<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998--Commission File No. 000-25381
----------------
CCBT BANCORP, 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, 02601
Massachusetts (Zip Code)
(Address of principal executive
office)
(Registrant's telephone #, incl. area code): 508-394-1300
----------------
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
<S> <C>
None
----------------
Securities registered pursuant to Section 12(g) of the Act:
<CAPTION>
Title of class Name of each exchange on which registered
-------------- -----------------------------------------
<S> <C>
Common Capital
Stock NASDAQ National Association of Securities Dealers, Inc.
</TABLE>
----------------
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) [_] Yes [X] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ((S)229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based on the $17.75 price on February 26, 1999, on the Nasdaq
National Market was $155,935,010. Although Directors and executive officers of
the registrant were assumed to be "affiliates" of the registrant for the
purposes of this calculation, this classification is not to be interpreted as
an admission of such status.
As of December 31, 1998, 9,061,064 shares of the registrant's common stock
were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the CCBT Bancorp, Inc. Definitive Notice of Annual Meeting and
Proxy Statement for the Annual Meeting of Stockholders to be held on April 22,
1999 are incorporated by reference into Part III of this Form 10-K.
- -------------------------------------------------------------------------------
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<PAGE>
PART I
Item 1. Business.
CCBT Bancorp, Inc. ("Bancorp" or the "Registrant") was incorporated under
the laws of the Commonwealth of Massachusetts on October 8, 1998 at the
direction of the Board of Directors and management of Cape Cod Bank and Trust
Company (the "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 (the "Reorganization"). Currently,
Bancorp's business activities are conducted primarily through the Bank. The
main office of Bancorp is located at 307 Main Street, Hyannis, Barnstable
County, Massachusetts.
Cape Cod Bank and Trust Company is the main operating subsidiary of Bancorp
and is a state-chartered commercial bank with trust powers, organized under
the laws of the Commonwealth of Massachusetts. The present Bank is the result
of a merger between the Hyannis Trust Company and the Cape Cod Trust Company
in 1964 and a subsequent merger with the Buzzards Bay National Bank in 1974.
The main office of Cape Cod Bank and Trust Company is located at 307 Main
Street, Hyannis, Barnstable County, Massachusetts. There are 25 other banking
offices located in Barnstable County, Massachusetts. The Bank is a member of
the Federal Deposit Insurance Corporation but is not a member of the Federal
Reserve System. At December 31, 1998, the Bank employed 339 people on a full-
time basis and another 61 people on a part-time basis.
Cape Cod Bank and Trust Company is the largest commercial bank headquartered
in Barnstable County. The Bank's market area is heavily dependent on the
tourist and vacation business on Cape Cod. It offers a complete range of
commercial banking services for individuals, businesses, non-profit
organizations, governmental units and fiduciaries. During the past five years,
there has been no significant change in the principal markets or the banking
services offered by the Bank. The Bank has not merged with or acquired the
business of any other bank or entity since 1974. 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
purchased some loans on properties outside its market area.
The Bank's principal sources of revenue are loans and investments which
accounted for 81% of the Bank's gross income during 1998. Of the remaining
portion, 2% was received from service charges. The balance was derived from
Trust Department income and other miscellaneous items. Banking services for
individuals include checking accounts, regular savings accounts, NOW accounts,
money market deposit accounts, certificates of deposit, club accounts,
mortgage loans, consumer loans, safe deposit services, trust services,
discount brokerage and investment services. In the latter category, the Bank
does a major business in acting as agent to purchase U.S. Government
securities for its customers. The Bank also owns and maintains 30 automated
teller machines which are connected to the TX, AMEX, CIRRUS, NYCE, EXCHANGE,
and PLUS networks. Trust department services include estate, trust, tax
returns, agency, investment management, discount brokerage, custodial
services, and IRA accounts.
The Bank has no involvement in foreign countries and does not derive any of
its income from foreign sources.
Supervision and Regulation
General. Bancorp is a Massachusetts corporation and a bank holding company
subject to regulation and supervision by the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board") pursuant to the Bank Holding
Company Act of 1956, as amended (the "BHC Act"), and files with the Federal
Reserve Board an annual report and such additional reports as the Federal
Reserve Board may require. Bancorp is also subject to the jurisdiction of the
Massachusetts Commissioner of Banks. As a bank holding company, Bancorp's
activities are limited to the business of banking and activities closely
related or incidental to banking. Bancorp may not directly or indirectly
acquire the ownership or control of more than 5 percent of any class of voting
shares or substantially all of the assets of any company that is not engaged
in activities closely related to banking
2
<PAGE>
and also generally must provide notice to or obtain approval of the Federal
Reserve Board in connection with any such acquisition.
As a Massachusetts-chartered commercial bank, the Bank is subject to
regulation and examination by the Commissioner of Banks of The Commonwealth of
Massachusetts ("Commissioner"). The Massachusetts statutes and regulations
govern, among other things, lending and investment powers, deposit activities,
borrowings, maintenance of surplus and reserve accounts, distribution of
earnings, and payment of dividends. The Bank is also subject to state
regulatory provisions covering such matters as issuance of capital stock,
branching, and mergers and acquisitions.
Federal Deposit Insurance Corporation ("FDIC"). The FDIC insures the Bank's
deposit accounts up to $100,000 per depositor. As a state-chartered, FDIC-
insured nonmember bank, the Bank is subject to regulation, examination, and
supervision by the FDIC.
Federal Reserve Board Regulations. Regulation D promulgated by the Federal
Reserve Board requires all depository institutions, including the Bank, to
maintain reserves against their transaction accounts (generally, demand
deposits, NOW accounts and certain other types of accounts that permit
payments or transfer to third parties) or non-personal time deposits
(generally, money market deposit accounts or other savings deposits held by
corporations or other depositors that are not natural persons, and certain
other types of time deposits), subject to certain exemptions. Because required
reserves must be maintained in the form of either vault cash, a non-interest
bearing account at a Federal Reserve Bank or a pass-through account as defined
by the Federal Reserve Board, the effect of this reserve requirement is to
reduce the amount of the institution's interest-bearing assets.
Federal Securities Laws. Upon consummation of the Reorganization, the
reporting obligations of the Bank under the Securities Exchange Act of 1934
("Exchange Act") , as administered by the FDIC, were replaced with
substantially identical obligations of Bancorp under the Exchange Act, as
administered by the Securities and Exchange Commission ("SEC"). In connection
with the Reorganization, the Bank deregistered the Bank's common stock under
the Exchange Act.
Proposed Legislation. From time to time, various types of federal and state
legislation have been proposed that could result in additional regulation of,
and modifications of restrictions on, the business of the Bank or Bancorp. It
cannot be predicted whether any legislation currently being considered will be
adopted or how such legislation or any other legislation that might be enacted
in the future would affect the business of the Bank or Bancorp.
EXECUTIVE OFFICERS OF THE REGISTRANT
All officers were elected to their positions on October 8, 1998 to serve
until the annual meeting on April 22, 1999 and until their successors are duly
elected.
<TABLE>
<CAPTION>
Age at Title and Area of Date Appointed Date of
Officer 12/31/98 Responsibility to Present Position Employment
------- -------- ----------------------------------------------- ------------------- ----------
<C> <S> <C> <C> <C>
Stephen B. Lawson.. 57 President, Chief Executive Officer and Director 10/08/98 12/06/65
John S. Burnett.... 52 Clerk 10/08/98 9/07/71
Noal D. Reid....... 54 Chief Financial Officer and Treasurer 10/08/98 10/16/72
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Business Experience During The Past Five Years
----------------------------------------------
<S> <C>
Stephen B. Lawson.... Executive Vice President, Trust, 12/12/85 (Bank)
President, Chief Executive Officer, 7/01/92 (Bank)
President, CEO and Director, 10/08/98 (Bancorp)
John S. Burnett...... Secretary of the Corporation, 8/31/78 (Bank)
Vice President, 12/11/80 (Bank)
Clerk, 10/08/98 (Bancorp)
Noal D. Reid......... Executive Vice President/Treasurer, 12/12/85 (Bank)
Chief Financial Officer and Treasurer, 9/15/95 (Bank)
Chief Financial Officer and Treasurer, 10/08/98 (Bancorp)
</TABLE>
Item 2. Properties.
A. Properties held in fee--Banking Offices of Cape Cod Bank and Trust
Company:
1) 307 Main Street, Hyannis--Main Offices
2) 835 Main Street, Osterville--Branch Office
3) 536 Main Street, Harwichport--Branch Office
4) 1095 Route 28, South Yarmouth--Branch Office
5) 40 Main Street, Orleans--Branch Office
6) Shank Painter Road, Provincetown--Branch Office
7) 121 Main Street, Buzzards Bay--Branch Office
8) 119 Route 6A, Sandwich--Branch Office
9) Route 6A and Underpass Road, Brewster--Branch Office
10) 700 Route 6A, Dennis--Branch Office
11) Jones Road, Falmouth--Branch Office
12) 693 Main Street, Chatham--Branch Office
13) Main Street, Wellfleet--Branch Office
None of the above offices is subject to mortgage liens or any other material
encumbrance. The main office is located in Hyannis, Massachusetts, and is a
modern, two-story brick building located on approximately two acres of land.
The Harwichport office and the Buzzards Bay office are somewhat larger than
the remaining offices, having formerly been the main office of the Cape Cod
Trust Company and the Buzzards Bay National Bank prior to merger. The Bank
also owns a house in Meredith, New Hampshire, one in Orlando, Florida, and one
in Killington, Vermont which are used as vacation sites by its employees.
B. Rental of Bank Premises of Cape Cod Bank and Trust Company:
The land on which the Hyannis Airport Rotary Office is located is rented
from the Barnstable Municipal Airport as a tenancy at will for $53,067 per
year. The banking office located in Pocasset on the corner of MacArthur
Boulevard and Barlow's Landing Road is leased from Paul J. Mederios for
$25,000 per year plus taxes and other expenses under a lease expiring in 2005.
A banking office at the intersection of Route 28 and Camp Opechee Road,
Centerville is leased for $52,500 in 1999 and an increase of $2,500 per year
plus taxes and other expenses under a lease expiring in 2008 with right to
renew for an additional fifteen year period. The Route 134, South Dennis
branch office is leased from Chamberlain Realty for $44,000 per year until
2001 and $22,000 in 2002 plus taxes and other expenses. The banking office at
Skaket Corners, Orleans is leased from Skaket Associates for $50,916 in 1999;
$58,554 in 2000, 2001 and 2002; $67,337 in 2003, 2004 and 2005; and $77,437 in
2006 and 2007 plus taxes and other expenses under a lease expiring in 2007.
The Bank also operates
4
<PAGE>
a Customer Service Center which is leased from the Davenport Realty Trust,
South Yarmouth for $111,972 per year plus taxes and other expenses until 2011
and $27,993 in 2012 under a lease expiring in 2012 with the right to renew for
an additional ten-year period. The banking office located in the Village Green
Shopping Center on Brackett Road, North Eastham is leased from Alan G. Vadnais
for $2,400 in 1999 expiring on 3/31/99. The office located at 763 Main Street,
Falmouth is leased from RFB Realty Trust for $42,000 through 2001 and $24,500
in 2002 with a lease expiring September, 2002 with the option of renewing the
lease for two additional five-year periods. The Bank also rents a building
next door to the Customer Service Center from Davenport Realty Trust, South
Yarmouth for $76,200 in 1999 to 2011 and $19,050 in 2012. In addition, the
Bank also rents office spaces from Stop & Shop for $408,000 per year under a
lease expiring in 1999 and $204,000 in 2000. The Bank also pays rent of
$24,000 in 1999, 2000, and $11,000 in 2001 for Automated Teller Machines
(ATMs).
Item 3. Legal Proceedings.
Bancorp is not involved in any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
On December 4, 1998, a special meeting of the stockholders of the Bank (the
"Special Meeting") was held to consider and vote upon the Reorganization. A
brief description of the vote is incorporated herein by reference to the
Bank's proxy statement for the Special Meeting, filed as an exhibit to
Bancorp's Current Report on Form 8-K filed with the SEC on February 11, 1999.
The Reorganization was approved by more than 71% of the stockholders eligible
to vote.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
CCBT Bancorp, Inc.'s and, prior to the Reorganization, the Bank's Common
Stock is quoted on the Nasdaq National Market System under the symbol "CCBT".
The table below shows the high and low trading prices of the stock for each
quarter in the past two years and the dividends declared each quarter,
adjusted for the two-for-one stock distribution made August 7, 1998. According
to Bancorp's transfer agent, there were approximately 1,100 stockholders of
record as of December 31, 1998. The number of holders of record does not
reflect the number of persons or entities who or which held their stock in
nominee or "street" name through various brokerage firms or other entities.
<TABLE>
<CAPTION>
1998 1997
------------------------------------ -------------------------------------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
-------- -------- -------- -------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Market price: High...... $ 22 7/16 $ 22 3/8 $ 24 $ 20 3/4 $ 13 15/16 $ 15 $ 17 1/4 $ 20 1/2
Low............... $ 19 1/8 $ 19 5/8 $ 17 1/4 $ 15 1/2 $ 10 3/4 $ 13 3/8 $ 14 1/4 $ 17 5/8
Dividends declared per
share.................. $.12 $.12 $.13 $.13 $.105 $.105 $.105 $.105
</TABLE>
5
<PAGE>
Item 6. Selected Consolidated Financial Data.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------------ ---------- ---------- ---------- ----------
(Dollar amounts in thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
Total assets............ $ 1,177,530 $ 973,105 $ 817,884 $ 646,911 $ 528,438
Stockholders' equity.... 83,542 75,636 66,603 59,601 53,087
Net interest income..... 37,767 36,907 32,650 29,156 25,574
Provision for loan
losses................. -- -- -- -- 1,200
Non-interest income..... 17,036 20,174 13,874 13,649 12,320
Non-interest expense.... 34,196 35,642 30,985 28,631 27,062
Provision for income
taxes.................. 8,050 8,190 6,070 5,391 1,930
Net income.............. 12,557 13,249 9,468 8,783 7,703
Book value per share.... $ 9.22 $ 8.35 $ 7.35 $ 6.59 $ 5.86
Basic earnings per
share(1)............... 1.39 1.46 1.05 .97 .86
Diluted earnings per
share.................. 1.38 1.46 1.05 .97 .86
Cash dividends per
share.................. $ .50 $ .42 $ .35 $ .28 $ .09
Return on average
assets................. 1.15% 1.45% 1.26% 1.47% 1.43%
Return on average
stockholders' equity... 15.8% 18.7% 15.2% 15.6% 15.5%
</TABLE>
- --------
(1) Based on average shares outstanding: 9,061,064 in 1998 and in 1997;
9,052,434 in 1996; 9,042,740 in 1995; and 9,033,236 in 1994. (Adjusted for
two-for-one stock distributions in 1996 and in 1998).
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation.
This Form 10-K contains certain statements that may be considered forward-
looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. The Company's actual results could differ materially from those
projected in the forward-looking statements as a result, among other factors,
of changes in general, national or regional economic conditions, changes in
loan default and charge-off rates, reductions in deposit levels necessitating
increased borrowing to fund loans and investments, changes in interest rates,
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 Bancorp'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.
Cape Cod Bank and Trust Company 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.
1998 COMPARED WITH 1997
Source and Use of Funds. Although at year end total deposits were
$18,813,000 higher than a year earlier, an increase of 3%, on average total
deposits in 1998 were $37,746,000 more than in 1997, an increase of 6%. All
deposit categories were higher on average during the year. Demand deposits
were higher by $14,928,000 on average, an increase of 11%. Management believes
that this was the result of a continued strong economic climate in its market
area. NOW account deposits were higher by $6,515,000 on average, an increase
of 7%. Money market account deposits were higher by $746,000 on average, an
increase of 1%. Other savings deposits were higher by $5,642,000 on average,
an increase of 4%. Certificates of deposit of $100,000 or more were higher by
$5,109,000 on average, an increase of 22%. Other time deposits were higher by
$4,806,000 on average, an increase of 4%. Additional funds were raised from
increased borrowings. Borrowings from the Federal Home Loan Bank were
$124,397,000 higher on average, an increase of 82%, as the Bank continued to
take long-term
6
<PAGE>
advances to offset the interest-rate risk of fixed-rate commercial mortgage
lending and increased the level of its short-term borrowing for the purpose of
making high quality investments with short effective duration. Through these
efforts, management is attempting to increase earnings without incurring
significant additional risk. Other short-term borrowings were higher by
$4,250,000 on average, an increase of 40%. At year end, total loans were
$80,851,000 higher than a year earlier, an increase of 15%. On average for the
year, they were $91,315,000 higher, an increase of 19%. Increases in some loan
categories were partially offset by declines in others. Residential mortgage
loans were higher by $96,590,000 on average, an increase of 53%, as the Bank
continued to increase its market share in this line of business and retained
the adjustable rate mortgages that it originated. Commercial mortgage loans
were higher by $11,179,000, an increase of 5%. Commercial loans were lower by
$613,000 on average, a decline of 1%. Industrial revenue bonds were lower by
$712,000 on average, a decline of 30%, and consumer loans were lower by
$15,129,000 on average, a decline of 53%, as the result of the sale of the
Bank's credit card portfolio in the fourth quarter of 1997. The remaining
funds were invested. Total investments were higher by $89,009,000 on average,
an increase of 24%, to use the additional funds from Federal Home Loan Bank
borrowings made for this purpose.
Net Interest Income. Interest rates declined during 1998, which decreased
the yields on the Bank's loans and investments. The cost of the Bank's
deposits and borrowings also decreased, but by a smaller amount. Because of
the positive spread between the return on earning assets and the cost of
funds, the Bank's net interest income increased as a result of the overall
growth in deposits, borrowings, loans and investments discussed above.
Accordingly, net interest income increased by $860,000, an increase of 2%.
Provision for Possible Loan Losses. Recoveries on loans previously charged
off exceeded charge-offs and management determined that additions to the
reserve for possible loan losses were unnecessary in 1998, notwithstanding the
growth in the loan portfolio. Management believes that the reserve is adequate
to cover the losses likely to result from loans in the current loan portfolio.
See "Reserve for Loan Losses" below.
Other Income and Expense. Non-interest income decreased by 16% because 1997
income had included the receipt of $1,900,000 on the settlement of a dispute
with a software provider and a gain of $2,140,570 on the sale of the Bank's
credit card portfolio. Non-interest expense decreased by 4% in large part
because of lower expenses related to the conversion of the Bank's operating
system.
Provision for Income Taxes. As a result of lower income before income taxes,
the provision for income taxes decreased by 2%.
Net Income. As a result of the foregoing factors, net income for 1998 was
$12,556,946, a decrease of 5% from the previous year.
1997 COMPARED WITH 1996
Source and Use of Funds. Although at year end total deposits were
$75,751,000 higher than a year earlier, on average total deposits in 1997 were
$66,061,000 more than in 1996, an increase of 11%. Money market deposit
account balances were slightly lower but all other deposit categories were
higher on average during the year. Demand deposits were higher by $13,092,000
on average, an increase of 11%. NOW account deposits were higher by $8,770,000
on average, an increase of 10%. Other savings deposits were higher by
$8,444,000 on average, an increase of 6%. Certificates of deposit of $100,000
or more were higher by $9,767,000 on average, an increase of 71%, and other
time deposits were higher by $26,058,000 on average, an increase of 29%.
Additional funds were raised from increased borrowings. Borrowings from the
Federal Home Loan Bank were $84,341,000 higher on average, an increase of
125%, while other short-term borrowings were higher by $2,521,000 on average,
an increase of 31%. At year end, total loans were $77,678,000 higher than a
year earlier. On average for the year they were $58,886,000 higher, an
increase of 14%. Increases in some loan categories were partially offset by
declines in others. In part as a result of purchasing some loan packages
during the year, residential mortgage loans were higher by $57,999,000 on
average, an increase of 47%. Commercial mortgage loans were higher by
$9,008,000, an increase of 5%. Commercial loans were lower by $445,000 on
average, a
7
<PAGE>
decline of 1%. Industrial revenue bonds were lower by $772,000 on average, a
decline of 24%, and consumer loans were lower by $6,904,000 on average, a
decline of 20%. The remaining funds were invested. Total investments were
higher by $108,764,000 on average, an increase of 41%.
Net Interest Income. The general level of interest rates was slightly higher
in 1997 than in 1996, which increased the yields on the Bank's investments.
However, yields on loans were lower as a result of competitive pressures in
commercial lending and low initial rates on adjustable rate residential
mortgage loans. Because of the positive spread between the return on earning
assets and the cost of funds, the Bank's net interest income increased as a
result of the overall growth in deposits, borrowings, loans and investments
discussed above. Accordingly, net interest income increased by $4,257,000, an
increase of 13%.
Provision for Possible Loan Losses. Non-performing assets continued to
decline during the course of the year and management determined that additions
to the reserve for possible loan losses were unnecessary in 1997,
notwithstanding the growth in the loan portfolio. Management believes that the
reserve is adequate to cover the losses likely to result from loans in the
current loan portfolio. See "Reserve for Loan Losses" below.
Other Income and Expense. Non-interest income increased by 41%, primarily
due to the receipt of $1,900,000 on the settlement of a dispute with a
software provider and a gain of $2,140,570 on the sale of the Bank's credit
card portfolio. Non-interest expense increased by 15% because of increases in
salaries and wages and costs associated with the conversion of the Bank's data
processing system.
Provision for Income Taxes. As a result of higher income before income
taxes, the provision for income taxes increased by 35%.
Net Income. As a result of the foregoing factors, net income for 1997 was
$13,248,536, an increase of 40% from the previous year.
MATURITY STRUCTURE OF ASSETS AND LIABILITIES
AND SENSITIVITY TO CHANGES IN INTEREST RATES
As of December 31, 1998 fixed rate debt securities and loans mature as
follows:
<TABLE>
<CAPTION>
Fixed Rate
---------------------------------
Debt Securities Loans
---------------------------------
(Dollar amounts in thousands)
<S> <C> <C>
Remaining maturity:
Three months or less...................... $ 65,052 $ 11,376
Over three months through 12 months....... 61,097 26,378
Over one year through five years.......... 133,538 67,910
Over five years........................... 2,889 14,908
-------------- --------------
Totals.................................... $ 262,576 $ 120,572
============== ==============
</TABLE>
Included in fixed rate debt securities are $70,937,000 of collateralized
mortgage obligations. These have been distributed based on estimates of their
principal cash flows rather than their contractual final maturities. Included
in three months or less of loans are $407,700 of customer account overdrafts
that the Bank reclassified as loans.
8
<PAGE>
The remaining maturity of time certificates of deposit as of December 31,
1998 was as follows:
<TABLE>
<CAPTION>
Fixed Rate
Certificates of Deposit
-----------------------------------
$100,000 or more Less than $100,000
---------------- ------------------
(Dollar amounts in thousands)
<S> <C> <C>
Remaining maturity:
Three months or less.................... $21,143 $ 39,348
Over three months through 12 months..... 6,955 64,398
Over one year through two years......... 1,086 9,188
Over two years through three years...... 987 7,562
Over three years through four years..... 128 --
Over four years through five years...... -- --
Over five years......................... -- --
------- --------
Totals.................................. $30,299 $120,496
======= ========
</TABLE>
Other deposits may be withdrawn by the customer without notice or penalty.
The rates paid thereon are reviewed each month and changed at the Bank's
option as often as indicated by changing market conditions.
The remaining maturity of borrowings from the Federal Home Loan Bank as of
December 31, 1998 was as follows:
<TABLE>
<CAPTION>
Fixed Rate
FHLB Borrowings
-----------------------------
(Dollar amounts in thousands)
<S> <C>
Remaining maturity:
Three months or less........................... $ 3,300
Over three months through 12 months............ 113,125
Over one year through five years............... 157,455
Over five years................................ 11,627
--------
Totals......................................... $285,507
========
</TABLE>
Rates paid on other interest-bearing liabilities change daily.
As of December 31, 1998, floating rate debt securities, FHLB stock and loans
reprice as follows:
<TABLE>
<CAPTION>
Floating Rate
-----------------------------------
Debt Securities FHLB Stock Loans
--------------- ---------- --------
(Dollar amounts in thousands)
<S> <C> <C> <C>
Repricing frequency:
Quarterly or more frequently........... $230,002 $22,125 $114,354
Annually or more frequently, but less
frequently than quarterly............. 3,443 -- 157,556
Every five years or more frequently,
but less frequently than annually..... -- -- 188,460
Less frequently than every five years.. -- -- 31,019
-------- ------- --------
Totals................................. $233,445 $22,125 $491,389
======== ======= ========
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Floating Rate
FHLB Borrowings
-----------------------------
(Dollar amounts in thousands)
<S> <C>
Repricing frequency:
Quarterly or more frequently................. $58,000
Annually or more frequently, but less
frequently than quarterly................... --
Every five years or more frequently, but less
frequently than annually.................... --
Less frequently than every five years........ --
-------
Totals....................................... $58,000
=======
</TABLE>
Most of the Bank's residential mortgage loans are adjustable rate mortgages
subject to interest rate caps.
The Bank's investment securities are subject to market risk in the following
ways. $255,570,000 of the investment securities owned as of December 31, 1998
are floating rate instruments tied to various indices, primarily the 3-month
Treasury bill and LIBOR. Lesser amounts are tied to longer-term Treasury rates
and other indices. Almost all of these floating rate instruments are subject
to interest rate caps which range from 8% to 25%. If interest rates rise
enough so that there is a significant possibility that a given security will
become subject to its interest rate cap, the market value of that security
will be reduced. This risk is greater to the extent that the remaining life of
the investment is longer. The Bank's floating rate investments have an average
life of about two years. Market risk may also result from the fact that
various indices will not always move by the same amount when interest rates
increase. This may cause securities tied to one index to perform less well
than securities tied to other indices. Most of the remaining $262,576,000 of
securities are fixed-rate collateralized mortgage obligations. Fixed-rate
investments have market risk because their rate of return does not change at
all with the general level of interest rates. An additional characteristic of
CMOs is that their principal payments tend to slow when interest rates rise.
If the fixed rate earned on the investment is lower than the new market rate,
this can result in a decline in the value of these securities. Almost all of
the Bank's fixed-rate CMOs have very short lives and have interest rates above
current market levels, which reduces the market risk of these securities. The
average life of the Bank's fixed-rate investments is less than one year.
Reserve for Loan Losses
The reserve for loan losses is an estimate of the amount necessary to
provide an adequate reserve to absorb probable losses in current loan
portfolio. This amount is determined by management based on a regular
evaluation of the loan portfolio and considers such factors as loan loss
experience and current economic conditions. The reserve is an estimate, and
ultimate losses may vary from current estimates. As adjustments become
necessary, they are reported in earnings of the periods in which they become
known.
Some assumptions must be made in order to estimate the extent of losses
likely to result from loans in the current portfolio. Although the local
economy has been strong in recent years, the national economy may eventually
enter into a recession after a long period of expansion. This could result in
a decline in tourism on Cape Cod negatively affecting the Bank's borrowers and
resulting in higher losses to the Bank. The Bank has experienced increased
delinquency and charge-off rates in its consumer loan portfolio. A downturn in
the local economy could adversely affect the ability of these and other
borrowers to repay their loans. The Bank has also purchased packages of
residential mortgage loans which contain loans on properties outside of the
Bank's market area which may be subject to their own economic risks. These
factors could result in greater losses than are currently expected, in which
case, greater provisions for loan losses may prove to be necessary in future
periods. On the other hand, if these factors do not result in significant
deterioration to the quality of the loan portfolio, actual losses may be less
than the reserve and the excess amount will be recovered by credits to income
in future periods.
In addition, various regulatory agencies periodically review the Bank's
reserve for loan losses as part of their examination process. Such agencies
may require the Bank to make additions to the reserve based upon judgements
different from those of management.
10
<PAGE>
Non-performing Assets and Loan Loss Experience
Non-performing assets as of December 31, 1998, 1997 and 1996 were as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
(Dollar amounts in thousands)
<S> <C> <C> <C>
Nonaccrual loans............................. $ 7,468 $ 2,770 $ 3,679
Loans past due 90 days or more and still
accruing.................................... -- -- 266
Property from defaulted loans................ -- 621 430
--------- --------- ---------
Total non-performing assets.................. $ 7,468 $ 3,391 $ 4,375
========= ========= =========
Restructured troubled debt performing in
accordance with amended terms, not included
above....................................... $ 478 $ 1,131 $ 3,439
========= ========= =========
</TABLE>
Accrual of interest income on loans is discontinued when it is questionable
whether the borrower will be able to pay principal and interest in full and/or
when loan payments are 60 days past due unless the loan is fully secured by
real estate or other collateral held by the Bank.
Accordingly, for loans which are shown as past due 90 days or more and still
accruing, management expects that principal and interest will be repaid in
full. In some instances, the Bank may also be repaid in full on nonaccrual
loans. Loans are classified "substandard" when they are not adequately
protected by the current sound worth and paying capacity of the debtor or of
the collateral. At December 31, 1998, $8,694,951 of loans were included in
this category, in addition to loans reported above. The Bank's loan
classification system also includes a category for loans which are monitored
for possible deterioration in credit quality. At December 31, 1998, $5,676,832
of loans were included in this category. However, it is probable that there
will be losses on other loans which have not been specifically identified.
The changes in the reserve for loan losses during the three years ended
December 31, 1998 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
(Dollar amounts in thousands)
<S> <C> <C> <C>
Balance, beginning of
year..................... $ 10,962 $ 11,417 $ 11,701
Provision for loan
losses................... -- -- --
Charge-offs:
Commercial loans........ (353) (400) (669)
Construction mortgage
loans.................. -- -- (39)
Commercial mortgage
loans.................. (86) (69) --
Industrial revenue
bonds.................. -- -- --
Residential mortgage
loans.................. (1) (119) --
Consumer loans.......... (166) (749) (637)
Recoveries on loans
previously charged off:
Commercial loans........ 475 653 792
Construction mortgage
loans.................. 47 -- 43
Commercial mortgage
loans.................. 174 120 143
Industrial revenue
bonds.................. -- -- --
Residential mortgage
loans.................. 23 8 1
Consumer loans.......... 33 101 82
--------- --------- ---------
Balance, end of year...... $ 11,108 $ 10,962 $ 11,417
========= ========= =========
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
(Dollar amounts in thousands)
<S> <C> <C> <C>
Allocation of ending balance:
Commercial loans............................ $ 1,578 $ 1,676 $ 2,872
Construction mortgage loans................. 705 521 792
Commercial mortgage loans................... 5,822 6,587 5,221
Industrial revenue bonds.................... 23 28 33
Residential mortgage loans.................. 2,460 1,610 1,484
Consumer loans.............................. 520 540 1,015
--------- --------- ---------
Balance, end of year.......................... $ 11,108 $ 10,962 $ 11,417
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
----- ---- ----
<S> <C> <C> <C>
Ratio of net charge-offs (recoveries) to average loans
outstanding.......................................... (0.03)% 0.09% 0.07%
</TABLE>
Recoveries on loans previously charged off exceeded charge-offs and
management determined that additions to the reserve for possible loan losses
were unnecessary in 1998, notwithstanding the growth in the loan portfolio.
