- --------------------------------------------------------------------------------
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, 1999 -
Commission File No. 000-25381
CCBT FINANCIAL COMPANIES, INC.
------------------------------
(Exact name of Registrant as specified in its charter)
Massachusetts 04-3437708
-------------- ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
307 Main Street, Hyannis, Massachusetts 02601
- --------------------------------------- -----
(Address of principal executive office) (Zip Code)
(Registrant's telephone #, incl. area code): 508-394-1300
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Capital Stock NASDAQ National Association of Securities
Dealers, Inc.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
(1) |X| Yes |_| No and (2) |X| Yes |_| No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (ss. 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. |X|
<PAGE>
The aggregate market value of the voting stock held by non-affiliates
of the registrant, based on the $14.50 price on February 25, 2000, on the Nasdaq
National Market was $123,196,002. 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, 1999, 8,608,048 shares of the registrant's common
stock were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the CCBT Financial Companies, Inc. Definitive Notice of
Annual Meeting and Proxy Statement for the Annual Meeting of Stockholders to be
held on April 27, 2000 are incorporated by reference into Part III of this Form
10-K.
<PAGE>
PART I
Item 1. Business.
General.
CCBT Financial Companies, Inc. (the "Company" or the "Registrant") was
incorporated under the laws of the Commonwealth of Massachusetts on October 8,
1998 under the name CCBT Bancorp, Inc. at the direction of the Board of
Directors and management of Cape Cod Bank and Trust Company ("Bank") for the
purpose of becoming a bank holding company for the Bank. On February 11, 1999,
the Company 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 the
Company's common stock (the "Reorganization"). At a special stockholders'
meeting held July 29, 1999, CCBT Bancorp, Inc.'s name was changed to CCBT
Financial Companies, Inc. This name change became effective September 23, 1999.
The Bank's charter was converted to a national bank on September 1, 1999.
Currently, the Company's business activities are conducted primarily through the
Bank.
Cape Cod Bank and Trust Company, N.A. is the main operating subsidiary
of the Company and is a nationally-chartered commercial bank with trust powers.
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, N.A.
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, of the Federal
Reserve System and the Federal Home Loan Bank of Boston ("FHLB"). At December
31, 1999, the Bank employed 291 people on a full-time basis and another 109
people on a part-time basis.
Financial information contained herein for periods and dates prior
to February 11, 1999 is that of the Bank. Since the Bank is the only subsidiary
of the Company, financial information contained herein for periods and dates
after February 11, 1999 is essentially financial information of the Bank.
Certain amounts have been reclassified in the 1998 and 1997 financial statements
to conform to the 1999 presentation.
During the quarter ended March 31, 1999, the Company's Board of
Directors authorized the repurchase of up to 5% of the Company's stock in the
open market. Consistent with that authorization, the Company repurchased 453,016
shares (5.0%) during 1999, at an average cost of $16.33 per share.
During the second quarter of 1999, the Company formed a real estate
investment trust as a subsidiary of the Bank to utilize income tax advantages
available under Massachusetts tax law. Under the name of CCBT Preferred Corp.,
this new corporation purchased 100% of the commercial mortgage loans of the Bank
on May 14, 1999, and retained the Bank as servicer of those loans.
On September 16, 1999, the Company announced that it had entered into a
purchase agreement with Fleet Bank to acquire two of Fleet's banking offices, in
Falmouth and Wareham, Massachusetts, including approximately $65,000,000
deposits at a premium approximating 16.5%. Contingent upon regulatory approvals,
these acquisitions are expected to be concluded in the summer of 2000.
<PAGE>
In December, 1999, the Company announced that it had entered into an
agreement to acquire 51% of the stock of Murray & MacDonald Insurance Services,
Inc. of Falmouth, Massachusetts, a full service insurance Agency offering
property, casualty, life, accident and health products to clients on Cape Cod.
The Agency has been in business since 1972 and has license agreements with more
than thirty insurance firms. As part of the transaction, Murray & MacDonald
President Douglas D. MacDonald will continue as President of the Agency, and
will direct all insurance activities for the Bank. Subject to regulatory
approvals, this acquisition is expected to be completed in the spring of 2000.
Cape Cod Bank and Trust Company, N.A. 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. The Bank receives
substantially all of its deposits from and makes substantially all of its loans
to individuals and businesses on Cape Cod, although the Bank has some loans on
properties outside its market area.
The Company's principal sources of revenue are loans and investments
which accounted for 78% of gross income during 1999. Of the remaining portion,
2% was received from service charges and 3% was from the gain on sale of its
merchant credit card portfolio. The balance was derived from Trust Department
services income and other 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. The Company 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
Company has no foreign operations.
Competition
The Company faces substantial competition for loan origination and for
the attraction and retention of deposits. Competition for loan origination
arises primarily from commercial banks, other thrift institutions, credit unions
and mortgage companies. The Company competes for loans on the basis of product
variety and flexibility, competitive interest rates and fees, service quality
and convenience.
Competition for the attraction and retention of deposits arises
primarily from other commercial banks, thrift institutions, co-operative banks,
and credit unions having a presence within and around the market area served by
the Bank's main office and its community branches and ATM network. There are
approximately twelve of these financial institutions in the Bank's market area.
In addition, the Company competes with regional and national firms which offer
stocks, bonds, mutual funds and other investment alternatives to the general
public. The Company competes on its ability to satisfy such requirements of
savers and investors as product alternatives, competitive rates, liquidity,
service quality, convenience, and safety against loss of principal and earnings.
<PAGE>
Management believes that the Company's emphasis on personal service and
convenience, coupled with active involvement within the communities it serves,
contributes to its ability to compete successfully. Moreover, under the
Gramm-Leach-Bliley Act of 1999 (the "Gramm-Leach-Bliley Act"), effective March
11, 2000, securities firms, insurance companies and other financial services
providers that elect to become financial holding companies may acquire banks and
other financial institutions. The Gramm-Leach-Bliley Act may significantly
change the competitive environment in which the Company and its subsidiaries
conduct business. See "The Financial Services Modernization Legislation" below.
The financial services industry is also likely to become more competitive as
further technological advances enable more companies to provide financial
services. These technological advances may diminish the importance of depository
institutions and other financial intermediaries in the transfer of funds between
parties.
Supervision and Regulation
Regulation of the Company. The Company 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, and files with the Federal
Reserve Board an annual report and such additional reports as the Federal
Reserve Board may require. As a bank holding company, the Company's activities
are limited to the business of banking and activities closely related or
incidental to banking. The Company 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 and also generally must provide notice to or obtain
approval of the Federal Reserve Board in connection with any such acquisition.
The Financial Services Modernization Legislation. On November 12, 1999,
President Clinton signed into law the Gramm-Leach-Bliley Act. The
Gramm-Leach-Bliley Act repeals provisions of the Glass-Steagall Act: Section 20,
which restricted the affiliation of Federal Reserve member banks with firms
"engaged principally" in specified securities activities; and Section 32, which
restricts officer, director, or employee interlocks between a member bank and
any company or person "primarily engaged" in specified securities activities. In
addition, the Gramm-Leach-Bliley Act also contains provisions that expressly
preempt any state law restricting the establishment of financial affiliations,
primarily related to insurance. The general effect of the law is to establish a
comprehensive framework to permit affiliations among commercial banks, insurance
companies, securities firms, and other financial service providers by revising
and expanding the Bank Holding Company Act framework to permit a holding company
system, such as the Company, to engage in a full range of financial activities
through a new entity known as a Financial Holding Company. "Financial
activities" is broadly defined to include not only banking, insurance, and
securities activities, but also merchant banking and additional activities that
the Federal Reserve Board, in consultation with the Secretary of the Treasury,
determines to be financial in nature, incidental to such financial activities,
or complementary activities that do not pose a substantial risk to the safety
and soundness of depository institutions or the financial system generally.
Generally, the Gramm-Leach-Bliley Act:
o repeals historical restrictions on, and eliminates many
federal and state law barriers to, affiliations among banks,
securities firms, insurance companies, and other financial
service providers;
<PAGE>
o provides a uniform framework for the functional regulation of
the activities of banks, savings institutions, and their
holding companies;
o broadens the activities that may be conducted by national
banks (and derivatively state banks), banking subsidiaries of
bank holding companies, and their financial subsidiaries;
o provides an enhanced framework for protecting the privacy of
consumer information;
o adopts a number of provisions related to the capitalization,
membership, corporate governance, and other measures designed
to modernize the Federal Home Loan Bank system;
o modifies the laws governing the implementation of the
Community Reinvestment Act of 1977; and
o addresses a variety of other legal and regulatory issues
affecting both day-to-day operations and long-term activities
of financial institutions.
In order to engage in the new activities, a bank holding company, such
as the Company, must meet certain tests. Specifically, all of a bank holding
company's banks must be well-capitalized and well-managed, as measured by
regulatory guidelines, and all of the bank holding company's banks must have
been rated "satisfactory" or better in the most recent Community Reinvestment
Act evaluation of each bank. At this time, the Company has not determined
whether it will become a financial holding company.
Regulation of the Bank. As a nationally-chartered commercial bank, the
Bank is subject to regulation and examination by the Office of the Comptroller
of the Currency ("OCC"). Relevant 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 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.
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.
<PAGE>
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 the Company 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.
Risk Factors
Stockholders of the Company should consider the following risk factors
in conjunction with the rest of this document. If any of the following risks
occur, the Company's business, prospects, results of operations or financial
condition could be harmed. In that case, the trading price of its common stock
could decline, and you could lose all or part of your investment. This 10-K also
contains forward-looking statements that involve risks and uncertainties. Actual
results could differ materially from those anticipated in the forward-looking
statements as a result of specific factors, including the risks described below
and elsewhere in this 10-K. This list may not be exhaustive.
The Company Expects to Expand into Non-banking Activities. The Company
expects to expand its operations into new non-banking activities in 2000. In
December, 1999, the Company, through its wholly-owned subsidiary, Cape Cod Bank
and Trust Company, N.A., agreed to acquire 51% of the stock of Murray &
MacDonald Insurance Services, Inc. of Falmouth, Massachusetts. (See "Business -
General".) Although the Company has significant experience in providing
bank-related services, this expertise may not assist us in our expansion into
non-banking activities. As a result, we may be exposed to risks associated with,
among other things, (1) a lack of market and product knowledge or awareness of
other industry related matters and (2) an inability to attract and retain
qualified employees with experience in these non-banking activities. See
"Business".
The Bank is Largely Dependent Upon the Market Area on Cape Cod. The
Bank's market area is heavily dependent on the tourist and vacation business on
Cape Cod. The Bank receives substantially all of its deposits from and makes
substantially all of its loans to individuals and businesses on Cape Cod. A
decline in the economy on Cape Cod, or in the United States generally, may have
a material adverse effect on the operating results of the Company.
General Business Risks Could Adversely Impact the Company's Business.
The banking business is subject to various business risks. Continued success
depends in large part on the contributions of our senior management personnel.
