4.57%;
ABSTENTIONS AND BROKER NONVOTES: 179,919.111 votes, 2.01%.
21
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (CONTINUED)
4. Lower the stockholder vote needed to approve certain transactions to
a majority if the Board of Directors
recommends such approval.
FOR: 6,352,682.394 VOTES, 70.92%; AGAINST: 844,040.104 VOTES, 9.42%;
ABSTENTIONS AND BROKER NONVOTES: 731,875.965 votes, 8.17%.
5. Lower the stockholder vote needed to approve amendments to the
articles to a majority if the Board of Directors recommends such
approval.
FOR: 6,348,130.589 VOTES, 70.87%; AGAINST: 848,632.487 VOTES, 9.47%;
ABSTENTIONS AND BROKER NONVOTES: 731,835.387 votes, 8.17%.
PROPOSALS #6-12: TO AMEND THE BY-LAWS OF THE COMPANY
6. Institute advance notice procedures for director nominations and new
business to be presented by stockholders at meetings.
FOR: 6,304,713.656 VOTES, 70.38%; AGAINST: 904,925.000 VOTES, 10.10%;
ABSTENTIONS AND BROKER NONVOTES: 718,959.807 votes, 8.02%.
7. Increase percentage of stockholders required to call a special
meeting of stockholders from 30% to 51%.
FOR: 5,888,982.677 VOTES, 65.74%; AGAINST: 1,279,364.432 VOTES, 14.28%;
ABSTENTIONS AND BROKER NONVOTES: 760,251.354 votes, 8.48%.
8. Provide that the Board of Directors set the number of directors,
fill vacancies on the Board and remove directors; stockholders may
remove a director for cause by a two-thirds vote.
FOR: 6,064,966.834 VOTES, 67.71%; AGAINST: 1,138,483.885 VOTES, 12.71%;
ABSTENTIONS AND BROKER NONVOTES: 725,147.744 votes, 8.09%.
9. Provide that the Chairman of the Board of Directors be a
non-employee director.
FOR: 7,643,809.247 VOTES, 85.33%; AGAINST: 204,964.417 VOTES, 2.29%;
ABSTENTIONS AND BROKER NONVOTES: 79,824.798 votes, 0.89%.
10. Provide that the Chairman of the Board, the President, or a
majority of directors may call a special meeting of directors.
FOR: 6,351,542.091 VOTES, 70.91%; AGAINST: 859,461.697 VOTES, 9.59%;
ABSTENTIONS AND BROKER NONVOTES: 717,594.674 votes, 8.02%.
11. Amend the provisions regarding indemnification of directors,
executive officers and employees.
FOR: 7,512,580.183 VOTES, 83.87%; AGAINST: 306,213.407 VOTES, 3.42%;
ABSTENTIONS AND BROKER NONVOTES: 109,804.872 votes, 1.23%.
22
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (CONTINUED)
12. Provide that the By-laws may be amended by the Board of Directors
and to raise the vote to two-thirds for stockholder approval of
amendments not recommended by the Board of Directors.
FOR: 5,612,775.662 VOTES, 62.66%; AGAINST: 1,509,939.980 VOTES, 16.86%;
ABSTENTIONS AND BROKER NONVOTES: 805,882.821 votes, 9.00%.
PROPOSAL # 13: STOCKHOLDER PROPOSAL TO CANCEL THE HOLDING COMPANY
STRUCTURE
13. Vote to cancel the holding company structure.
FOR: 656,013.260 VOTES, 7.32%; AGAINST: 5,473,302.855 VOTES, 61.10%;
ABSTENTIONS AND BROKER NONVOTES: 1,799,282.347 votes, 20.09%.
ITEM 5. OTHER INFORMATION
Any stockholder proposals (including director nominations) submitted pursuant to
Rule 14a-8 of the Securities Exchange Act of 1934, as amended ("Exchange Act"),
and intended to be presented at the Company's 2000 Annual Meeting of
Stockholders, which is currently scheduled to be held on April 27, 2000, must be
received by the Company prior to November 23, 1999 to be eligible for inclusion
in the proxy statement and form of proxy to be distributed by the Board of
Directors in connection with such meeting. Such proposals must also comply with
the requirements as to form and substance established by the Securities and
Exchange Commission if such proposals are to be included in the proxy statement
and form of proxy.
Pursuant to the Company's Amended By-laws, any stockholder proposals (including
director nominations) intended to be presented at the Company's 2000 Annual
Meeting, other than a stockholder proposal submitted pursuant to Exchange Act
Rule 14a-8, must be received in writing by the Clerk of the Company at the
Company's principal executive office on or between the dates of December 24,
1999 and January 25, 2000, together with all supporting documentation required
by the Company's Amended By-laws. However, if the 2000 Annual Meeting is
scheduled to be held on a date more than 30 days before, or more than 60 days
after, April 22, 2000, a stockholder's notice shall be timely filed if delivered
to, or received by, the Company at is principal executive office not later than
the close of business on the later of (a) 90 days prior to the date of the
scheduled meeting or (b) the 10th day following the day on which public
announcement of the date of such annual meeting is first made by the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See Exhibit index below.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the three
month period ended September 30, 1999.
EXHIBIT INDEX
EXHIBIT DESCRIPTION
------- -----------
3.1 Restated Articles of Organization, as amended
3.2 Amended By-laws
27 Financial data schedule
23
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 , 1999
/s/ Stephen B. Lawson
- -----------------------------------------------------------
Stephen B. Lawson, Prsident and Chief Executive Officer
/s/ Noal D. Reid, Chief Financial Officer and Treasurer
- -------------------------------------------------------
Noal D. Reid, Chief Financial Officer and Treasurer
24