Management believes that the reserve is adequate to cover the losses likely to
result from loans in the current loan portfolio.
Liquidity
The Bank 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.
Substantially all of the amount shown as cash and due from banks at year end
was made up of checks and similar items in the process of collection or was
needed to satisfy a requirement to maintain a portion of the Bank's deposits
in an account at the Federal Reserve. Accordingly, it does not represent a
source of liquidity for the Bank. In general, the Bank's investment securities
could also be easily 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. The Bank has a line of credit of $12,963,000 from
the Federal Home Loan Bank of Boston. The Bank has also established a line of
credit for the purchase of federal funds from a regional bank and may borrow
from the Federal Reserve if necessary.
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
Disclosure 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"
might be recognized 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 when
"01/01/00" could, in some cases, 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 that it was
necessary to replace some of its personal 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 will be
capitalized and depreciated over the useful lives of the items purchased.
12
<PAGE>
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, but testing is not yet complete.
Approximately one-half of those systems that the Bank considers to be critical
or high-risk have not yet been tested at December 31, 1998. The remaining
testing is expected to be completed by March 31, 1999.
Contingency plans are being developed for processing of the Bank's work in
the event of the failure of any of these systems.
The Bank is also dependent on other providers for the conduct of its
business, most notably for electrical power and telecommunications. These
providers could possibly be subject to Year 2000 problems which disrupted
their services. Prolonged outages in these services could seriously affect the
Bank's ability to conduct business as usual.
Certain customers of the Bank may be subject to Year 2000 problems which
affect their ability to do business. Among other things, this could result in
reducing the ability of borrowers to repay their loans to the Bank. Year 2000
risk still needs to be evaluated for approximately one-half 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 lengthened the maturities of certain of
its borrowings and expects to continue to maintain a very short investment
portfolio to meet any deposit outflows. It is anticipated that maturities in
the investment portfolio will be far in excess of any such withdrawals, but
the Bank may lose the ability to earn on these amounts for the period of time
that they are out of the Bank.
Please refer to the statement regarding "Forward-Looking Information" at the
beginning of Management's Discussion and Analysis of Financial Condition and
Results of Operations with regard to any forward-looking statements in this
section. Although the Bank and Bancorp believe that they are responding
appropriately to the Year 2000 issue, please note that neither the Bank nor
Bancorp can guarantee their Year 2000 readiness nor that of material vendors
and customers or the effectiveness of their contingency plans in the event of
a failure in any of the Bank's computing systems.
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY;
AVERAGE INTEREST RATES AND INTEREST SPREAD
The average amount outstanding for certain categories of interest-earning
assets and interest-bearing liabilities, and the interest income or expense
and the average yields earned or rates paid thereon, are summarized in the
following table for the three years ended December 31, 1998. Nonaccrual loan
balances have been included in their respective loan categories which reduces
the calculated yields. A portion of the income reported in certain of the
asset categories is not subject to federal income tax, making it relatively
more valuable. The computed yields shown have not been adjusted for taxable
equivalency. As an indication of the amount of change in the general level of
interest rates between years, the average rate on overnight federal funds
traded among banks was 5.35%, 5.46% and 5.30% during 1998, 1997 and 1996,
respectively.
13
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------------------------------------------
1998 1997 1996
------------------------------ ---------------------------- ----------------------------
Interest Average Interest Average Interest Average
Average Income or Yield or Average Income or Yield or Average Income or Yield or
Balance Expense Rate Paid Balance Expense Rate Paid Balance Expense Rate Paid
---------- --------- --------- -------- --------- --------- -------- --------- ---------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Commercial loans....... $ 72,623 $ 6,994 9.63% $ 73,236 $ 7,384 10.08% $ 73,681 $ 7,536 10.23%
Commercial mortgage
loans................. 218,052 20,316 9.32% 206,873 19,842 9.59% 197,865 19,221 9.71%
Industrial revenue
bonds................. 1,678 148 8.82% 2,390 179 7.49% 3,162 219 6.93%
Residential mortgage
loans................. 277,149 19,509 7.04% 180,559 14,214 7.87% 122,560 10,281 8.39%
Consumer loans......... 13,183 1,291 9.79% 28,312 2,978 10.52% 35,216 3,612 10.26%
U.S. Government agency
CMOs.................. 256,334 14,141 5.52% 102,891 6,918 6.72% 87,581 5,361 6.12%
Other U.S. Government
agencies.............. 36,949 2,039 5.52% 72,771 4,571 6.28% 73,796 4,107 5.57%
Other CMOs............. 53,619 3,110 5.80% 55,284 3,232 5.85% 25,001 1,504 6.02%
State and municipal
obligations........... 17,494 806 4.61% 17,065 760 4.45% 18,240 795 4.36%
Other securities....... 98,795 5,624 5.69% 126,171 7,624 6.04% 60,800 3,809 6.26%
---------- ------- -------- ------- -------- -------
Total earning assets... 1,045,876 73,978 7.07% 865,552 67,702 7.82% 697,902 56,445 8.09%
Total non-earning
assets................ 47,457 49,650 54,924
---------- ------- -------- --------
Total assets........... $1,093,333 $73,978 6.77% $915,202 $67,702 7.40% $752,826 $56,445 7.50%
========== ------- ======== ------- ======== -------
Interest-bearing
liabilities:
NOW account deposits... $ 105,864 $ 1,281 1.21% $ 99,349 $ 1,897 1.91% $ 90,579 $ 1,859 2.05%
Money market account
deposits.............. 147,623 5,071 3.44% 146,877 5,751 3.92% 146,947 5,815 3.96%
Other savings
deposits.............. 161,749 5,234 3.24% 156,107 6,021 3.86% 147,663 5,792 3.92%
Certificates of Deposit
of $100,000 or more... 28,572 1,525 5.34% 23,463 1,267 5.40% 13,696 739 5.40%
Other time deposits.... 121,216 6,479 5.35% 116,410 6,400 5.50% 90,352 5,102 5.65%
Borrowings from FHLB... 276,249 15,956 5.78% 151,852 8,961 5.90% 67,511 4,103 6.08%
Other short-term
borrowings............ 14,890 665 4.47% 10,640 498 4.68% 8,119 385 4.74%
---------- ------- -------- ------- -------- -------
Total interest-
bearing............... 856,163 36,211 4.23% 704,698 30,795 4.37% 564,867 23,795 4.21%
Total non-interest-
bearing deposits...... 150,376 135,448 122,356
Other liabilities...... 7,237 4,142 3,428
Stockholders' equity... 79,557 70,914 62,175
---------- ------- -------- ------- -------- -------
Total liabilities and
stockholders' equity.. $1,093,333 $36,211 3.31% $915,202 $30,795 3.36% $752,826 $23,795 3.16%
========== ------- ======== ------- ======== -------
Net interest income, as
% of total assets...... $37,767 3.45% $36,907 4.03% $32,650 4.34%
======= ==== ======= ===== ======= =====
Net interest income, as
% of total earning
assets................. 3.61% 4.26% 4.68%
==== ===== =====
Interest spread (the
average yield earned on
earning assets less the
average rate paid on
interest-bearing
liabilities): 2.84% 3.45% 3.88%
==== ===== =====
Return on average
assets................. 1.15% 1.45% 1.26%
==== ===== =====
Average stockholders'
equity to average total
assets................. 7.28% 7.75% 8.26%
==== ===== =====
Return on average
stockholders' equity... 15.8% 18.7% 15.2%
==== ===== =====
Dividend payout ratio... 36.1% 28.7% 34.0%
==== ===== =====
</TABLE>
14
<PAGE>
CHANGES IN NET INTEREST INCOME DUE TO
CHANGES IN VOLUME AND RATE
The effect on net interest income from changes in interest rates and in the
amounts of interest-earning assets and interest-bearing liabilities is
summarized in the following table. These amounts were calculated directly from
the amounts included in the preceding table. The amount allocated to change in
volume was calculated by multiplying the change in volume by the average of
the interest rates earned or paid in the two periods. The amount allocated to
change in rate was calculated by multiplying the change in rate by the average
volume over the two periods. In 1998 lower interest rates reduced interest
income by more than the decrease in interest expense because the Bank has more
interest-earning assets and because sharply lower Treasury rates reduced the
yields on loans and investments. Higher interest rates in 1997 increased the
yields on investment securities but loan yields decreased and the Bank was
less aggressive in gaining deposit market share.
<TABLE>
<CAPTION>
1998 compared to 1997 1997 compared to 1996
------------------------- --------------------------
Change Due to Increase Change Due to Increase
(Decrease) (Decrease)
------------------------- --------------------------
Volume Rate Net Volume Rate Net
------- ------- ------- --------- ------- --------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Commercial loans...... $ (60) $ (330) $ (390) $ (45) $ (107) $ (152)
Commercial mortgage
loans................ 1,057 (583) 474 870 (249) 621
Industrial revenue
bonds................ (58) 27 (31) (56) 16 (40)
Residential mortgage
loans................ 7,201 (1,906) 5,295 4,716 (783) 3,933
Consumer loans........ (1,536) (151) (1,687) (717) 83 (634)
U.S. Government agency
CMOs................. 9,391 (2,168) 7,223 983 574 1,557
Other U.S. Government
agencies............. (2,113) (419) (2,532) (61) 525 464
Other CMOs............ (97) (25) (122) 1,796 (68) 1,728
State and municipal
obligations.......... 19 27 46 (52) 17 (35)
Other securities...... (1,606) (394) (2,000) 4,023 (208) 3,815
------- ------- ------- -------- ------ --------
Total interest
income............. 12,198 (5,922) 6,276 11,457 (200) 11,257
------- ------- ------- -------- ------ --------
Interest expense:
NOW account deposits.. 102 (718) (616) 174 (136) 38
Money market account
deposits............. 27 (707) (680) (3) (61) (64)
Other savings
deposits............. 200 (987) (787) 328 (99) 229
Certificates of
deposits of $100,000
or more.............. 274 (16) 258 527 1 528
Other time deposits... 261 (182) 79 1,452 (154) 1,298
Borrowings from FHLB.. 7,263 (268) 6,995 5,052 (194) 4,858
Other short-term
borrowings........... 194 (27) 167 119 (6) 113
------- ------- ------- -------- ------ --------
Total interest
expense............ 8,321 (2,905) 5,416 7,649 (649) 7,000
------- ------- ------- -------- ------ --------
Net interest income..... $ 3,877 $(3,017) $ 860 $ 3,808 $ 449 $ 4,257
======= ======= ======= ======== ====== ========
</TABLE>
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Market risk is the risk of loss from adverse changes in market prices. In
particular, the market prices of interest-earning assets may be affected by
changes in interest rates. Since net interest income (the difference or spread
between the interest earned on loans and investments and the interest paid on
deposits and borrowings) is the Bank's primary source of revenue, interest
rate risk is the most significant non-credit related market risk to which the
Bank is exposed. Net interest income is affected by changes in interest rates
as well as fluctuations in the level and duration of the Bank's assets and
liabilities.
Interest rate risk is the exposure of the Bank's net interest income to
adverse movements in interest rates. In addition to directly impacting net
interest income, changes in interest rates can also affect the amount of new
15
<PAGE>
loan originations, the ability of borrowers to repay variable rate loans, the
volume of loan prepayments and refinancings, the carrying value of investment
securities classified as available for sale and the flow and mix of deposits.
The Bank's Asset/Liability Management Committee, comprised of senior
management and several Directors, is responsible for managing interest rate
risk in accordance with policies approved by the Board of Directors regarding
acceptable levels of interest rate risk, liquidity and capital. The Committee
meets monthly and sets the rates paid on deposits, approves loan pricing and
reviews investment transactions.
The Bank is subject to interest rate risk in the event that rates either
increase or decrease. In the event that interest rates increase the value of
the net assets of the Bank (the liquidation value of stockholders' equity)
would decline. At December 31, 1998 it is estimated that an increase in
interest rates of 200 basis points (for example, an increase in the prime rate
from 7.75% to 9.75%) would reduce the value of the net assets of the Bank by
$9,737,000. On the other hand, if interest rates were to decrease, the value
of the net assets of the Bank would increase.
Although the value of the net assets of the Bank is subject to risk if
interest rates rise (but not if rates fall) the opposite is true of the Bank's
earnings. If interest rates were to increase the net interest income of the
Bank would increase because the Bank has more interest-earning assets than it
has interest-bearing liabilities and much of this excess amount reprices
within a short period of time. As a result, the Bank's net interest income is
instead subject to a risk of a decline in rates. Not only are there fewer
interest-bearing liabilities to reprice, but many of these liabilities could
not reprice much lower because the rates paid on them are already low.
Accordingly, if interest rates were to decrease by 200 basis points (for
example, a decrease in the prime rate from 7.75% to 5.75%) it is estimated
that the net interest income of the Bank would decrease by $4,183,000. On the
other hand, if interest rates were to increase the net interest income of the
Bank would increase.
Item 8. Financial Statements and Supplementary Data.
At December 31, 1998, CCBT Bancorp, Inc. was a wholly owned subsidiary of
Cape Cod Bank and Trust Company. Accordingly, the consolidated financial
statements of Cape Cod Bank and Trust Company and its subsidiaries are
presented here.
FINANCIAL STATEMENTS INDEX
. Report of Grant Thornton, LLP as Independent Certified Public Accountants
. Report of Ernst & Young, LLP as Independent Certified Public Accountants
. Consolidated Statements of Condition at December 31, 1998, 1997 and 1996
. Consolidated Statements of Income for the Three Years Ended December 31,
1998
. Consolidated Statements of Cash Flows for the Three Years Ended
December 31, 1998
. Consolidated Statements of Changes in Stockholders' Equity for the Three
Years Ended December 31, 1998
. Consolidated Statements of Comprehensive Income for the Three Years Ended
December 31, 1998
. Notes to Consolidated Financial Statements
16
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Cape Cod Bank and Trust Company
We have audited the consolidated statement of condition of Cape Cod Bank and
Trust Company as of December 31, 1998, and the related consolidated statements
of income, cash flows, stockholders' equity, and comprehensive income for the
year then ended. These financial statements are the responsibility of the
Bank's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The financial statements of Cape Cod
Bank and Trust Company as of December 31, 1997 and 1996 and for the years then
ended were audited by other auditors whose report dated January 30, 1998,
expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the 1998 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Cape
Cod Bank and Trust Company as of December 31, 1998, and the consolidated
results of their operations and their consolidated cash flows for the year
then ended, in conformity with generally accepted accounting principles.
/s/ Grant Thornton LLP
Boston, Massachusetts
January 29, 1999
17
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Cape Cod Bank and Trust Company
We have audited the accompanying consolidated statements of condition of
Cape Cod Bank and Trust Company as of December 31, 1997 and 1996, and the
related consolidated statements of income, stockholders' equity, cash flows
and comprehensive income for the years then ended. These financial statements
are the responsibility of the Bank's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Cape Cod Bank
and Trust Company at December 31, 1997 and 1996, and the consolidated results
of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
January 30, 1998
18
<PAGE>
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1998 1997 1996
ASSETS -------------- ------------ ------------
<S> <C> <C> <C>
Cash and due from banks............ $ 29,383,227 $ 33,849,649 $ 20,720,015
-------------- ------------ ------------
Interest-bearing deposits in
banks............................. 43,888 237,844 240,782
-------------- ------------ ------------
Securities available for sale at
fair value (Note 2)............... 496,020,243 372,751,235 312,358,427
-------------- ------------ ------------
Federal Home Loan Bank stock, at
cost.............................. 22,125,400 18,744,900 16,705,700
-------------- ------------ ------------
Loans (Notes 3 and 4)
Commercial loans.................. 70,766,629 72,190,145 70,672,773
Construction mortgage loans....... 47,939,708 34,798,447 16,449,090
Commercial mortgage loans......... 207,860,415 198,944,076 197,056,394
Industrial revenue bonds.......... 1,344,336 1,882,600 2,885,318
Residential mortgage loans........ 254,320,484 203,461,595 132,475,131
Consumer loans.................... 11,588,705 15,902,887 32,767,662
Loans held for sale............... 18,140,522 3,930,152 1,125,640
-------------- ------------ ------------
Total loans....................... 611,960,799 531,109,902 453,432,008
Less: Reserve for loan losses..... (11,107,633) (10,962,345) (11,416,873)
-------------- ------------ ------------
Net loans......................... 600,853,002 520,147,557 442,015,135
-------------- ------------ ------------
Premises and equipment (Note 5).... 12,847,002 12,776,994 13,090,868
Deferred tax assets................ 4,992,690 4,630,204 4,880,682
Current tax assets................. 177,720 -- --
Accrued interest receivable on
securities........................ 4,067,975 3,749,980 2,102,156
Principal and interest receivable
on loans.......................... 3,596,836 3,138,181 2,376,094
Mortgage servicing rights.......... 893,992 330,364 127,122
Assets in charitable trusts........ 1,000,000 1,000,000 1,000,000
Other assets....................... 1,528,022 1,747,807 2,267,212
-------------- ------------ ------------
Total assets...................... $1,177,530,161 $973,104,715 $817,884,193
============== ============ ============
LIABILITIES AND STOCKHOLDERS'
EQUITY
Demand deposits.................... $ 160,966,042 $147,278,175 $118,490,803
NOW account deposits............... 114,210,098 103,754,145 95,485,946
Money market account deposits...... 141,316,906 149,096,741 146,779,625
Other savings deposits............. 160,125,653 157,868,656 152,600,646
Certificates of deposit of $100,000
or more........................... 30,299,027 26,453,179 16,147,569
Other time deposits................ 120,979,249 124,633,590 103,828,855
-------------- ------------ ------------
Total deposits.................... 727,896,975 709,084,486 633,333,444
Borrowings from the Federal Home
Loan Bank (Note 8)................ 343,506,683 171,295,274 102,685,085
Other short-term borrowings (Note
8)................................ 14,606,322 11,662,360 9,359,746
Current taxes payable.............. 255,080 178,325 275,953
Interest payable on deposits....... 1,060,045 1,255,127 1,078,374
Interest payable on borrowings..... 1,437,695 577,366 579,232
Post retirement benefits payable... 2,016,146 1,692,186 1,391,710
Employee profit sharing retirement
and bonuses payable............... 1,783,350 787,553 1,409,532
Other liabilities.................. 1,425,465 935,744 1,167,929
-------------- ------------ ------------
Total liabilities................. 1,093,987,761 897,468,421 751,281,005
-------------- ------------ ------------
Commitments and contingencies
(Notes 5 and 10)
Stockholders' equity (Notes 6 and
9)
Common stock, $2.50 par value
Authorized: 12,000,000 shares
Outstanding: 9,061,064 shares.... 22,652,660 11,326,330 11,326,330
Surplus........................... 13,903,294 25,229,624 25,229,624
Undivided profits................. 46,704,129 38,677,715 29,234,826
Accumulated other comprehensive
income........................... 282,317 402,625 812,408
-------------- ------------ ------------
Total stockholders' equity........ 83,542,400 75,636,294 66,603,188
-------------- ------------ ------------
Total liabilities and
stockholders' equity............. $1,177,530,161 $973,104,715 $817,884,193
============== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
for the Three Years Ended December 31, 1998
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans............... $48,258,130 $44,597,302 $40,839,410
Taxable interest income on securities.... 23,773,180 21,681,389 13,894,468
Tax-exempt interest income on
securities.............................. 740,344 759,957 794,063
Dividends on securities.................. 1,206,296 663,740 917,342
----------- ----------- -----------
Total interest income..................... 73,977,950 67,702,388 56,445,283
----------- ----------- -----------
INTEREST EXPENSE
Interest on deposits..................... 19,589,900 21,335,764 19,307,349
Interest on borrowings from the Federal
Home Loan Bank.......................... 15,955,929 8,961,486 3,712,583
Interest on other short-term borrowings.. 665,338 497,887 775,131
----------- ----------- -----------
Total interest expense.................... 36,211,167 30,795,137 23,795,063
----------- ----------- -----------
Net interest income....................... 37,766,783 36,907,251 32,650,220
Provision for loan losses (Note 4)........ -- -- --
----------- ----------- -----------
Net interest income after provision for
loan losses.............................. 37,766,783 36,907,251 32,650,220
----------- ----------- -----------
NON-INTEREST INCOME
Trust and Investment division fees....... 5,111,716 4,344,027 3,950,392
Credit card merchant fees................ 3,878,902 3,404,145 3,229,837
MoneyCard interchange fees............... 453,014 306,151 116,536
Service charges on deposit accounts...... 1,513,856 1,532,827 1,520,514
Return and overdraft charges............. 2,044,653 2,008,882 1,872,525
ATM fees................................. 612,677 529,441 219,366
Settlement from software provider (Note
13)..................................... -- 1,900,000 --
Net gain (loss) on sale of loans......... 353,958 115,834 (55,409)
Residential mortgage marketing gain
servicing rights........................ 686,537 236,577 137,671
Gain on sale of credit card portfolio.... -- 2,140,570 --
Net gain (loss) on sale of investment
securities (Note 2)..................... 383,888 535,678 131,746
Other.................................... 1,996,687 3,119,424 2,750,482
----------- ----------- -----------
Total non-interest income................. 17,035,888 20,173,556 13,873,660
----------- ----------- -----------
NON-INTEREST EXPENSE
Salaries and wages....................... 11,578,347 11,754,886 11,012,447
Employee benefits (Note 6)............... 4,707,206 4,577,627 4,436,349
Occupancy expense........................ 2,148,275 2,284,832 2,470,662
Equipment rental and expense............. 1,989,637 2,227,641 1,934,708
Credit card processing expense........... 3,275,084 3,197,436 2,932,946
Advertising and marketing expense........ 858,775 924,714 830,082
Printing and supplies.................... 876,808 945,835 1,141,094
Delivery and communication expense....... 1,390,952 1,316,440 1,094,235
Service charges correspondent banks...... 420,437 206,245 63,245
Directors' fees.......................... 329,300 324,854 295,263
Outside services......................... 4,578,965 4,075,618 2,098,680
ATM network expense...................... 407,686 293,427 388,418
Insurance expense........................ 336,143 336,252 259,022
Expenses from defaulted loans............ 120,777 116,275 153,365
Other.................................... 1,177,499 3,060,282 1,874,557
----------- ----------- -----------
Total non-interest expense................ 34,195,891 35,642,364 30,985,073
----------- ----------- -----------
Income before income taxes................ 20,606,780 21,438,443 15,538,807
Provision for income taxes (Note 7)....... 8,049,834 8,189,907 6,070,397
----------- ----------- -----------
Net income................................ $12,556,946 $13,248,536 $ 9,468,410
=========== =========== ===========
Average shares outstanding................ 9,061,064 9,061,064 9,052,580
Basic earnings per share (Notes 9 and
12)...................................... $ 1.39 $ 1.46 $ 1.05
Diluted earnings per share................ $ 1.38 $ 1.46 $ 1.05
Cash dividends declared................... .50 .42 .36
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Years Ended December 31, 1998
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
CASH PROVIDED BY OPERATING
ACTIVITIES
Net income....................... $ 12,556,946 $ 13,248,536 $ 9,468,410
Adjustments to reconcile net
income to net cash provided by
operating activities:
Provision for loan losses....... -- -- --
Depreciation and amortization... 1,913,955 2,194,828 1,704,379
Net amortization of securities.. 1,979,750 (2,085,330) (307,656)
Gain from Mortgage Servicing
rights......................... (686,537) (236,577) (137,671)
Amortization of deferred loan
fees costs..................... 862,228 821,635 (18,445)
Net gain on sale of investment
securities..................... (383,888) (535,678) (131,746)
Deferred (prepaid) income
taxes.......................... (664,597) 214,136 98,019
Gain from settlement............ -- (1,900,000) --
Gain on sale of loans........... (353,958) (115,834) 55,409
Gain on sale of credit card
portfolio...................... -- (2,140,570) --
Gain on sale of mutual funds
held for trading............... -- (1,068,320) --
Net change in:
Loans held for sale............. (14,210,369) (2,804,512) 806,459
Accrued interest receivable..... (776,650) (2,409,911) (1,467,487)
Accrued expenses and other
liabilities.................... 2,474,725 (378,801) 1,302,685
Other, net...................... 2,449,806 524,463 399,282
------------- ------------- -------------
Net cash provided by operating
activities...................... 5,161,411 3,328,065 11,771,638
------------- ------------- -------------
CASH USED BY INVESTING ACTIVITIES
Net increase in loans........... (159,465,444) (197,603,424) (55,619,727)
Proceeds from sale of loans..... 93,135,361 121,319,852 12,988,808
Dispositions of property from
defaulted loans................ 809,674 474,500 645,000
Purchase of mutual funds held
for trading.................... -- (75,000,000) --
Proceeds from sale of mutual
funds held for trading......... -- 76,068,320 --
Maturities of securities........ 490,955,326 289,317,822 166,738,525
Purchase of available for sale
securities..................... (866,415,999) (680,844,675) (501,787,175)
Sale of available for sale
securities..................... 243,852,925 335,485,576 197,169,611
Purchase of premises and
equipment...................... (2,130,960) (2,277,538) (4,166,119)
------------- ------------- -------------
Net cash used by investing
activities...................... (199,259,117) (133,059,567) (184,031,077)
------------- ------------- -------------
CASH PROVIDED BY FINANCING
ACTIVITIES
Net increase in deposits........ 18,812,489 75,751,042 64,020,388
Net increase in borrowings from
the Federal Home Loan Bank..... 172,211,409 68,610,189 93,298,788
Net increase in other short-term
borrowings..................... 2,943,962 2,302,614 3,582,367
Cash dividends paid on common
stock.......................... (4,530,532) (3,805,647) (3,216,678)
------------- ------------- -------------
Net cash provided by financing
activities...................... 189,437,328 142,858,198 157,684,865
------------- ------------- -------------
Net increase (decrease) in cash
and cash equivalents............ (4,660,378) 13,126,696 (14,574,574)
Cash and cash equivalents at
beginning of year............... 34,087,493 20,960,797 35,535,371
------------- ------------- -------------
Cash and cash equivalents at end
of year......................... $ 29,427,115 $ 34,087,493 $ 20,960,797
============= ============= =============
Cash equivalents include amounts
due from banks and federal funds
sold.
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid for:
Interest........................ $ 35,545,921 $ 30,620,250 $ 23,061,614
Income taxes.................... 9,476,298 5,540,921 5,603,982
Non-cash transactions:
Additions to property from
defaulted loans................ $ 188,900 $ 665,274 $ 975,000
Loans to finance OREO property.. 137,500 104,125 83,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Three Years Ended December 31, 1998
<TABLE>
<CAPTION>
1998 1997 1996
------------ ----------- -----------
<S> <C> <C> <C>
COMMON STOCK
Balance, beginning of year............ $ 11,326,330 $11,326,330 $ 5,663,165
Two-for-one stock distribution........ 11,326,330 -- 5,663,165
------------ ----------- -----------
Balance, end of year.................. 22,652,660 11,326,330 11,326,330
------------ ----------- -----------
SURPLUS
Balance, beginning of year............ 25,229,624 25,229,624 25,204,873
Two-for-one stock distribution........ (11,326,330) -- --
Difference between cost and current
value of ESOP stock allocated to em-
ployees.............................. -- -- 24,751
------------ ----------- -----------
Balance, end of year.................. 13,903,294 25,229,624 25,229,624
------------ ----------- -----------
UNDIVIDED PROFITS
Balance, beginning of year............ 38,677,715 29,234,826 28,646,259
Net income............................ 12,556,946 13,248,536 9,468,410
Cash dividends declared............... (4,530,532) (3,805,647) (3,216,678)
Two-for-one stock distribution........ -- -- (5,663,165)
------------ ----------- -----------
Balance, end of year.................. 46,704,129 38,677,715 29,234,826
------------ ----------- -----------
UNALLOCATED STOCK IN ESOP
Balance, beginning of year............ -- -- (82,409)
Allocated to employees................ -- -- 82,409
------------ ----------- -----------
Balance, end of year.................. -- -- --
------------ ----------- -----------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance, beginning of year............ 402,625 812,408 169,025
------------ ----------- -----------
Net other comprehensive income........ (120,308) (409,783) 643,383
------------ ----------- -----------
Balance, end of year.................. 282,317 402,625 812,408
------------ ----------- -----------
Total stockholders' equity, end of
year............................... $ 83,542,400 $75,636,294 $66,603,188
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three Years Ended December 31, 1998
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net income............................. $12,556,946 $13,248,536 $ 9,468,410
----------- ----------- -----------
Holding gains (losses) on securities
available for sale.................... 177,084 (104,462) 1,177,836
Reclassification of gains on securities
realized in income.................... (383,888) (535,678) (131,746)
----------- ----------- -----------
Net unrealized gains (losses).......... (206,804) (640,140) 1,046,090
Related tax effect..................... 86,496 230,357 (402,707)
----------- ----------- -----------
Net other comprehensive income......... (120,308) (409,783) 643,383
----------- ----------- -----------
Comprehensive income................... $12,436,638 $12,838,753 $10,111,793
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
Principles of consolidation--The accompanying consolidated financial
statements include the accounts of the Bank and its wholly owned subsidiaries.
All intercompany accounts have been eliminated upon consolidation in the
presentation of the consolidated financial statements.
Nature of operations--The Bank provides loans, deposit, trust and investment
services to businesses and consumers located in southeastern Massachusetts.
Use of estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Cash and cash equivalents--All the amounts shown as cash and due from banks
is made up of checks and similar items in the process of collection or as is
needed to satisfy a requirement to maintain a portion of the Bank's deposits
in an account at the Federal Reserve. Accordingly, it does not represent a
source of liquidity for the Bank.