The volume of loan originations is dependent upon demand for loans of the type
originated and serviced by the Company and the competition in the marketplace
for such loans. The level of consumer confidence, fluctuations in real estate
values, fluctuations in prevailing interest rates and fluctuations in investment
returns expected by the financial community could combine to make loans of the
type originated by the Company less attractive. In addition, the Company may be
adversely affected by other factors that could (a) increase the cost to the
borrower of loans held by the Company, (b) create alternative lending sources
for such borrowers or (c) increase the cost of funds of the Bank at a rate
faster than an increase in interest income, thereby narrowing net interest rate
margins. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
<PAGE>
The Company Could Be Adversely Impacted by Applicable Regulatory
Changes or Modifications. The Company is subject to extensive regulation by
federal and state governmental authorities and is subject to various laws and
judicial and administrative decisions imposing requirements and restrictions on
part or all of its operations. There can be no assurance that these laws, rules
and regulations will not be modified in the future, which could make compliance
much more difficult or expensive, restrict ability to originate, broker or sell
loans or otherwise adversely affect business or prospects. See "Supervision and
Regulation."
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 Company. 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 Company.
Year 2000 Compliance
The statements in the following section include "Year 2000 readiness
disclosure" within the meaning of the Year 2000 Information and Readiness Act of
1998. The phrase "turn of the century" used in the following text refers to the
period December 31, 1999 through January 3, 2000.
Much computer software has been written which allows the year in a date
to be recognized and/or stored based on a two-digit number, i.e., "12/31/99",
clearly recognizable as meaning December 31, 1999. The same is true of a variety
of hardware devices with built-in clock-calendars, such as computers. In some
cases, this could have created problems at the turn of the century because
"01/01/00" could have been interpreted to mean January 1, 1900 rather than
January 1, 2000. If such circumstances were not identified and corrected in
advance, they could have caused system failure or erroneous calculations of such
items as interest income or expense. This could potentially have had a
significant impact on the Company's ability to do business.
For the Company's internal computer processing, it was determined to be
necessary to replace some of its computers and to acquire more recent versions
of certain software. $800,000 was spent for this purpose in 1998 and an
additional $540,000 was spent in 1999. These costs have been capitalized and are
being depreciated over the useful lives of the items purchased.
The Company relies on outside vendors for much of its critical data
processing. Prior to December 31, 1999, these vendors assured the Company that
they were Year 2000 compliant. The Company's testing confirmed this on those
systems that were considered to be critical or high risk. Contingency plans for
processing of the daily work in the event of failure of any of these systems
were in place on December 31, 1999.
As a result of these efforts and assurances, the Company did not
experience computer failures of any kind affecting either internal or
subcontracted computer processing.
The Company is also dependent on other providers in the conduct of its
business, most notably for electrical power and telecommunications. If these
providers had experienced Year 2000 problems, disruption of service, especially
if prolonged, could have seriously affected the Company's ability to conduct
business as usual. The Company did not experience any disruption of service from
these providers.
<PAGE>
Certain of the Company's customers may also have been subject to Year
2000 problems which may have impacted their ability to do business. Among other
repercussions, this could have reduced their ability to make loan payments. To
the Company's knowledge, no customers were seriously effected by Year 2000
problems over the turn of the century.
Some of the Company's customers withdrew funds in anticipation of
possible Year 2000 disruptions. The Company's substantial liquidity position,
maintained in the normal course of doing business and enhanced during November
and December, experienced insubstantial pressure from unusual deposit or
withdrawal activity.
Although the turn of the century period was free of Year 2000 potential
problems, several additional dates occur during 2000 which might disrupt the
normal course of business at the Company. These are listed below. Until these
dates, and others yet unidentified are successfully passed, and until any Year
2000 issues that might arise are corrected, the Company's Year 2000 readiness
and contingency plans will remain in effect.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
January 10 First date to require a seven digit date field Status: passed
January 31 First end of month Status: passed
February 29 Leap year day Status: passed
March 31 First quarter end Status: open
October 10 First date to require an eight digit date field Status: open
December 31 2000/2001 year end Status: open
</TABLE>
Please refer to the statement regarding "Forward-Looking Information"
at the beginning of Part II, Item 7 of this 10K entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations" with
regard to any forward-looking statements in this section. Although management of
the Company believes that its response to the Year 2000 issue are appropriate,
the Company cannot guarantee its Year 2000 readiness, nor that of material
vendors or customers, nor the effectiveness of contingency plans in the event of
a failure in any computer systems.
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------
All officers were elected to their positions on April 22, 1999 to serve
until the annual meeting on April 27, 2000 and until their successors are duly
elected.
<TABLE>
<CAPTION>
Age at Title and Area of Date Appointed Date of
Officer 12/31/99 Responsibility to Present Position Employment
------- -------- -------------- ------------------- ----------
<S> <C> <C> <C> <C>
Stephen B. Lawson 58 President, Chief Executive Officer and Director 10/08/98 12/06/65
John S. Burnett 53 Clerk 10/08/98 9/07/71
Noal D. Reid 55 Chief Financial Officer and Treasurer 10/08/98 10/16/72
<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 (the Company)
John S. Burnett Secretary of the Corporation, 8/31/78 (Bank)
Vice President, 12/11/80 (Bank)
Clerk, 10/08/98 (the Company)
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 (the Company)
</TABLE>
Item 2. Properties.
A. Properties held in fee - Banking Offices of Cape Cod Bank and
Trust Company, N.A.:
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) 397 Palmer Avenue, Falmouth - Branch Office
12) 693 Main Street, Chatham - Branch Office
13) Main Street, Wellfleet - Branch Office
<PAGE>
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 offices 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, N.A.:
The land on which the Hyannis Airport Rotary Office is located is
leased from the Barnstable Municipal Airport for $54,700 per year until 2005.
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 2000. A banking office at the
intersection of Route 28 and Camp Opechee Road, Centerville is leased for
$54,000 in 2000 with 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
ten year period. The Route 134, South Dennis branch office is leased from
Chamberlain Realty for $44,000 in 2000 and is adjusted annually with the
Consumer Price Index ("CPI"). The lease expires in 2000 with right to renew for
up to fifteen years. The banking office at Skaket Corners, Orleans is leased
from Skaket Associates for $65,550 in 2000, 2001 and 2002; $75,380 in 2003, 2004
and 2005; and $86,690 in 2006 and 2007 plus taxes and other expenses under a
lease expiring in 2007. The Bank also operates a Customer Service Center which
is leased from the Davenport Realty Trust, South Yarmouth for $111,972 per year
(adjustable annually with CPI) plus taxes and other expenses under a lease
expiring in 2012. The banking office located in the Village Green Shopping
Center on Brackett Road, North Eastham is leased from Alan G. Vadnais for
$10,080 per year with a 5% increase annually under a lease expiring in 2002. The
<PAGE>
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 2000 to 2011 and $19,050
in 2012. In addition, the Bank also rents office spaces from Stop & Shop for
$476,000 per year under a lease expiring in 2005. The Bank also pays rent of
$24,000 in 2000, and $11,000 in 2001 for Automated Teller Machines (ATMs).
Item 3. Legal Proceedings.
The Company is not involved in any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The common stock of the Company and, prior to the Reorganization, of
the Bank 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 the
Company's transfer agent, there were approximately 1,100 stockholders of record
as of December 31, 1999. 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 1999
------------------------------------------------------------------------------------------
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 $19 1/8 $19 3/8 $19 1/8 $17
Low $19 1/8 $19 5/8 $17 1/4 $15 1/2 $16 1/8 $15 7/8 $15 1/4 $14 15/16
Dividends declared per share $0.12 $0.12 $0.13 $0.13 $0.14 $0.14 $0.14 $0.14
</TABLE>
<PAGE>
Item 6. Selected Consolidated Financial Data.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(Dollar amounts in thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
Total assets $1,231,114 $1,177,530 $ 973,105 $ 817,884 $ 646,911
Stockholders' equity 85,650 83,542 75,636 66,603 59,601
Net interest income 40,796 37,767 36,907 32,650 29,156
Provision for loan losses -- -- -- -- --
Non-interest income 22,269 17,036 20,174 13,874 13,649
Non-interest expense 36,518 34,196 35,642 30,985 28,631
Provision for income taxes 10,086 8,050 8,190 6,070 5,391
Net income 16,461 12,557 13,249 9,468 8,783
Book value per share $ 9.95 $ 9.22 $ 8.35 $ 7.35 $ 6.59
Basic earnings per share(1) 1.85 1.39 1.46 1.05 .97
Diluted earnings per share 1.85 1.38 1.46 1.05 .97
Cash dividends per share .56 .50 .42 .35 .28
Return on average assets 1.35% 1.15% 1.45% 1.26% 1.47%
Return on average stockholders' equity 19.6% 15.8% 18.7% 15.2% 15.6%
</TABLE>
(1) Based on average shares outstanding: 8,876,776 in 1999; 9,061,064 in 1998
and in 1997; 9,052,434 in 1996; and 9,042,740 in 1995. (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,
changes in the size and nature of the Company's competition, uncertainties
relating to the ability of the Company and its suppliers, vendors and other
third parties to resolve Year 2000 issues in a timely manner, and changes in the
assumptions used in making such forward-looking statements. Additional factors
that could cause or contribute to such differences include, but are not limited
to, those described under "Risk Factors".
The following discussion should be read in conjunction with the
accompanying consolidated financial statements and selected consolidated
financial data included within this report. Given that the Company's principal
activity currently is ownership of the Bank, for ease of reference, the term
"Company" in this Item generally will refer to the investments and activities of
the Company and the Bank, except where otherwise noted.
<PAGE>
Cape Cod Bank and Trust Company, N.A. is the largest commercial bank
headquartered on Cape Cod in Barnstable County, Massachusetts. The Bank's
twenty-six banking offices are principally engaged in accepting deposits from
individuals and businesses, and in making loans. The Bank also has a substantial
Trust Department, managing assets in excess of $783 million at December 31, 1999
on behalf of its clients. The Bank's market area includes a significant and
growing retirement population, and is heavily dependent on the tourist and
vacation businesses.
1999 COMPARED WITH 1998
- -----------------------
Source and Use of Funds. At year-end 1999, total deposits of
$766,064,000 were 5% greater than the prior year-end. Demand deposits increased
$6,658,000 or 4% and NOW deposits increased $6,097,000 or 5%. Money market
accounts and Other savings declined by $3,029,000 or 2% and $1,984,000 or 1%,
respectively, while Certificates of deposit greater than $100,000 doubled, from
$30,299,000 at year end 1998 to $60,666,000 at year end 1999. This significant
growth of large CDs began in August and continued throughout the last trimester
of the year. Management believes that this growth is attributable to highly
competitive rates offered during that period while the weaker performance of
other deposit types occurred largely in December and may have been related to
customer's Year 2000 concerns. On average for the year, total deposits of
$750,084,000 exceeded the prior year average by nearly 5%, led by greater
average demand deposits, up $18,343,000 or 12%, NOW accounts, up $7,991,000 or
8%, and large denomination CDs, up $11,193,000 or 39%. Management believes that
these averages reflect the strong economy on the Cape during 1999. As well,
additional funds were raised through increased borrowings, notably the FHLB.
While FHLB borrowings increased only modestly from year-end to year-end, 1999
average outstandings increased $80,027,000 or 29% over the 1998 comparable as
the Bank continued to take long term advances to support fixed rate lending as
well as to take shorter term advances for the continued purpose of making high
quality investments with short effective duration.