Securities--Securities held for investment are stated at cost adjusted for
amortization of premium and accretion of discount and the Bank has the
positive intent and ability to hold those securities to maturity. Available
for sale securities are securities which might be sold prior to maturity to
meet needs for liquidity or for the purchase of alternative investments. These
securities are stated at market. Unrealized gains and losses on such
securities, if any, are credited or charged to stockholders' equity net of any
related tax effect. Trading securities are securities which are bought and
held principally for the purpose of selling them in the near term. At December
31, 1998, 1997, and 1996, the Bank did not own any trading securities. Gains
and losses on the sale of securities are recorded on the trade date and are
determined using the specific identification method.
Loans--Loans are reported at their principal outstanding, net of charge-
offs. Loan fees, net of the direct cost of originating a loan, are deferred
and taken into income over the life of the loan.
Interest income on loans is recognized when accrued. Accrual of interest
income on loans is discontinued when it is doubtful whether the borrower will
be able to pay principal and interest in full and/or when loan payments are 60
days past due unless the loan is fully secured by real estate or other
collateral held by the Bank. Interest previously accrued but not collected is
reversed and charged against interest income at the time the related loan is
placed on nonaccrual status. Interest collected on nonaccrual loans is
credited to interest income when received. When doubt exists as to the
ultimate collection of principal on a loan, the estimated loss is included in
the provision for loan losses.
Loans held for sale--Loans originated and intended for sale in the secondary
market are carried at the lower of cost or estimated fair value in the
aggregate. Net unrealized losses, if any, are recognized through a valuation
allowance by charges to income.
Impaired loans--A loan is considered impaired when, based on current
information and events, it is probable that a creditor will be unable to
collect the scheduled payments of principal or interest when due according to
the contractual terms of the loan agreement. Factors considered by management
in determining impairment include payment status, collateral value, and the
probability of collecting scheduled principal and interest payments when due.
Loans that experience insignificant payment delays and payment shortfalls
generally are not classified as impaired. Management determines the
significance of payment delays and payment shortfalls on a case-by-case basis,
taking into consideration all of the circumstances surrounding the loan and
the borrower, including the length of the delay, the reasons for the delay,
the borrower's prior payment record, and the amount of the shortfall in
relation to the principal and interest owed. Impairment is measured on a loan
by loan basis for commercial and construction loans by either the present
value of expected future cash flows discounted at the
24
<PAGE>
loan's effective interest rate, the loan's obtainable market price, or the
fair value of the collateral if the loan is collateral dependent.
Mortgage servicing rights--On January 1, 1997, the Bank adopted Statement of
Financial Accounting Standards No. 125 which requires that the fair value of
the right to service loans be capitalized when the loans are sold to other
investors and amortized against servicing income over the estimated life of
the underlying loans. Servicing assets are evaluated for impairment based upon
the fair value of the rights as compared to amortized cost. Impairment is
determined by stratifying rights by predominant characteristics, such as
interest rates and terms. Fair value is determined using prices for similar
assets with similar characteristics, when available, or based upon discounted
cash flows using market-based assumptions. Impairment is recognized through a
valuation allowance for an individual stratum, to the extent that fair value
is less than the capitalized amount for the stratum.
Reserve for loan losses--The reserve for loan losses is an estimate of the
amount necessary to provide an adequate reserve to absorb probable losses in
the current loan portfolio. This amount is determined by management based on a
regular evaluation of the loan portfolio and considers such factors as loan
loss experience and current economic conditions. Loan losses are charged
against the reserve when management believes the collectibility of the
principal is unlikely. Recoveries on loans previously charged off are credited
to the reserve. The reserve is an estimate, and ultimate losses may vary from
current estimates. As adjustments become necessary, they are reported in
earnings of the periods in which they become known.
Property from defaulted loans--Property from defaulted loans is carried at
the lower of the amount of the related loan or the estimated market value of
the assets received, less estimated selling costs. Property from defaulted
loans includes foreclosed properties where the Bank has actually received
title or taken possession. Provisions or losses subsequent to acquisition,
operating income and expenses, and gains or losses from the sale of properties
are credited or charged to income, while costs relating to improving real
estate are capitalized.
Premises and equipment--Premises and equipment are reported at cost less
accumulated depreciation. Depreciation is computed on a straight-line basis by
charges to income in amounts estimated to recover the cost of premises and
equipment over their estimated useful lives, which range between 3 and 8 years
for furniture and fixtures and up to 40 years for Bank premises and leasehold
improvements.
Marketing expense--The Bank charges to marketing expense any advertising
related expenses at the time they are due.
Provision for income taxes--The provision for income taxes includes deferred
income taxes arising as a result of reporting some items of revenue and
expense in different years for tax and financial reporting purposes.
Earnings per share--In 1997, the Bank adopted Statement of Financial
Accounting Standards No. 128 which changes the method of calculating earnings
per share and requires restatement of prior periods. This had no effect on
earnings per share for any prior period shown.
Reclassifications--Certain amounts in the 1996 and 1997 financial statements
have been reclassified to conform to the 1998 presentation without effect on
net income.
New accounting pronouncements--Effective January 1, 1997, the Bank adopted
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for
Transfers of Financial Assets and Extinguishment of Liabilities." This
Statement is effective for transfers and servicing of financial assets and
extinguishment of liabilities occurring after December 31, 1996. However, SFAS
No. 127, "Deferral of the Effective Date of Certain Provisions of SFAS No.
125," requires the deferral of implementation as it relates to repurchase
agreements, dollar-rolls, securities lending and similar transactions until
years beginning after December 31, 1997. Adoption of SFAS No. 125 and SFAS No.
127 in 1998 did not have a significant effect on the Bank's financial position
or results of operations.
25
<PAGE>
In February, 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 129, "Disclosure of Information About Capital Structure," which is
effective for the Bank's 1998 financial statements. The Bank's disclosures
comply with the provisions of this Statement.
In June, 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This Statement establishes standards for reporting and displaying
comprehensive income, which is defined as all changes to equity except
investments by and distributions to shareholders. Net income is a component of
comprehensive income, with all other components referred to in the aggregate
as other comprehensive income. The Bank's financial statements comply with the
provisions of this Statement.
Also, in June 1997, the FASB issued SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information," which is effective for the
Bank's 1998 financial statements. This Statement establishes standards for
reporting information about operating segments. An operating segment is
defined as a component of a business for which separate financial information
is available that is evaluated regularly by the chief operating decision maker
in deciding how to allocate resources and evaluate performance. The Bank has
determined that its business is comprised of a single operating segment and
that SFAS No. 131 therefore has no impact on its financial statements.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
About Pensions and Other Postretirement Benefits," which is effective for the
Bank's 1998 financial statements. This Statement standardizes disclosure
requirements for pensions and other postretirement benefits to the extent
practicable. The Bank's disclosures comply with the provisions of this
Statement.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in
its balance sheet and measures those instruments at fair value. The accounting
for changes in the fair value of a derivative depends on the intended use of
the derivative and the resulting designation. The Bank is required to adopt
this Statement effective January 1, 2000. Through December 31, 1998, the
Bank's use of derivative instruments has not been material.
(2) Securities
The adjusted cost and estimated market values of securities which the Bank
considers to be available for sale were as follows:
<TABLE>
<CAPTION>
December 31, 1998
----------------------------------------
Gross Gross Estimated
Adjusted Unrealized Unrealized Market
Cost Gains Losses Value
-------- ---------- ---------- ---------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C>
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 obliga-
tions............................... 79,107 617 176 79,548
State and municipal obligations...... 16,416 -- -- 16,416
Other debt securities................ 115,061 138 638 114,561
FHLB stock........................... 22,125 -- -- 22,125
-------- ------ ------ --------
Totals............................. $517,660 $2,385 $1,899 $518,146
======== ====== ====== ========
</TABLE>
The net unrealized gain on these securities is included net of tax in
stockholders' equity.
The Bank's investment securities are subject to market risk in the following
ways. $255,570,000 of the investment securities owned as of December 31, 1998
are floating rate instruments tied to various indices, primarily the 3-month
Treasury bill and LIBOR. Lesser amounts are tied to longer-term Treasury rates
and other indices. Almost all of these floating rate instruments are subject
to interest rate caps which range from 8% to 25%.
26
<PAGE>
The adjusted cost and estimated market values of securities which the Bank
considered to be available for sale were as follows:
<TABLE>
<CAPTION>
December 31, 1997
----------------------------------------
Gross Gross Estimated
Adjusted Unrealized Unrealized Market
Cost Gains Losses Value
-------- ---------- ---------- ---------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C>
U.S. Government agency CMOs.......... $121,507 $657 $ 57 $122,107
Other U.S. Government agencies....... 82,371 87 68 82,390
Other collateralized mortgage obliga-
tions............................... 64,540 198 107 64,631
State and municipal obligations...... 16,325 -- 3 16,322
Other debt securities................ 87,320 43 58 87,305
FHLB stock........................... 18,741 -- -- 18,741
-------- ---- ---- --------
Totals............................. $390,804 $985 $293 $391,496
======== ==== ==== ========
</TABLE>
The adjusted cost and estimated market values of securities which the Bank
considered to be available for sale were as follows:
<TABLE>
<CAPTION>
December 31, 1996
----------------------------------------
Gross Gross Estimated
Adjusted Unrealized Unrealized Market
Cost Gains Losses Value
-------- ---------- ---------- ---------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C>
U.S. Government agency CMOs.......... $155,527 $1,014 $130 $156,411
Other U.S. Government agencies....... 44,311 53 39 44,325
Other collateralized mortgage obliga-
tions............................... 70,394 379 62 70,711
State and municipal obligations...... 25,222 79 -- 25,301
Other debt securities................ 15,443 38 -- 15,481
FHLB stock........................... 16,835 -- -- 16,835
-------- ------ ---- --------
Totals............................. $327,732 $1,563 $231 $329,064
======== ====== ==== ========
</TABLE>
Gross proceeds from the sale of available for sale securities were
$243,852,925 in 1998. Gross gains of $394,397 and gross losses of $10,509 were
realized on those sales.
Gross proceeds from the sale of available for sale securities were
$271,238,838 in 1997. Gross gains of $562,228 and gross losses of $26,550 were
realized on those sales. Gross proceeds from the sale of available for sale
securities were $197,169,611 in 1996. Gross gains of $327,889 and gross losses
of $196,143 were realized on those sales. The amount of income tax expense
attributable to net gains in 1998, 1997 and 1996 was $161,584, $226,902 and
$56,148, respectively.
The adjusted cost and estimated market value of debt securities which the
Bank considered to be available for sale at December 31, 1998 by contractual
maturity are shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Adjusted Estimated
Cost Market Value
-------------- ----------------
(Dollar amounts in thousands)
<S> <C> <C>
Due in one year or less........................ $ 45,804 $ 45,846
Due after one year through five years.......... 60,672 60,742
Due after five years through ten years......... 79,833 79,629
Due after ten years............................ 331,351 331,929
-------------- --------------
Totals....................................... $ 517,660 $ 518,146
============== ==============
</TABLE>
27
<PAGE>
At December 31, 1998, securities carried at $147,845,000 were pledged to
secure public deposits and borrowings from the U.S. Treasury. Federal Home
Loan Bank stock of $22,125,400 is pledged to secure FHLB borrowings.
(3) Loans
The Bank enters into banking transactions in the ordinary course of its
business with directors, officers, principal stockholders and their
associates, on the same terms, including interest rates and collateral on
loans, as those prevailing at the same time for comparable transactions with
others. The total amount of loans outstanding to Directors and Officers at
December 31, 1998, 1997 and 1996 was $16,418,718, $15,937,340 and $13,244,549,
respectively. During 1998, $21,798,603 in new loans were made to Directors and
Officers and there were $21,317,225 in repayments. The total amount of
deposits of Directors and Officers at December 31, 1998, 1997 and 1996 was
$8,010,955, $8,413,028 and $4,751,376, respectively.
Nonaccrual loans at December 31, 1998, 1997 and 1996 amounted to $7,468,000,
$2,770,000 and $3,679,000, respectively. Gross income was reduced by $258,276
in 1998 because of the loss of income from these nonaccrual loans and others
which were charged off during the year.
The amount of restructured troubled debt which was performing in accordance
with amended terms at December 31, 1998, 1997 and 1996 was $478,000,
$1,131,000 and $3,439,000, respectively. For each of these years, the
difference between the amount of income recorded on these loans and the amount
of income that would have been recognized had the loans performed in
accordance with their original terms was not material.
Loans to finance other real estate owned in accordance to Statement of
Financial Accounting Standards No. 66 for the years ended December 31, 1998,
1997 and 1996 was $137,500, $104,125 and $83,000, respectively.
Included in the consumer loan totals for the years ended December 31, 1998,
1997 and 1996 are customer account overdrafts that the Bank reclassified as
loans in the amounts of $407,700, $742,806 and $1,224,519, respectively.
The Bank also has participated in loans with other entities. As of December
31, 1998, gross participation loans totaled $1,777,084 of which $1,001,080 was
participated out. December 31, 1997 gross participation loans totaled
$6,915,069 of which $3,344,963 was participated out. December 31, 1996 gross
participation loans totaled $7,970,918 of which $3,783,369 was participated
out.
The Bank's business is primarily in southeastern Massachusetts, and many of
the Bank's loan customers are involved in real estate construction or the
hotel and restaurant industry. This can cause a number of them to be similarly
affected by economic conditions.
Loans serviced for others are not included in the accompanying consolidated
balance sheets. The unpaid principal balances of mortgage and other loans
serviced for others were $122,908,000, $75,140,000 and $68,624,000 at December
31, 1998, 1997 and 1996, respectively.
The fair value balance of capitalized servicing rights was determined using
a discount rate of 8% and a prepayment speed of 7%.
The following summarizes mortgage servicing rights capitalized and
amortized, along with the aggregate activity in related valuation allowances:
<TABLE>
<CAPTION>
December 31,
-----------------
1998 1997 1996
----- ----- -----
(Dollar amounts
in thousands)
<S> <C> <C> <C>
Mortgage servicing rights capitalized........................ $ 687 $ 237 $ 138
===== ===== =====
Mortgage servicing rights amortized.......................... $ 123 $ 33 $ 11
===== ===== =====
</TABLE>
28
<PAGE>
(4) Reserve for Loan Losses
The changes in the reserve for loan losses during the three years ended
December 31, 1998 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Balance, beginning of year............. $10,962,345 $11,416,873 $11,701,258
Provision for loan losses.............. -- -- --
Charge-offs............................ (606,686) (1,336,521) (1,345,977)
Recoveries on loans previously charged
off................................... 751,974 881,993 1,061,592
----------- ----------- -----------
Balance, end of year................... $11,107,633 $10,962,345 $11,416,873
=========== =========== ===========
</TABLE>
The following is a summary of information pertaining to impaired loans:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Impaired loans without a valuation allow-
ance........................................ $ -- $ -- $ --
Impaired loans with a valuation allowance:
Commercial loans........................... $ 537,661 $ 193,108 $ 361,081
Commercial mortgage loans.................. 2,277,262 986,323 518,745
Residential mortgage loans................. 474,000 -- 196,306
---------- ---------- ----------
Total impaired loans..................... $3,288,923 $1,179,431 $1,076,132
========== ========== ==========
Valuation allowance related to impaired
loans....................................... $ 592,006 $ 212,298 $ 193,704
Additional FASB 114 reserves on impaired
loans....................................... 406,821 176,800 164,035
---------- ---------- ----------
Total valuation allowance for impaired
loans................................... $ 989,827 $ 389,098 $ 357,739
========== ========== ==========
Average investment in impaired loans......... $1,645,505 $1,086,660 $3,375,711
========== ========== ==========
Interest income recognized on impaired
loans....................................... $ 309,131 $ 108,666 $ 337,546
========== ========== ==========
Interest income recognized on a cash basis on
impaired loans.............................. $ 309,131 $ 108,666 $ 337,546
========== ========== ==========
</TABLE>
(5) Bank Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation and
amortization of $10,593,000 at December 31, 1998, $9,205,000 at December 31,
1997, and $7,941,000 at December 31, 1996. Certain banking premises are leased
under non-capitalized operating leases expiring at various dates through 2012.
Annual rental expenses under these leases were $808,000 in 1998, $767,000 in
1997, and $733,000 in 1996. The total rental commitments under non-cancelable
leases for future years are $5,023,000 not including amounts payable under
consumer price index escalator provisions in three such leases which become
effective in 1999 and later years. Annual commitments are $890,100 in 1999,
$694,000 in 2000, $479,000 in 2001, $431,000 in 2002, $396,000 in 2003 and a
total of $2,316,000 for the years 2004 through 2012. Certain of these leases
also contain renewal options.
<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Premises:
Land.............................................. $ 1,390 $ 1,390 $ 1,390
Buildings......................................... 7,781 8,048 7,096
Leasehold improvements............................ 4,114 3,810 3,437
Equipment......................................... 11,102 9,399 9,833
-------- ------- -------
Accumulated depreciation.......................... (11,540) (9,870) (8,665)
-------- ------- -------
$ 12,847 $12,777 $13,091
======== ======= =======
</TABLE>
29
<PAGE>
Depreciation expense for the years ended December 31, 1998, 1997 and 1996
amounted to $1,780,000, $2,101,000 and $1,621,000, respectively.
(6) Employee Benefits
The Bank has a defined contribution Profit Sharing Retirement Plan covering
substantially all employees following two years of service. Each year, the
Bank contributes amounts equal to 8% of each participant's compensation plus
4.3% of compensation over one-half the social security wage base. Profit
sharing retirement expense was $1,068,000 in 1998, $786,000 in 1997 and
$745,000 in 1996. Also in 1998, 1997, and 1996, bonuses were accrued under the
provisions of the Bank's Profit Incentive Plan totaling $706,000, $762,000 and
$660,000, respectively.
The Bank's Employee Stock Ownership Plan holds 44,600 shares of the Bank's
common stock. In 1996, the remaining 9,146 shares were allocated to employees
and $107,160 was recorded as expense.
The Bank has an unfunded plan for providing medical and life insurance
coverage for retired employees who meet age and service requirements. For an
employee retiring at age 65 with 30 or more years of service, the Bank pays
100% of the cost of his or her medical insurance and 50% of the cost of the
medical insurance of his or her dependents. The Bank also pays for the cost of
life insurance in an amount between $5,000 and $25,000 based on the earnings
of the employee and the number of years since retirement. Lesser benefits are
provided for employees who retire at a younger age or with fewer years of
service. The Bank's share of increases in the cost of providing post-
retirement medical insurance is limited to 5% per year for employees who
retire after 1993.
Statement of Financial Accounting Standards No. 106 requires that the
expected expense be recognized over the period that employees render the
service making them eligible for this benefit rather than when the premiums
are actually paid following retirement. S.F.A.S. No. 106 will increase the
amount of expense over the transitional period during which expense will be
charged for both the expense of current premiums and to build up a reserve of
approximately $3,000,000 for future premiums.
The following table sets forth the plan's funded status reconciled with the
amount shown in the Bank's statement of condition at December 31, 1998, 1997
and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Accumulated post-retirement benefit obliga-
tion:
Retirees................................. $ 796,448 $ 850,567 $ 737,035
Fully eligible active plan participants.. 564,518 430,087 390,504
Other plan participants.................. 1,629,512 1,508,428 1,572,669
---------- ---------- ----------
2,990,478 2,789,082 2,700,208
Plan assets at fair value.................. -- -- --
---------- ---------- ----------
Accumulated post-retirement benefit
obligation in excess of plan assets....... 2,990,478 2,789,082 2,700,208
Unrecognized net gain from past experience
different from that assumed and from
changes in assumptions.................... 563,568 550,854 449,102
Unrecognized prior service cost............ -- -- --
Unrecognized net obligation at transition.. (1,537,900) (1,647,750) (1,757,600)
---------- ---------- ----------
Unfunded accrued post-retirement benefit
expense................................... $2,016,146 $1,692,186 $1,391,710
========== ========== ==========
</TABLE>
30
<PAGE>
Net periodic post-retirement benefit for 1998, 1997 and 1996 included the
following components:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Service cost--benefits attributed to service
during the year................................ $153,799 $133,729 $148,301
Interest cost on accumulated post-retirement
benefit obligation............................. 171,024 172,768 194,908
Actual return on plan assets.................... -- -- --
Amortization of transition obligation over 20
years.......................................... 109,850 109,850 109,850
Amortization of gain............................ (550,854) (449,102) (242,958)
Asset gain deferred............................. 518,754 419,156 242,958
-------- -------- --------
Net periodic post-retirement benefit cost....... $402,573 $386,401 $453,059
======== ======== ========
</TABLE>
For measurement purposes, a 7% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1999; the rate was
assumed to decrease gradually to 5% by 2003 and remain level thereafter. The
health care cost trend rate assumption has a significant effect on the amounts
reported. To illustrate, increasing the assumed health care cost trend rates
by one percentage point in each year would increase the accumulated post-
retirement benefit obligation as of December 31, 1998 by $47,517 and the
aggregate service and interest cost components of net periodic post-retirement
benefit cost for the year then ended by $3,564.
The weighted-average discount rate used in determining the accumulated post-
retirement benefit obligation was 6.5%.
Post-employment benefits are all types of benefits provided to former or
inactive employees, their beneficiaries and covered dependents. Post-
employment benefits include, but are not limited to, salary continuation,
supplemental unemployment benefits, severance benefits, disability-related
benefits (including workers' compensation), job training and counseling, and
continuation of benefits such as health care benefits and life insurance
coverage.
In 1997, the Bank adopted a Stock Option Plan. Options on up to 400,000
shares may be granted under the plan. Options become exercisable over a period
of four years at the rate of 25% per year and expire after 10 years. The Bank
measures compensation cost for plans such as this using the intrinsic value
based method of accounting prescribed by APB Opinion No. 25. Accordingly, no
compensation cost was recognized on these options.
The table below shows the number of stock options which were outstanding at
the beginning and end of each year, and how many were exercised, granted,
forfeited or expired.
<TABLE>
<CAPTION>
1998 1997 1996
----------------------- ----------------------- -----------------------
Weighted Average Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
------ ---------------- ------ ---------------- ------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning
of year................ 26,000 $13.38 -- -- -- --
Granted................. 35,000 $20.34 26,000 $13.38 -- --
Exercised............... -- -- -- -- -- --
Forfeited............... -- $17.06 -- -- -- --
------ ------ ---
Outstanding, end of
year................... 57,000 $17.41 26,000 $13.38 -- --
====== ====== ===
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
Remaining
Exercise Price Number Outstanding Contractual Life Number Exercisable
-------------- ------------------ ---------------- ------------------
<S> <C> <C> <C>
$13.38 24,000 8.35 6,000
$20.75 24,000 9.12 --
$19.25 9,000 9.87 --
</TABLE>
31
<PAGE>
A value at the time of grant was calculated for each option using the Black-
Scholes option pricing model with an estimated average option life of 5 years
and using the five-year averages of price volatility of the Bank's common
stock dividend yield and a risk-free rate equal to the five-year Treasury
rate. The table below shows these assumptions and the weighted-average fair
value of the options which were granted during each year as well as what the
effect would have been if the Bank had adopted the fair value method of
accounting for stock options described in Statement of Financial Accounting
Standards No. 123.
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
Weighted average volatility.............. 26.90% 31.40%
Weighted average dividend................ 2.65% 2.93%
Weighted average risk-free rate.......... 5.23% 6.57%
Weighted average fair value of options
granted during the year................. $ 5.12 $ 3.94 --
Additional expense had the Bank adopted
S.F.A.S. 123............................ $ 39,628 $ 34,680 --
Related tax benefit...................... $ 16,575 $ 14,505 --
Pro-forma net income..................... $12,532,870 $13,228,361 $9,468,410
Pro-forma basic and diluted earnings per
share................................... $ 1.38 $ 1.46 $ 1.05
</TABLE>
The Bank has also entered into stock appreciation rights agreements with
selected employees who are paid the amount by which a certain number of shares
exceeds its value at the time the agreement was entered into. Stock
appreciation rights mature ten years after their issuance and are not
ordinarily exercisable prior to maturity. $84,375 was charged to compensation
expense in 1997. The table below shows the amount of stock appreciation rights
which were exercised, granted, forfeited, or expired.
<TABLE>
<CAPTION>
1998 1997 1996
--------------- ----------------- ---------------
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ -------- ------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of
year....................... -- -- 20,000 $9.50 20,000 $9.50
Granted..................... 3,700 $19.25 -- -- -- --
Exercised................... -- -- (20,000) $9.50 -- --
Forfeited................... -- -- -- -- -- --
----- ------ ------- ----- ------ -----
Outstanding, end of year.... 3,700 $19.25 -- -- 20,000 $9.50
===== ====== ======= ===== ====== =====
</TABLE>
(7) Provision for Income Taxes
The provision for income taxes for the three years ended December 31, 1998,
1997 and 1996, consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Current federal income tax................... $6,756,489 $5,940,648 $4,395,067
Current state income tax..................... 1,957,942 2,035,123 1,577,311
---------- ---------- ----------
8,714,431 7,975,771 5,972,378
---------- ---------- ----------
Deferred federal income tax.................. (523,786) 159,203 72,874
Deferred (prepaid) state income tax.......... (140,811) 54,933 25,145
---------- ---------- ----------
(664,597) 214,136 98,019
---------- ---------- ----------
$8,049,834 $8,189,907 $6,070,397
========== ========== ==========
</TABLE>
Deferred (prepaid) income tax expense results from the recognition of income
or expense items in different periods for income tax purposes than when they
are accrued, such as interest earned on nonaccrual loans and the provision for
possible loan losses.
32
<PAGE>
The following reconciles the provision for income taxes with the statutory
federal income tax rate of 35%.
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Tax at statutory rate...................... $7,209,146 $7,503,455 $5,438,582
Reduction due to tax-exempt income......... (293,139) (328,829) (315,350)
State taxes, net of federal tax benefit.... 1,112,989 1,358,537 1,088,728
Change in valuation reserve................ -- (373,912) --
Other, net................................. 20,838 30,656 (141,563)
---------- ---------- ----------
$8,049,834 $8,189,907 $6,070,397
========== ========== ==========
</TABLE>
In 1997, interest and dividends on securities included $1,068,320 of capital
gains from mutual fund investments. Capital loss carryovers were applied to
this income and the valuation reserve was reduced by $373,912.
At December 31, 1998, 1997 and 1996, the net deferred tax asset consisted of
the following:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Future bad debt deductions.................... $4,645,768 $4,486,888 $4,672,926
Nonaccrual loan interest...................... 675,093 185,662 42,038
Unfunded accrued benefits..................... 1,081,774 901,325 719,299
Potential value of capital loss carryovers.... -- -- 557,463
---------- ---------- ----------
Gross deferred tax asset.................... 6,402,635 5,573,875 5,991,726
Valuation reserve............................. -- -- 557,463
---------- ---------- ----------
Deferred tax asset.......................... 6,402,635 5,573,875 5,434,263
Deferred tax liability........................ 1,409,945 943,671 553,581
---------- ---------- ----------
Net deferred tax asset...................... $4,992,690 $4,630,204 $4,880,682
========== ========== ==========
</TABLE>
(8) Borrowings
Borrowings from the Federal Home Loan Bank at December 31, 1998 had maturity
dates between January 19, 1999 and June 10, 2013 and bore interest rates
between 4.85% and 7.05%. The weighted average interest rate on these
borrowings was 5.31%. The balance at November 30, 1998 of $363,035,140 was the
maximum amount outstanding at any month end during 1998. These borrowings are
collateralized by the Bank's residential mortgage loans and securities. The
Bank also has an IDEAL Way Line of Credit with Federal Home Loan Bank of
Boston. The unused balance at December 31, 1998, 1997 and 1996 was
$12,963,000.
Other short-term borrowings at December 31, 1998, 1997 and 1996 consisted of
a demand note payable to the U.S. Treasury of $212,748, $2,809,485 and
$3,100,647, respectively, and securities sold subject to agreements to
repurchase of $14,393,575, $8,852,875 and $6,259,099, respectively. These
borrowings are collateralized by the pledge of securities.
(9) Stockholders' Equity
On August 7, 1998, the Bank issued 4,530,532 shares of common stock in the
form of a 100% stock dividend. The effect of this transaction was to increase
the outstanding shares of common stock from 4,530,532 to 9,061,064. Net income
and dividends per share have been restated for all periods presented to
reflect this transaction.
As a member of the Federal Deposit Insurance Corporation, the Bank is
required to meet certain capital requirements. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Bank's financial statements. As of December 31, 1998,
1997 and 1996, the Bank met all regulatory capital requirements and satisfied
the requirements of the "well-capitalized" category under the Federal Deposit
Insurance
33
<PAGE>
Corporation Improvement Act. Management believes that there have been no
events or conditions that have affected the well-capitalized category of the
Bank.
The Bank is required to maintain a leverage ratio, stockholders' equity to
total assets, of at least 3%. For the Bank to be considered well-capitalized,
this ratio must be at least 5%. At December 31, 1998, the Bank's leverage
ratio was 7.1%.
Risk-based capital requirements also apply.
Some loan commitments, lines of credit and financial guarantees are subject
to capital requirements in addition to assets shown on the Bank's statement of
condition. The risk-based capital regulations assign one of four weights to
assets of the Bank--0%, 20%, 50% and 100%. Full capital must be maintained to
support assets with 100% risk weight, with proportionally lower capital
required for assets assigned a lower weight. Most of the Bank's investment
securities are assigned a 20% risk weight, and residential mortgages are
assigned a 50% risk weight. Most other assets are assigned to the 100% risk
category. At December 31, 1998, the Bank's total risk-weighted assets were
$733,756,000 and its net risk-weighted assets were $731,820,000.
Stockholders' equity and a portion of the reserve for loan losses can all be
used to meet capital requirements. The reserve for loan losses used to meet
risk-based capital requirements cannot be more than 1.25% of total risk-
weighted assets. At December 31, 1998, $9,172,000 of the reserve for loan
losses could be used toward risk-based capital requirements. $485,000 in
capital of the CCB&T Investment Company subsidiary is excluded for risk-based
capital calculations. Also, $121,000 of intangible assets is excluded for
risk-based capital calculations. Accordingly, at December 31, 1998, total
capital for risk-based capital purposes was $91,826,000 equal to 12.5% of
risk-weighted assets.
This ratio is required to be at least 8%, and for the Bank to be considered
well-capitalized it must be at least 10%.
Stockholders' equity alone is required to be at least 4% of net risk-
weighted assets. For the Bank to be considered well-capitalized, this ratio
must be at least 6%. At December 31, 1998, the Bank's stockholders' equity was
11.3% of net risk-weighted assets.