At year end 1999, loans totalled $674,743,000 reflecting growth of
$80,923,000 or 14% over the 1998 year end. Loans secured by real estate,
including residential first mortgages, up $57,190,000 or 24% and construction
loans, up $20,900,000 or 44% accounted for this growth, as well as did increased
commercial loans, up $7,000,000 or 10% in the latter weeks of the year. These
growth statistics also reflect the strong Cape Cod economy during 1999. On
average, loans were $47,400,000 or 8% greater during 1999 than during 1998, with
most of that change occurring in residential mortgage outstandings. Also on the
asset side, securities averaged significantly higher during 1999 as compared to
1998, up $75,281,000 or 16% reflecting utilization of the FHLB advances taken
down for this purpose. In contrast, however, year end 1999 securities were
$30,164,000 or 6% lower than the 1998 year end comparable, as management used
maturities and paydowns to reduce FHLB advances, to respond to the late year
growth of commercial loans and to provide extra cash to respond to unusual
customer demands that might have arisen in relation to Year 2000 concerns.
Net Interest Income. On average, interest rates were lower in 1999 than
they were in 1998, which decreased the yields on the Bank's loans. The cost of
the Bank's deposits and borrowings also decreased by a comparable amount.
Because of the positive spread between the return on earning assets and the cost
of funds, as well as the overall growth of deposits, borrowings, loans and
investments discussed above, the Bank's net interest income increased.
Accordingly, net interest income increased by $3,029,000, an increase of 8%,.
<PAGE>
Provision for Possible Loan Losses. Recoveries on loans previously
charged off exceeded charge-offs during 1999. Management determined that
additions to the reserve for possible loan losses were unnecessary in 1999,
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 portfolio. See "Reserve for Loan Losses" below.
Other Income and Expense. Non-interest income increased $5,233,000 or
31% on increased Financial Advisor (Trust) fees, greater credit card merchant
fees and the sale of the credit card merchant portfolio which in itself produced
a pretax gain of $3,495,000. Operating expenses increased $2,322,000 or 7% over
1998 with most of this increase reflected in salaries and benefits expenses.
Provision for Income Taxes. As a result of higher pretax income, the
provisions for income taxes increased by 25%.
Net Income. As a result of the foregoing factors, net income for 1999
was $16,461,093, an increase of 31% from the previous year.
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 Company continued to take long-term
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 Company
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
$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
Company'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.
<PAGE>
Net Interest Income. Interest rates declined during 1998, which
decreased the yields on loans and investments. The cost of 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, 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.
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
credit card portfolio. Non-interest expense decreased by 4% in large part
because of lower expenses related to the conversion of the Company'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.
MATURITY STRUCTURE OF ASSETS AND LIABILITIES
--------------------------------------------
AND SENSITIVITY TO CHANGES IN INTEREST RATES
--------------------------------------------
As of December 31, 1999 fixed rate debt securities and loans mature as
follows:
<TABLE>
<CAPTION>
Fixed Rate
---------------------------------
Debt Securities Loans
--------------- -----
Remaining maturity: (Dollar amounts in thousands)
---------------------------------
<S> <C> <C>
Three months or less $ 41,011 $ 20,571
Over three months through 12 months 63,464 54,507
Over one year through five years 67,574 102,238
Over five years 24,729 25,153
-------- --------
Totals $196,778 $202,469
======== ========
</TABLE>
Included in fixed rate debt securities are $173,344,000 of
collateralized mortgage obligations, mortgage-backed securities, and other debt
securities. These have been distributed based on estimates of their principal
cash flows rather than their contractual final maturities. The balance, largely
fixed rate municipal securities, are distributed on the basis of contractual
maturity. Included in loans maturing in three months or less are $500,000 of
customer account overdrafts.
<PAGE>
As of December 31, 1999 floating rate debt securities, FHLB stock and
loans reprice as follows:
<TABLE>
<CAPTION>
Floating Rate
-----------------------------------------------
FHLB & FRB
Debt Securities Stock Loans
--------------- ---------- -----
Repricing frequency: (Dollar amounts in thousands)
<S> <C> <C> <C>
Quarterly or more frequently $267,982 $ 23,222 $ 85,278
Annually or more frequently,
but less frequently than quarterly -- -- 187,891
Every five years or more frequently,
but less frequently than annually -- -- 198,290
Less frequently than every five years -- -- 815
-------- -------- --------
Totals $267,982 $ 23,222 $472,274
======== ======== ========
</TABLE>
Most residential mortgage loans are adjustable rate mortgages subject
to interest rate caps.
The Company's investment securities are subject to market risk in the
following ways. $291,204,000 of the investment securities owned as of December
31, 1999 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 26%. 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 Company'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 $196,778,000 of securities are
fixed-rate collateralized mortgage obligations ("CMOs"), mortgage backed
securities and other debt securities. 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 Company'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 Company's
fixed-rate investments is less than two years.
<PAGE>
The remaining maturity of time certificates of deposit as of December
31, 1999 was as follows:
<TABLE>
<CAPTION>
Fixed Rate
-------------------------------------------
Certificates of Deposit
$100,000 or more Less than $100,000
---------------- ------------------
Remaining maturity: (Dollar amounts in thousands)
<S> <C> <C>
Three months or less $52,124 $ 53,015
Over three months through 12 months 7,340 54,599
Over one year through two years 947 9,801
Over two years through three years 255 2,631
Over three years through four years -- 413
Over four years through five years -- 65
Over five years -- --
------- --------
Totals $60,666 $120,524
======= ========
</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
Company'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, 1999 was as follows:
<TABLE>
<CAPTION>
Fixed Rate
-----------------------------
FHLB Borrowings
---------------
Remaining maturity: (Dollar amounts in thousands)
<S> <C>
Three months or less $114,500
Over three months through 12 months 114,934
Over one year through five years 100,833
Over five years 17,696
--------
Totals $347,963
========
</TABLE>
Rates paid on other interest-bearing liabilities change daily.
Reserve for Loan Losses
The reserve for loan losses is an estimate of the amount necessary to
absorb probable losses in the 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.
<PAGE>
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 Company's borrowers and resulting
in higher losses. The Company has also purchased packages of residential
mortgage loans which contain loans on properties outside of its 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, the Company's reserve for loan losses is periodically
reviewed by the OCC as part of their examination process. The OCC may require
the Company to make additions to the reserve based upon judgements different
from those of management.
Non-performing Assets and Loan Loss Experience
Non-performing assets as of December 31, 1999, 1998, 1997, 1996 and
1995 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $1,777 $7,468 $2,770 $3,679 $4,478
Loans past due 90 days or more and still accruing -- -- -- 266 69
Property from defaulted loans 1,500 -- 621 430 100
------ ------ ------ ------ ------
Total non-performing assets $3,277 $7,468 $3,391 $4,375 $4,647
====== ====== ====== ====== ======
Restructured troubled debt performing in accordance with
amended terms, not included above $ 626 $ 478 $1,131 $3,439 $1,443
====== ====== ====== ====== ======
</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 and in the process of collection.
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 Company 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, 1999, $5,333,538 of loans were included in this
category, in addition to loans reported above. The Company's loan classification
system also includes a category for loans which are monitored for possible
deterioration in credit quality. At December 31, 1999, $3,803,789 of loans were
included in this category. In addition, it is possible that there may be losses
on other loans which have not been specifically identified.
<PAGE>
The changes in the reserve for loan losses during the five years ended
December 31, 1999 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C> <C>
Balance, beginning of year $ 11,108 $ 10,962 $ 11,417 $ 11,701 $ 11,050
Provision for loan losses -- -- -- -- --
Charge-offs:
Commercial loans (347) (353) (400) (669) (606)
Construction mortgage loans -- -- -- (39) --
Commercial mortgage loans (186) (86) (69) -- --
Industrial revenue bonds -- -- -- -- --
Residential mortgage loans -- (1) (119) -- --
Consumer loans (77) (166) (749) (637) (604)
Recoveries on loans previously charged off:
Commercial loans 351 475 653 792 1,435
Construction mortgage loans 60 47 -- 43 49
Commercial mortgage loans 190 174 120 143 244
Industrial revenue bonds -- -- -- -- --
Residential mortgage loans -- 23 8 1 4
Consumer loans 59 33 101 82 129
-------- -------- -------- -------- --------
Balance, end of year $ 11,158 $ 11,108 $ 10,962 $ 11,417 $ 11,701
======== ======== ======== ======== ========
<CAPTION>
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C> <C>
Allocation of ending balance:
Commercial loans $ 1,457 $ 1,578 $ 1,676 $ 2,872 $ 3,864
Construction mortgage loans 755 705 521 792 717
Commercial mortgage loans 5,681 5,822 6,587 5,221 4,881
Industrial revenue bonds 20 23 28 33 53
Residential mortgage loans 2,725 2,460 1,610 1,484 1,121
Consumer loans 520 520 540 1,015 1,065
-------- -------- -------- -------- --------
Balance, end of year $ 11,158 $ 11,108 $ 10,962 $ 11,417 $ 11,701
======== ======== ======== ======== ========
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ratio of net charge-offs (recoveries) to average (0.01)% (0.03)% 0.09% 0.07% (0.17)%
loans outstanding
</TABLE>
<PAGE>
Recoveries on loans previously charged off modestly exceeded
charge-offs and management determined that additions to the reserve for possible
loan losses were unnecessary in 1999, notwithstanding the growth in the loan
portfolio. The reserve represented 1.65% of total loans at December 31, 1999,
1.87% at December 31, 1998 and 2.08% at December 31, 1997. Although management
believes that upon review of loan quality and prepayment statistics, the reserve
is adequate to cover losses likely to result from loans in the current portfolio
at December 31, 1999, there can be no assurance that the reserve is adequate or
that provisions might not become necessary.
Liquidity
The Company normally experiences a wide swing in its liquidity each
year as a result of the seasonal nature of the economy in its market area.
Liquidity is usually at its high in late summer and early fall and the annual
low point is usually in the spring.
With the exception to the year ended December 31, 1999, substantially
all of the amount shown as cash and due from banks at year end is made up of
checks and similar items in the process of collection or was needed to satisfy a
requirement to maintain a portion of deposits in an account at the Federal
Reserve. Accordingly, it does not represent a source of liquidity. At year end
December 31, 1999, however, a portion of cash and due from banks was accumulated
to honor potential customer demands arising from Year 2000 concerns. The Company
did not experience these potential customer demands.
In general, 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, and it 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.
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, 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, 1999. 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 4.97%, 5.35% and 5.46% during 1999, 1998 and 1997, respectively.
<PAGE>
<TABLE>
<CAPTION>
Net Interest Income, Net Interest Margin
Years ended December 31,
---------------------------------------------------------------------------------
1999 1998
------------------------------------ -----------------------------------
Average Average Average Average
Balance Interest Yield Balance Interest Yield
------- -------- ----- ------- -------- -----
(Dollar amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Securities:
Mortgage-backed securities $ 60,641 $ 3,394 5.60% $ -- $ -- -- %
U.S. Government CMOs 154,257 7,893 5.12% 256,334 14,141 5.52%
U.S. Government agencies 26,610 1,400 5.26% 36,949 2,039 5.52%
Other CMOs 72,714 4,176 5.74% 53,619 3,110 5.80%
State and municipal obligations 21,643 822 3.80% 17,494 806 4.61%
Other securities 202,607 12,215 6.03% 98,795 5,624 5.69%
---------- ---------- -------- --------
Total securities 538,472 29,900 5.55% 463,191 25,720 5.55%
---------- ---------- -------- --------
Loans:
Commercial loans 73,487 6,650 9.05% 72,623 6,994 9.63%
Commercial mortgages 219,212 19,481 8.89% 218,052 20,316 9.32%
Industrial revenue bonds 1,278 98 7.68% 1,678 148 8.82%
Residential mortgages 326,098 21,936 6.73% 277,149 19,509 7.04%
Consumer loans 10,032 1,042 10.39% 13,183 1,291 9.79%
---------- ---------- -------- --------
Total loans 630,107 49,207 7.81% 582,685 48,258 8.28%
---------- ---------- -------- --------
Total earning assets 1,168,579 79,107 6.77% 1,045,876 73,978 7.07%
Non-earning assets 52,179 47,457
---------- ---------- ---------- --------
Total assets $1,220,758 $1,093,333
========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Net Interest Income, Net Interest Margin
Years ended December 31,
----------------------------------------
1997
---------------------------------------
Average Average
Balance Interest Yield
------- -------- -----
<S> <C> <C> <C>
ASSETS:
Securities:
Mortgage-backed securities $ -- $ -- -- %
U.S. Government CMOs 102,891 6,918 6.72%
U.S. Government agencies 72,771 4,571 6.28%
Other CMOs 55,284 3,232 5.85%
State and municipal obligations 17,065 760 4.45%
Other securities 126,171 7,624 6.04%
-------- -------
Total securities 374,182 23,105 6.17%
-------- -------
Loans:
Commercial loans 73,236 7,384 10.08%
Commercial mortgages 206,873 19,842 9.59%
Industrial revenue bonds 2,390 179 7.49%
Residential mortgages 180,559 14,214 7.87%
Consumer loans 28,312 2,978 10.52%
-------- -------
Total loans 491,370 44,597 9.08%
-------- -------
Total earning assets 865,552 67,702 7.82%
Non-earning assets 49,650
-------- -------
Total assets $915,202
========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Net Interest Income, Net Interest Margin
Years ended December 31,
--------------------------------------------------------------------------------
1999 1998
----------------------------------- --------------------------------------
Average Average Average Average
Balance Interest Yield Balance Interest Yield
------- -------- ----- ------- -------- -----
(Dollar amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES & STOCKHOLDERS' EQUITY:
Interest bearing deposits:
NOW account deposits $ 113,855 $ 936 0.82% $ 105,864 $ 1,281 1.21%
Regular savings 163,638 4,755 2.91% 161,749 5,234 3.24%
Money Market accounts 145,033 4,484 3.09% 147,623 5,071 3.44%
Certificates of Deposit of
$100,000 or more 39,765 2,021 5.08% 28,572 1,525 5.34%
Other time deposits 119,071 5,832 4.90% 121,216 6,479 5.35%
---------- ---------- -------- --------
Total interest bearing deposits 581,362 18,028 3.10% 565,024 19,590 3.47%
---------- ---------- -------- --------
Borrowings:
FHLB 356,276 19,405 5.45% 276,249 15,956 5.78%
Other short-term borrowings 20,898 878 4.20% 14,890 665 4.47%
---------- ---------- -------- --------
Total borrowings 377,174 20,283 5.38% 291,139 16,621 5.71%
---------- ---------- -------- --------
Total interest-bearing liabilities 958,536 38,311 4.00% 856,163 36,211 4.23%
---------- --------
Demand deposits 168,719 150,376
Non-interest bearing liabilities 9,348 7,237
Stockholders' equity 84,155 79,557
---------- ----------
Total liabilities & equity $1,220,758 $1,093,333
========== ==========
Net interest income/spread $ 40,796 2.77% $ 37,767 2.84%
========== ========
Net interest income, as % of total
earning assets 3.49% 3.61%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Net Interest Income, Net Interest Margin
Years ended December 31,
-----------------------------------------
1997
--------------------------------------
Average Average
Balance Interest Yield
------- -------- -----
<S> <C> <C> <C>
LIABILITIES & STOCKHOLDERS' EQUITY:
Interest bearing deposits:
NOW account deposits $ 99,349 $ 1,897 1.91%
Regular savings 156,107 6,021 3.86%
Money Market accounts 146,877 5,751 3.92%
Certificates of Deposit of
$100,000 or more 23,463 1,267 5.40%
Other time deposits 116,410 6,400 5.50%
-------- --------
Total interest bearing deposits 542,206 21,336 3.94%
-------- --------
Borrowings:
FHLB 151,852 8,961 5.90%
Other short-term borrowings 10,640 498 4.68%
-------- --------
Total borrowings 162,492 9,459 5.82%
-------- --------
Total interest-bearing liabilities 704,698 30,795 4.37%
--------
Demand deposits 135,448
Non-interest bearing liabilities 4,142
Stockholders' equity 70,914
--------
Total liabilities & equity $915,202
========
Net interest income/spread $ 36,907 3.45%
==========
Net interest income, as % of total
earning assets 4.26%
</TABLE>
<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 1999, lower interest rates reduced interest expense
more than interest income as security portfolio yields were stable to 1998
levels overall. Greater volume in 1999 also contributed to improved net interest
income. In 1998, lower interest rates reduced interest income by more than the
decrease in interest expense because the Company had more interest-earning
assets and because sharply lower Treasury rates reduced the yields on loans and
investments.
<PAGE>
<TABLE>
<CAPTION>
1999 compared to 1998 1998 compared to 1997
---------------------------------- ----------------------------------
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:
Securities:
Mortgage-backed securities $ 3,394 $ -- $ 3,394 $ -- $ -- $ --
U.S. Government CMOs (5,427) (821) (6,248) 9,391 (2,168) 7,223
U.S. Government agencies (557) (81) (638) (2,113) (419) (2,532)
Other CMOs 1,102 (36) 1,066 (97) (25) (122)
State & municipal agencies 174 (158) 16 19 27 46
Other securities 6,084 507 6,591 (1,606) (394) (2,000)
-------- -------- -------- -------- -------- --------
Total securities 4,770 (589) 4,181 5,594 (2,979) 2,615
-------- -------- -------- -------- -------- --------
Loans:
Commercial loans 81 (425) (344) (60) (330) (390)
Commercial mortgages 106 (941) (835) 1,057 (583) 474
Industrial revenue bonds (33) (17) (50) (58) 27 (31)
Residential mortgages 3,369 (943) 2,426 7,201 (1,906) 5,295
Consumer loans (318) 69 (249) (1,536) (151) (1,687)
-------- -------- -------- -------- -------- --------
Total loans 3,205 (2,257) 948 6,604 (2,943) 3,661
-------- -------- -------- -------- -------- --------
Total interest income 7,975 (2,846) 5,129 12,198 (5,922) 6,276
-------- -------- -------- -------- -------- --------
Interest expense:
Interest bearing deposits:
NOW accounts 81 (426) (345) 102 (718) (616)
Regular savings 58 (537) (479) 200 (987) (787)
Money Market accounts (85) (502) (587) 27 (707) (680)
Certificates of deposit
of $100,000 or more 583 (87) 496 274 (16) 258
Other time deposits (110) (537) (647) 261 (182) 79
-------- -------- -------- -------- -------- --------
Total interest bearing deposits 527 (2,089) (1,562) 864 (2,610) (1,746)
-------- -------- -------- -------- -------- --------
Borrowings:
FHLB 4,491 (1,041) 3,450 7,263 (268) 6,995
Other short-term borrowings 260 (47) 213 194 (27) 167
-------- -------- -------- -------- -------- --------
Total borrowings 4,751 (1,088) 3,663 7,457 (295) 7,162
-------- -------- -------- -------- -------- --------
Total interest expense 5,278 (3,177) 2,101 8,321 (2,905) 5,416
-------- -------- -------- -------- -------- --------
Net interest income $ 2,697 $ 331 $ 3,028 $ 3,877 $ (3,017) $ 860
======== ======== ======== ======== ======== ========
</TABLE>
<PAGE>
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 Company's primary source of revenue, interest
rate risk is the most significant non-credit related market risk to which the
Company is exposed. Net interest income is affected by changes in interest rates
as well as fluctuations in the level and duration of the Company's assets and
liabilities.
Interest rate risk is the exposure of 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 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 Company'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 Company 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 net assets (the liquidation value of stockholders' equity) would
decline. At December 31, 1999, it is estimated that an increase in interest
rates of 200 basis points (for example, an increase in the prime rate from 8.75%
to 10.75%) would reduce the value of net assets by $6,156,000. On the other
hand, if interest rates were to decrease, the value of net assets would
increase.
Although the value of net assets is subject to risk if interest rates
rise (but not if rates fall) the opposite is true of the Company's earnings. If
interest rates were to increase, net interest income would increase because the
Company has more interest-earning assets than it has interest-bearing
liabilities and because much of this excess amount reprices within a short
period of time. As a result, net interest income is instead subject to the 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
8.75% to 6.75%) it is estimated that net interest income would decrease by
$6,506,000. On the other hand, if interest rates were to increase, net interest
income would increase.
At December 31, 1998, it was estimated that the value of the net assets
of the Company would decline by $9,737,000 if interest rates were to increase by
200 basis points and that the Company's net interest income would decline by
$4,183,000 if interest rates were to decline by 200 basis points. The
year-to-year change in these estimates is a result of a shortening of the
duration of the net assets of the Company.
<PAGE>
Item 8. Financial Statements and Supplementary Data.
FINANCIAL STATEMENTS INDEX
--------------------------
o Reports of Independent Certified Public Accountants
o Consolidated Statements of Condition at December 31, 1999,
1998 and 1997
o Consolidated Statements of Income for the Three Years Ended
December 31, 1999
o Consolidated Statements of Cash Flows for the Three Years
Ended December 31, 1999
o Consolidated Statements of Changes in Stockholders' Equity for
the Three Years Ended December 31, 1999
o Consolidated Statements of Comprehensive Income for the Three
Years Ended December 31, 1999
o Notes to Consolidated Financial Statements
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
CCBT Financial Companies, Inc.
We have audited the consolidated statements of condition of CCBT
Financial Companies, Inc. as of December 31, 1999 and 1998, and the related
consolidated statements of income, cash flows, stockholders' equity, and
comprehensive income for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits. The financial
statements of CCBT Financial Companies, Inc., as of December 31, 1997 and for
the year 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audits 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 CCBT
Financial Companies, Inc. as of December 31, 1999 and 1998, and the consolidated
results of its operations and its consolidated cash flows for the years then
ended, in conformity with accounting principles generally accepted in the United
States.