The risk-based capital ratio focuses on broad categories of credit risk.
However, the ratio does not take account of many other factors that can affect
a bank's financial condition. These factors include overall interest rate risk
exposure, liquidity, funding and market risks, the quality and level of
earnings, investment or loan portfolio concentrations, the quality of loans
and investments, the effectiveness of loan and investment policies, and
management's overall ability to monitor and control financial and operating
risks. In addition to evaluating capital ratios, an overall assessment of
capital adequacy must take into account each of these other factors,
including, in particular, the level and severity of problem and adversely
classified assets. In light of these other considerations, banks generally are
expected to operate above the minimum risk-based capital ratio and additional
requirements may be set by bank examiners.
Under state law, future cash dividends are limited to the balance in the
undivided profits account.
(10) Commitments and Contingencies
Substantially all of the amount shown as cash and due from banks is made up
of checks and similar items in the process of collection or is needed to
satisfy Federal Reserve requirements.
As of December 31, 1998, this requirement was $11,076,000 which included
$9,346,000 vault cash.
In the normal course of business, various commitments are entered into by
the Bank, such as standby letters of credit and commitments to extend credit,
which are not reflected in the consolidated financial statements.
34
<PAGE>
Management does not anticipate any material losses as a result of these
transactions. At December 31, 1998, 1997 and 1996, the Bank had the following
commitments outstanding:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Standby letters of credit.............. $ 2,356,000 $ 2,567,925 $ 3,346,000
Commitments to extend credit at fixed
rates................................. 9,465,067 10,108,350 4,707,000
Other commitments to extend credit..... 101,334,933 96,699,725 129,301,000
------------ ------------ ------------
Total commitments...................... $113,156,000 $109,376,000 $137,354,000
============ ============ ============
</TABLE>
In the event that interest rates increase during the period of the
commitment, commitments to extend credit at a fixed rate of interest could
result in the extension of credit at less than a prevailing rate of interest,
with accompanying loss of value to the Bank. Although the commitments shown
above are not carried on the statement of condition as loans, their risk is
comparable to that of loans which are carried on the statement of condition.
The Bank evaluates each customer's credit-worthiness on a case-by-case basis.
The amount of collateral obtained, if deemed necessary by the Bank upon
extension of credit, is based on management's credit evaluation of the
customer. Collateral held varies, but may include accounts receivable,
inventory, property, plant and equipment, residential property and income
producing commercial properties. In the event that no collateral is required,
or the collateral proved to be of no value to the Bank, the Bank would be
exposed to possible credit loss up to the maximum amount of these contingent
liabilities.
Since many of the commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily represent future cash
requirements.
(11) Disclosure about the Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 requires the disclosure
of the fair value of financial instruments for which it is practicable to
estimate that value.
At December 31, 1998, 1997 and 1996, the estimated fair values of the Bank's
financial instruments were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- -----------------
Carrying Fair Carrying Fair Carrying Fair
Amount Value Amount Value Amount Value
-------- -------- -------- -------- -------- --------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
Financial assets:
Cash and cash equiva-
lents................. $ 29,427 $ 29,427 $ 34,087 $ 34,087 $ 20,961 $ 20,961
Investment securities.. 518,146 518,146 391,496 391,496 329,064 329,064
Net loans.............. 600,853 608,962 520,148 520,620 442,015 444,467
Financial liabilities:
Deposits............... 727,897 729,704 709,084 709,780 633,333 633,820
Borrowings from Federal
Home Loan Bank........ 343,507 344,434 171,295 172,009 102,685 103,074
Other short-term
borrowings............ 14,606 14,606 11,662 11,662 9,360 9,360
</TABLE>
The carrying value of cash and cash equivalents and short-term borrowings
approximates fair value because of the short maturity of these financial
instruments.
Fair values of commitments not reflected in the financial statements are not
materially different from their carrying amounts.
Fair values of investment securities are based on quoted market prices, if
available. If a quoted market price is not available, fair value is estimated
using quoted market prices for similar securities.
35
<PAGE>
Because no market exists for a significant portion of the Bank's loans, fair
value estimates were based on judgments regarding estimated future cash flows,
current economic conditions, expected loss experience, risk characteristics of
various kinds of loans, and other such factors. These estimates are subjective
in nature and involve uncertainties and matters of significant judgment and
therefore cannot be determined with precision. Changes in assumptions could
significantly affect the estimates. Accordingly, unrealized gains or losses
are not expected to be realized.
As required by S.F.A.S. No. 107, the fair value of deposits does not include
the value of the ongoing relationships with depositors, sometimes referred to
as the "core deposit intangible", although it is unlikely that some amount
would be received for this relationship on an actual sale of deposits.
Similarly, the fair value of loans does not include any value assigned to
customer relationships.
(12) Earnings Per Share
The following reconciles the calculation of basic and diluted earnings per
share for the three years ending December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998
-----------------------------------
Income Shares Per Share
(numerator) (denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Basic earnings per share................... $12,556,946 9,061,064 $1.39
Effect of dilutive stock options........... -- 7,926
----------- ---------
Diluted earnings per share................. $12,556,946 9,068,990 $1.38
<CAPTION>
1997
-----------------------------------
Income Shares Per Share
(numerator) (denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Basic earnings per share................... $13,248,536 9,061,064 $1.46
Effect of dilutive stock options........... -- 3,504
----------- ---------
Diluted earnings per share................. $13,248,536 9,064,568 $1.46
<CAPTION>
1996
-----------------------------------
Income Shares Per Share
(numerator) (denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Basic and diluted earnings per share....... $ 9,468,410 9,052,434 $1.05
</TABLE>
36
<PAGE>
(13) Selected Quarterly Financial Data (unaudited)
The table below shows supplemental financial data for each quarter in 1998
and 1997.
<TABLE>
<CAPTION>
1998
---------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Interest income......... $16,875,617 $17,896,787 $19,501,548 $19,703,998
Interest expense........ 8,048,084 8,297,732 9,890,478 9,974,873
----------- ----------- ----------- -----------
Net interest income..... 8,827,533 9,599,055 9,611,070 9,729,125
Provision for loan loss-
es..................... -- -- -- --
Non-interest income..... 3,632,707 4,187,575 4,860,504 4,355,102
Non-interest expense.... 8,461,129 8,260,852 8,849,968 8,623,942
----------- ----------- ----------- -----------
Income before income
taxes.................. 3,999,111 5,525,778 5,621,606 5,460,285
Provision for income
taxes.................. 1,599,343 2,201,580 2,237,542 2,011,369
----------- ----------- ----------- -----------
Net income.............. $ 2,399,768 $ 3,324,198 $ 3,384,064 $ 3,448,916
=========== =========== =========== ===========
Average shares outstand-
ing.................... 9,061,064 9,061,064 9,061,064 9,061,064
Net income per share.... $.26 $.37 $.38 $.38
Cash dividends de-
clared................. $.12 $.12 $.13 $.13
<CAPTION>
1997
---------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Interest income......... $15,703,645 $16,359,726 $17,740,687 $17,898,330
Interest expense........ 7,044,933 7,426,532 8,020,327 8,303,345
----------- ----------- ----------- -----------
Net interest income..... 8,658,712 8,933,194 9,720,360 9,594,985
Provision for loan loss-
es..................... -- -- -- --
Non-interest income..... 5,258,625 4,002,706 4,492,101 6,420,124
Non-interest expense.... 7,738,989 8,648,095 9,156,816 10,098,464
----------- ----------- ----------- -----------
Income before income
taxes.................. 6,178,348 4,287,805 5,055,645 5,916,645
Provision for income
taxes.................. 2,369,938 1,629,994 2,019,962 2,170,013
----------- ----------- ----------- -----------
Net income.............. $ 3,808,410 $ 2,657,811 $ 3,035,683 $ 3,746,632
=========== =========== =========== ===========
Average shares outstand-
ing.................... 9,061,064 9,061,064 9,061,064 9,061,064
Net income per share.... $.42 $.30 $.33 $.41
Cash dividends de-
clared................. $.105 $.105 $.105 $.105
</TABLE>
As a result of continuing reductions in the amount of non-performing assets,
no provision for loan losses was made during 1997 or 1998.
Non-interest income in the first quarter of 1997 was increased by $1,900,000
received on the settlement of a dispute with a software provider. Non-interest
income in the fourth quarter of 1997 was increased by a $2,140,570 gain on the
sale of the Bank's credit card portfolio.
Because of the seasonal nature of the economy in the Bank's market area,
demand deposits and business activity follow a seasonal cycle with their low
point ordinarily being reached in February and their high point in August. As
a result of this cycle, operating income in past years has usually been at its
high during the third quarter of each year.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
On June 18, 1998, the accounting firm Ernst & Young, LLP, was dismissed by
the Company's Audit Committee and the accounting firm Grant Thornton, LLP, was
hired to replace them. The financial statements
37
<PAGE>
for the past two years did not contain an adverse opinion or a disclaimer of
opinion nor were the opinions qualified as to uncertainty, audit scope or
accounting principles. During the past two years and the subsequent interim
period preceding the dismissal, there were no disagreements with the former
accountant on any matter of accounting principles or practice, financial
statement disclosure, or auditing scope or procedure.
There were no changes in or disagreements with Accountants on accounting and
financial disclosures as defined by Item 304 of Regulation S-K.
PART III
Item 10. Directors and Executive Officers of the Registrant.
With the exception of certain information regarding the executive officers
of Bancorp and the Bank, the response to this item is incorporated by
reference from the discussion under the captions "Directors" and "Section
16(a) Beneficial Ownership Reporting Compliance" in Bancorp's definitive Proxy
Statement for the Annual Meeting of Stockholders ("Proxy Statement") to be
held on April 22, 1999, to be filed with the SEC pursuant to Regulation 14A of
the Exchange Act Rules.
Information regarding the executive officers of Bancorp is contained in Item
I of Part I to this Form 10-K under the caption "Executive Officers of the
Registrant."
Item 11. Executive Compensation.
The response to this item is incorporated by reference from the discussion
under the captions "Executive Compensation" and "The Board of Directors, its
Committees and Compensation" in Bancorp's Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The response to this item is incorporated by reference from the discussion
under the caption "Ownership by Management and Other Stockholders" in
Bancorp's Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
The Bank enters into banking transactions in the ordinary course of its
business with directors, officers, principal stockholders and their
associates, on the same terms including interest rates and collateral on
loans, as those prevailing at the same time for comparable transactions with
others. The total amount of loans outstanding to Directors and Officers of the
Bank at December 31, 1998, 1997 and 1996 was $16,418,718, $15,937,340, and
$13,244,549, respectively. During 1998, $21,798,603 in new loans were made to
Directors and Officers and there were $21,317,225 in repayments.
38
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
A. Documents filed as part of the report:
Exhibits as required by Item 601 of Regulation S-K ((S) 229.601 of this
chapter).
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<C> <S>
2.1 Plan of Reorganization and Acquisition dated as of October 8, 1998
between Bancorp and the Bank (filed as Exhibit 2.1 to Bancorp's
Current Report on Form 8-K filed with the SEC on February 11, 1999 and
incorporated herein by reference)
3.1 Articles of Organization of Bancorp (filed as Exhibit 3.1 to Bancorp's
Current Report on Form 8-K filed with the SEC on February 11, 1999 and
incorporated herein by reference)
3.2 By-laws of Bancorp (filed as Exhibit 3.2 to Bancorp's Current Report
on Form 8-K filed with the SEC on February 11, 1999 and incorporated
herein by reference)
4.1 Specimen certificate for shares of Common Stock of Bancorp (filed as
Exhibit 4.1 to Bancorp's Current Report on Form 8-K filed with the SEC
on February 11, 1999 and incorporated herein by reference)
10.1 Amended and Restated Change in Control Agreement with Stephen B.
Lawson
10.2 Amended and Restated Change in Control Agreement with Noal D. Reid
10.3 Amended and Restated Change in Control Agreement with Larry K. Squire
10.4 CCBT Bancorp, Inc. Stock Option Plan (filed as Exhibit 4.2 to
Bancorp's Registration Statement on Form S-8 filed with the SEC on
February 18, 1999 and incorporated herein by reference)
10.5 Cape Cod Bank and Trust Company Employee Stock Ownership and Plan and
Trust, as amended
11.1 Statement Regarding Computation of Per Share Earnings--Such
computation can be clearly determined from the material contained in
this Report.
12.1 Statement Regarding Computation of Ratios--Such computation can be
clearly determined from the material contained in this Report.
21.1 Subsidiaries of Bancorp--Bancorp has one direct subsidiary, Cape Cod
Bank and Trust Company, a Massachusetts-chartered commercial bank.
Cape Cod Bank and Trust Company has six subsidiaries: CCB&T Securities
Corp. which is a securities corporation; CCB&T Brokerage Direct, Inc.,
an investment broker/dealer; TBM Development Corp., RAFS Ltd.
Partnership, Osterville Concorde Ltd. and Osterville DC9 Ltd.
Partnership which are all inactive.
23.1 Consent of Grant Thornton, LLP, as independent public accountants
23.2 Consent of Ernst & Young, LLP, as independent public accountants
27.1 Financial Data Schedule
</TABLE>
- --------
B. Reports on Form 8-K:
A report on Form 8-K was filed by the Bank with the FDIC on July 27, 1998,
reporting a change in the registrant's certifying accountant.
A report on Form 8-K was filed by Bancorp with the SEC on February 11, 1999,
registering Bancorp's Common Stock in place of that of the Bank pursuant to
Rule 12g-3 under the Exchange Act.
39
<PAGE>
EXHIBIT 10.1
AMENDED AND RESTATED
CHANGE IN CONTROL AGREEMENT
THIS AMENDED AND RESTATED AGREEMENT is made and entered into this 11th day
of February, 1999, by and between Cape Cod Bank and Trust Company, a
Massachusetts trust company (the "Bank"), CCBT Bancorp, Inc., a Massachusetts
corporation (the "Company") (the Bank and the Company, collectively, the
"Employers") and Stephen B. Lawson, a resident of West Barnstable, Massachusetts
("Employee").
WITNESSETH, the Company is the holding company for the Bank;
WHEREAS the Employers have determined that it is in the best interests of
the Employers to allow the Employee to consider the prospect of a Change in
Control (as herein defined) in an objective manner and in consideration of the
services to be rendered by the Employee to the Employers and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by the Employers, the Employers are willing to provide, subject to
the terms of this Agreement, certain benefits upon the occurrence of a
Terminating Event (as herein defined) subsequent to a Change in Control.
WHEREAS the Employer and the Employee hereby amend and restate this
Agreement to reflect the reorganization of the Bank into holding company
structure, including the addition of the Company as a party to this Agreement.
NOW THEREFORE, in consideration of the promises and mutual covenants herein
contained, the Employers and the Employee hereby agree as follows:
1. DEFINITIONS.
1.1 "Affiliate" means:
1.1.1 A member of a controlled group of corporations of which either
of the Employers is a member; or
1.1.2 An unincorporated trade or business which is under common
control with either of the Employers as determined in
accordance with Section 414(c) of the Internal Revenue Code of
1986, as amended (henceforth the "Code") and regulations issued
thereunder.
For purposes hereof, a "controlled group of corporations" shall mean a
controlled group of corporations as defined in Section 1563(a) of the
Code determined without regard to Section 1563(a)(4) and (e)(3)(C) of
the Code.
<PAGE>
1.2 "Base Annual Salary" means the annualized value of the Employee's
salary, based on the most recent pay period, prior to a Change of
Control.
1.3 "Change in Duties" means:
1.3.1 A significant reduction in the nature or scope of the
Employee's authority or duties from those immediately prior to
the date on which a Change of Control occurs;
1.3.2 A reduction in the Employee's Base Annual Salary;
1.3.3 Exclusion from any incentive program from which the Employee
was previously eligible, or which other executives with
comparable duties participate in;
1.3.4 A change in location of the Employee's principal place of
employment by more than fifty (50) miles;
1.4 "Change in Control" shall be deemed to have occurred in any one of the
following events:
1.4.1 if there has occurred a change in control of either the Company
or the Bank which the Company or the Bank would be required to
report in response to Item 1 of Form 8-K promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or, if such form and the related regulations are no
longer in effect, any forms or regulations promulgated by the
Securities and Exchange Commission, pursuant to the Exchange
Act, which are intended to serve similar purposes; or
1.4.2 A Change in Control of the Company or the Bank has occurred
within the meaning of the Change in Bank Control Act, as
amended and the rules and regulations promulgated thereunder;
or
1.4.3 Without limitation such a Change in Control shall be deemed to
have occurred at such time as:
1.4.3.1 Any "person" (as the term is used in Section 13(d) and
14(d) of the Exchange Act), or group of persons acting
in concert, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act )
directly or indirectly, of any class of equity
securities of the Company representing 50% or more of
a class of equity securities except for any securities
purchased by the Bank's employee stock ownership plan
and trust; or
2
<PAGE>
1.4.3.2 Individuals who constitute the Board of the Company on
the date hereof (the "Incumbent Board") cease for any
reason to constitute at least a majority thereof,
provided that any person becoming a director
subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose
nomination for election by the Company's shareholders
was approved by the same Committee serving under an
Incumbent Board, shall be, for purposes of this clause
1.4.3.2 considered as though he were a member of the
Incumbent Board; or
1.4.3.3 A plan of reorganization, merger, consolidation, sale
of all or substantially all the assets of the Company
or a similar transaction occurs in which the Company
is not the resulting entity; or
1.4.3.4 A proxy statement shall be distributed soliciting
proxies from stockholders of the Company, by someone
other than the current management of the Company,
seeking stockholder approval of a plan or similar
transaction with one or more corporations as a result
of which the outstanding shares of the class of
securities then subject to such plan or transaction
are exchanged for or converted into cash or property
or securities not issued by the Company.
1.4.4 Notwithstanding the foregoing, no Change in Control shall be
deemed to occur by virtue of the Bank becoming a subsidiary of
the Company.
1.5 "Code" means the Internal Revenue Code of 1986, as from time to time
amended.
1.6 "Constructive Termination" means the voluntary termination of
employment by the Employee following a Change in Duties following a
Change of Control.
1.7 "Employment Compensation" means any salary, bonus or commissions paid
to the Employee as an employee (as defined in the Code) by any entity
other than the Employers or their successors. If the Employee is a
partner in a partnership, this definition shall include the Employee's
share of partnership income.
1.8 "Exchange Act" means the Securities Exchange Act of 1934, as from time
to time amended.
3
<PAGE>
1.9 "Termination for Cause" means the termination of the Employee's
employment with the Bank or the Company, as applicable, as a result
of:
1.9.1 The Employee's failure or refusal to perform the Employee's
duties occasioned by reason other than sickness or other
disability of the Employee, which is not cured within ten (10)
business days after written notice from the Bank or the
Company, as applicable, specifying such failure or refusal has
been delivered;
1.9.2 Commission by the Employee of any materially fraudulent,
dishonest or other act of misconduct in the performance of the
Employee's duties hereunder, other than at the specific
direction of the Board of the Bank or the Company, as
applicable; or
1.9.3 Conviction for any felony or crime involving moral turpitude.
1.10 "Voting Securities" means any securities which ordinarily possess the
power to vote in the election of directors without the happening of
any precondition or contingency.
2. TERM. Subject to the provisions for earlier termination hereinafter set
forth in Section 4 of this Agreement, the term of this Agreement shall
commence on the date hereof and end on the day preceding the second
anniversary hereof.
3. AUTOMATIC EXTENSION. Unless the Employee receives written notification
from either of the Employers of their intention not to renew this Agreement
at least twelve (12) months prior to the expiration date, plus any
extensions, the term of this Agreement shall automatically be extended by
twelve (12) months.
4. TERMINATION OF EMPLOYMENT.
4.1 Termination Prior to a Change in Control:
4.1.1 Prior to a Change in Control, the Employers may terminate the
Employee's employment under this Section of the Agreement for
any reason.
4.1.2 If the Employee's employment is terminated pursuant to this
Section 4.1, any severance policies maintained by the Bank or
the Company, as applicable, shall apply and no amounts shall be
payable pursuant to this Agreement.
4
<PAGE>
4.2 Termination following a Change in Control:
4.2.1 If, during a period of two years following a Change in Control,
the employment of the Employee is terminated by the Bank or the
Company, as applicable, for any reason, other than Cause, or if
the Employee is subject to Constructive Termination, benefits
shall be payable under Section 5.
4.2.2 If the Employee voluntarily terminates his or her employment
following a Change in Control for any reason other than
Constructive Termination, no amount shall be paid pursuant to
this agreement.
5. BENEFIT FOLLOWING A CHANGE IN CONTROL. If a benefit is payable, pursuant
to Section 4.2.1, the Employee shall receive, in monthly installments,
payable on the first of each month, an amount equal to:
5.1 One-twelfth (1/12th) of the Employee's Base Annual Salary, less any
withholding required pursuant to the Code; reduced by
5.2 Any Employment Compensation payable to the Employee for that month,
whether received currently or deferred.
5.3 This benefit shall be payable for 36 months following the termination
of the Employee's employment with the Bank or the Company, as
applicable.
5.4 No other amounts shall be payable under this Agreement in lieu of
bonuses, perquisites or other benefits maintained by the Employers,
nor shall the Employee be considered to continue in the employ of the
Bank or the Company, as applicable, while payments are being made
pursuant to this Section 5.
5.5 Limitation on Benefits.
5.5.1 It is the intention of the Employee and of the Employers that
no payments by the Employers to or for the benefit of the
Employee under this Agreement or any other agreement or plan
pursuant to which he is entitled to receive payments or
benefits shall be non-deductible to the Employers by reason of
the operation of Section 280G of the Code relating to parachute
payments. Accordingly, and notwithstanding any other provision
of this Agreement or any such agreement or plan, if by reason
of the operation of said Section 280G, any such payments exceed
the amount which can be deducted by the Employers, such
payments shall be reduced to the maximum amount which can be
deducted by the Employers. To the extent that payments
exceeding such maximum deductible amount have been made to or
for the benefit of the Employee,
5
<PAGE>
such excess payments shall be refunded to the Employers with
interest thereon at the applicable Federal Rate determined
under Section 1274(d) of the Code, compounded annually, or at
such other rate as may be required in order than no such
payments shall be non-deductible to the Employers by reason of
the operation of said Section 280G. To the extent that there is
more than one method of reducing the payments to bring them
within the limitations of said Section 280G, the Employee shall
determine which method shall be followed, provided that if the
Employee fails to make such determination within forty-five
days after the Employers have sent him written notice of the
need for such reduction, the Employers may determine the method
of such reduction in their sole discretion.
5.5.2 If any dispute between the Employers and the Employee as to any
of the amounts to be determined under this Section 5.5.2, or
the method of calculating such amounts, cannot be resolved by
the Employers and the Employee, either the Employers or the
Employee after giving three days' written notice to the other,
may refer the dispute to a partner in the Boston office of a
firm of independent certified public accountants selected
jointly by the Employers and the Employee. The determination of
such partner as to the amount to be determined under Section
5(a) and the method of calculating such amounts shall be final
and binding on both the Employers and the Employee. The
Employers shall bear the costs of any such determination.
6. MISCELLANEOUS.
6.1 Agreement Supersedes. This Agreement supersedes all prior agreements
and understandings by and between the Employee and the Employers and
of any Affiliates of their respective directors, officers,
shareholders, employees, attorneys, agents, or representatives,
including any Severance Agreement, Employment Letter, Employment
Terms, Non-Disclosure Agreement and /or Employment Agreement, and
constitutes the entire agreement between the parties, respecting the
subject matter hereof; there are no representations, warranties or
other commitments other than those expressed herein.
6.2 Noncontravention. The Employee represents and warrants to the
Employers that the Employee is not a party to or bound by, and the
employment of the Employee by the Employers or the Employee's
disclosure of any information to the Employers or their use of such
information will not violate or breach any employment, retainer,
consulting, license, non-competition, non-disclosure, trade secrets or
other agreement between the Employee and any other person,
partnership, corporation, joint venture, association or other entity.
6
<PAGE>
6.3 Modification; Waiver. No modification or amendment of, or waiver
under, this Agreement shall be valid unless signed in writing and
signed by the Employee and the Chairman of the Board of Directors of
the Bank and the Company, pursuant to expressed authority of the Board
of each entity.
6.4 Indemnification. The Employee and the Employers and their Affiliates
each agree to indemnify and hold the other harmless from, any and all
claims, lawsuits, losses, damages, expenses, costs and liabilities,
including, without limitation, court costs and attorney's fees which a
party to this Agreement may sustain as a result of, or in connection
with, either directly or indirectly, a breach or violation of any of
the provisions of this Agreement by the other party.
6.5 Remedies. The Employee hereby agrees that if the Employee violates
any provision of this Agreement, the Employers shall be entitled, if
they, or either of them, so elect, to institute and prosecute
proceedings at law or in equity to obtain damages with respect to such
violation or to enforce the specific performance of this Agreement by
the Employee or to enjoin the Employee from engaging in any activity
in violation hereof.
6.6 Waiver. The waiver by either party to this Agreement of a breach of
any provision of this Agreement by the other shall not operate or be
construed as a waiver of any subsequent breach.
6.7 Notices. Any communication which may be required under this Agreement
shall be in writing and shall be deemed to have been properly given
when delivered personally at the address set forth below for the
intended party during normal business hours, or when sent by U.S.
registered or certified mail, return receipt requested, postage
prepaid as follows:
If to the Bank or Cape Cod Bank and Trust Company
the Company: 307 Main Street
Hyannis, MA 02601
If to the Employee: Mr. Stephen B. Lawson
218 Willow Street
West Barnstable, MA 02668
Notices shall be given to such other addressee or address, or both, as
a particular party may from time to time request by written notice to
the other party to the Agreement. Each notice, request, demand,
approval or other communication which is sent in accordance with this
Section shall be deemed to be delivered, given and received for all
purposes of this Agreement as of two business days after the date of
deposit thereof for mailing in a duly constituted
7
<PAGE>
U.S. post office or branch thereof, one business day after deposit
with a recognized overnight courier service or upon written
confirmation of receipt of any facsimile transmission. Notice given to
a party hereto by any other method shall only be deemed to be
delivered, given and received when actually received in writing by
such party.
6.8 Binding Nature; Employment Status. This Agreement shall inure to the
benefit of and be binding upon the Employers, jointly and severally,
and the Employee. This is not an agreement for the employment of the
Employee and shall confer no rights on the Employee except as herein
expressly provided.
6.9 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of The Commonwealth of Massachusetts.
6.10 Allocation of Obligations. The Bank and the Company shall allocate
among themselves which party shall be responsible for paying the
severance payments and other benefits directed by this Agreement. The
payment by either party of such severance payments and other benefits
shall satisfy the obligations of the non-paying party under this
Agreement. Both the Bank and the Company shall be jointly liable in
the event of a failure by both parties to pay such severance payments
and other benefits.
6.11 Assignment; Prior Agreements. Neither the Employers nor the Employee
may make any assignment of this Agreement or any interest herein, by
operation of law or otherwise, without the prior written consent of
the other party, and without such consent any attempted transfer shall
be null and void and of no effect. This Agreement shall inure to the
benefit of and be binding upon the Employers and the Employee, their
respective successors, executors, administrators, heirs and permitted
assigns. In the event of the Employee's death prior to the completion
by the Employers of all payments due him under this Agreement, the
Employers shall continue such payments to the Employee's beneficiary
designated in writing to the Employers prior to his death (or to his
estate, if he fails to make such designation). This Agreement
supersedes any prior agreement covering the subject matter hereof.
6.12 Enforceability. If any portion or provision of this Agreement shall
to any extent be declared illegal or unenforceable by a court of
competent jurisdiction, then the remainder of this Agreement, or the
application of such portion or provision in circumstances other than
those as to which it is so declared illegal or unenforceable, shall
not be affected thereby, and each portion and provision of this
Agreement shall be valid and enforceable to the fullest extent
permitted by law.
8
<PAGE>
6.13 Waiver. No waiver of any provision hereof shall be effective unless
made in writing and signed by the waiving party. The failure of any
party to require the performance of any term or obligation of this
Agreement, or the waiver by any party of any breach of this Agreement,
shall not prevent any subsequent enforcement of such term or
obligation or be deemed a waiver of any subsequent breach.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as a
sealed instrument as of the day and year first above written.
CAPE COD BANK AND TRUST EMPLOYEE
COMPANY
a Massachusetts Corporation
By: /s/ John Otis Drew /s/ Stephen B. Lawson
------------------- ---------------------
Name: John Otis Drew Name: Stephen B. Lawson
Title: Chairman, Board of Directors
CCBT BANCORP, INC.
By:/s/ John Otis Drew
------------------
Name: John Otis Drew
Title: Chairman, Board of Directors
10
<PAGE>
AMENDED AND RESTATED
CHANGE IN CONTROL AGREEMENT
THIS AMENDED AND RESTATED AGREEMENT is made and entered into this 11th day
of February, 1999, by and between Cape Cod Bank and Trust Company, a
Massachusetts trust company (the "Bank"), CCBT Bancorp, Inc., a Massachusetts
corporation (the "Company") (the Bank and the Company, collectively, the
"Employers") and Noal D. Reid, a resident of South Yarmouth, Massachusetts
("Employee").
WITNESSETH, the Company is the holding company for the Bank;
WHEREAS the Employers have determined that it is in the best interests of
the Employers to allow the Employee to consider the prospect of a Change in
Control (as herein defined) in an objective manner and in consideration of the
services to be rendered by the Employee to the Employers and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by the Employers, the Employers are willing to provide, subject to
the terms of this Agreement, certain benefits upon the occurrence of a
Terminating Event (as herein defined) subsequent to a Change in Control.
WHEREAS the Employer and the Employee hereby amend and restate this
Agreement to reflect the reorganization of the Bank into holding company
structure, including the addition of the Company as a party to this Agreement.
NOW THEREFORE, in consideration of the promises and mutual covenants herein
contained, the Employers and the Employee hereby agree as follows:
1. DEFINITIONS.
1.1. "Affiliate" means:
1.1.1 A member of a controlled group of corporations of which either
of the Employers is a member; or
1.1.2 An unincorporated trade or business which is under common
control with either of the Employers as determined in
accordance with Section 414(c) of the Internal Revenue Code of
1986, as amended (henceforth the "Code") and regulations issued
thereunder.