/s/Grant Thornton LLP
- ---------------------
Grant Thornton LLP
Boston, Massachusetts
January 31, 2000
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CONDITION
------------------------------------
December 31,
------------------------------------------------------
ASSETS 1999 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash and due from banks $ 43,415,100 $ 29,383,227 $ 33,849,649
Interest-bearing deposits in banks 826,994 43,888 237,844
Securities available for sale at fair value 464,759,748 496,020,243 372,751,235
Federal Home Loan Bank stock, at cost 22,125,400 22,125,400 18,744,900
Federal Reserve Bank stock, at cost 1,096,700 -- --
Loans, net of reserve for loan losses 663,584,422 582,712,644 516,217,405
Loans held for sale 200,000 18,140,522 3,930,152
Premises and equipment 12,396,729 12,847,002 12,776,994
Deferred tax assets 4,657,933 4,992,690 4,630,204
Accrued interest receivable on securities 2,850,366 4,067,975 3,749,980
Principal and interest receivable on loans 3,156,914 3,596,836 3,138,181
Other assets 12,044,040 3,599,734 3,078,171
--------------- --------------- ---------------
Total assets $ 1,231,114,346 $ 1,177,530,161 $ 973,104,715
=============== =============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 766,063,617 $ 727,896,975 $ 709,084,486
Borrowings from the Federal Home Loan Bank 347,962,999 343,506,683 171,295,274
Other short-term borrowings 19,345,885 14,606,322 11,662,360
Current taxes payable 1,721,187 255,080 178,325
Interest payable on deposits and borrowings 3,061,932 2,497,740 1,832,493
Post retirement benefits payable 2,501,480 2,016,146 1,692,186
Employee profit sharing retirement and bonuses payable 2,396,542 1,783,350 787,553
Other liabilities 2,411,093 1,425,465 935,744
--------------- --------------- ---------------
Total liabilities 1,145,464,735 1,093,987,761 897,468,421
--------------- --------------- ---------------
Stockholders' equity
Common stock, $2.50 par value
Authorized: 12,000,000 shares
Issued: 9,061,064 shares in 1999, 1998, and 1997, respectively 22,652,660 22,652,660 11,326,330
Surplus 13,903,294 13,903,294 25,229,624
Undivided profits 58,181,480 46,704,129 38,677,715
Treasury stock, at cost (453,016 shares) (7,399,628) -- --
Accumulated other comprehensive income (1,688,195) 282,317 402,625
--------------- --------------- ---------------
Total stockholders' equity 85,649,611 83,542,400 75,636,294
--------------- --------------- ---------------
Total liabilities and stockholders' equity $ 1,231,114,346 $ 1,177,530,161 $ 973,104,715
=============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
for the Three Years Ended December 31,
--------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $49,206,774 $48,258,130 $44,597,302
Taxable interest income on securities 27,668,760 23,773,180 21,681,389
Tax-exempt interest income on securities 775,355 740,344 759,957
Dividends on securities 1,456,359 1,206,296 663,740
----------- ----------- -----------
Total interest income 79,107,248 73,977,950 67,702,388
----------- ----------- -----------
INTEREST EXPENSE
Interest on deposits 18,028,054 19,589,900 21,335,764
Interest on borrowings from the Federal Home Loan Bank 19,405,176 15,955,929 8,961,486
Interest on other short-term borrowings 877,907 665,338 497,887
----------- ----------- -----------
Total interest expense 38,311,137 36,211,167 30,795,137
----------- ----------- -----------
Net interest income 40,796,111 37,766,783 36,907,251
Provision for loan losses -- -- --
----------- ----------- -----------
Net interest income after provision for loan losses 40,796,111 37,766,783 36,907,251
----------- ----------- -----------
NON-INTEREST INCOME
Financial Advisor fees 5,957,566 5,111,716 4,344,027
Deposit account service charges 1,915,777 1,513,856 1,532,827
Branch banking fees 3,049,663 3,031,343 2,963,938
Electronic banking fees 1,225,832 1,148,468 921,636
Brokerage fees and commissions 992,652 1,140,189 1,204,865
Credit card merchant fees 4,605,970 3,878,902 3,404,145
Net gain on sales of securities 234,301 383,888 535,678
Net gain on sales of loans 219,587 332,579 352,411
Gain on sale of credit card merchant portfolio 3,494,733 -- --
Gain on sale of credit card portfolio -- -- 2,140,570
Settlement from software provider -- -- 1,900,000
Other income 573,279 494,947 873,459
----------- ----------- -----------
Total non-interest income 22,269,360 17,035,888 20,173,556
----------- ----------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
NON-INTEREST EXPENSE
Salaries 12,381,649 11,578,347 11,754,886
Employee benefits 5,448,294 4,707,206 4,577,627
Building and equipment 4,340,295 4,137,912 4,512,473
Credit card processing 4,001,822 3,275,084 3,197,436
Data processing 2,793,269 2,666,629 2,745,373
Accounting and legal fees 890,902 936,629 750,434
Other outside services 1,857,771 1,896,258 937,290
Delivery and communications 1,376,039 1,390,952 1,316,440
Directors' fees 294,691 329,300 324,854
Marketing and advertising 906,818 858,775 924,714
Printing and supplies 753,762 876,808 945,835
Insurance 285,681 336,143 336,252
Expenses from defaulted loans 147,222 120,777 116,275
All other expenses 1,039,773 1,085,071 3,202,475
----------- ----------- -----------
Total operating expense 36,517,988 34,195,891 35,642,364
----------- ----------- -----------
Net income before taxes 26,547,483 20,606,780 21,438,443
Applicable income taxes 10,086,390 8,049,834 8,189,907
----------- ----------- -----------
Net income $16,461,093 $12,556,946 $13,248,536
=========== =========== ===========
Average shares outstanding 8,876,776 9,061,064 9,061,064
Basic earnings per share $ 1.85 $ 1.39 $ 1.46
Diluted earnings per share 1.85 1.38 1.46
Cash dividends declared .56 .50 .42
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Years Ended December 31,
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES
Net income $ 16,461,093 $ 12,556,946 $ 13,248,536
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses -- -- --
Depreciation and amortization 2,139,147 1,913,955 2,194,828
Net amortization (accretion) of securities 3,020,243 1,979,750 (2,085,330)
Amortization of deferred loan fees 209,556 862,228 821,635
Net gain on sale of investment securities (234,301) (383,888) (535,678)
Deferred (prepaid) income taxes 1,998,127 (664,597) 214,136
Gain from settlement from software provider -- -- (1,900,000)
Net gain on sale of loans (219,587) (332,579) (352,411)
Gain on sale of credit card portfolio -- -- (2,140,570)
Gain on sale of merchant credit card portfolio (3,494,733) -- --
Gain on sale of mutual funds held for trading -- -- (1,068,320)
Net change in:
Loans held for sale 17,940,522 (14,210,369) (2,804,512)
Accrued interest receivable 1,657,531 (776,650) (2,409,911)
Accrued expenses and other liabilities 2,648,346 2,474,725 (378,801)
Other, net 2,921,277 1,741,890 524,463
------------- ------------- -------------
Net cash provided by operating activities 45,047,221 5,161,411 3,328,065
------------- ------------- -------------
CASH USED BY INVESTING ACTIVITIES
Net increase in loans (164,067,605) (159,465,444) (197,603,424)
Proceeds from sale of loans 85,294,654 93,135,361 121,319,852
Dispositions of property from defaulted loans 115,000 809,674 474,500
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 496,592,930 490,955,326 289,317,822
Purchase of available for sale securities (563,030,025) (866,415,999) (680,844,675)
Sale of available for sale securities 82,270,203 243,852,925 335,485,576
Purchase of premises and equipment (2,386,550) (2,130,960) (2,277,538)
------------- ------------- -------------
Net cash used by investing activities (65,211,393) (199,259,117) (133,059,567)
------------- ------------- -------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
CASH PROVIDED BY FINANCING ACTIVITIES
Net increase in deposits 38,166,642 18,812,489 75,751,042
Net increase in borrowings from the
Federal Home Loan Bank 4,456,316 172,211,409 68,610,189
Net increase in other short-term borrowings 4,739,563 2,943,962 2,302,614
Purchase of CCBT Financial Companies, Inc.
common stock in open market (7,399,628) -- --
Cash dividends paid on common stock (4,983,742) (4,530,532) (3,805,647)
------------- ------------- -------------
Net cash provided by financing activities 34,979,151 189,437,328 142,858,198
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents 14,814,979 (4,660,378) 13,126,696
Cash and cash equivalents at beginning of year 29,427,115 34,087,493 20,960,797
------------- ------------- -------------
Cash and cash equivalents at end of year $ 44,242,094 $ 29,427,115 $ 34,087,493
============= ============= =============
Cash equivalents include amounts due from banks and federal funds sold.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest $ 37,746,945 $ 35,545,921 $ 30,620,250
Income taxes 6,599,480 9,476,298 5,540,921
Non-cash transactions:
Additions to property from defaulted loans $ 1,615,000 $ 188,900 $ 665,274
Loans to finance OREO property 100,000 137,500 104,125
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three Years Ended December 31,
--------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net income $ 16,461,093 $ 12,556,946 $ 13,248,636
------------ ------------ ------------
Holding gains (losses) on securities available for sale (2,937,312) 177,084 (104,462)
Reclassification of gains realized in income (234,301) (383,888) (535,678)
------------ ------------ ------------
Net unrealized gains (losses) (3,171,613) (206,804) (640,140)
Related tax effect 1,201,101 86,496 230,357
------------ ------------ ------------
Net other comprehensive income (1,970,512) (120,308) (409,783)
------------ ------------ ------------
Comprehensive income $ 14,490,581 $ 12,436,638 $ 12,838,853
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Three Years Ended December 31,
--------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
COMMON STOCK
Balance, beginning of year $ 22,652,660 $ 11,326,330 $ 11,326,330
Two-for-one stock distribution -- 11,326,330 --
------------ ------------ ------------
Balance, end of year 22,652,660 22,652,660 11,326,330
------------ ------------ ------------
SURPLUS
Balance, beginning of year 13,903,294 25,229,624 25,229,624
Two-for-one stock distribution -- (11,326,330) --
------------ ------------ ------------
Balance, end of year 13,903,294 13,903,294 25,229,624
------------ ------------ ------------
UNDIVIDED PROFITS
Balance, beginning of year 46,704,129 38,677,715 29,234,826
Net income 16,461,093 12,556,946 13,248,536
Cash dividends declared (4,983,742) (4,530,532) (3,805,647)
------------ ------------ ------------
Balance, end of year 58,181,480 46,704,129 38,677,715
------------ ------------ ------------
TREASURY STOCK
Balance, beginning of year -- -- --
Purchase of treasury stock (7,399,628) -- --
------------ ------------ ------------
Balance, end of year (7,399,628) -- --
------------ ------------ ------------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance, beginning of year 282,317 402,625 812,408
Net other comprehensive income (1,970,512) (120,308) (409,783)
------------ ------------ ------------
Balance, end of year (1,688,195) 282,317 402,625
------------ ------------ ------------
Total stockholders' equity, end of year $ 85,649,611 $ 83,542,400 $ 75,636,294
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(1) Summary of Significant Accounting Policies
Principles of consolidation -- Financial information contained herein for
periods and dates prior to February 11, 1999 is that of the Bank. Since the Bank
is the only subsidiary of the Company, financial information contained herein
for periods and dates after February 11, 1999 is essentially financial
information of the Bank. Certain amounts have been reclassified in the 1998 and
1997 financial statements to conform to the 1999 presentation. The accompanying
consolidated financial statements include the accounts of the Company 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 Company provides loan, deposit, trust and
investment services to businesses and consumers primarily 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 reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and cash equivalents -- Cash and cash equivalents include amounts due
from banks and federal funds sold.
Securities -- Securities held for investment that the Company has the
positive intent and ability to hold to maturity are stated at cost, adjusted for
amortization of premiums and accretion of discounts. 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, 1999, 1998 and 1997,
the Company 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 origination, are deferred and
taken into income over the life of the loan using the interest method.
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.
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.
<PAGE>
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 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 Company adopted
Statement of Financial Accounting Standards ("SFAS") 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 Company 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.
<PAGE>
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 Company charges to marketing expense any
advertising related expenses at the time they are incurred.
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 Company adopted SFAS 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 1997 and 1998 financial
statements have been reclassified to conform to the 1999 presentation.
New accounting pronouncements -- Effective January 1, 1997, the Bank
adopted 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
Company's financial position or results of operations.
In February, 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 129, "Disclosure of Information About Capital Structure," which was
effective for the Company's 1998 financial statements. The Company'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 Company'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 was effective for the
Company'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 Company 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.
<PAGE>
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
About Pensions and Other Postretirement Benefits," which was effective for the
Bank's 1998 financial statements. This Statement standardizes disclosure
requirements for pensions and other postretirement benefits to the extent
practicable. The Company'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 Company had been required to adopt
this Statement effective January 1, 2000. However, in June 1999, the FASB issued
SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of SFAS No. 133." This statement delays the date
the Company is required to adopt SFAS No. 133 until January 1, 2001. Through
December 31, 1999, the Company's use of derivative instruments has not been
material.
(2) Securities
The adjusted cost and estimated market values of securities which the
Company considers to be available for sale as of December 31, 1999 were as
follows:
<TABLE>
<CAPTION>
December 31, 1999
---------------------------------------------
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 $176,935 $ 2,234 $ 4,444 $174,725
Other U.S. Government agencies 16,819 3 266 16,556
Other collateralized mortgage obligations 79,425 535 677 79,283
State and municipal obligations 20,596 -- -- 20,596
Other debt securities 173,923 429 752 173,600
FHLB stock 22,125 -- -- 22,125
FRB stock 1,097 -- -- 1,097
-------- -------- -------- --------
Totals $490,920 $ 3,201 $ 6,139 $487,982
======== ======== ======== ========
</TABLE>
The net unrealized loss on these securities is included net of tax in
stockholders' equity.
The Company's investment securities are subject to market risk in the
following ways. $291,204,000 of the investment securities owned as of December
31, 1999 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 26%. If interest rates rise
<PAGE>
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 Company'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 $196,778,000 of securities are
fixed-rate collateralized mortgage obligations, mortgage backed securities and
other debt securities. 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 Company'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 Company's fixed-rate
investments is less than two years.
The adjusted cost and estimated market values of securities which the
Company considered to be available for sale as of December 31, 1998 and 1997
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 obligations 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
======== ======== ======== ========
<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 $121,503 $ 657 $ 57 $122,103
Other U.S. Government agencies 82,371 87 68 82,390
Other collateralized mortgage obligations 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 18,745 -- -- 18,745
-------- -------- -------- --------
Totals $390,804 $ 985 $ 293 $391,496
======== ======== ======== ========
</TABLE>
<PAGE>
Gross proceeds from the sale of available for sale securities were
$82,270,203 in 1999. Gross gains of $334,394 and gross losses of $100,093 were
realized on those sales.
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.
The amount of income tax expense attributable to net gains in 1999,
1998 and 1997 was $97,996, $161,584 and $226,902, respectively.
The adjusted cost and estimated market value of debt securities which the
Company considered to be available for sale at December 31, 1999 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 $393,625 $391,513
Due after one year through five years 72,446 71,740
Due after five years through ten years 24,849 24,729
Due after ten years -- --
-------- --------
Totals $490,920 $487,982
======== ========
</TABLE>
At December 31, 1999, securities carried at $19,346,000 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.
<PAGE>
(3) Loans
The following is a summary of loans outstanding as of the dates
indicated:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Mortgage loans on real estate
Residential $ 290,722,415 $ 233,533,062 $ 184,594,101
Commercial 203,987,613 207,860,415 198,944,076
Construction 68,809,298 47,939,708 34,798,447
Equity lines of credit 23,035,447 20,787,422 18,867,494
Other loans
Commercial 77,775,782 70,766,629 72,190,145
Industrial revenue bonds 1,137,423 1,344,336 1,882,600
Consumer 9,274,570 11,588,705 15,902,887
------------- ------------- -------------
Total loans 674,742,548 593,820,277 527,179,750
Less: Reserve for loan losses (11,158,126) (11,107,633) (10,962,345)
------------- ------------- -------------
Total portfolio loans, net $ 663,584,422 $ 582,712,644 $ 516,217,405
============= ============= =============
Loans held for sale $ 200,000 $ 18,140,522 $ 3,930,152
============= ============= =============
</TABLE>
The Company 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,
1999, 1998 and 1997 was $5,565,109, $11,248,796 and $15,937,340, respectively.
During 1999, $8,526,833 in new loans were made to Directors and Officers and
there were $14,210,520 in repayments. The total amount of deposits from
Directors and Officers at December 31, 1999, 1998 and 1997 was $3,829,135,
$8,010,955 and $8,413,028, respectively.
Nonaccrual loans at December 31, 1999, 1998 and 1997 amounted to
$1,777,000, $7,468,000 and $2,770,000, respectively. Interest income which would
have been accrued on nonaccrual loans, had they performed in accordance with the
terms of their contracts, for the year ended December 31, 1999 was $80,947.
Interest income recognized on nonaccrual loans in 1999 amounted to $35,531.
The amount of restructured troubled debt which was performing in
accordance with amended terms at December 31, 1999, 1998 and 1997 was $626,000,
$478,000 and $1,131,000, 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 SFAS No. 66 for
the years ended December 31, 1999, 1998 and 1997 was $100,000, $137,500 and
$104,125, respectively.
<PAGE>
Included in the consumer loan totals for the years ended December 31,
1999, 1998 and 1997 are customer account overdrafts that the Company
reclassified as loans in the amounts of $499,900, $407,700 and $742,806,
respectively.
The Company also has participated in loans with other entities. As of
December 31, 1999 gross participation loans totaled $5,439,522 of which $793,948
was participated out. 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.
The Company's business is primarily in southeastern Massachusetts, and
many of the Company'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 $168,260,000, $122,908,000 and $75,140,000 at
December 31, 1999, 1998 and 1997, respectively.
The following summarizes mortgage servicing rights capitalized and
amortized, along with the aggregate activity in related valuation allowances:
<TABLE>
<CAPTION>
December 31,
---------------------------
1999 1998 1997
---- ---- ----
(Dollar amounts in thousands)
<S> <C> <C> <C>
Mortgage servicing rights capitalized $528 $687 $237
==== ==== ====
Mortgage servicing rights amortized $194 $123 $ 33
==== ==== ====
</TABLE>
The fair value balance of capitalized servicing rights was determined
using a discount rate of 8% and a prepayment speed of 7%.
(4) Reserve for Loan Losses
The changes in the reserve for loan losses during the three years ended
December 31, 1999 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Balance, beginning of year $ 11,107,633 $ 10,962,345 $ 11,416,873
Provision for loan losses -- -- --
Charge-offs (610,238) (606,686) (1,336,521)
Recoveries on loans previously charged off 660,731 751,974 881,993
------------ ------------ ------------
Balance, end of year $ 11,158,126 $ 11,107,633 $ 10,962,345
============ ============ ============
</TABLE>
<PAGE>
The following is a summary of information pertaining to impaired loans:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Impaired loans without a valuation allowance $ -- $ -- $ --
Impaired loans with a valuation allowance:
Commercial loans $ 559,345 $ 537,661 $ 193,108
Commercial mortgage loans 419,245 2,277,262 986,323
Residential mortgage loans -- 474,000 --
---------- ---------- ----------
Total impaired loans $ 978,590 $3,288,923 $1,179,431
========== ========== ==========
Valuation allowance related to impaired loans $ 176,146 $ 592,006 $ 212,298
Additional FASB 114 reserves on impaired loans 272,664 406,821 176,800
---------- ---------- ----------
Total valuation allowance for impaired loans $ 448,810 $ 998,827 $ 389,098
========== ========== ==========
Average investment in impaired loans $2,397,106 $1,645,505 $1,086,660
========== ========== ==========
Interest income recognized on impaired loans $ 200,157 $ 309,131 $ 108,666
========== ========== ==========
Interest income recognized on a cash basis on impaired loans $ 200,157 $ 309,131 $ 108,666
========== ========== ==========
</TABLE>
(5) Bank Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation
and amortization of $12,177,000 at December 31, 1999, $10,593,000 at December
31, 1998 and $9,205,000 at December 31, 1997. Certain banking premises are
leased under non-capitalized operating leases expiring at various dates through
2012. Annual rental expenses under these leases were $914,000 in 1999, $808,000
in 1998 and $767,000 in 1997. The total rental commitments under non-cancelable
leases for future years are $6,239,000 not including amounts payable under
consumer price index escalator provisions in three such leases which become
effective in 2000 and later years. Annual commitments are $909,900 in 2000,
$899,900 in 2001, $852,400 in 2002, $817,800 in 2003, $811,300 in 2004, and a
total of $2,123,000 for the years 2005 through 2012. Certain of these leases
also contain renewal options.
<PAGE>
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1999 1998 1997
-------- -------- --------
(Dollar amounts in thousands)
<S> <C> <C> <C>
Premises:
Land $ 1,511 $ 1,390 $ 1,390
Buildings 7,094 7,781 8,048
Leasehold improvements 4,375 4,114 3,810
Equipment 12,749 11,102 9,399
Accumulated depreciation (13,332) (11,540) (9,870)
-------- -------- --------
$ 12,397 $ 12,847 $ 12,777
======== ======== ========
</TABLE>
Depreciation and amortization expense for the years ended December 31,
1999, 1998 and 1997 amounted to $1,938,000, $1,780,000 and $2,101,000,
respectively.
(6) Employee Benefits
The Company has a defined contribution Profit Sharing Retirement Plan
covering substantially all employees following two years of service. Each year,
the Company 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 $1,102,000 in 1999, $1,068,000 in 1998, and
$786,000 in 1997. Also in 1999, 1998 and 1997, bonuses were accrued under the
provisions of the Company's Profit Incentive Plan totaling $1,280,000, $706,000
and $762,000, respectively, and paid in the year following.
The Company's Employee Stock Ownership Plan holds 41,889 shares of the
Company's common stock. At December 31, 1999, all shares were allocated to
employees.
The Company 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 Company 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 Company 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 Company'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.
SFAS 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. SFAS 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.
<PAGE>
The following table sets forth the plan's funded status reconciled with
the amount shown in the Company's statement of condition at December 31, 1999,
1998 and 1997:
<TABLE>
<CAPTION>
Accumulated post-retirement benefit obligation: 1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Retirees $ 748,889 $ 796,448 $ 850,567
Fully eligible active plan participants 695,194 564,518 430,087
Other plan participants 1,595,339 1,629,512 1,508,428
----------- ----------- -----------
3,039,422 2,990,478 2,789,082
Plan assets at fair value -- -- --
----------- ----------- -----------
Accumulated post-retirement benefit obligation
in excess of plan assets 3,039,422 2,990,478 2,789,082
Unrecognized net gain from past experience different
from that assumed and from changes in assumptions 831,364 563,568 550,854
Unrecognized prior service cost -- -- --
Unrecognized net obligation at transition (1,428,050) (1,537,900) (1,647,750)
----------- ----------- -----------
Unfunded accrued post-retirement benefit expense $ 2,442,736 $ 2,016,146 $ 1,692,186
=========== =========== ===========
</TABLE>
Net periodic post-retirement benefit for 1999, 1998 and 1997 included the
following components:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Service cost - benefits attributed to service during the year $ 202,281 $ 153,799 $ 133,729
Interest cost on accumulated post-retirement benefit obligation 211,806 171,024 172,768
Actual return on plan assets -- -- --
Amortization of transition obligation over 20 years 109,850 109,850 109,850
Amortization of gain (563,568) (550,854) (449,102)
Asset gain deferred 563,568 518,754 419,156
--------- --------- ---------
Net periodic post-retirement benefit cost $ 523,937 $ 402,573 $ 386,401
========= ========= =========
</TABLE>
For measurement purposes, a 6.5% annual rate of increase in the per
capita cost of covered health care benefits was assumed for 2000; 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, 1999 by $50,972 and the aggregate service
and interest cost components of net periodic post-retirement benefit cost for
the year then ended by $3,823.