For purposes hereof, a "controlled group of corporations" shall mean a
controlled group of corporations as defined in Section 1563(a) of the
Code determined without regard to Section 1563(a)(4) and (e)(3)(C) of
the Code.
<PAGE>
1.2 "Base Annual Salary" means the annualized value of the Employee's
salary, based on the most recent pay period, prior to a Change of
Control.
1.3 "Change in Duties" means:
1.3.1 A significant reduction in the nature or scope of the
Employee's authority or duties from those immediately prior to
the date on which a Change of Control occurs;
1.3.2 A reduction in the Employee's Base Annual Salary;
1.3.3 Exclusion from any incentive program from which the Employee
was previously eligible, or which other executives with
comparable duties participate in;
1.3.4 A change in location of the Employee's principal place of
employment by more than fifty (50) miles;
1.4 "Change in Control" shall be deemed to have occurred in any one of the
following events:
1.4.1 if there has occurred a change in control of either the Company
or the Bank which the Company or the Bank would be required to
report in response to Item 1 of Form 8-K promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or, if such form and the related regulations are no
longer in effect, any forms or regulations promulgated by the
Securities and Exchange Commission, pursuant to the Exchange
Act, which are intended to serve similar purposes; or
1.4.2 A Change in Control of the Company or the Bank has occured
within the meaning of the Change in Bank Control Act, as
amended and the rules and regulations promulgated thereunder;
or
1.4.3 Without limitation such a Change in Control shall be deemed to
have occurred at such time as:
1.4.3.1 Any "person" (as the term is used in Section 13(d) and
14(d) of the Exchange Act), or group of persons acting
in concert, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act ) directly
or indirectly, of any class of equity securities of the
Company representing 50% or more of a class of equity
securities except for any securities purchased by the
Bank's employee stock ownership plan and trust; or
2
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1.4.3.2 Individuals who constitute the Board of the Company on
the date hereof (the "Incumbent Board") cease for any
reason to constitute at least a majority thereof,
provided that any person becoming a director subsequent
to the date hereof whose election was approved by a
vote of at least three-quarters of the directors
comprising the Incumbent Board, or whose nomination for
election by the Company's shareholders was approved by
the same Committee serving under an Incumbent Board,
shall be, for purposes of this clause 1.4.3.2
considered as though he were a member of the Incumbent
Board; or
1.4.3.3 A plan of reorganization, merger, consolidation, sale
of all or substantially all the assets of the Company
or a similar transaction occurs in which the Company is
not the resulting entity; or
1.4.3.4 A proxy statement shall be distributed soliciting
proxies from stockholders of the Company, by someone
other than the current management of the Company,
seeking stockholder approval of a plan or similar
transaction with one or more corporations as a result
of which the outstanding shares of the class of
securities then subject to such plan or transaction are
exchanged for or converted into cash or property or
securities not issued by the Company.
1.4.4 Notwithstanding the foregoing, no Change in Control shall be
deemed to occur by virtue of the Bank becoming a subsidiary of
the Company.
1.5 "Code" means the Internal Revenue Code of 1986, as from time to time
amended.
1.6 "Constructive Termination" means the voluntary termination of
employment by the Employee following a Change in Duties following a
Change of Control.
1.7 "Employment Compensation" means any salary, bonus or commissions paid
to the Employee as an employee (as defined in the Code) by any entity
other than the Employers or their successors. If the Employee is a
partner in a partnership, this definition shall include the Employee's
share of partnership income.
1.8 "Exchange Act" means the Securities Exchange Act of 1934, as from time
to time amended.
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1.9 "Termination for Cause" means the termination of the Employee's
employment with the Bank or the Company, as applicable, as a result
of:
1.9.1 The Employee's failure or refusal to perform the Employee's
duties occasioned by reason other than sickness or other
disability of the Employee, which is not cured within ten (10)
business days after written notice from the Bank or the
Company, as applicable, specifying such failure or refusal has
been delivered;
1.9.2 Commission by the Employee of any materially fraudulent,
dishonest or other act of misconduct in the performance of the
Employee's duties hereunder, other than at the specific
direction of the Board of the Bank or the Company, as
applicable; or
1.9.3 Conviction for any felony or crime involving moral turpitude.
1.10 "Voting Securities" means any securities which ordinarily possess the
power to vote in the election of directors without the happening of
any precondition or contingency.
2. TERM. Subject to the provisions for earlier termination hereinafter set
forth in Section 4 of this Agreement, the term of this Agreement shall
commence on the date hereof and end on the day preceding the second
anniversary hereof.
3. AUTOMATIC EXTENSION. Unless the Employee receives written notification
from either of the Employers of their intention not to renew this Agreement
at least twelve (12) months prior to the expiration date, plus any
extensions, the term of this Agreement shall automatically be extended by
twelve (12) months.
4. TERMINATION OF EMPLOYMENT.
4.1 Termination Prior to a Change in Control:
4.1.1 Prior to a Change in Control, the Employers may terminate the
Employee's employment under this Section of the Agreement for
any reason.
4.1.2 If the Employee's employment is terminated pursuant to this
Section 4.1, any severance policies maintained by the Bank or
the Company, as applicable, shall apply and no amounts shall be
payable pursuant to this Agreement.
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4.2 Termination following a Change in Control:
4.2.1 If, during a period of two years following a Change in Control,
the employment of the Employee is terminated by the Bank or the
Company, as applicable, for any reason, other than Cause, or if
the Employee is subject to Constructive Termination, benefits
shall be payable under Section 5.
4.2 If the Employee voluntarily terminates his or her employment
following a Change in Control for any reason other than
Constructive Termination, no amount shall be paid pursuant to
this agreement.
5. BENEFIT FOLLOWING A CHANGE OF CONTROL. If a benefit is payable, pursuant
to Section 4.2.1, the Employee shall receive, in monthly installments,
payable on the first of each month, an amount equal to:
5.1 One-twelfth (1/12th) of the Employee's Base Annual Salary, less any
withholding required pursuant to the Code; reduced by
5.2 Any Employment Compensation payable to the Employee for that month,
whether received currently or deferred.
5.3 This benefit shall be payable for 24 months following the termination
of the Employee's employment with the Bank or the Company, as
applicable.
5.4 No other amounts shall be payable under this Agreement in lieu of
bonuses, perquisites or other benefits maintained by the Employers,
nor shall the Employee be considered to continue in the employ of the
Bank or the Company, as applicable, while payments are being made
pursuant to this Section 5.
5.5 Limitation on Benefits.
5.5.1 It is the intention of the Employee and of the Employers that
no payments by the Employers to or for the benefit of the
Employee under this Agreement or any other agreement or plan
pursuant to which he is entitled to receive payments or
benefits shall be non-deductible to the Employers by reason of
the operation of Section 280G of the Code relating to parachute
payments. Accordingly, and notwithstanding any other provision
of this Agreement or any such agreement or plan, if by reason
of the operation of said Section 280G, any such payments exceed
the amount which can be deducted by the Employers, such
payments shall be reduced to the maximum amount which can be
deducted by the Employers. To the extent that payments
exceeding such maximum deductible amount have been made to or
for the benefit of the Employee,
5
<PAGE>
such excess payments shall be refunded to the Employers with
interest thereon at the applicable Federal Rate determined
under Section 1274(d) of the Code, compounded annually, or at
such other rate as may be required in order than no such
payments shall be non-deductible to the Employers by reason of
the operation of said Section 280G. To the extent that there is
more than one method of reducing the payments to bring them
within the limitations of said Section 280G, the Employee shall
determine which method shall be followed, provided that if the
Employee fails to make such determination within forty-five
days after the Employers have sent him written notice of the
need for such reduction, the Employers may determine the method
of such reduction in their sole discretion.
5.5.2 If any dispute between the Employers and the Employee as to any
of the amounts to be determined under this Section 5.5.2, or
the method of calculating such amounts, cannot be resolved by
the Employers and the Employee, either the Employers or the
Employee after giving three days' written notice to the other,
may refer the dispute to a partner in the Boston office of a
firm of independent certified public accountants selected
jointly by the Employers and the Employee. The determination of
such partner as to the amount to be determined under Section
5(a) and the method of calculating such amounts shall be final
and binding on both the Employers and the Employee. The
Employers shall bear the costs of any such determination.
6. MISCELLANEOUS.
6.1 Agreement Supersedes. This Agreement supersedes all prior agreements
and understandings by and between the Employee and the Employers and
of any Affiliates of their respective directors, officers,
shareholders, employees, attorneys, agents, or representatives,
including any Severance Agreement, Employment Letter, Employment
Terms, Non-Disclosure Agreement and /or Employment Agreement, and
constitutes the entire agreement between the parties, respecting the
subject matter hereof; there are no representations, warranties or
other commitments other than those expressed herein.
6.2 Noncontravention. The Employee represents and warrants to the
Employers that the Employee is not a party to or bound by, and the
employment of the Employee by the Employers or the Employee's
disclosure of any information to the Employers or their use of such
information will not violate or breach any employment, retainer,
consulting, license, non-competition, non-disclosure, trade secrets or
other agreement between the Employee and any other person,
partnership, corporation, joint venture, association or other entity.
6
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6.3 Modification; Waiver. No modification or amendment of, or waiver
under, this Agreement shall be valid unless signed in writing and
signed by the Employee and the Chairman of the Board of Directors of
the Bank and the Company, pursuant to expressed authority of the Board
of each entity.
6.4 Indemnification. The Employee and the Employers and their Affiliates
each agree to indemnify and hold the other harmless from, any and all
claims, lawsuits, losses, damages, expenses, costs and liabilities,
including, without limitation, court costs and attorney's fees which a
party to this Agreement may sustain as a result of, or in connection
with, either directly or indirectly, a breach or violation of any of
the provisions of this Agreement by the other party.
6.5 Remedies. The Employee hereby agrees that if the Employee violates
any provision of this Agreement, the Employers shall be entitled, if
they, or either of them, so elect, to institute and prosecute
proceedings at law or in equity to obtain damages with respect to such
violation or to enforce the specific performance of this Agreement by
the Employee or to enjoin the Employee from engaging in any activity
in violation hereof.
6.6 Waiver. The waiver by either party to this Agreement of a breach of
any provision of this Agreement by the other shall not operate or be
construed as a waiver of any subsequent breach.
6.7 Notices. Any communication which may be required under this Agreement
shall be in writing and shall be deemed to have been properly given
when delivered personally at the address set forth below for the
intended party during normal business hours, or when sent by U.S.
registered or certified mail, return receipt requested, postage
prepaid as follows:
If to the Bank or Cape Cod Bank and Trust Company
the Company: 307 Main Street
Hyannis, MA 02601
If to the Employee: Mr. Noal D. Reid
156 Blue Rock Road
South Yarmouth, MA 02664
Notices shall be given to such other addressee or address, or both, as
a particular party may from time to time request by written notice to
the other party to the Agreement. Each notice, request, demand,
approval or other communication which is sent in accordance with this
Section shall be deemed to be delivered, given and received for all
purposes of this Agreement as of two business days after the date of
deposit thereof for mailing in a duly constituted
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U.S. post office or branch thereof, one business day after deposit
with a recognized overnight courier service or upon written
confirmation of receipt of any facsimile transmission. Notice given to
a party hereto by any other method shall only be deemed to be
delivered, given and received when actually received in writing by
such party.
6.8 Binding Nature; Employment Status. This Agreement shall inure to the
benefit of and be binding upon the Employers, jointly and severally,
and the Employee. This is not an agreement for the employment of the
Employee and shall confer no rights on the Employee except as herein
expressly provided.
6.9 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of The Commonwealth of Massachusetts.
6.10 Allocation of Obligations. The Bank and the Company shall allocate
among themselves which party shall be responsible for paying the
severance payments and other benefits directed by this Agreement. The
payment by either party of such severance payments and other benefits
shall satisfy the obligations of the non-paying party under this
Agreement. Both the Bank and the Company shall be jointly liable in
the event of a failure by both parties to pay such severance payments
and other benefits.
6.11 Assignment; Prior Agreements. Neither the Employers nor the Employee
may make any assignment of this Agreement or any interest herein, by
operation of law or otherwise, without the prior written consent of
the other party, and without such consent any attempted transfer shall
be null and void and of no effect. This Agreement shall inure to the
benefit of and be binding upon the Employers and the Employee, their
respective successors, executors, administrators, heirs and permitted
assigns. In the event of the Employee's death prior to the completion
by the Employers of all payments due him under this Agreement, the
Employers shall continue such payments to the Employee's beneficiary
designated in writing to the Employers prior to his death (or to his
estate, if he fails to make such designation). This Agreement
supersedes any prior agreement covering the subject matter hereof.
6.12 Enforceability. If any portion or provision of this Agreement shall
to any extent be declared illegal or unenforceable by a court of
competent jurisdiction, then the remainder of this Agreement, or the
application of such portion or provision in circumstances other than
those as to which it is so declared illegal or unenforceable, shall
not be affected thereby, and each portion and provision of this
Agreement shall be valid and enforceable to the fullest extent
permitted by law.
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6.13 Waiver. No waiver of any provision hereof shall be effective unless
made in writing and signed by the waiving party. The failure of any
party to require the performance of any term or obligation of this
Agreement, or the waiver by any party of any breach of this Agreement,
shall not prevent any subsequent enforcement of such term or
obligation or be deemed a waiver of any subsequent breach.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as a
sealed instrument as of the day and year first above written.
CAPE COD BANK AND TRUST EMPLOYEE
COMPANY
a Massachusetts Corporation
By: /s/ John Otis Drew /s/ Noal D. Reid
----------------------------- ---------------------------
Name: John Otis Drew Name: Noal D. Reid
Title: Chairman of the
Board of Directors
CCBT BANCORP, INC.
By: /s/ John Otis Drew
-----------------------------
Name: John Otis Drew
Title: Chairman of the
Board of Directors
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EXHIBIT 10.3
AMENDED AND RESTATED
CHANGE IN CONTROL AGREEMENT
THIS AMENDED AND RESTATED AGREEMENT is made and entered into this 11th day
of February, 1999, by and between Cape Cod Bank and Trust Company, a
Massachusetts trust company (the "Bank"), CCBT Bancorp, Inc., a Massachusetts
corporation (the "Company") (the Bank and the Company, collectively, the
"Employers") and Larry K. Squire, a resident of Orleans, Massachusetts
("Employee").
WITNESSETH, the Company is the holding company for the Bank;
WHEREAS the Employers have determined that it is in the best interests of
the Employers to allow the Employee to consider the prospect of a Change in
Control (as herein defined) in an objective manner and in consideration of the
services to be rendered by the Employee to the Employers and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by the Employers, the Employers are willing to provide, subject to
the terms of this Agreement, certain benefits upon the occurrence of a
Terminating Event (as herein defined) subsequent to a Change in Control.
WHEREAS the Employer and the Employee hereby amend and restate this
Agreement to reflect the reorganization of the Bank into holding company
structure, including the addition of the Company as a party to this Agreement.
NOW THEREFORE, in consideration of the promises and mutual covenants herein
contained, the Employers and the Employee hereby agree as follows:
1. DEFINITIONS.
1.1 "Affiliate" means:
1.1.1 A member of a controlled group of corporations of which either
of the Employers is a member; or
1.1.2 An unincorporated trade or business which is under common
control with either of the Employers as determined in
accordance with Section 414(c) of the Internal Revenue Code of
1986, as amended (henceforth the "Code") and regulations issued
thereunder.
For purposes hereof, a "controlled group of corporations" shall mean a
controlled group of corporations as defined in Section 1563(a) of the
Code determined without regard to Section 1563(a)(4) and (e)(3)(C) of
the Code.
1.2 "Base Annual Salary" means the annualized value of the Employee's
salary, based on the most recent pay period, prior to a Change of
Control.
<PAGE>
1.3 "Change in Duties" means:
1.3.1 A significant reduction in the nature or scope of the
Employee's authority or duties from those immediately prior to
the date on which a Change of Control occurs;
1.3.2 A reduction in the Employee's Base Annual Salary;
1.3.3 Exclusion from any incentive program from which the Employee
was previously eligible, or which other executives with
comparable duties participate in;
1.3.4 A change in location of the Employee's principal place of
employment by more than fifty (50) miles;
1.4 "Change in Control" shall be deemed to have occurred in any one of the
following events:
1.4.1 if there has occurred a change in control of either the Company
or the Bank which the Company or the Bank would be required to
report in response to Item 1 of Form 8-K promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or, if such form and the related regulations are no
longer in effect, any forms or regulations promulgated by the
Securities and Exchange Commission, pursuant to the Exchange
Act, which are intended to serve similar purposes; or
1.4.2 A Change in Control of the Company or the Bank has occurred
within the meaning of the Change in Bank Control Act, as
amended and the rules and regulations promulgated thereunder;
or
1.4.3 Without limitation such a Change in Control shall be deemed to
have occurred at such time as:
1.4.3.1 Any "person" (as the term is used in Section 13(d) and
14(d) of the Exchange Act), or group of persons acting
in concert, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act )
directly or indirectly, of any class of equity
securities of the Company representing 50% or more of
a class of equity securities except for any securities
purchased by the Bank's employee stock ownership plan
and trust; or
2
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1.4.3.2 Individuals who constitute the Board of the Company on
the date hereof (the "Incumbent Board") cease for any
reason to constitute at least a majority thereof,
provided that any person becoming a director
subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose
nomination for election by the Company's shareholders
was approved by the same Committee serving under an
Incumbent Board, shall be, for purposes of this clause
1.4.3.2 considered as though he were a member of the
Incumbent Board; or
1.4.3.3 A plan of reorganization, merger, consolidation, sale
of all or substantially all the assets of the Company
or similar transaction occurs in which the Company is
not the resulting entity; or
1.4.3.4 A proxy statement shall be distributed soliciting
proxies from stockholders of the Company, by someone
other than the current management of the Company,
seeking stockholder approval of a plan or similar
transaction with one or more corporations as a result
of which the outstanding shares of the class of
securities then subject to such plan or transaction
are exchanged for or converted into cash or property
or securities not issued by the Company.
1.4.4 Notwithstanding the foregoing, no Change in Control shall be
deemed to occur by virtue of the Bank becoming a subsidiary of
the Company.
1.5 "Code" means the Internal Revenue Code of 1986, as from time to time
amended.
1.6 "Constructive Termination" means the voluntary termination of
employment by the Employee following a Change in Duties following a
Change of Control.
1.7 "Employment Compensation" means any salary, bonus or commissions paid
to the Employee as an employee (as defined in the Code) by any entity
other than the Employers or their successors. If the Employee is a
partner in a partnership, this definition shall include the Employee's
share of partnership income.
1.8 "Exchange Act" means the Securities Exchange Act of 1934, as from time
to time amended.
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<PAGE>
1.9 "Termination for Cause" means the termination of the Employee's
employment with the Bank or the Company, as applicable, as a result
of:
1.9.1 The Employee's failure or refusal to perform the Employee's
duties occasioned by reason other than sickness or other
disability of the Employee, which is not cured within ten (10)
business days after written notice from the Bank or the
Company, as applicable, specifying such failure or refusal has
been delivered;
1.9.2 Commission by the Employee of any materially fraudulent,
dishonest or other act of misconduct in the performance of the
Employee's duties hereunder, other than at the specific
direction of the Board of the Bank or the Company, as
applicable; or
1.9.3 Conviction for any felony or crime involving moral turpitude.
1.10 "Voting Securities" means any securities which ordinarily possess the
power to vote in the election of directors without the happening of
any precondition or contingency.
2. TERM. Subject to the provisions for earlier termination hereinafter set
forth in Section 4 of this Agreement, the term of this Agreement shall
commence on the date hereof and end on the day preceding the second
anniversary hereof.
3. AUTOMATIC EXTENSION. Unless the Employee receives written notification
from either of the Employers of their intention not to renew this Agreement
at least twelve (12) months prior to the expiration date, plus any
extensions, the term of this Agreement shall automatically be extended by
twelve (12) months.
4. TERMINATION OF EMPLOYMENT.
4.1 Termination Prior to a Change in Control:
4.1.1 Prior to a Change in Control, the Employers may terminate the
Employee's employment under this Section of the Agreement for
any reason.
4.1.2 If the Employee's employment is terminated pursuant to this
Section 4.1, any severance policies maintained by the Bank or
the Company, as applicable, shall apply and no amounts shall be
payable pursuant to this Agreement.
4
<PAGE>
4.2 Termination following a Change in Control:
4.2.1 If, during a period of two years following a Change in Control,
the employment of the Employee is terminated by the Bamk or the
Company, as applicable, for any reason, other than Cause, or if
the Employee is subject to Constructive Termination, benefits
shall be payable under Section 5.
4.2.2 If the Employee voluntarily terminates his or her employment
following a Change in Control for any reason other than
Constructive Termination, no amount shall be paid pursuant to
this agreement.
5. BENEFIT FOLLOWING A CHANGE IN CONTROL. If a benefit is payable, pursuant
to Section 4.2.1, the Employee shall receive, in monthly installments,
payable on the first of each month, an amount equal to:
5.1 One-twelfth (1/12th) of the Employee's Base Annual Salary, less any
withholding required pursuant to the Code; reduced by
5.2 Any Employment Compensation payable to the Employee for that month,
whether received currently or deferred.
5.3 This benefit shall be payable for 24 months following the termination
of the Employee's employment with the Bank or the Company, as
applicable.
5.4 No other amounts shall be payable under this Agreement in lieu of
bonuses, perquisites or other benefits maintained by the Employers,
nor shall the Employee be considered to continue in the employ of the
Bank or the Company, as applicable, while payments are being made
pursuant to this Section 5.
5.5 Limitation on Benefits.
5.5.1 It is the intention of the Employee and of the Employers that
no payments by the Employers to or for the benefit of the
Employee under this Agreement or any other agreement or plan
pursuant to which he is entitled to receive payments or
benefits shall be non-deductible to the Employers by reason of
the operation of Section 280G of the Code relating to parachute
payments. Accordingly, and notwithstanding any other provision
of this Agreement or any such agreement or plan, if by reason
of the operation of said Section 280G, any such payments exceed
the amount which can be deducted by the Employers, such
payments shall be reduced to the maximum amount which can be
deducted by the Employers. To the extent that payments
exceeding such maximum deductible amount have been made to or
for the benefit of the Employee,
5
<PAGE>
such excess payments shall be refunded to the Employers with
interest thereon at the applicable Federal Rate determined
under Section 1274(d) of the Code, compounded annually, or at
such other rate as may be required in order than no such
payments shall be non-deductible to the Employers by reason of
the operation of said Section 280G. To the extent that there is
more than one method of reducing the payments to bring them
within the limitations of said Section 280G, the Employee shall
determine which method shall be followed, provided that if the
Employee fails to make such determination within forty-five
days after the Employers have sent him written notice of the
need for such reduction, the Employers may determine the method
of such reduction in their sole discretion.
5.5.2 If any dispute between the Employers and the Employee as to any
of the amounts to be determined under this Section 5.5.2, or
the method of calculating such amounts, cannot be resolved by
the Employers and the Employee, either the Employers or the
Employee after giving three days' written notice to the other,
may refer the dispute to a partner in the Boston office of a
firm of independent certified public accountants selected
jointly by the Employers and the Employee. The determination of
such partner as to the amount to be determined under Section
5(a) and the method of calculating such amounts shall be final
and binding on both the Employers and the Employee. The
Employers shall bear the costs of any such determination.
6. MISCELLANEOUS.
6.1 Agreement Supersedes. This Agreement supersedes all prior agreements
and understandings by and between the Employee and the Employers and
of any Affiliates of their respective directors, officers,
shareholders, employees, attorneys, agents, or representatives,
including any Severance Agreement, Employment Letter, Employment
Terms, Non-Disclosure Agreement and /or Employment Agreement, and
constitutes the entire agreement between the parties, respecting the
subject matter hereof; there are no representations, warranties or
other commitments other than those expressed herein.
6.2 Noncontravention. The Employee represents and warrants to the
Employers that the Employee is not a party to or bound by, and the
employment of the Employee by the Employers or the Employee's
disclosure of any information to the Employers or their use of such
information will not violate or breach any employment, retainer,
consulting, license, non-competition, non-disclosure, trade secrets or
other agreement between the Employee and any other person,
partnership, corporation, joint venture, association or other entity.
6
<PAGE>
6.3 Modification; Waiver. No modification or amendment of, or waiver
under, this Agreement shall be valid unless signed in writing and
signed by the Employee and the Chairman of the Board of Directors of
the Bank and the Company, pursuant to expressed authority of the Board
of each entity.
6.4 Indemnification. The Employee and the Employers and their Affiliates
each agree to indemnify and hold the other harmless from, any and all
claims, lawsuits, losses, damages, expenses, costs and liabilities,
including, without limitation, court costs and attorney's fees which a
party to this Agreement may sustain as a result of, or in connection
with, either directly or indirectly, a breach or violation of any of
the provisions of this Agreement by the other party.
6.5 Remedies. The Employee hereby agrees that if the Employee violates
any provision of this Agreement, the Employers shall be entitled, if
they, or either of them, so elect, to institute and prosecute
proceedings at law or in equity to obtain damages with respect to such
violation or to enforce the specific performance of this Agreement by
the Employee or to enjoin the Employee from engaging in any activity
in violation hereof.
6.6 Waiver. The waiver by either party to this Agreement of a breach of
any provision of this Agreement by the other shall not operate or be
construed as a waiver of any subsequent breach.
6.7 Notices. Any communication which may be required under this Agreement
shall be in writing and shall be deemed to have been properly given
when delivered personally at the address set forth below for the
intended party during normal business hours, or when sent by U.S.
registered or certified mail, return receipt requested, postage
prepaid as follows:
If to the Bank or Cape Cod Bank and Trust Company
the Company: 307 Main Street
Hyannis, MA 02601
If to the Employee: Mr. Larry K. Squire
8 Spinnaker Trail
Orleans, MA 02653
Notices shall be given to such other addressee or address, or both, as
a particular party may from time to time request by written notice to
the other party to the Agreement. Each notice, request, demand,
approval or other communication which is sent in accordance with this
Section shall be deemed to be delivered, given and received for all
purposes of this Agreement as of two business days after the date of
deposit thereof for mailing in a duly constituted
7
<PAGE>
U.S. post office or branch thereof, one business day after deposit
with a recognized overnight courier service or upon written
confirmation of receipt of any facsimile transmission. Notice given to
a party hereto by any other method shall only be deemed to be
delivered, given and received when actually received in writing by
such party.
6.8 Binding Nature; Employment Status. This Agreement shall inure to the
benefit of and be binding upon the Employers, jointly and severally,
and the Employee. This is not an agreement for the employment of the
Employee and shall confer no rights on the Employee except as herein
expressly provided.
6.9 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of The Commonwealth of Massachusetts.
6.10 Allocation of Obligations. The Bank and the Company shall allocate
among themselves which party shall be responsible for paying the
severance payments and other benefits directed by this Agreement. The
payment by either party of such severance payments and other benefits
shall satisfy the obligations of the non-paying party under this
Agreement. Both the Bank and the Company shall be jointly liable in
the event of a failure by both parties to pay such severance payments
and other benefits.
6.11 Assignment; Prior Agreements. Neither the Employers nor the Employee
may make any assignment of this Agreement or any interest herein, by
operation of law or otherwise, without the prior written consent of
the other party, and without such consent any attempted transfer shall
be null and void and of no effect. This Agreement shall inure to the
benefit of and be binding upon the Employers and the Employee, their
respective successors, executors, administrators, heirs and permitted
assigns. In the event of the Employee's death prior to the completion
by the Employers of all payments due him under this Agreement, the
Employers shall continue such payments to the Employee's beneficiary
designated in writing to the Employers prior to his death (or to his
estate, if he fails to make such designation). This Agreement
supersedes any prior agreement covering the subject matter hereof.
6.12 Enforceability. If any portion or provision of this Agreement shall
to any extent be declared illegal or unenforceable by a court of
competent jurisdiction, then the remainder of this Agreement, or the
application of such portion or provision in circumstances other than
those as to which it is so declared illegal or unenforceable, shall
not be affected thereby, and each portion and provision of this
Agreement shall be valid and enforceable to the fullest extent
permitted by law.
8
<PAGE>
6.13 Waiver. No waiver of any provision hereof shall be effective unless
made in writing and signed by the waiving party. The failure of any
party to require the performance of any term or obligation of this
Agreement, or the waiver by any party of any breach of this Agreement,
shall not prevent any subsequent enforcement of such term or
obligation or be deemed a waiver of any subsequent breach.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as a
sealed instrument as of the day and year first above written.
CAPE COD BANK AND TRUST EMPLOYEE
COMPANY
a Massachusetts Corporation
By: /s/ John Otis Drew /s/ Larry K. Squire
----------------------------- -------------------
Name: John Otis Drew Name: Larry K. Squire
Title: Chairman of the
Board of Directors
CCBT BANCORP, INC.