The weighted-average discount rate used in determining the accumulated
post-retirement benefit obligation was 7.5%.
<PAGE>
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 Company 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
Company 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>
1999 1998 1997
------------------------ ------------------------ --------------------------
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 57,000 $ 17.41 26,000 $ 13.38 -- --
Granted 52,500 $ 16.07 35,000 $ 20.34 26,000 $ 13.38
Exercised -- -- -- -- -- --
Forfeited (5,500) $ 17.66 (4,000) $ 17.06 -- --
------- ------ ------
Outstanding, end of year 104,000 $ 16.72 57,000 $ 17.41 26,000 $ 13.38
======= ====== ======
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
Remaining
Exercise Price Number Outstanding Contractual Life Number Exercisable
-------------- ------------------ ---------------- ------------------
<S> <C> <C> <C>
$13.38 22,000 7.35 years 11,000
$20.75 22,000 8.12 5,500
$19.25 7,500 8.87 1,875
$17.38 17,000 9.04 --
$16.38 10,500 9.84 --
$15.06 25,000 9.92 --
</TABLE>
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 Company'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 Company had adopted the fair value method of
accounting for stock options described in SFAS No. 123.
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Weighted average volatility 25.86% 26.90% 31.40%
Weighted average dividend 2.77% 2.65% 2.93%
Weighted average risk-free rate 5.58% 5.23% 6.57%
Weighted average fair value of options granted during the year $ 3.94 $ 5.12 $ 3.94
Additional expense had the Company adopted SFAS No. 123 $ 67,883 $ 39,628 $ 34,680
Related tax benefit $ 28,392 $ 16,575 $ 14,505
Pro-forma net income $16,421,602 $12,532,870 $13,228,361
Pro-forma basic and diluted earnings per share $ 1.85 $ 1.38 $ 1.46
</TABLE>
The Company has also entered into stock appreciation rights agreements
with selected employees. Payments are made to these employees on a certain
number of shares to the extent that those shares have appreciated. Stock
appreciation rights mature ten years after their issuance and are not ordinarily
exercisable prior to maturity. A total of $84,375 was charged to compensation
expense in 1997 for these rights. The table below shows the amount of stock
appreciation rights which were outstanding at the beginning and end of each
year, and how many were exercised, granted, forfeited, or expired.
<TABLE>
<CAPTION>
1999 1998 1997
------------------------- ------------------------ -----------------------
Weighted Average Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
------ -------------- ------ -------------- ------ --------------
<S> <C> <C> <C> <C>
Outstanding, beginning of year 3,700 $ 19.25 -- -- 20,000 $ 9.50
Granted 4,600 $ 16.38 3,700 $ 19.25 -- --
Exercised -- -- -- -- (20,000) $ 9.50
Forfeited (200) $ 19.25 -- -- -- --
------- ----- -------
Outstanding, end of year 8,100 $ 17.62 3,700 $ 19.25 -- --
======= ===== =======
</TABLE>
The following table summarizes information about stock appreciation rights
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Remaining
Exercise Price Number Outstanding Contractual Life Number Exercisable
-------------- ------------------ ---------------- ------------------
<S> <C> <C> <C>
$19.25 3,500 8.86 years --
$16.38 4,600 9.84 --
</TABLE>
<PAGE>
(7) Deposits and Borrowed Funds
The following summarize deposits and borrowed funds outstanding as of the
dates indicated:
<TABLE>
<CAPTION>
December 31,
------------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Deposits
Demand $167,624,319 $160,966,042 $147,278,175
NOW 120,307,407 114,210,098 103,754,145
Money market 138,287,456 141,316,906 149,096,741
Other savings 158,141,665 160,125,653 157,868,656
Certificates of deposit greater than $100,000 60,666,301 30,299,027 26,453,179
Other time 121,036,469 120,979,249 124,633,590
------------ ------------ ------------
Total deposits $766,063,617 $727,896,975 $709,084,486
============ ============ ============
</TABLE>
Historically, the Company has maintained a significant level of core
deposits from within its market area, serviced through its branch and ATM
networks. Generally, the Company's strategy is to price deposits that reflect
market rates, offering higher alternative rates based on increasing amounts
deposited. Interest rates paid are frequently reviewed and are modified to
reflect changing conditions.
<TABLE>
<CAPTION>
December 31,
------------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Borrowed funds
Federal Home Loan Bank $347,962,999 $343,506,683 $171,295,274
Other short term borrowings 19,345,885 14,606,322 11,662,360
------------ ------------ ------------
Total borrowed funds $367,308,884 $358,113,005 $182,957,634
============ ============ ============
</TABLE>
Borrowings from the Federal Home Loan Bank at December 31, 1999 had
maturity dates between January 14, 2000 and June 10, 2013 and bore interest
rates between 3.07% and 7.05%. The weighted average interest rate on these
borrowings was 5.69%. The balance at September 30, 1999 of $373,460,143 was the
maximum amount outstanding at any month end during 1999. These borrowings are
collateralized by the Company's residential mortgage loans and securities. The
Company also has an IDEAL Way Line of Credit with Federal Home Loan Bank of
Boston. The unused balance at December 31, 1999, 1998 and 1997 was $12,963,000.
<PAGE>
Other short-term borrowings at December 31, 1999, 1998 and 1997 consisted
of a demand note payable to the U.S. Treasury of $1,912,887, $212,748 and
$2,809,485, respectively, and securities sold subject to agreements to
repurchase of $17,432,998, $14,393,575 and $8,852,875, respectively. These
borrowings are collateralized by the pledge of securities.
(8) 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, 1999,
1998 and 1997, the Bank met all regulatory capital requirements and satisfied
the requirements of the "well-capitalized" category under the Federal Deposit
Insurance 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, 1999, the Bank's leverage ratio
was 7.0%.
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, 1999, the Bank's total risk-weighted assets were
$865,774,000 and its net risk-weighted assets were $865,438,000.
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, 1999, $10,822,000 of the reserve for loan losses could
be used toward risk-based capital requirements. Accordingly, at December 31,
1999, total capital for risk-based capital purposes was $92,441,000 equal to
10.7% 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%.
<PAGE>
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, 1999 the Bank's stockholders' equity was
9.4% 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.
In addition, dividends paid by the Bank to the Company would be
prohibited if the effect thereof would cause the Bank's capital to be reduced
below applicable minimum capital requirements.
(9) Provision for Income Taxes
The provision for income taxes for the three years ended December 31,
1999, 1998 and 1997, consists of the following:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Current federal income tax $ 7,388,341 $ 6,756,489 $ 5,940,648
Current state income tax 699,922 1,957,942 2,035,123
------------ ------------ ------------
8,088,263 8,714,431 7,975,771
------------ ------------ ------------
Deferred (prepaid) federal income tax 1,496,505 (523,786) 159,203
Deferred (prepaid) state income tax 501,622 (140,811) 54,933
------------ ------------ ------------
1,998,127 (664,597) 214,136
------------ ------------ ------------
$ 10,086,390 $ 8,049,834 $ 8,189,907
============ ============ ============
</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.
<PAGE>
The following reconciles the provision for income taxes with the
statutory federal income tax rate of 35%.
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Tax at statutory rate $ 9,291,619 $ 7,209,146 $ 7,503,455
Reduction due to tax-exempt income (274,945) (293,139) (328,829)
State taxes, net of federal tax benefit 781,004 1,112,989 1,358,537
Change in valuation reserve -- -- (373,912)
Other, net 288,712 20,838 30,656
------------ ------------ ------------
$ 10,086,390 $ 8,049,834 $ 8,189,907
============ ============ ============
</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, 1999, 1998 and 1997, the net deferred tax asset consisted
of the following:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Future bad debt deductions $4,666,886 $4,645,768 $4,486,888
Nonaccrual loan interest 132,057 675,093 185,662
Unfunded accrued benefits 1,274,509 1,081,774 901,325
Unrealized loss on securities 1,249,117 -- --
---------- ---------- ----------
Gross deferred tax asset 7,322,569 6,402,635 5,573,875
Valuation reserve -- -- --
---------- ---------- ----------
Deferred tax asset 7,322,569 6,402,635 5,573,875
Deferred tax liability 2,664,636 1,409,945 943,671
---------- ---------- ----------
Net deferred tax asset $4,657,933 $4,992,690 $4,630,204
========== ========== ==========
</TABLE>
(10) Commitments and Contingencies
In the normal course of business, various commitments are entered into by
the Company, such as standby letters of credit and commitments to extend credit,
which are not reflected in the consolidated financial statements. Management
does not anticipate any material losses as a result of these transactions. At
December 31, 1999, 1998 and 1997, the Company had the following commitments
outstanding:
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Standby letters of credit $ 1,627,000 $ 2,356,000 $ 2,567,925
Commitments to extend credit at fixed rates 5,242,500 9,465,067 10,108,350
Other commitments to extend credit 152,546,500 101,334,933 96,699,725
------------ ------------ ------------
Total commitments $159,416,000 $113,156,000 $109,376,000
============ ============ ============
</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 Company. 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
Company evaluates each customer's credit-worthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the Company 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 Company, the Company 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
SFAS No. 107 requires the disclosure of the fair value of financial
instruments for which it is practicable to estimate that value.
At December 31, 1999, 1998 and 1997, the estimated fair values of the
Company's financial instruments were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------- ---------------------- ----------------------
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 equivalents $ 44,242 $ 44,242 $ 29,427 $ 29,427 $ 34,087 $ 34,087
Investment securities 464,760 464,760 518,146 518,146 391,496 391,496
Net loans 663,584 666,762 600,853 608,962 520,148 520,620
Financial liabilities:
Deposits 766,064 766,189 727,897 729,704 709,084 709,780
Borrowings from
Federal Home Loan Bank 347,963 345,027 343,507 344,434 171,295 172,009
Other short-term borrowings 19,346 19,346 14,606 14,606 11,662 11,662
</TABLE>
<PAGE>
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 because they are short term
in nature and/or priced at variable interest rates.
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.
Because no market exists for a significant portion of the Company's
loans, fair value estimates were based on judgements 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 judgement 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.
Fair values of deposits and borrowings from FHLB have been determined by
applying discounted cash flow techniques at replacement market rates.
As required by SFAS 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, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999
--------------------------------------------
Income Shares Per Share
(numerator) (denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Basic earnings per share $16,461,093 8,876,776 $ 1.85
Effect of dilutive stock options -- 4,748 --
----------- ----------- ----------
Diluted earnings per share $16,461,093 8,881,524 $ 1.85
=========== =========== ==========
<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 (0.01)
----------- ---------- ----------
Diluted earnings per share $12,556,946 9,068,990 $ 1.38
=========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
<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
=========== ========= ==========
</TABLE>
(13) Selected Quarterly Financial Data (Unaudited)
The table below shows supplemental financial data for each quarter in
1999 and 1998.
<TABLE>
<CAPTION>
1999
----------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Interest income $18,345,260 $19,176,340 $19,794,956 $21,790,692
Interest expense 9,248,081 9,357,460 9,451,050 10,254,546
----------- ----------- ----------- -----------
Net interest income 9,097,179 9,818,880 10,343,906 11,536,146
Provision for loan losses -- -- -- --
Non-interest income 4,017,630 4,678,959 5,590,643 7,982,128
Non-interest expense 8,078,316 8,945,558 9,902,565 9,591,549
----------- ----------- ----------- -----------
Income before income taxes 5,036,493 5,552,281 6,031,984 9,926,725
Provision for income taxes 1,987,635 1,842,679 2,181,763 4,074,313
----------- ----------- ----------- -----------
Net income $ 3,048,858 $ 3,709,602 $ 3,850,221 $ 5,852,412
=========== =========== =========== ===========
Average shares outstanding 9,045,270 8,941,188 8,887,753 8,637,257
Net income per share $ 0.34 $ 0.41 $ 0.43 $ 0.67
Cash dividends declared $ 0.14 $ 0.14 $ 0.14 $ 0.14
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1998
----------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Interest income $16,875,617 $17,894,468 $19,503,867 $19,703,998
Interest expense 8,048,084 8,297,732 9,890,478 9,974,873
----------- ----------- ----------- -----------
Net interest income 8,827,533 9,596,736 9,613,389 9,729,125
Provision for loan losses -- -- -- --
Non-interest income 3,632,707 3,999,411 5,048,669 4,355,101
Non-interest expense 8,461,129 8,070,368 9,040,453 8,623,941
----------- ----------- ----------- -----------
Income before income taxes 3,999,111 5,525,779 5,621,605 5,460,285
Provision for income taxes 1,599,343 2,201,580 2,237,542 2,011,369
----------- ----------- ----------- -----------
Net income $ 2,399,768 $ 3,324,199 $ 3,384,063 $ 3,448,916
=========== =========== =========== ===========
Average shares outstanding 9,061,064 9,061,064 9,061,064 9,061,064
Net income per share $ 0.26 $ 0.37 $ 0.38 $ 0.38
Cash dividends declared $ 0.12 $ 0.12 $ 0.13 $ 0.13
</TABLE>
As a result of continuing reductions in the amount of non-performing
assets, no provision for loan losses was made during 1999, 1998 or 1997.
Non-interest income in the fourth quarter of 1999 was increased by
$3,494,733 gain on sale of the Company's credit card merchant portfolio.
Because of the seasonal nature of the economy in the Company'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.
<PAGE>
(14) Parent Company Financial Information
Condensed financial information for CCBT Financial Companies, Inc. is
as follows (in thousands):
<TABLE>
<CAPTION>
Statement of Condition
December 31, 1999
<S> <C>
Assets
Cash $ 1,782
Investment securities 5,328,540
Investment in subsidiary 80,064,373
Other assets 254,916
------------
Total assets $ 85,649,611
============
Stockholders' equity
Stockholders' equity $ 85,649,611
------------
Total stockholders' equity $ 85,649,611
============
Statement of Income
Year ended December 31, 1999
Interest income $ 146,702
Operating expenses 359,480
------------
Loss before taxes, dividends and
undistributed income from subsidiary
(212,778)
Applicable income taxes (credit) (54,884)
Dividends from subsidiary 10,600,000
Undistributed income from subsidiary 6,018,987
------------
Net income $ 16,461,093
============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of Cash Flows
Year ended December 31, 1999
<S> <C>
Cash flows from operating activities
Net income $ 16,461,093
Adjustments to reconcile net income to net
cash provided by operating activities:
Dividends received from subsidiary 10,600,000
Earnings from subsidiary (16,618,987)
Other, net 873,563
------------
Net cash provided by operating activities 11,315,669
------------
Cash flows from investing activities
Purchase of investments (12,555,591)
Maturities and repayments of investments 7,356,526
------------
Net cash used by investment activities (5,199,065)
------------
Cash flows from financing activities
Contribution to capital by subsidiary 5,000,000
Cash dividends paid to stockholders (3,715,194)
Purchase of treasury stock (7,399,628)
------------
Net cash used by financing activities (6,114,822)
------------
Net increase (decrease) in cash and cash equivalents 1,782
Cash at beginning of period --
------------
Cash at end of period $ 1,782
============
</TABLE>
<PAGE>
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 for 1997 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 1997 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.
A. Identification of Directors:
With the exception of certain information regarding the executive
officers of the Company 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 the Company's definitive
Proxy Statement for the Annual Meeting of Stockholders ("Proxy Statement") to be
held on April 27, 2000, filed with the SEC pursuant to Regulation 14A of the
Exchange Act Rules.
Information regarding the executive officers of the Company 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 the Company'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
the Company's Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
The Company 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 Company
at December 31, 1999, was $603,978, and for the Bank in 1998 and 1997 was
$16,418,718, and $15,937,340, respectively. During 1999, $70,743 in new loans
were made to Directors and Officers and there were $4,668,368 in repayments.
<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 (ss.229.601 of this
chapter).
Exhibit Description
------- -----------
2.1 Plan of Reorganization and Acquisition dated as of October 8,
1998 between the Company and the Bank (filed as Exhibit 2.1 to
the Company'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 the Company (filed as Exhibit 3.1
to the Company'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 the Company (filed as Exhibit 3.2 to the Company'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 the Company
10.1 Amended and Restated Special Termination Agreement with
Stephen B. Lawson (filed as exhibit 10.1 to the Annual Report
on Form 10-K for the year ended December 31, 1998.)
10.2 Amended and Restated Special Termination Agreement with Noal
D. Reid (filed as exhibit 10.2 to the Annual Report on Form
10-K for the year ended December 31, 1998.)
10.3 Amended and Restated Special Termination Agreement with Larry
K. Squire (filed as exhibit 10.3 to the Annual Report on Form
10-K for the year ended December 31, 1998.)
10.4 CCBT Financial Companies, Inc. Stock Option Plan (filed as
Exhibit 4.2 to the Company'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
12.1 Statement Regarding Computation of Ratios
<PAGE>
21.1 Subsidiaries of the Company -- The Company has one direct
subsidiary, Cape Cod Bank and Trust Company, N.A., a
nationally chartered commercial bank. Cape Cod Bank and Trust
Company, N.A., has seven subsidiaries: CCBT Securities Corp.
which is a securities corporation; CCB&T Brokerage Direct,
Inc., an investment broker/dealer; CCBT Preferred Corp., a
real estate investment trust; 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
23.2 Consent of Ernst & Young, LLP
27.1 Financial Data Schedule
B. Reports on Form 8-K:
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
(Registrant) CCBT Financial Companies, Inc.
By (Signature and Title)* /s/Stephen B. Lawson
---------------------
Stephen B. Lawson,
President and Chief Executive Officer
Date March 16, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By (Signature and Title)* /s/Noal D. Reid
---------------
Noal D. Reid
Chief Financial Officer and Treasurer
Date March 16, 2000
SIGNATURES OF THE BOARD OF DIRECTORS
/s/Stephen B. Lawson /s/George D. Denmark
- -------------------- --------------------
Stephen B. Lawson George D. Denmark
/s/John Otis Drew /s/John F. Aylmer
- ----------------- -----------------
John Otis Drew John F. Aylmer
/s/William C. Snow
- ------------------ ----------------
William C. Snow William R. Enlow
Date March 16, 2000
[GRAPHIC-REPRESENTATION OF CCBT FINANCIAL COMPANIES, INC. STOCK CERTIFICATE]
CCBT FINANCIAL COMPANIES, INC.
INCORPORATED UNDER THE LAWS OF MASSACHUSETTS
CUSIP 12500Q 10 2
This is to certify that
is the holder of
Shares of the Common Capital Stock of
CCBT Financial Companies, Inc.
transferable only on the books of the Company by assignment in writing by the
holder of record hereof or his legal representative upon surrender of this
certificate.
This certificate and the shares represented hereby are issued and shall
be held subject to all the provisions of the Articles of Organizations and
By-laws of the Company as heretofore or hereafter amended, and the par value of
the shares represented hereby is and shall be as set forth in said Articles so
amended, to all of which the holder by acceptance hereof assents. This
certificate is not valid unless countersigned and registered by the Transfer
Agent and Registrar.
IN WITNESS WHEREOF CCBT Financial Companies, Inc. has caused this
certificate to be signed by its duly authorized officers and its corporate seal
to be hereto affixed.
/s/Noal D. Reid /s/Stephen B. Lawson
- ------------------- -----------------------
Noal D. Reid Stephen B. Lawson
TREASURER [GRAPHIC-LOGO] PRESIDENT
AUTHORIZED SIGNATURE
TRANSFER AGENT AND REGISTRAR
COUNTERSIGNED AND REGISTERED: REGISTRAR AND TRANSFER COMPANY
<PAGE>
EXHIBIT 4.1 CONTINUED
For value received, _____________hereby sell, assign transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
________________________________________________________________________________
________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________Shares
of the Capital Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint______________________________________________
________________________________________________________________________________
Attorney to transfer the said stock on the books of the within-named Bank
full power of substitution in the premises.
Dated________________________
____________________________________________
In Presence of
___________________
NOTICE: The signature to this assignment must correspond with the name
as written upon the face of the certificate in every particular without
alteration or enlargement or any change whatever.
2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have issued our report dated January 31, 2000, accompanying the consolidated
financial statements included in the Annual Report of CCBT Financial Companies,
Inc. on Form 10-K for the year ended December 31, 1999. 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
- ---------------------
Grant Thornton LLP
Boston, Massachusetts
March 17, 2000
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
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 consolidated financial
statements of Cape Cod Bank and Trust Company included in the Annual Report
(Form 10-K) of CCBT Financial Companies, Inc. for the year ended December 31,
1999.
/s/ Ernst & Young LLP
-----------------------
Ernst & Young LLP
Boston, Massachusetts
March 16, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements contained in the CCBT Financial Companies, Inc. Annual
Report on Form 10-K for the twelve months ended December 31, 1999 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 43,415,100
<INT-BEARING-DEPOSITS> 826,994
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 464,759,748
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 674,942,548
<ALLOWANCE> (11,158,126)
<TOTAL-ASSETS> 1,231,114,346
<DEPOSITS> 766,063,617
<SHORT-TERM> 19,345,885
<LIABILITIES-OTHER> 12,092,234
<LONG-TERM> 347,962,999
0
0
<COMMON> 22,652,660
<OTHER-SE> 62,996,951
<TOTAL-LIABILITIES-AND-EQUITY> 1,231,114,346
<INTEREST-LOAN> 49,206,774
<INTEREST-INVEST> 29,900,474
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 79,107,248
<INTEREST-DEPOSIT> 18,028,054
<INTEREST-EXPENSE> 38,311,137
<INTEREST-INCOME-NET> 40,796,111
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 234,301
<EXPENSE-OTHER> 36,517,988
<INCOME-PRETAX> 26,547,483
<INCOME-PRE-EXTRAORDINARY> 26,547,483
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,461,093
<EPS-BASIC> 1.85
<EPS-DILUTED> 1.85
<YIELD-ACTUAL> 3.49
<LOANS-NON> 1,777,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 626,000
<LOANS-PROBLEM> 3,803,789
<ALLOWANCE-OPEN> 11,107,633
<CHARGE-OFFS> 610,238
<RECOVERIES> 660,731
<ALLOWANCE-CLOSE> 11,158,126
<ALLOWANCE-DOMESTIC> 11,158,126
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