By: /s/ John Otis Drew
-----------------------------
Name: John Otis Drew
Title: Chairman of the
Board of Directors
10
<PAGE>
EXHIBIT 10.4
CAPE COD BANK AND TRUST COMPANY
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
Effective January 1, 1989
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 DEFINITIONS 2
1.01 Account........................................................... 2
1.02 Affiliated Employer............................................... 2
1.03 Annual Compensation............................................... 2
1.04 Beneficiary....................................................... 3
1.05 Board of Directors................................................ 3
1.06 Break in Service.................................................. 3
1.07 Committee......................................................... 3
1.08 Company........................................................... 3
1.09 Effective Date.................................................... 3
1.10 Employee.......................................................... 3
1.11 Entry Date........................................................ 4
1.12 Fiscal Year....................................................... 4
1.13 Limitation Year................................................... 4
1.14 Member............................................................ 4
1.15 Normal Retirement Age............................................. 4
1.16 Plan.............................................................. 4
1.17 Plan Year......................................................... 4
1.18 Stock............................................................. 4
1.19 Termination of Employment......................................... 5
1.20 Trustees.......................................................... 5
1.21 Trust Fund........................................................ 5
1.22 Year of Service................................................... 5
1.23 Valuation Date.................................................... 5
ARTICLE 2 ELIGIBILITY FOR PARTICIPATION..................................... 6
2.01 Eligibility of Participant........................................ 6
2.02 Eligibility Service............................................... 6
2.03 Hours of Service.................................................. 6
2.04 Reemployment of Former Members and Employees...................... 8
ARTICLE 3 CONTRIBUTIONS..................................................... 9
3.01 Initial Contribution.............................................. 9
3.02 Future Contribution............................................... 9
3.03 Limitation on Contributions....................................... 9
3.04 Timing of Contributions........................................... 10
3.05 Company's Contribution Irrevocable................................ 10
3.06 No Employee Contributions......................................... 10
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
ARTICLE 4 ALLOCATION OF CONTRIBUTIONS AMONG MEMBERS......................... 11
4.01 Method of Allocating Initial...................................... 11
4.02 Amount and Method of Subsequent Allocations....................... 12
4.03 Annual Additions Defined.......................................... 12
4.04 Limitation for this Plan.......................................... 12
4.05 Limitations Applicable to Members Covered by Defined Benefit Plan. 14
4.06 Combining of Plans and Companies.................................. 15
4.07 Participation in Another Defined Contribution Plan................ 16
4.08 Fractional Shares................................................. 16
ARTICLE 5 MEMBERS' ACCOUNTS................................................. 17
5.01 Separate Accounts................................................. 17
5.02 Value of Accounts................................................. 17
5.03 Value to be Used for Distributions................................ 17
5.04 Payment of Dividends.............................................. 17
5.05 Diversification................................................... 18
ARTICLE 6 ELIGIBILITY FOR DISTRIBUTION OF SHARES............................ 20
6.01 Termination of Employment......................................... 20
6.02 Death............................................................. 20
6.03 Designation of Beneficiary........................................ 20
6.04 Time for Payment.................................................. 21
6.05 Required Distribution............................................. 22
ARTICLE 7 PAYMENT OF BENEFITS............................................... 23
7.01 Method of Payment................................................. 23
7.02 Form of Payment................................................... 23
7.03 Limitations on Payments........................................... 23
7.04 Put Option........................................................ 24
7.05 Offer to Purchase................................................. 27
7.06 Restrictions on Shares of Company Stock........................... 27
ARTICLE 8 WITHDRAWALS....................................................... 29
8.01 No Withdrawal of Company Contributions............................ 29
ARTICLE 9 RIGHTS AND DUTIES OF TRUSTEES..................................... 30
9.01 Appointment of Trustees........................................... 30
9.02 Action by Majority of the Trustees................................ 30
9.03 Powers of Trustees................................................ 30
9.04 Investments....................................................... 30
9.05 Exercise of Voting Rights......................................... 31
9.06 Reliance on Trustees as Owner..................................... 34
9.07 Liquidation of Assets............................................. 34
9.08 Evidence on Which Trustees May Act................................ 34
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C>
9.09 Discretionary Action.............................................. 35
9.10 Records and Accounting............................................ 35
9.11 Payment of Taxes.................................................. 36
9.12 Compensation and Expenses of Trustees............................. 36
9.13 Legal Action...................................................... 37
9.14 Liability of Trustees............................................. 37
ARTICLE 10 ADMINISTRATION OF THE PLAN........................................ 39
10.01 Retirement and Administrative Committee........................... 39
10.02 Chairman, Secretary, Records...................................... 39
10.03 Majority Vote, Execution of Certificates.......................... 39
10.04 Powers............................................................ 40
10.05 Rules and Regulations............................................. 41
10.06 Other Fiduciary Capacity.......................................... 41
10.07 Employment of Professional Assistance............................. 41
10.08 Reliance.......................................................... 41
10.09 Expenses of Administration........................................ 41
10.10 Allocation of Fiduciary Responsibility............................ 42
10.11 No Joint Fiduciary Responsibilities............................... 43
10.12 Claims Procedure.................................................. 43
10.13 Notice to Employee................................................ 44
10.14 Government Reports................................................ 45
ARTICLE 11 NON-ALIENATION OF BENEFITS........................................ 46
11.01 Spendthrift Provision............................................. 46
11.02 Qualified Domestic Relations Orders............................... 46
ARTICLE 12 AMENDMENT AND TERMINATION......................................... 47
12.01 Right to Amend or Terminate....................................... 47
12.02 Liquidation of Trust Fund......................................... 47
ARTICLE 13 GENERAL PROVISIONS................................................ 48
13.01 Rights Against the Company........................................ 48
13.02 Records........................................................... 48
13.03 Payments to Incompetents.......................................... 48
13.04 Mailing of Benefits............................................... 48
13.05 Return of Contributions........................................... 49
13.06 Merger or Consolidation........................................... 50
13.07 Construction...................................................... 50
13.08 Liability of Company.............................................. 50
13.09 Impossibility of Performance...................................... 50
13.10 Headings.......................................................... 51
13.11 Execution of Agreement............................................ 51
</TABLE>
(iii)
<PAGE>
<TABLE>
<S> <C>
ARTICLE 14 TOP-HEAVY PROVISIONS.............................................. 52
14.01 Article Controls.................................................. 52
14.02 Definitions....................................................... 52
14.03 Top-Heavy Status.................................................. 57
14.04 Termination of Top-Heavy Status 59
</TABLE>
(iv)
<PAGE>
This AGREEMENT OF TRUST made this 24th day of August, 1989 by and between
Cape Cod Bank and Trust Company, in its capacity as an employer, (hereinafter
referred to as the "Company") and Cape Cod Bank and Trust Company, in their
capacity as trustee (hereinafter referred to as the "Trustees").
W I T N E S S E T H
WHEREAS the Company desires to afford eligible employees the opportunity of
sharing in the ownership of the Company; and
WHEREAS the Company believes this purpose can be accomplished by the
establishment of an employees' stock ownership plan and trust for the exclusive
benefit of its eligible employees as provided for under Sections 401 and 4975 of
the Internal Revenue Code of 1986 as now in effect or as hereafter amended
(hereinafter called the "Internal Revenue Code");
NOW, THEREFORE, the Company hereby establishes with the Trustees a trust
comprising a transfer of excess assets from the Retirement Plan for Employees of
the Cape Cod Bank and Trust Company which shall be considered the Company's
first year's contribution, such funds (including shares of the Company's stock)
as may be hereafter deposited with the Trustees by the Company, and any
increment thereto and income therefrom, all such property to be held by the
Trustee in trust as herein provided. The Trustee hereby accepts the Trust
created hereunder, and agrees to perform the duties imposed on it by the
provisions of this Agreement of Trust as set forth hereafter.
<PAGE>
ARTICLE 1
---------
DEFINITIONS
-----------
The following words and phrases as used herein shall have the following
meanings unless a different meaning is plainly required by the context:
1.01 "Account" means the separate account established for each Member of
-------
the Plan.
1.02 "Affiliated Employer" means any corporation, trade, business,
-------------------
partnership or proprietorship (other than the Company) which is a Member of the
controlled group which includes the Company pursuant to Code Sections 414(b) and
414(c) or which is a member of an affiliated service group (other than the
Company) which includes the Company pursuant to Code Section 414(m).
1.03 "Annual Compensation" means the basic compensation paid to an
-------------------
Employee by the Company while a Member during each Plan Year and including any
elective deferrals made under a plan maintained by the Company which qualifies
under Section 401(k) or Section 125 of the Code, but excluding bonus payments,
overtime, commissions and any expense allowance payments or any group life
insurance contributions includable in income. "Annual Compensation" to be taken
into account under the Plan shall not exceed Two Hundred Thousand Dollars
($200,000), or such other amount as may be provided pursuant to applicable law
or regulations; provided, however, that in determining the Annual Compensation
of a 5 percent owner (as defined in Section 416 of the Internal Revenue Code) or
one of the top 10 Employees by total earnings from the Company, the Annual
Compensation of a spouse and of
2
<PAGE>
a lineal descendant under the age of 19 before the end of the Plan Year shall be
aggregated with such Employee's Annual Compensation.
1.04 "Beneficiary" means the person or persons designated by the Member to
-----------
receive any amounts payable under the Plan after the death of the Member.
1.05 "Board of Directors" means the Board of Directors of the Company.
------------------
1.06 "Break in Service" means the twelve (12) month period commencing on
----------------
his date of employment and each anniversary thereafter during which the Employee
is credited with less than 501 Hours of Service.
1.07 "Committee" means the Retirement and Administrative Committee
----------
provided for in Section 10.01.
1.08 "Company" means Cape Cod Bank and Trust Company, and any successor
-------
corporation thereto, or any entity now or hereafter affiliated with Cape Cod
Bank and Trust Company which adopts this Plan by vote of its board of directors
and with the consent of the Company. The term "Company" also includes all of
the foregoing as the context may require.
1.09 "Effective Date" means January 1, 1989.
--------------
1.10 "Employee" means any person who is in the employ of the Company on or
--------
after January 1, 1989 and any person who is on a leave of absence which has been
approved by the Company and who was an Employee within the meaning of this
Section 1.10 on the day before the first day of the leave of absence (but only
for the period of the approved leave of absence); but excluding (i) any Employee
covered by a collective bargaining unit unless the collective bargaining
agreement specifically provides for such Employee's inclusion in the Plan, (ii)
any Employee who is not residing in the United States of America, (iii) any
person employed on a
3
<PAGE>
retainer basis (as with the performance of services for the Company of a legal,
accounting or consulting nature), or under circumstances as are not included
within the common law definition of "Employee", and (iv) any person who is
director of the Company unless such person is also a salaried Employee.
1.11 "Entry Date" means the January 1 or July 1 of each Plan Year.
----------
1.12 "Fiscal Year" means a twelve-month period beginning on January I and
-----------
ending on December 31.
1.13 "Limitation Year" means a twelve-month period coinciding with the
---------------
Plan Year.
1.14 "Member" means an Employee who has met the eligibility requirements
------
and is included in the Plan.
1.15 "Normal Retirement Age" means the date on which a Member reaches his
---------------------
sixty-fifth (65th) birthday.
1.16 "Plan" means the Cape Cod Bank and Trust Company Employee Stock
----
Ownership Plan as described herein and as it may be amended from time to time.
1.17 "Plan Year" means a twelve-month period beginning on January 1 and
---------
ending on December 31.
1.18 "Stock" means shares of common stock issued by the Company (or a
-----
member of the controlled group which includes the Company) which are readily
tradeable on an established securities market or, if such stock is not readily
tradeable, shares of common stock issued by the Company which meet the
requirements of Section 409(1)(2).
4
<PAGE>
1.19 "Termination of Employment" means separation from the employment of
-------------------------
the Company for any reason, including, but not limited to, Retirement, death,
disability, resignation or dismissal from the Company.
1.20 "Trustees" means the party or parties, individual or corporate, named
--------
and duly appointed by this instrument, and a successor Trustee or Trustees
acting hereunder.
1.21 "Trust Fund" means the Stock of the Company, cash, and other property
----------
held by the Trustees for purposes of the Plan.
1.22 "Year of-Service" means a Plan year during which the Employee earns
---------------
1,000 Hours of Service.
1.23 "Valuation Date" means December 31 of each year, and such other dates
--------------
as the Trustees may use from time to time for periodic valuation of the Trust
Fund.
Wherever used in this Plan the masculine shall include the feminine and the
singular shall include the plural, unless the context indicates otherwise.
5
<PAGE>
ARTICLE 2
---------
DEFINITIONS
-----------
2.01 Eligibility to Participate. An Employee shall be eligible to become a
--------------------------
Member of the Plan on the Entry Date coincident with or next following his
completion of two (2) years of Eligibility Service.
2.02 Eligibility Service. An Employee shall be credited with one year of
-------------------
"Eligibility Service" for each computation period in which he is credited with
1,000 Hours of Service, including periods of service prior to the Effective Date
of the Plan. The initial computation period shall be the twelve-month period
commencing on the Employee's date of employment. Subsequent computation periods
shall be the consecutive twelve-month periods commencing on the anniversary date
of the Employee's date of employment.
2.03 Hours of Service. An Employee shall be credited with an "Hour of
----------------
Service" on the following basis:
(a) each hour for which an Employee is paid or entitled to payment
for the performance of duties for the Company;
(b) each hour for which an Employee is paid, or entitled to payment,
by the Company on account of a period of time during which no
duties are performed (irrespective of whether the employment
relationship has terminated) due to vacation, holiday, illness,
incapacity (including disability), layoff, jury duty, military
duty or leave of absence. Hours under this paragraph shall be
calculated and credited pursuant to Section
6
<PAGE>
2530.200b-2 of the Department of Labor Regulations which are
incorporated herein by this reference;
(c) Unless otherwise credited under subsections (a) or (b), each hour
for which back pay, irrespective of mitigation of damages, is
either awarded or agreed to by the Company;
(d) each hour for which an Employee is neither paid nor entitled to
payment by the Company for a period when no duties are performed
due to illness or authorized leave of absence so long as the
Employee returns to the service of the Company upon the
expiration of his illness or upon the expiration of the period
for which the authorized leave of absence was granted and
provided further, that no more than 501 hours shall be credited
under this subsection (d) and then only to prevent a one-year
Break in Service, and
(e) unless otherwise credited under a preceding paragraph and only to
prevent Break in Service, each hour during a Maternity or
Paternity Leave of Absence for which an Employee would have been
compensated if he had continued to work his regular schedule as
in effect immediately prior to the date such leave began,
provided that no more than 501 hours shall be credited under this
paragraph (e) and that hours shall be credited to the Plan Year
in which the leave began, if necessary to prevent a one-year
Break in Service during such Plan Year, or to the following Plan
Year. "Maternity or Paternity Leave of Absence" means any leave
of
7
<PAGE>
absence of an Employee commencing on or after January 1, 1985,
due to:
(a) the pregnancy of the Employee,
(b) the birth of a child of the Employee,
(c) the adoption of a child by the Employee, or
(d) the caring for such child during the period immediately
following such birth or adoption.
Hours of Service granted under paragraph (c) shall be credited to the Employee
for the Plan Year to which the back pay award is applicable. An Employee shall
receive credit under this Section 2.03 for Hours of Service earned while
employed by an Affiliated Company, but only during the period of affiliation.
2.04 Reemployment of Former Members and Employees. A Former Member or a
--------------------------------------------
former Employee who has completed two years of Eligibility Service (but has not
yet become a Member) who is rehired by the Company after a Break in Service
shall be eligible to become a Member on his date of reemployment. Any other
Employee who is rehired by the Company shall be eligible to become a Member on
the Entry Date following his satisfaction of the requirements of Section 2.01
and based on the following computation periods: (1) if such Employee is rehired
before a Break in Service his original computation period determined under
Section 2.02 shall apply; (2) if such Employee is rehired after a Break in
Service a new computation period, commencing on his date of rehire shall apply.
An Employee's prior years of Eligibility Service shall be counted in determining
if the Employee has satisfied the eligibility requirements under Section 2.01.
8
<PAGE>
ARTICLE 3
---------
CONTRIBUTIONS
-------------
3.01 Initial Contribution. The Company's initial contribution shall be
--------------------
made in the form of a direct trust to trust transfer from the Retirement Plan
for Employees of Cape Cod Bank and Trust Company and in an amount equal to the
value of any excess assets in such plan determined after the satisfaction of all
liabilities for benefits, costs, and expenses pursuant to the termination of
such plan as of December 31, 1988; it being the Company's intent that such
transfer be in accordance with any conditions or requirements of Section 4980 of
the Internal Revenue Code. The initial contribution shall be used to purchase
Stock issued by the Company no later than ninety (90) days after the transfer to
the Plan (or such longer period as may be permitted, by the Secretary of the
Treasury); such Stock to have the characteristics necessary to qualify as
employer securities under Section 409(1) of the Code.
3.02 Future Contributions. After the initial contribution under Section
--------------------
3.01 has been fully allocated to the Accounts of Employees pursuant to Section
4.01, the Company's contributions under the Plan for each Fiscal Year shall be
in cash or that number of shares of Stock having a fair market value on the last
day of the Fiscal Year equal to such amount as shall be determined by the
Company in its sole discretion.
3.03 Limitation on Contributions. Except with regard to the initial
---------------------------
contribution under Section 3.01, the determination of the contribution shall be
made in such manner and within such time as required under applicable law,
regulation, or ruling to permit the Company to deduct such amount for the Fiscal
Year; provided, however, that such annual contribution, in conjunction with any
other plan sponsored by the Company and qualified under Section
9
<PAGE>
401(a) of the Internal Revenue Code, shall not exceed the maximum amount
deductible in arriving at the Company's taxable income for such year under the
provisions of Section 404 of the Internal Revenue Code, or any statute of
similar import. Notwithstanding the foregoing, the Company shall not make a
contribution under Section 3.02 until the initial contribution under Section
3.01 is fully allocated in accordance with Section 4.01.
3.04 Timing of Contributions. The contribution for which provision is made
-----------------------
in Section 3.02 shall be paid over to the Trustees by the Company prior to or
coincident with the date for filing its Federal income tax return (including the
period of any extensions thereof) for the Fiscal Year to which the contribution
relates.
3.05 Company's Contributions Irrevocable. Except as provided in Section
-----------------------------------
13.05, any and all contributions made to the Trust by the Company shall be
irrevocable and shall be applied in accordance with the provisions of the Plan
to provide benefits of the Plan; and neither such contributions nor any income
therefrom shall be used for, or diverted to, purposes other than for the
exclusive benefit of Members under the Plan.
3.06 No Employee Contributions. No Employee shall be required or permitted
-------------------------
to make any contributions under the Plan.
<PAGE>
ARTICLE 4
---------
ALLOCATION OF CONTRIBUTION AMONG MEMBERS
----------------------------------------
4.01 Method of Allocating Initial Contribution. The initial contribution
-----------------------------------------
to the Plan pursuant to Section 3.01 shall be allocated in accordance with the
following procedures:
(a) For the Plan Year in which the initial contribution occurs, one-
eighth (1/8) of the Stock purchased (or such higher proportion as
the Board of Directors may determine each year), but in no event
in excess of the limitation under Code Section 415, shall be
allocated as of the last day of the Plan Year to the Accounts of
Members who are then employed by the Company and who earned a
Year of Service during the Plan Year in the proportion that such
Member's Annual Compensation bears to the total Annual
Compensation of all Members; and
(b) Any excess Stock not allocated in accordance with subsection (a)
above shall be placed in a suspense account, and one-seventh
(1/7) of such Stock (or such higher proportion as the Board of
Directors may determine each year), but not in excess of the
amounts permitted in the limitation under Code Section 415, shall
be released and allocated as of the last day of each of the
following Plan Years until all such Stock has been allocated to
the Accounts of Members who are then employed by the Company in
the proportion that such Member's Annual Compensation bears to
the total Annual Compensation of all Members.
11
<PAGE>
4.02 Amount and Method of Subsequent Allocations. Except as provided in
-------------------------------------------
Section 4.01, the Company's contributions to the Plan each Plan Year shall be
allocated as of the last day of each Plan Year among the Members under the Plan
who are then employed by the Company and who earned a Year of Service during the
Plan Year. The allocation for each Member shall be based on the proportion that
such Member's Annual Compensation bears to the total Annual Compensation of all
Members. Such allocations shall be made after the Valuation Date coinciding with
the end of the Plan Year and after the first making adjustment of the Member
Accounts in accordance with Section 5.02.
4.03 Annual Additions Defined. The term "Annual Additions" for any
------------------------
Limitation Year means the amount of contributions made by the Company under the
Plan and allocated to the Member's Account for such Limitation Year. For
purposes of determining Annual Additions the allocation of Stock to a Member's
Account from the suspense account under Section 4.01(b) shall be valued at the
price of the Stock at the time such Stock was initially credited to the suspense
account.
4.04 Limitation for this Plan. The Annual Additions to a Member's Account
------------------------
under the Plan for any Limitation Year shall not exceed the lesser of (i)
twenty-five percent (25%) of the Member's total compensation for such Limitation
year, or (ii) $30,000 (or, if greater, one-quarter of the dollar limitation in
effect under Section 415(b)(1)(A) of the Internal Revenue Code).
4.041 In any Limitation Year in which no more than one-third of the
Company's contributions are allocated to highly compensated employees (within
the meaning of Section 414(q) of the Internal Revenue Code), the amount
otherwise described in 4.04(ii) shall be
12
<PAGE>
increased by the lesser of the amount otherwise described in 4-04(ii) or the
value of Company Stock contributed, purchased with cash contributed, or
allocated from the suspense account.
4.042 If it is determined that the Annual Additions to the Account of a
Member for any Limitation Year are in excess of the limitations contained in
Sections 4.04 and 4.041 due to the allocation of forfeitures, if any, as a
result of a reasonable error in estimating a Member's compensation, or under
other limited facts and circumstances, the Committee shall reduce the amount
allocated with respect to such Limitation Year, unless the terms of any other
qualified defined contribution plan maintained by the Employer provides for a
reduction in the Member's Annual Addition under such other plan. In accordance
with the provisions of Section 1.415-(6)(b)(6)(iii) of the Regulations issued
under the Internal Revenue Code, if any excess contribution is determined to
exist under this Plan, such amounts shall be held in a suspense account for the
Limitation Year and all amounts in such suspense account shall be reallocated at
the end of the next Limitation Year to the Accounts of all Members as part or
all, as the case may be, of the Employer's contribution for such Limitation
Year, or, if necessary, any subsequent Limitation Year, or, if necessary, any
subsequent Limitation Year.
4.043 For purposes of this Section 4.04, "compensation" means all earned
income, wages, salary and other amounts received for personal services rendered
in the course of employment with the Company but shall not include contributions
that qualify under Internal Revenue Code Sections 401(k) or 125 or other
contributions to plans of deferred compensation that are not includible in a
Member's gross income for the taxable year in which contributed, amounts
realized in connection with stock option or stock purchase plans, or other
amounts that receive special tax benefits.
13
<PAGE>
4.05 Limitations Applicable to Members Covered by Defined Benefit Plan. If
-----------------------------------------------------------------
a Member is or has ever been covered by a defined benefit plan maintained by the
Company, the maximum Annual Additions to a Member's Account for any Limitation
Year shall be limited to the amount determined as follows:
(a) First, there shall be computed under this Plan at the close of
each Limitation Year a fraction in which the numerator is the sum of the Annual
Additions to the Member's Account as of the end of the Limitation Year and the
denominator is the sum for all years of an Employee's service of the lesser of:
(i) one-hundred twenty-five percent (125%) of the maximum dollar
limit pursuant to Section 415(c)(1)(A) of the Internal
Revenue Code for the applicable year but determined without
regard to the special dollar limitation under Section 4.041;
or
(ii) one-hundred forty percent (140%) of twenty-five (25%) of the
Member's total compensation as defined in Section 4.043 for
the applicable year;
(b) Second, there shall be computed under the defined benefit plan as
of the close of each Limitation Year a fraction in which the
numerator is the Member's projected benefit at Normal Retirement
Date under such plan in which the Member participates (assuming
continued employment and level compensation) and the denominator
is the lesser of:
14
<PAGE>
(i) one-hundred twenty-five percent (125%) of the maximum limit
pursuant to Section 415(b)(1)(A) of the Internal Revenue
Code for that year; or
(ii) one-hundred forty percent (140%) of the Member's average
compensation for the three consecutive calendar years while
a Member of the Plan in which his compensation as defined in
Section 4.043 was highest;
(c) Third, the sum of the fractions determined under (a) and (b) above
shall not exceed 1.0. If it is determined that such limitation for
any Limitation Year has been or will be exceeded and if the
fraction determined under (b) above is not adjusted to avoid
exceeding such limitation, then the Annual Additions to the
Member's Account for such Limitation Year shall be reduced as
necessary in order to avoid exceeding such limitation.
4.06 Combining of Plans and Companies. For purposes of determining the
--------------------------------
limitations contained in this Article 4,
(a) all defined contribution plans (whether or not terminated) of the
Company or an Affiliated Employer shall be treated as one defined
contribution plan and the Member's various individual accounts
under such plans shall be aggregated;
(b) all defined benefit plans (whether or not terminated) of the
Company or an Affiliated Employer shall be treated as one defined
benefit plan.
15
<PAGE>
4.07 Participation in Another Defined Contribution Plan. If a Member is a
--------------------------------------------------
participant in another defined contribution plan in addition to this Plan, and
as a result of the limitation in Section 4.05 the Member has or will have an
excess Annual Addition in a Limitation Year, then the allocations to the
Member's Account under this Plan will first be reduced in order to satisfy such
limitation.
4.08 Fractional Shares. Shares shall be allocated to the Members' accounts
-----------------
under Sections 4.01 and 4.02 to the nearest one-thousandth of a share.
16
<PAGE>
ARTICLE 5
---------
MEMBERS' ACCOUNTS
-----------------
5.01 Separate Accounts. The Company (or their agent) shall maintain
-----------------
individual Accounts of the interest of Members. Each such Account shall show in
dollars and/or in shares of Stock the Member's share of the Trust Fund. A
Member shall be fully vested in the value of his Account at all times.
5.02 Value of Accounts. As of each Valuation Date the Trustees shall
-----------------
determine the total net worth of-the Trust Fund by valuing all the assets of
such Trust Fund exclusive of the Company's contributions for the respective Plan
Year. The valuation of all such assets shall be at their fair market value as
of such Valuation Date. Each Member's Account shall then be credited with the
Member's allocable share of Stock for the Plan Year and any Stock received in
the form of stock splits. In addition, a Member's Account shall be adjusted to
reflect the Member's proportionate share of any earnings or losses in the Trust
Fund due to investments in other than Company Stock or the dividends on Company
Stock distributed to Members in accordance with Section 5.04.
5.03 Value to be Used for Distributions. The value of a Member's share in
----------------------------------
the Trust Fund for purposes of a distribution due to a Termination of Employment
shall be the value of the Member's Account as of the date of distribution and
based on the number of shares (and fractional shares) of Stock in his Account as
of the Valuation Date immediately following such Termination of Employment.
5.04 Payment of Dividends. Dividends received by the Trust on Stock
--------------------
allocated to a Member's Account shall be paid to such Member in cash as soon as
practicable after receipt by
17
<PAGE>
the Trustee, but not later than ninety (90) days after the end of the Plan Year
in which the dividends were received. Dividends received by the Trust on Stock
held in the Suspense Account shall be paid to Members in cash in the same
proportion that the number of shares of Stock allocated to a Member's Account
bears to the total number of shares of Stock allocated to the Accounts of all
Members; such dividends to be paid as soon as practicable after receipt of the
dividend by the Trustee, but no later than ninety (90) days after the end of the
Plan Year in which the dividends were received.
5.041 Notwithstanding Section 5.04, the Company may provide that the
dividends allocable to each Member under Section 5.04 shall be paid directly to
the Member (or the Member's Beneficiary) without first being paid into the
Trust. The Company shall instruct the Trustee to provide to the Company's
dividend paying agent any necessary information to pay and process such dividend
amounts, provided the Trustee is given reasonable notification by the Company.
5.05 Diversification. A Member who has attained age fifty-five (55) and
---------------
has completed ten (10) years of participation in the Plan may elect, within
ninety (90) days after the close of each Plan Year in the six (6) Plan Year
period beginning with the Plan Year he attains age fifty-five (55) (or he
completes ten (10) years of Eligibility Service, if later) to receive a
distribution of twenty-five percent (25%) of his Account in the Plan (to the
extent such portion exceeds the amount of any prior distribution under this
Section). The Member may elect to receive a distribution of up to fifty percent
(50%) of his Account (to the extent such portion exceeds the amount of any prior
distribution under this Section) for the last Plan Year such election is
available to him. The distribution of a portion of the Member's Account
18
<PAGE>
covered
by this election shall be made within ninety (90) days after the period during
which the election may be made.
19
<PAGE>
ARTICLE 6
---------
ELIGIBILITY FOR DISTRIBUTION OF SHARES
--------------------------------------
6.01 Termination of Employment. Subject to the provisions of Section 6.05,
-------------------------
a Member shall be eligible to receive the value of his Account within a
reasonable period of time (not to exceed 180 days) following the end of the Plan
Year in which occurs his Termination of Employment.
6.02 Death. In the event that any Member shall die while in the service of
-----
the Company, or after he has (a) retired from service with the Company, or (b)
terminated his Service with the Company, but before he has received the entire
amount to his credit in the Trust Fund, all amounts held for the benefit of the
Member shall be paid to the Beneficiary or Beneficiaries designated under the
provisions of 6.03; provided, however that in the event there is no named
Beneficiary surviving, or in the event that the named Beneficiary or
Beneficiaries should die before receiving all amounts held in the Member's
Account, any amount due shall be paid in equal portions to such person or
persons in the following classes of successive beneficiaries surviving the
Member: the Member's (a) spouse, (b) natural and adopted children, and children
of deceased children, per stirpes (c) parents in equa1 shares, (d) brothers and
sisters and nephews and nieces who are children of deceased brothers and
sisters, per stirpes, or (e) executors or administrators. The payment shall be
made in a lump sum.
6.03 Designation of Beneficiary. When an Employee becomes a Member under
--------------------------
the Plan he shall designate a Beneficiary who shall be the surviving spouse of
the Member, or, who shall be the person or persons designated by the Member in
the latest written notice received by the Trustees on a form provided by the
Trustees in the event that either: (a) the
20
<PAGE>
deceased Member is not survived by a spouse, or (b) the deceased Member's
surviving spouse had irrevocably agreed, in writing, witnessed by a notary
public or a Plan representative, to the designation of another specified
Beneficiary. The Member shall have the right to change his Beneficiary from time
to time in the manner hereinabove described, provided the applicable spousal
consent requirements are again satisfied.
6.04 Time for Payment. Unless the Member otherwise elects another date in
----------------
writing, in no event will payment of benefits be eligible to commence later than
the time set forth in Section 6.041 or, if earlier, one (1) year after the close
of the Plan Year in which the latest of the following events occurs:
(a) the Member separates from service by reason of attaining his
Normal Retirement Age, disability or death; or
(b) the fifth Plan Year following the Plan Year in which the Member
otherwise separates from service, provided that such Member is not
reemployed before the distribution is required to begin under this
subsection (b).
6.041 Unless the Member otherwise elects another date in writing, in no
event will payment of benefits be eligible to commence later then the sixtieth
(60th) day after the close of the Plan Year in which the latest of the following
events occurs:
(a) the Member's sixty-fifth (65th) birthday;
(b) the tenth (10th) anniversary of the date on which the Member's
Participation in the Plan commenced; or
(c) termination of the Member's employment with the Company.
21
<PAGE>
6.05 Required Distribution. Distribution of the Account of all Members
---------------------
shall begin no later than the April 1st of the calendar year following the
calendar year in which he attains the age of seventy and one-half (70 1/2). If
a Member continues in the employment of the Company after such date, any
additional allocations (of contributions and earnings) to his Account shall be
paid out as of December 31 of each Plan Year subsequent to the Plan Year in
which he attains the age of seventy and one-half.
22
<PAGE>
ARTICLE 7
---------
PAYMENT OF BENEFITS
-------------------
7.01 Method of Payment. When a Member is eligible for a distribution of
-----------------
his share in the Trust Fund in accordance with the provisions of Article 6, the
Committee shall determine the time of payment and shall instruct the Trustees to
pay the Member's Account to him in a lump sum, provided that no lump sum payment
may be made prior to the Member attaining age 62 without the Member's consent if
the value of such payment would be in excess of $3,500.
7.02 Form of Payment. Except as provided in Sections 5.04 and 7.04, all
---------------
payments made under the Plan shall be made in shares of Stock. In the event
that the amount of any distribution is not divisible into whole shares of Stock,
the Trustees shall distribute the largest number of whole shares not in excess
of such amount, and shall either sell the remaining fractional shares to the
Company at fair market value as of the same Valuation Date used to determine the
value of the Member's distribution and distribute the sale proceeds to the
Member, or distribute the value of the remaining fractional shares to or on his
behalf from the funds available in the Trust. Any assets held in a Member's
Account in a form other than Company Stock shall be distributed in cash.
7.03 Limitations on Payments. Neither the method nor the time for payment
-----------------------
of benefits shall be permitted if the anticipated effect would be:
(a) to extend benefits beyond the joint and last survivor life
expectancy of the Member and a designated Beneficiary; or
23
<PAGE>
(b) to reduce the Member's benefit more than fifty percent (50%) of
the amount it otherwise would have been if someone other than the
Member's spouse is named in such option.
7.04 Put Option. Except as hereinafter provided, each Qualified Holder of
----------
Stock distributed from the Plan shall have the right, at the times, for the
price, and on the terms specified below, to require the Company to repurchase
any or all of the shares of Stock then held by such Qualified Holder, such right
to be referred to herein as a "Put Option". A Put Option shall be exercised by
written notice by a Qualified Holder to the Committee, specifying the number of
shares of Stock to be repurchased and accompanied by one or more stock
certificates evidencing the Stock tendered and a stock assignment duly executed
in blank. To the extent mutually agreed upon by the Company and the Trustee, the
rights and obligations of the Company hereunder at the time of exercise of such
Put Option may be assumed and discharged by the Trustee. The rights and
obligations of the Company hereunder may also be assumed and discharged by any
one or more other parties designated by the Company and who agree thereto. A
Qualified Holder is any person who is or at any time was a Member of the Plan.
7.041 Any Put Option referred to herein may be exercised at any time
during the sixty-day period which begins on the date the Stock subject to the
Put Option is distributed by the Plan to the Qualified Holder in question and,
if the Qualified Holder fails to exercise the Put Option within said sixty-day
period, during an additional sixty-day period that commences on the later of the
first day of the following Plan Year or the lapse of the initial sixty-day
period, provided, that such sixty-day periods shall be extended by the duration
of any period
24
<PAGE>
during which the party bound by the Put Option is prohibited from honoring it by
applicable federal or state law.
7.042 The price per share at which a Put Option is exercisable hereunder
shall be the fair market value thereof determined in good faith and otherwise in
accordance with the Code by the party purchasing the Stock as of the most recent
Valuation Date; provided, however, that if the person exercising the Put Option
is a Disqualified Person as defined in Section 4975(e)(2) of the Internal
Revenue Code, such fair market value shall be determined as of the date of the
purchase. In the case of the exercise of a Put Option by any person other than a
Disqualified Person, a determination of fair market value based on at least an
annual appraisal independently arrived at by a person who customarily makes such
appraisals and who is independent of any party to the transaction may be relied
upon as a good faith determination of fair market value.
7.043 The purchase price determined pursuant to the foregoing paragraph
shall be payable in cash within 30 days of receipt by the Committee of notice of
exercise of the Put Option, provided that, in the cast of repurchase by the
Company or the Trust (hereinafter referred to as the "Obligor") of shares of
Company Stock which are distributed to the Member as part of a total
distribution, the Obligor may, at its option, purchase such Shares in
substantially equal periodic installments (not less frequently than annually)
over a period beginning not later than 30 days after exercise of the Put Option
and not exceeding five (5) years. As used herein, the term "total distribution"
shall mean the distribution within one (1) taxable year to the Member or his
Beneficiary of the balance of the Member's Account. The obligation to make any
payments under this Section due later than 30 days from the date of
25
<PAGE>
exercise of the Put Option shall be evidenced by the Obligor's promissory note
bearing a reasonable rate of interest and shall provide adequate security.
7.044 Notwithstanding the foregoing, no Stock shall be subject to a Put
Option hereunder if it is readily traded when distributed to the Qualified
Holder and at all subsequent times during the sixty-day periods during which the
Put Option would ordinarily be exercisable. Stock is subject to a trading
limitation if it is subject to a restriction under any federal or state
securities law, any regulation thereunder, or an agreement (not otherwise
prohibited by Section 7.05) affecting the Stock which would make the Stock not
as freely tradeable as Stock not subject to such restriction. If any such Stock
is readily traded without restriction when distributed but ceases to be so
traded within either of said sixty-day periods, the Obligor shall so notify the
Qualified Holder within 10 days that for the remainder of such period, the Stock
is subject to a Put Option, such notice to specify the terms of the Put Option.
If any such notice is not given within such 10-day period, the number of days
between such 10th day and the day the notice is given shall be added to the
duration of the applicable sixty-day period in which the Put Option is
exercisable. As used herein, the term "readily traded" shall refer to Stock of
the Company that is listed on a national securities exchange registered under
Section 6 of the Securities Exchange Act of 1934 or that is quoted on a system
sponsored by a national securities association registered under Section 15(A)(b)
of the Securities Exchange Act.
7.045 These rights with respect to shares of Company Stock shall be
nonterminable once granted except to the extent they cease to be exercisable as
provided in Section 7.044 or are exercised.
26
<PAGE>
7.046 If the Stock of the Company held in the Plan is issued by a bank (as
defined in Section 581 of the Code) which is prohibited by law from redeeming or
purchasing its own securities, the Put Option requirements of this Section 7
shall not be applicable, provided that Members who are entitled to a
distribution from the Plan shall receive the value of their Account in cash.
7.05 Offer to Purchase. The Company or the Trustee may at any time offer
-----------------
to purchase any shares of Company Stock (including, if a Put Option is issued,
the Stock not sold under the Put Option described in Section 7.04) which are
held by a former Member (or Beneficiaries), at the then fair market value
determined by the Company or the Trustee in the same manner as fair market value
is determined for purposes of the Put Option described in Section 7.04. The
terms of payment for any such purchase of Company Stock may be either in a lump
sum or in installments over a period not exceeding five (5) years, with interest
payable at a reasonable rate on any unpaid installment balance (as determined by
the Trustee).
7.06 Restrictions on Shares of Company Stock. Shares of Company Stock held
---------------------------------------
or distributed by the Trustee may be restricted as to sale or transfer by the
Articles of Organization or By-Laws of the Company, which restrictions shall be
similarly applicable to all shares of stock of the Company of the same class,
and shall, if required by law, bear such appropriate legends and be subject to
such restrictions as shall, in the opinion of counsel for the Company, be
required in order to assure compliance with applicable federal and state
securities and banking laws. Except as otherwise provided in Section 7.04 no
shares of Company Stock held or distributed by the Trustee may be subject to a
put, call or other option, or buy-sell or similar arrangement. The provisions of
Section 7.04 shall continue to be
27
<PAGE>
applicable to Company Stock even if the Plan ceases to be an employee stock
ownership plan under Section 4975(e)(7) of the Code.
28
<PAGE>
ARTICLE 8
---------
WITHDRAWALS
-----------
8.01 No Withdrawal of Company Contributions. A Member shall not be
--------------------------------------
entitled to withdraw any portion of his interest in the Trust Fund while he
remains in the service of the Company, except for distributions made pursuant to
the diversification requirements of Section 5.05 and distributions required by
Section 6.05.
29
<PAGE>
ARTICLE 9
---------
RIGHTS AND DUTIES OF TRUSTEES
-----------------------------
9.01 Appointment of Trustees. The Board of Directors of the Company shall
-----------------------
appoint one or more Trustees, who may but need not be Members of the Plan, to
administer the Trust Fund and manage the assets held in the Trust Fund. Each
Trustee shall serve at the pleasure of the Board of Directors of the Company,
and may resign at any time by giving the Board of Directors not less than thirty
(30) days' notice unless the Board of Directors accepts a lesser period of
notice.
9.02 Action by Majority of the Trustees. A majority of the Trustees at the
----------------------------------
time in office may do any act which the Plan authorizes or requires the Trustees
to do, and the action of such majority expressed from time to time by a vote at
a meeting, or in writing without a meeting, which shall constitute the action of
the Trustees.
9.03 Powers of Trustees. It shall be the duty of the Trustees to invest
------------------
and reinvest the funds of the Trust pursuant to Section 9.04, and to make
distributions therefrom in accordance with the Plan.
9.04 Investments. Subject to all outstanding obligations of the Trust, the
Trustees shall invest and reinvest all funds contributed to or accruing to the
Trust (except those necessary to (a) pay the liabilities, if any, of the Trust,
(b) pay any expenses incurred by the Trustees which the Company fails to pay or
(c) to make distributions of dividends) primarily in shares of Stock. With due
regard to providing for such primary investment policy, the Trustees may invest
funds in savings accounts, certificates of deposit, high-grade short-term
securities, stocks, bonds, investment companies, common and collective trusts
funds for
30
<PAGE>
employee benefit plans which satisfy the requirements of Section
501(a) of the Code (the terms of which shall constitute a part of this Plan), or
investments deemed by the Trustees to be desirable for the Trust, or such funds
may be held in cash or cash equivalents; provided however, that the Trust may,
at the discretion of the Trustee, be invested in any of the investment medium
listed above that may be offered by the Company in the ordinary course of its
banking business. All purchases of Stock shall be made at prices which, in the
judgement of the Trustees, do not exceed the fair market value of such shares.
The determination of the fair market value shall be determined in good faith by
the Trustees in accordance with this Section and in accordance with regulations
to be promulgated by the Secretary of Labor pursuant to Section 3(18) of the
Employee Retirement Income Security Act of 1974. Stock may be acquired for cash
or on terms. The Trustees may keep the Stock in the name of some other person,
firm, or corporation or its own name without disclosing fiduciary capacity. The
Trustees may sell at public auction or private contract, redeem, or otherwise
realize upon such Stock and for such purposes may execute such instruments and
writings and do such things as they shall deem proper.
9.05 Exercise of Voting Rights. Except as provided in Section 9.051, the
-------------------------
Trustee shall at all times be entitled to vote in its discretion shares of
Company Stock held in the Trust but not allocated to the Account of any Member
and any shares of stock not issued by the Company. The Trustee shall in
addition be entitled to vote in its discretion shares of Stock held in the Trust
and allocated to the Stock Account of any Member; provided, that with respect to
any corporate matter that involves the voting of such shares with respect to the
approval or disapproval of any corporate merger or consolidation,
recapitalization,
31
<PAGE>
reclassification, liquidation, dissolution, sale of substantially all assets, or
such similar transactions as the Secretary of the Treasury may prescribe in
regulations, each Participant shall be entitled to direct the Trustee as to the
exercise of any voting rights attributable to
shares of Stock then allocated to his Account but only to the extent required by
Sections 401(a)(22) and 409(e)(3) of the Code and the regulations thereunder.
9.051 Registration-Type Class of Securities. Notwithstanding Section
-------------------------------------
9.05, if at any time the Company has a registration-type class of securities,
the Committee shall establish a procedure whereby each Member shall direct the
voting of shares of Company Stock allocated to his Account; if a Member fails so
to direct, the Trustee shall vote such shares. A registration-type class of
securities means a class of securities required to be registered under Section
12 of the Securities Exchange Act of 1934 or a class of securities that would be
required to be so registered except for an exemption from registration provided
under Section 12(g)(2)(H) of said Act.
9.052 Number of Votes. Members entitled to direct the voting of shares
---------------
of Stock allocated to their Accounts pursuant to Sections 9.05 or 9.051 shall
have one (1) vote with respect to each share of Stock. Stock which is held by
the Trust and which is not allocated to the Account of any Member shall be voted
by the Trustee in the same proportion determined after application of the
preceding sentence to the shares of Stock allocated to the Accounts of Members,
unless the Trustee makes a determination that to vote such shares of Stock in a
different proportion would be in the best interest of Members of the Plan.
9.053 Voting on Offers. As soon as practicable after the commencement
----------------
of a tender or exchange offer ("Offer") for shares of Stock, the Committee shall
use its best efforts to cause
32
<PAGE>
each Member and former Member (whose Account has allocated to it any shares of
Stock) to be advised in writing of the terms of the Offer, and to be provided
with forms by which the Member may instruct the Trustee, or revoke such
instructions, to tender shares of Stock credited to his Account, to the extent
permitted under the terms of such Offer. Subject to the provisions of this
Article 9, the Trustee shall follow the directions of each Member, but the
Trustee shall not tender shares for which no instructions are received unless it
makes a determination that to tender such shares is in the best interest of the
Members. In advising Members of the terms of the Offer, the Committee may
include statements from the Board of Directors setting forth its position with
respect to the Offer. The giving of instructions by a Member to the Trustee to
tender shares and the tender thereof shall not be deemed a withdrawal or
suspension from the Plan or a forfeiture of any portion of the Member's interest
in the Plan solely by reason of the giving of such instructions and the
Trustee's compliance therewith. The number of shares as to which a Member may
provide instructions shall be the total number of shares credited to his Account
as of the close of business on the day preceding the date on which the Offer is
commenced or such earlier date as shall be designated by the Committee which the
Committee, in its sole discretion, deems appropriate for reasons of
administrative convenience. Any securities received by the Trustee as a result
of a tender of shares of Stock shall be held, and any cash so received, shall be
invested in short-term investments, for the Account of the Member or former
Member with respect to whom shares were tendered pending any reinvestment by the
Trustee, as it may deem appropriate, consistent with the purposes of the Plan.
33
<PAGE>
9.06 Reliance on Trustees as Owner. No person dealing with the Trustees
-----------------------------
shall be required to take any notice of this Agreement, but all persons so
dealing shall be protected in treating the Trustees as the absolute owners with
full power of disposition of all the monies, Stock, and other property of the
Trust, and all persons dealing with the Trustees are released from inquiry into
the decision or authority of the Trustees and from seeing to the application of
monies, Stock, or other property paid for or delivered to the Trustees.
9.07 Liquidation of Assets. In the event that cash is required by the
---------------------
Trustees to effect any action or distribution under this Trust, or to pay any
expenses of this Trust, or for any other reason deemed sufficient by the
Trustees consistent with any outstanding obligations of the Trust, the Trustees
shall take such action as to the sale or other disposition of Stock forming a
part of the Trust as will provide the amount of cash necessary for such
payments.
9.08 Evidence on Which Trustees May Act. In taking any action or
----------------------------------
determining any fact or question which may arise under this Trust, the Trustees
may, with respect to the affairs of the Company or its Employees, rely upon any
statement by the Company with respect thereto. In the event that any dispute
may arise regarding the payment of any sums or regarding any act to be performed
by the Trustees, the Trustees may in their sole discretion retain such payment
or postpone the performance of such act until actual adjudication of such act
shall have been made in a Court of competent jurisdiction; or until they shall
have been indemnified against loss to their satisfaction; provided, however,
that in the event of any such dispute, the Trustees may rely upon and act in
accordance with any directions received from the Company.
34
<PAGE>
9.09 Discretionary Action. Wherever under the provisions of this
--------------------
Agreement the Trustees are given any discretionary power or powers, such power
or powers shall not be exercised in such manner as to cause any discrimination
in favor of or against any Employee or class of Employees. Any discretionary
action taken by the Trustees hereunder shall, to the extent possible, be
consistent with any prior discretionary action taken by them under similar
circumstances, and to this end the Trustees shall keep a record of all
discretionary action taken by them under any provision hereof.
9.10 Records and Accounting. The Trustees shall keep accurate and
----------------------
detailed records of their transactions hereunder and all their accounts, books,
and records relating thereto shall be open at all reasonable times to the
inspection of the Company and its authorized representatives. The Trustees shall
render in writing at least once each twelve (12) months, accounts of their
transactions under this Agreement to the Company and the Company may approve
such accounts of the Trustee by an instrument in writing delivered to the
Trustees. In the absence of the filing in writing by the Company of exceptions
or objections to any such account within sixty (60) days after the receipt by
the Company of any such account, the Company shall be deemed to have approved
such account; and in such case, or upon the written approval of the Company of
any such account, the Trustees shall be released, relieved, and discharged with
respect to all matters and things set forth in such account except to the extent
provided by the Employee Retirement Income Security Act and other applicable
Federal law. Except as may otherwise be required by applicable Federal law, no
person interested in the Trust or otherwise other than the Company may require
an accounting or bring any action against the Trustees with respect to the Trust
and its actions as Trustees. In any proceeding
35
<PAGE>
instituted by the Trustees and/or the Company, only the Company and/or the
Trustees shall be the necessary parties. The Trustees shall from time to time
make such other reports and furnish such other information concerning the Trust
as the Company may in writing reasonably request or as may be required by
applicable Federal law.
9.11 Payment of Taxes. The Trustee shall upon direction of the Company
----------------
pay out of the Trust Fund any and all taxes of any and kinds, including without
limitation property taxes and income taxes levied or assessed under existing or
future laws upon or in respect of the Trust or any monies, securities or other
property forming a part thereof or the income therefrom subject to the terms of
any agreements or contracts made with respect to trust investments which make
other provisions for such tax payments. The Trustees may assume that any taxes
assessed on or in respect of the Trust or its income are lawfully assessed
unless the Company shall in writing advise the Trustees that in the opinion of
counsel for the Company such taxes are not or may not be lawfully assessed. In
the event that the Company shall so advise the Trustees, the Trustees will, if
so requested in writing by the Company, contest the validity of such taxes in
any manner deemed appropriate by the Company or its counsel; or the Company may
itself contest the validity of any such taxes in the name of the Trustees; and
the Trustees agree to execute all documents, instruments, claims and petitions
necessary or advisable in the opinion of the Company or its counsel for the
refund, abatement, reduction, or elimination of any such taxes.
9.12 Compensation and Expenses of Trustees. The Trustees shall serve with
-------------------------------------
such compensation for their services as shall be mutually agreed to between the
Company and the Trustees, and all such fees and expenses of the Trust (including
those arising under Section
36
<PAGE>
9.14 hereof) shall be paid by the Trust to the extent that they are not paid by
the Company. If the Trustee is a full time employee no compensation (other than
normal wages paid by the Company) shall be paid to such Trustee from the Trust.
If any Trustee shall die, resign, be removed, or for any other reason cease to
be a Trustee, he shall be replaced by a successor, if any, appointed by the
Board of Directors and until he is so replaced, the remaining Trustees shall
exercise all of the powers of the Trustees. The appointment of a successor
Trustee shall be effective upon written notification to the Company and to the
Trustees of his acceptance of such appointment.
9.13 Legal Action. Except to the extent required by the Employee
------------
Retirement Income Security Act, the Trustees shall not be required to institute
any legal action or to appear or participate in any legal action to which they
may be a party, except to contest taxes, unless they shall have been first
indemnified to their satisfaction by the Company for all loss, cost, and
liability.
9.14 Liability of Trustees. Except as otherwise provided in Section 405
---------------------
of the Employee Retirement Income Security Act of 1974, no Trustees shall be
liable for any act or omission of any other Trustees or otherwise for any loss,
damage, or depreciation which may result in connection with the exercise of his
duties or with the exercise of his discretion or upon any other act or omission
hereunder except when due to his own willful misconduct. The Company either
through insurance or otherwise shall indemnify and hold harmless each Trustee
from any and all claims, loss, damage, expenses (including any reasonable
counsel fees) and liability (including any reasonable amounts paid in settlement
with the Employer's approval), arising from any act or omission of such Trustee,
except when the same is judicially
37
<PAGE>
determined to be due to the willful misconduct of such Trustee. No bond, surety,
or other security shall be required of the Trustees unless specifically
requested by the Company or unless required by law, in which case the cost of
such bond, surety, or other security shall be an expense chargeable in
accordance with Section 9.12.
38
<PAGE>
ART
---
ADMINISTRATION OF THE PLAN
--------------------------
10.01 Retirement and Administrative Committee. The general administration
---------------------------------------
of the Plan and the responsibility for carrying out the provisions of the Plan
shall be placed in an Retirement and Administrative Committee (the "Committee"),
the members of which shall be appointed by the Board of Directors. The
membership of the Committee may be changed by the Board of Directors at any time
and from time to time hereafter; provided, however, that the Committee at all
times shall consist of not fewer than three individuals; and, provided further,
that any changes in the membership of the Committee shall be certified to the
Trustees in writing by the Board of Directors. Any Member of the Committee may
resign at any time by delivery of a written notice of resignation to the
chairman or secretary of the Board of Directors.
10.02 Chairman, Secretary, Records. The members of the Committee shall
----------------------------
elect a Chairman from among their members and a Secretary who may, but need not,
be one of the members of the Committee. The Committee may also designate other
positions within the membership of the Committee. The Secretary shall keep
minutes of the Committee's proceedings and all dates, records and documents
pertaining to the administration of the Plan.
10.03 Majority Vote, Execution of Certificates. The action of the
----------------------------------------
Committee shall be determined by the vote or by agreement in writing or by other
affirmative expression of a majority of its members; provided however, that the
Committee may, by majority vote, designate one of its members to execute all
documents for and on behalf of the Committee.
39
<PAGE>
Any certificate or other written direction on behalf of the Committee shall be
signed by those individuals granted authority by the Committee to sign documents
on its behalf.
10.04 Powers.
------
(A) The Committee may appoint such agents, who need not be members
of the Committee, as it may deem necessary for the effective
exercise of its duties, and may delegate to such agents any
powers and duties, both ministerial and discretionary, as the
said Committee may deem expedient or appropriate.
(B) Except as to matters required by the terms of the Plan and
Trust, the Committee shall have complete control of the
administration of this Plan, with all powers necessary to enable
it properly to carry out its duties in that respect. Not in
limitation, but in amplification of the foregoing, the Committee
shall have power to construe this Plan and to determine all
questions that may arise hereunder. It shall determine all
questions relating to the eligibility of employees to
participate in this Plan and the amount of benefit to which any
person may become entitled hereunder.
(C) To the extent not covered by any applicable insurance policy,
the Company shall indemnify each member of the Committee against
any and all claims, loss, damages, expense, and liability
arising from any action or failure to act, except when the same
is judicially determined to be due to the gross negligence or
willful misconduct of such member.
40
<PAGE>
10.05 Rules and Regulations. Subject to the limitations of this Article
---------------------
10 of the Plan, the Committee from time to time shall establish such
supplemental rules and regulations for the administration of the Plan and the
transaction of its business as it deems necessary.
10.06 Other Fiduciary Capacity. Nothing contained in this Article 10 of
------------------------
the Plan shall prevent a member of the Committee from serving the Plan in other
fiduciary capacities.
10.07 Employment of Professional Assistance. The Company is empowered, on
-------------------------------------
behalf of the Trust, to engage accountants, actuaries, legal counsel and such
other personnel as it deems necessary or advisable to assist it in the
performance of its duties under the Plan. The functions of any such persons
engaged by the Company shall be limited to the specific services and duties for
which they were engaged, and such persons shall have no other duties,
obligations or responsibilities under the Plan or Trust.
10.08 Reliance. The Committee and the Trustees shall be entitled to rely
--------
conclusively upon all advice, counsel and opinions provided by accountants,
actuaries, legal counsel and other professional assistants engaged pursuant to
Section 10.07.
10.09 Expenses of Administration.
--------------------------
(A) Direct charges and expenses arising out of the purchase or sale
of securities, and taxes levied on or measured by such
transactions shall be charged against the Trust Fund.
(B) The Company shall pay all other expenses reasonably incurred in
administering the Plan, including expenses of the Committee and
the Trustees, such compensation to the Trustees as from time to
time may be agreed between the Company and the Trustees (as set
forth in Section
41
<PAGE>
9.14), fees for legal services, and all taxes, if any, other
than those charged to the Trust under Section 10.09(A),
provided that, at the discretion of the Company, such expenses
may be paid from the Trust.
10.10 Allocation of Fiduciary Responsibility. The Trustees and the
--------------------------------------
Company shall be the "named fiduciaries" of the Plan as defined in Section
402(a) of the Employee Retirement Income Security Act of 1974. The named
fiduciaries shall have only those specific powers, duties, responsibilities, and
obligations as are specifically given them under the Plan and Trust.
(A) Company. The Company shall have the sole responsibility for
-------
making contributions required under the Plan. The Company shall
have the sole authority to appoint and remove the Trustee and
members of the Committee. Moreover, the Company shall have the
sole authority to terminate or amend the Plan or to merge or
consolidate the Plan with other employee benefit plan. The Company
shall be the "plan administrator" as defined under the Employee
Retirement Income Security Act of 1974.
(B) The Trustees. The Trustees shall have the sole responsibility of
------------
administering the Trust Fund and of managing the assets held in
the Trust Fund, all as specifically provided under the Plan and
Trust.
(C) The Committee. The general administration of the Plan, and the
-------------
responsibility for carrying out the provisions hereof, shall be
placed in the Committee which is authorized and required to take
all action necessary to ensure that the Plan meets the
requirements of the Employee
42
<PAGE>
Retirement Income Security Act of 1974 as now in effect and as it
may hereafter be amended from time to time.
10.11 No Joint Fiduciary Responsibilities. The Plan and Trust are
-----------------------------------
intended to allocate to each named fiduciary the individual responsibility for
the prudent execution of the functions assigned to him, and none of such
responsibilities or any other responsibility shall be shared by two or more of
such named fiduciaries unless such sharing shall be provided by a specific
provision of this Plan and Trust. Whenever one named fiduciary is required by
the Plan and Trust to follow the directions of another named fiduciary, the two
named fiduciaries shall not be deemed to have been assigned a shared
responsibility, but the responsibility of the named fiduciary giving the
directions shall be deemed his sole responsibility, and the responsibility of
the named fiduciary receiving those directions shall be to follow them insofar
as such instructions are on their face proper under applicable law.
10.12 Claims Procedure.
----------------
(A) The right of any Member, Beneficiary or other person claiming a
benefit shall be initially determined by the Committee or its
appointed agent. Any denial by the Committee or agent of the
claim for benefits under the Plan shall be stated in writing and
delivered or mailed to the claimant within ninety (90) days of
receipt of the claimant's written application (unless the
Committee notifies the claimant in writing that an extension of
up to ninety (90) day additional is necessary because of reasons
stated in the extension notice). Such notice of denial shall set
forth the reasons therefor, including specific reference to the
pertinent provisions of the
43
<PAGE>
Plan on which the denial is based, a description of any
additional material or information necessary to perfect the
claim with an explanation of why such material or information is
necessary, and an explanation of the procedure for appeal of the
denial.
(B) A claimant who has had an initial claim denied or his duly
authorized representative may (i) request a review by written
application to the Committee, (ii) review pertinent documents,
and (iii) submit issues and comments in writing. Such request
for review shall be filed with the Committee within sixty (60)
days after receipt by the claimant of the notice of denial; and
within sixty (60) days after receipt of such request, or, in
special circumstances, such as the need to hold a hearing,
require an extended period for processing, as soon thereafter as
possible, but not later than one-hundred and twenty (120) days
after receipt of such request, the Committee shall render its
decision in writing, setting forth the specific reasons
therefor, including specific references to the pertinent
provisions of the Plan on which the decision is based.
(C) Any notice or decision by the Committee or its agent shall be
written in a manner calculated to be understood by the claimant.
Such decisions shall be final and binding upon the person
claiming an interest in the Plan.
10.13 Notice to Employee. The Committee shall cause to be furnished to
------------------
each Employee a written summary of the Plan, any amendments thereto, and such
other reports and statements as may
44
<PAGE>
be required under applicable law. The foregoing summary shall include the name
of the Trustee and the Plan Administrator and shall set forth the Employee's
rights and duties with respect to the benefits available to him under the Plan.
10.14 Government Reports. The Committee shall submit annually to the
------------------
Secretary of Labor and the Secretary of Treasury the reports and statements
required under the Employee Retirement Income Security Act of 1974.
45
<PAGE>
ARTICLE 11
----------
NON-ALIENATION OF BENEFITS
--------------------------
11.01 Spendthrift Provision. Beneficial interests of Members or their
---------------------
Beneficiaries in the Trust Fund shall not be assignable nor subject to
attachment nor receivership, nor shall they pass to any Trustee on bankruptcy or
be reached or applied by any legal process for the payment of any obligations of
any such person.
11.02 Qualified Domestic Relations Orders. Notwithstanding any provisions
-----------------------------------
of the Plan to the contrary, if there is entered any qualified domestic
relations order (within the meaning of Section 414(p) of the Internal Revenue
Code and ERISA Section 206(d)(3)(B), as added by the Retirement Equity Act of
1984) that affects the payment of benefits hereunder, such benefits shall be
paid in accordance with the applicable requirements of such order.
46
<PAGE>
ARTICLLE 12
-----------
AMENDMENT AND TERMINATION
-------------------------
12.01 Right to Amend or Terminate. While it is the intention of the
---------------------------
Company to continue the Plan indefinitely, the Company reserves the right to
modify, amend, or terminate the Plan in whole or in part at any time by an
instrument in writing pursuant to authority of a vote of the Board of Directors;
provided that any such modification, amendment, or termination does not make it
possible for any portion of the Trust Fund to be used for or diverted to
purposes other than for the exclusive benefit of Members, retired Members,
former Members, or their Beneficiaries after the payment of administrative
expenses or taxes levied on the Trust Fund. Any amendment may be made
retroactively to the extent permitted by the Internal Revenue Code.
12.02 Liquidation of Trust Fund. In the event of liquidation of the
-------------------------
entire Trust Fund, the Trustees shall adjust all Accounts to reflect payment of
all expenses, all losses, or profits and reallocations; and each Member, retired
Member, former Member, and each Beneficiary of a Member entitled to a
distribution under the Plan shall be entitled to the entire amount to his credit
in the Trust Fund. The Trustees shall distribute such amount in Stock in one
lump sum. Amounts represented by Fractional Shares shall be distributed in
accordance with the procedures in Section 7.02.
47
<PAGE>
ARTICLE 13
----------
GENERAL PROVISIONS
------------------
13.01 Rights Against the Company. Neither the establishment of the Plan,
--------------------------
nor of the Trust Fund, nor any modification thereof, nor the payment of any
benefits hereunder shall be construed as giving to any Employee or Member the
right to be retained in the service of the Company or as interfering with the
right of the Company to discharge any Employee at any time.
13.02 Records. The Company and Trustees shall make available all the
-------
information reasonably necessary to set up and maintain Members' records and
Accounts.
13.03 Payments to Incompetents. In the event that any person entitled to a
------------------------
distribution under this Plan is unable to care for his affairs because of
illness or accident, any payment due (unless prior claim therefor shall have
been made by a duly qualified guardian or other legal representative) may be
paid to the spouse, parent, child, brother or sister, or other person deemed by
the Trustee to have incurred expenses for such person otherwise entitled to
payment. Any such payment shall be a payment for the account of the persons
entitled to the benefit, and shall be a complete discharge of any liability of
the Plan therefor.
13.04 Mailing of Benefits. Each Member or Beneficiary shall furnish the
-------------------
Trustees with the address to which benefits shall be mailed. If any such
benefits mailed by regular United States mail to the last such address appearing
on the Trustee's records are returned because the addressee is not at that
address, and if the person entitled to such benefit does not communicate with
the Trustees in writing for a period of two years thereafter and the Trustees
have made a reasonable effort to locate such person, the interest of such Member
shall be
48
<PAGE>
distributed to his Beneficiary. If no Beneficiary has been designated by the
Member, or if such designated Beneficiary cannot be located, then such Member's
interest shall be distributed in accordance with Section 6.03.
13.05 Return of Contributions. Notwithstanding anything to the contrary
-----------------------
elsewhere contained in this Plan, if the Internal Revenue Service shall issue an
initial determination letter stating that the Plan as contained herein does not
meet the requirements of Section 401 of the Internal Revenue Code, the Company
shall be entitled to a return of its contributions made hereunder on the basis
of the Plan as contained herein within one year after the date of the denial of
qualification.
Notwithstanding the foregoing, contributions made by the Company may be
returned to the Company if:
(a) The contribution was made because of a mistake of fact and the
contribution is returned within one (1) year of the mistake in
payment; or
(b) The contribution was conditioned upon its deductibility, the
deduction is disallowed and the contribution is returned within
one (1) year of disallowance of the deduction.
The return of a contribution to the Company shall be permitted if the
amount so returned (i) is the excess of the amount actually contributed over the
amount which would have been contributed if there had been no mistake in fact or
error in determining the deduction, as the case may be, (ii) does not include
the earnings attributable to such contribution, and (iii) is reduced by any
losses attributable to such contribution. In no case may the Account of any
49
<PAGE>
Employee be reduced by such return to less than such Account would have been had
the returned contribution not been made in the first instance.
13.06 Merger or Consolidation. In the event that this Plan is merged with
-----------------------
or consolidated with any other plan, or the assets or liabilities accrued under
this Plan are transferred to any other plan, each Member's benefit under such
other plan shall be at least as great immediately after such merger,
consolidation, or transfer (if such plan were then to terminate) as the benefit
to which he would have been entitled under this Plan immediately before such
merger, consolidation, or transfer (if the Plan were then to terminate).
13.07 Construction. The provisions of this Agreement shall be construed,
------------
administered, and enforced according to the laws of the Commonwealth of
Massachusetts unless superseded by applicable Federal Law. All contributions to
the Trust shall be deemed to be made in the Commonwealth of Massachusetts.
13.08 Liability of Company. Subject to its agreement to indemnify Trustees
--------------------
and except as otherwise provided by applicable Federal law any neither the
Company nor any person acting on behalf of the Company shall be liable for any
act or omission on the part of any Trustee, or for any act performed or the
failure to perform any act by any person with respect to this Agreement, the
Plan or Trust, the Company's only duty being to use reasonable care in the
selection of the Trustees.
13.09 Impossibility of Performance. In case it becomes impossible for the
----------------------------
Company or the Trustees to perform any act under this Plan and Trust, that act
shall be performed in which the judgement of the Trustees will most nearly carry
out the intent and purpose of this
50
<PAGE>
Plan and Trust. All parties to this Agreement or in any way interested in this
Plan and Trust shall be bound by any acts performed under such condition.
13.10 Headings. The headings and subheadings in this instrument are for
--------
convenience of reference only, and the instrument is not to be construed
according to such headings.
13.11 Execution of Agreement. This Agreement may be executed in any number
----------------------
of counterparts, and each fully executed counterpart shall be deemed an
original.
51
<PAGE>
ARTICLE
-------
TOP-HEAVY PROVISIONS
--------------------
14.01 Article Controls. Any Plan provisions to the contrary
----------------
notwithstanding, the provisions of this Article 14 shall control to the extent
required to cause the Plan to comply with the requirements imposed by Section
416 of the Code.
14.02 Definitions. Where the following words and phrases appear in this
-----------
Article 13, they shall have the respective meanings set forth below, unless
their context clearly indicates to the contrary:
(a) Account Balance. As of any Valuation Date, the aggregate amount
---------------
credited to an individual's Account or Accounts under a qualified
defined contribution plan (excluding employee contributions which
were deductible within the meaning of Section 219 of the Code and
rollover or transfer contributions made by or on behalf of such
individual to such plan from another qualified plan, sponsored by
an entity other than the Company or an Affiliated Employer)
increased by (i) the aggregate distributions made to such
individual from such plan during a five-year period ending on the
Determination Date, and (ii) the amount of any contributions due
as of the Determination Date immediately following such Valuation
Date.
(b) Accrued Benefit. As of any Valuation Date, the present value
---------------
(computed on the basis of the Assumptions) of the cumulative
accrued benefit (excluding the portion thereof which is
attributable to employee
52
<PAGE>
contributions which were deductible pursuant to Section 219 of the
Code, to rollover or transfer contributions made by or on behalf
of such individual to such plan from another qualified plan
sponsored by an entity other than the Company or other Affiliated
Employer, to proportional subsidies or to ancillary benefits) of
an individual under a qualified defined benefit plan increased by
(i) the aggregate distributions made to such individual from such
plan during a five (5) year period ending on the Determination
Date and (ii) the estimated benefit accrued by such individual
between such Valuation Date and the Determination Date immediately
following such Valuation Date.
(c) Aggregation Group. The group of qualified plans maintained by the
-----------------
Company and each Affiliated Employer consisting of (i) each plan
in which a Key Employee participates and each other plan which
enables a plan in which a Key Employee participates to meet the
requirements of Sections 401(a)(4) and 410 of the Code, or (ii)
each plan in which a Key Employee participates, each other plan
which enables a plan in which a Key Employee participates to meet
the requirements of Sections 401(a)(4) and 410 of the Code and any
other plan which the Company elects to include as a part of such
group; provided, however, that the Company may not elect to
include a plan in such a group if its inclusion would cause the
group to fail to meet the requirements of Sections 401(a)(4) and
410 of the Code.
53
<PAGE>
(d) Assumptions. For purposes of this Article 13, the interest rate
-----------
and mortality assumptions specified for top-heavy status
determination purposes in any qualified defined benefit plan
included in an Aggregation Group which includes the Plan.
(e) Determination Date. For the first Plan Year of any plan, the last
------------------
day of such Plan Year, and for each subsequent Plan Year of such
plan, the last day of the preceding Plan Year. For purposes of
determining whether an Aggregation Group is Top-Heavy the
Determination Date for each separate plan falling within the same
calendar year shall be utilized.
(f) Former Key Employee. With respect to any Plan Year, any
-------------------
individual who was a Key Employee in a previous Plan Year but who
is not a Key Employee with respect to such Plan Year. For purposes
of this definition, a beneficiary (who would not otherwise be a
Key Employee) of a deceased Former Key Employee shall be deemed to
be a Former Key Employee in substitution for such deceased Former
Key Employee.
(g) Key Employee. With respect to any Plan Year, any individual who
------------
at any time during such Plan Year or during any of the four (4)
Plan Years immediately preceding such Plan Year was (i) an officer
of the Company or an Affiliated Employer having an annual
compensation greater than 50 percent of the amount in effect under
Section 415(b)(1)(A) of the Internal Revenue Code for such Plan
Year, (ii) one of the ten (10) employees having an annual
compensation greater than 50 percent of the dollar
54
<PAGE>
limitation specified in Section 415(b)(1)(A) of the Internal
Revenue Code for any Plan Year and owning both the largest
interests in the Company or an Affiliated Employer and greater
than a one-half percent (1/2%) interest in the Company or an
Affiliated Employer, (iii) an owner of five percent (5%) or more
of the outstanding stock of the Company or an Affiliated Company
or of stock possessing five percent (5%) or more of the total
combined voting power of all the stock of the Company or an
Affiliated Employer, or (iv) an employee whose Remuneration
(during the calendar year including the Determination Date)
exceeded $150,000 and who was an owner of one percent (1%) or more
of the outstanding stock of the Company or an Affiliated Employer
or of stock possessing one percent (1%) or more of the total
combined voting power of all of the stock of the Company or an
Affiliated Employer. For purposes of this definition, (i) an
individual shall be deemed to own stock owned by other individuals
as provided in Section 318 of the Code, but substituting five
percent (5%) for fifty percent (50%) in subparagraph (c) of
Section 318(a)(2) of the Internal Revenue Code, (ii) a beneficiary
(who would not otherwise be a Key Employee) of a deceased Key
Employee shall be deemed to be a Key Employee in substitution for
such deceased Key Employee, and (iii) the total number of Key
Employees who are officers of the Company and the Affiliated
Employers shall be limited to: if there is a total of less than
thirty (30) employees of the Company and
55
<PAGE>
Affiliated Employers, three (3); if there is a total of more than
thirty (30) but less than five hundred (500) employees of the
Company and Affiliated Employers, ten percent (10%) of such total;
and, if there is a total of more than five hundred (500) employees
of the Company and Affiliated Employers, fifty (50).
(h) Plan Year. With respect to any plan, the annual accounting period
---------
used by such plan for annual reporting purposes.
(i) Remuneration. An individual's earned income, wages, salaries, and
------------
other amounts actually paid or made available by the Company or an
Affiliated Employer to such individual during a Plan Year for
personal services actually rendered in the course of employment
with the Company or an Affiliated Employer (subject to exclusion
of amounts specified by regulations promulgated under Section 415
of the Code).
(j) Valuation Date. With respect to any Plan Year of any defined
--------------
contribution plan, the most recent date within the twelve (12)
month period prior to a Determination Date as of which the trust
fund established under such plan was valued and the net income (or
loss) thereof allocated to Members' accounts. With respect to any
Plan Year of a defined benefit plan, the most recent date within a
twelve-month period prior to a Determination Date as of which the
plan assets were valued for purposes of computing plan costs for
purposes of the requirements imposed under Section 412 of the
Code.
56
<PAGE>
14.03 Top-Heavy Status.
----------------
(a) The Plan shall be deemed to be top-heavy if, as of any
Determination Date, (i) the sum of Account Balances of Members who
are Key Employees exceeds sixty percent (60%) of the sum of
Account Balances of all Members (excluding the Account Balances of
Former Key Employees) unless an Aggregation Group including the
Plan is not top-heavy, or (ii) an Aggregation Group including the
Plan is top-heavy. An Aggregation Group shall be deemed to be top-
heavy as of a Determination Date if the sum (computed in
accordance with Section 416(g)(2)(B) of the Code and the
regulations promulgated thereunder) of (i) the Account Balances of
Key Employees under all defined contribution plans included in the
Aggregation Group and (ii) the Accrued Benefits of Key Employees
under all defined benefit plans included in the Aggregation Group
exceeds sixty percent (60%) of the sum of the Account Balances and
the Accrued Benefits of all individuals (excluding Former Key
Employees) under such plans. If an individual has not performed
services for the Company or an Affiliated Employer at any time
during the previous five (5) years, his or her Account Balance or
Accrued Benefit shall not be taken into account.
(b) If the Plan is determined to be top-heavy for a Plan Year for
which it is part of an Aggregation Group which includes a
qualified defined benefit plan which is also top-heavy, the
requirements of Section 416(c) shall be
57
<PAGE>
satisfied for such Plan Year by providing the minimum benefit
required by said Section under such defined benefit plan for each
Member. If the Plan is determined to be top-heavy for a Plan Year
and it is not part of an Aggregation Group which includes a
qualified defined benefit plan which is also top-heavy, the
Company shall contribute to the Plan for such Plan Year on behalf
of each Member who is not a Key Employee and who has not
terminated his employment as of the last day of such Plan Year an
amount equal to:
(i) the lesser of (a) three percent (3%) of such Member's
Remuneration for such Plan Year, or (b) a percent of such
Member's Remuneration for such Plan Year equal to the
greatest percent determined by dividing for each Key
Employee the amount of contributions allocated to such Key
Employee's Account for such Plan Year pursuant to Article 4
by such Key Employee's Remuneration not in excess of
$200,000 for such Plan Year; reduced by
(ii) the amount allocated to such Member's Account for such Plan
Year pursuant to Article 4.
(c) In the event that a Member also participates in a defined benefit
plan of the Company during a Plan Year in which the Plan is a
Top-Heavy Plan or a Super Top-Heavy Plan, the limitations under
Section 4.05 of the Plan shall apply, except that the factor of
one-hundred percent (100%)
58
<PAGE>
shall be substituted for the factor of one-hundred twenty-five
(125%) as set forth under such Section with regard to the defined
benefit plan and defined contribution plan fractions. If the Top-
Heavy Plan is not a Super Top-Heavy Plan, the preceding sentence
shall not apply if:
(1) the Member's minimum benefit under the defined benefit plan
is increased to equal the product of (a) and (b) below:
(a) the lesser of
(i) three percent (3%) multiplied by his years of
service (up to a maximum of ten (10) years), or
(ii) thirty percent (30%); multiplied by:
(b) his highest average annual Form W-2 compensation for a
five (5) consecutive year period required to be taken
into account pursuant to Code Section 416(c), or
(2) the Member's minimum contribution under Section
13.03(b)(i)(a) of the Plan is increased to four percent (4%)
of a Member's Remuneration.
(3) Super Top-Heavy Plan means a plan in which the top-heavy
determination pursuant to Section 13.03(2) is performed
substituting ninety percent (90%) for sixty percent (60%).
14.04 Termination of Top-Heavy Status. If the Plan has been deemed to be
-------------------------------
top-heavy for one or more Plan Years and thereafter ceases to be top-heavy, the
provisions of this Article
59
<PAGE>
13 shall cease to apply to the Plan effective as of the day following the
Determination Date on which it is determined to no longer be top-heavy.
IN WITNESS WHEREOF these presents have been signed and sealed for in behalf
of the parties hereto, in the case of the Company by its duly authorized
officer, as of the date first above written.
CAPE COD BANK AND TRUST COMPANY, as
the Company
By: James H. Rice
------------------------------------
Title: President
CAPE COD BANK AND TRUST COMPANY, as
the Trustee
By: James H. Rice
-----------------------------------
Title: President
60
<PAGE>
FIRST AMENDMENT
TO
CAPE COD BANK AND TRUST COMPANY
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
WHEREAS, Cape Cod Bank and Trust Company (hereinafter referred to as
"Company") has established the Cape Cod Bank and Trust Company Employee Stock
Ownership Plan and Trust (hereinafter referred to as "Plan"), effective January
1, 1989; and
WHEREAS, Section 12.01 of the Plan reserves to the Company the right to
amend the Plan at any time;
NOW, THEREFORE in consideration of the foregoing, the Company, pursuant to
authority granted by its Board of Directors, hereby agrees to amend the Plan in
accordance with the following provisions, said amendment to be effective January
1, 1989:
Section 4.01(b) shall be amended in its entirety as follows:
"(b) Any excess Stock not allocated in accordance with subsection (a)
above shall be placed in a suspense account which shall be established
and maintained to hold such excess Stock until such time as it is
allocated in accordance with the following. One-seventh (1/7) of such
Stock (or such higher proportion as the Board of Directors may
determine each year), but not in excess of the amounts permitted in
the limitation under Code Section 415, shall be released and allocated
as of the last day of each of the following Plan Years until all such
Stock has been allocated to the Accounts of Members who are then
employed by the Company in the proportion that such Member's Annual
Compensation bears to the total Annual Compensation of all Members.
IN WITNESS WHEREOF, Cape Cod Bank and Trust Company has caused this
instrument to be executed in its name on its behalf this 20th day of September,
1990, by its officer thereunto duly authorized.
CAPE COD BANK AND TRUST COMPANY
By:/s/Noal D. Reid
--------------------------------------
Title: Executive Vice President
and Treasurer
<PAGE>
SECOND AMENDMENT TO
THE CAPE COD BANK AND TRUST COMPANY
EMPLOYEE STOCK OWNERSHIP PLAN
-----------------------------
WHEREAS, Cape Cod Bank and Trust Company (the "Company") has established
the Cape Cod Bank and Trust Company Employee Stock Ownership Plan (the "Plan")
for its eligible employees, originally effective January 1, 1989; and
WHEREAS, Section 12:01 of the Plan reserves to the Employer the right to
amend the Plan:
NOW THEREFORE, the Plan is amended by this Second Amendment, effective as
of
January 1, 1992.
1. Section 1.03 of the Plan be and hereby is revised in its entirety and the
following substituted therefor:
"1.03 "Annual Compensation" means the basic compensation paid to an
Employee by the Company while a Member during each Plan Year and including
commissions paid to salespersons and any elective deferrals made under a
plan maintained by the Company which qualifies under Section 401(k) or 125
of the Code, but excluding bonus payments, overtime, special incentive
payments, and any expense allowance payments or any group life insurance
contributions includible in income. "Annual Compensation" to be taken into
account under the Plan shall not exceed Two Hundred Thousand Dollars
($200,000), or such other amount as may be provided pursuant to applicable
law or regulations; provided however, that in determining the Annual
Compensation of a 5 percent owner (as defined in Section 416 of the
Internal Revenue Code) or one of the top 10 Employees by total earnings
from the Company, the Annual Compensation of a spouse and of a lineal
descendant under the age of 19 before the end of the Plan Year shall be
aggregated with such Employee's Annual Compensation."
2. Section 1.08 of the Plan be and hereby is revised in its entirety and the
following substituted therefor:
"1.08 "Company" means Cape Cod Bank and Trust Company situated in Hyannis,
Massachusetts, and any successor thereof; and any corporation now or
hereinafter affiliated with Cape Cod Bank and Trust Company which is
designated by the Board as entitled to adopt the Plan for its eligible
employees, and which does so by a vote of its governing body; and any
successor to any of the foregoing, either singly or as a group, as the
context may require; which eligible Employers shall include Montcalm
Corporation effective January 1, 1992 and CCB&T Investment Company, Inc.
effective July 1, 1992."
3. Section 2.02 of the Plan be and hereby is revised in its entirety and the
following substituted therefor:
<PAGE>
"2.02 Eligibility Service. An Employee shall be credited with one year of
-------------------
"Eligibility Service" for each computation period in which he is credited
with 1,000 Hours of Service, including periods of service prior to the
Effective date of the Plan. The initial computation period shall be the
twelve-month period commencing on the Employee's date of employment.
Subsequent computation periods shall be the consecutive twelve-month
periods commencing on the anniversary date of the Employee's date of
employment. For purposes of determining Eligibility Service for Employees
of any Affiliated Company, only service following the date of affiliation
shall be included, unless otherwise provided for."
4. Section 5.04 of the Plan be and hereby is revised in its entirety and the
following substituted therefor:
"Section 5.04 Payment of Dividends. Cash dividends received by the Trust
--------------------
on Stock allocated to a Member's Account shall be paid to such Member in
cash as soon as practicable after receipt by the Trustee, but not later
than ninety (90) days after the end of the Plan Year in which the dividends
were received. Cash dividends received by the Trust on Stock held in the
Suspense Account shall be paid to Members in cash in the same proportion
that the number of shares of Stock allocated to a Member's Account bears to
the total number of shares of Stock allocated to the Accounts of all
Members; such dividends to be paid as soon as practicable after receipt by
the Trustee, but not later than ninety (90) days after the end of the Plan
Year in which the dividends were received.
Dividends received by the Trust in the form of Stock on Stock allocated to
a Member's Account shall be allocated to the Member's Account. Dividends
received by the Trust in the form of Stock on Stock held in the Suspense
Account shall be allocated to the Member's Account in the same proportion
that the number of shares of Stock allocated to a Member's Account bears to
the total number of shares of Stock allocated to the Accounts of all
Members."
5. Section 7.07 of the Plan be and hereby is added to the Plan immediately
following Section 7.06 to read as follows:
"7.07 Direct Rollovers. This Section applies to all distributions made on
----------------
or after January 1, 1993. Notwithstanding any provision of the Plan to the
contrary that would otherwise limit a distributee's election under this
Section, a distributee may elect, at the time and in the manner prescribed
by the Plan Administrator, to have any portion of an eligible rollover
distribution paid directly to an eligible retirement plan specified by the
distributee in a direct rollover.
7.071 For purposes of Section 7.07, the following words shall have the
following meanings unless a different meaning is plainly required by the
context:
2
<PAGE>
(a) "eligible rollover distribution" shall mean any distribution of all or
a portion of the balance to the credit of the distributee, except that
an eligible rollover distribution does not include any distribution
that is one in a series of substantially equal periodic payments (not
less frequently than annually) made for the life (or life expectancy)
of the distributee or the joint lives (or joint life expectancies) of
the distributee and the distributee's designated Beneficiary, or for a
specified period of 10 years or more, any distribution to the extent
such distribution is required under Section 6.05, and the portion of
any distribution that is not includible in gross income (determined
without regard to the exclusion for net unrealized appreciation with
respect to company securities).
(b) "eligible retirement plan" shall mean an individual retirement account
described in Section 408(a) Internal Revenue Code, an individual
retirement annuity described in Section 408(b) Internal Revenue Code,
an annuity plan described in Section 403(a) Internal Revenue Code, or
a qualified trust described in Section 401(a) Internal Revenue Code,
that accepts the distributee's eligible rollover distribution.
However, in the case of an eligible rollover distribution to the
surviving spouse, an eligible retirement plan is an individual
retirement account or individual retirement annuity.
(c) "distributee" shall mean an Employee or former Employee. In addition,
the Employee's or former Employee's surviving spouse and the
Employee's or former Employee's spouse or former spouse who is the
alternate payee under a qualified domestic relations order, as defined
in Section 11.02, are distributees with regard to the interest of the
spouse or former spouse.
(d) "direct rollover" shall mean a payment by the Plan to the eligible
retirement plan specified by the distributee."
IN WITNESS WHEREOF, Cape Cod Bank and Trust Company has caused this
instrument to be executed by its duly authorized representative this 8th day of
July, 1993.
Attest: Cape Cod Bank and Trust Company
/s/Morton D. Furber, Jr. By:/s/Noal D. Reid
- ------------------------ ----------------------------
Title:Executive Vice President
and Treasurer
3
<PAGE>
THIRD AMENDMENT TO
THE CAPE COD BANK AND TRUST COMPANY
EMPLOYEE STOCK OWNERSHIP PLAN
WHEREAS, Cape Cod Bank and Trust Company (the "Company") has established
the Cape Cod Bank and Trust Company Employee Stock Ownership Plan (the "Plan")
for its eligible employees, originally effective January 1, 1989; and
WHEREAS, Section 12.01 of the Plan reserves to the Employer the right to
amend the Plan:
NOW THEREFORE, the Plan is amended as follows:
1. Section 1.03 of the Plan be and hereby is revised in its entirety and the
following substituted therefor:
"1.03 "Annual Compensation" for years beginning prior to January 1, 1995
means the basic compensation paid to an Employee by the Company while a
Member during each Plan Year and including commissions paid to salespersons
and any elective deferrals made under a plan maintained by the Company
which qualifies under Section 401(k) or Section 125 of the Code, but
excluding bonus payments, overtime, special incentive payments, and any
expense allowance payments or any group life insurance contributions
includible in income. For years beginning on or after January 1, 1995
"Annual Compensation" means the total taxable earnings as reported on Form
W-2, paid by the Employer during a Plan Year, and including any amounts
subject to salary reduction under a plan maintained by the Employer
pursuant to Internal Revenue Code Section 401(k) or Section 125. Effective
January 1, 1989, "Annual Compensation" to be taken into account under the
Plan in any Plan Year shall not exceed Two Hundred Thousand Dollars
($200,000) or such other amount as may be provided pursuant to applicable
law or regulations. For Plan Years-beginning on or after January 1, 1994,
the Annual Compensation of each Member taken into account for determining
benefits provided under the Plan for any Plan Year shall not exceed One
Hundred Fifty Thousand Dollars ($150,000) (as adjusted for increases in the
cost-of-living in accordance with Section 401(a)(17)(B) of the Code). The
cost-of-living adjustment in effect for a calendar year applies to any
period, not exceeding twelve months, over which annual Compensation is
determined (determination period) beginning in such calendar year. If a
determination period consists of fewer than twelve months, the annual
compensation limit under Section 401(a)(17) of the Code will be multiplied
by a fraction, the numerator of which is the number of months in the
determination period, and the denominator of which is twelve. In
determining the compensation of a 5 percent owner (as defined in Section
416 of the Internal Revenue Code) or one of the top 10 Employees by total
earnings from the Company, the Annual Compensation of a spouse and of a
lineal descendant under the age of 19 before the end of the Plan Year shall
be aggregated with such Employee's Annual Compensation."
<PAGE>
IN WITNESS WHEREOF, Cape Cod Bank and Trust Company has caused this
instrument to be executed by its duly authorized representative this eighth day
of June, 1995.
Attest: Cape Cod Bank and Trust Company
/s/ Morton D. Furber, Jr. By: /s/Noal D. Reid
- ------------------------ -------------------------------
Title: Executive Vice President
Treasurer
2
<PAGE>
CAPE COD BANK AND TRUST COMPANY
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
Fourth Amendment
----------------
The Cape Cod Bank and Trust Company Employee Stock Ownership Plan and
Trust, dated as of January 1, 1989, as amended, is hereby further amended,
pursuant to Section 12.01 thereof, as follows:
A. Amendments
1. Article I is hereby amended by deleting section 1.18 in its entirety
and substituting therefor the following:
"Stock" and "Company Stock" mean shares of common stock issued by CCBT
Bancorp, Inc. (the "Holding Company") (or a member of the controlled group which
includes the Holding Company) which are readily tradeable on an established
securities market or, if such stock is not readily tradeable, shares of common
stock issued by the Holding Company which meet the requirements of section
409(1)(2) of the Code.
2. Article VII is hereby amended by deleting references to the "Company"
in the first, third and fourth sentences of Section 7.04 and substituting
therefor the "Holding Company."
3. Article VII is hereby further amended by deleting the references to
the "Company" in the first sentence of Section 7.043 and substituting therefor
"the Holding Company."
4. Article VII is hereby further amended by deleting the reference to the
"Company" in the last sentence of Section 7.044 and substituting therefor the
"Holding Company."
5. Article VII is hereby further amended by deleting the reference to
the "Company" in Section 7.046 and substituting therefor the "Holding Company."
6. Article VII is hereby further amended by deleting all references to
the "Company" in Section 7.05 and substituting therefor the "Holding Company."
7. Article VII is hereby further amended by deleting references to the
"Company" in Section 7.06 and substituting therefor the "Holding Company."
<PAGE>
B. Miscellaneous
1. This Fourth Amendment shall become effective upon the consummation of
the Reorganization as contemplated by the Plan of Reorganization and
Acquisition, dated as of October 8, 1998, between the Holding Company and the
Company.
2. The Trust Agreement is in all other respects hereby confirmed.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, this Fourth Amendment has been signed and sealed for
and on behalf of the undersigned by their duly authorized officer this 11th day
of February, 1999.
CAPE COD BANK AND TRUST COMPANY
By: /s/ Stephen B. Lawson
----------------------------
Stephen B. Lawson
President and Chief Executive Officer
CCBT BANCORP, INC.
By: /s/ Stephen B. Lawson
--------------------------------
Stephen B. Lawson
President and Chief Executive Officer
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have issued our report dated January 29, 1999, accompanying the consolidated
financial statements included in the Annual Report of Cape Cod Bank & Trust
Company on Form 10-K for the year ended December 31, 1998. We hereby consent to
the incorporation by reference of said report in the Registration Statement
pertaining to the CCBT Bancorp, Inc. Stock Option Plan, as amended, on form S-8
filed with the Securities and Exchange Commission on February 18, 1999.
/s/ Grant Thornton LLP
Boston, Massachusetts
March 22, 1999
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-72565) pertaining to the CCBT Bancorp, Inc. Stock Option Plan of our
report dated January 30, 1998, with respect to the 1997 and 1996 consolidated
financial statements of Cape Cod Bank and Trust Company included in the Annual
Report (Form 10-K) of CCBT Bancorp, Inc. for the year ended December 31, 1998.
/s/ Ernst & Young LLP
Boston, Massachusetts
March 19, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements contained in the CCBT Bancorp, Inc. Annual Report on form
10-K for the twelve months ended December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 29,383,227
<SECURITIES> 43,888
<RECEIVABLES> 496,020,243
<ALLOWANCES> 22,125,400
<INVENTORY> 611,960,799
<CURRENT-ASSETS> (11,107,633)
<PP&E> 12,847,002
<DEPRECIATION> 1,177,530,161
<TOTAL-ASSETS> 727,896,975
<CURRENT-LIABILITIES> 358,113,005
<BONDS> 1,093,987,761
0
22,652,660
<COMMON> 0
<OTHER-SE> 1,177,530,161
<TOTAL-LIABILITY-AND-EQUITY> 48,258,130
<SALES> 24,513,524
<TOTAL-REVENUES> 1,206,296
<CGS> 0
<TOTAL-COSTS> 73,977,950
<OTHER-EXPENSES> 19,589,900
<LOSS-PROVISION> 16,621,267
<INTEREST-EXPENSE> 37,766,783
<INCOME-PRETAX> 0
<INCOME-TAX> 383,888
<INCOME-CONTINUING> 16,652,000
<DISCONTINUED> 34,195,891
<EXTRAORDINARY> 20,606,780
<CHANGES> 8,049,834
<NET-INCOME> 12,556,946
<EPS-PRIMARY> 1.39
<EPS-DILUTED> 1.38
</TABLE>
