SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended September 30, 2000
Commission File No. 000-25381
CCBT FINANCIAL COMPANIES, INC.
(Exact name of Registrant as specified in its charter)
Massachusetts 04-3437708
---------------------- -----------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
495 Station Avenue, South Yarmouth, Massachusetts 02664
------------------------------------------------- ---------
(Address of principal executive office) (Zip Code)
(Registrant's telephone #, incl. area code): 508-394-1300
------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
(1) : Yes [X] No [_] (2) : Yes [X] No [_]
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date. There were 8,608,048
shares of common stock outstanding as of September 30, 2000.
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TABLE OF CONTENTS
Section Description Page #
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<S> <C> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition
September 30, 2000 (Unaudited) and December 31, 1999 1
Consolidated Statements of Income (Unaudited)
Three and Nine Months Ended September 30, 2000 and 1999 2
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, 2000 and 1999 3
Consolidated Statements of Comprehensive Income (Unaudited)
Nine Months Ended September 30, 2000 and 1999 4
Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
Nine Months Ended September 30, 2000 and 1999 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 5-21
Item 3. Quantitative and Qualitative Disclosures About Market Risk 21
PART II OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 2. Changes in Securities and Use of Proceeds 22
Item 3. Defaults upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURES 23
</TABLE>
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements
CCBT FINANCIAL COMPANIES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
----------------- ----------------
ASSETS (Unaudited)
<S> <C> <C>
Cash and due from banks $ 42,662,943 $ 43,415,100
Short term interest-bearing deposits 23,262,788 2,207,328
Federal funds sold 20,000,000 --
Securities available for sale, at fair value 392,909,564 463,379,414
Federal Home Loan Bank stock, at cost 22,125,400 22,125,400
Federal Reserve Bank of Boston stock, at cost 1,096,700 1,096,700
Loans, net of reserve for loan losses 785,483,760 663,584,422
Loans held for sale 164,770 200,000
Premises and equipment 16,471,074 12,396,729
Deferred tax assets 5,055,869 4,657,933
Accrued interest receivable on securities 3,170,853 2,850,366
Principal and interest receivable on loans 4,239,281 3,156,914
Intangibles 9,951,259 --
Other assets 8,314,594 12,044,040
--------------- ---------------
Total assets $ 1,334,908,855 $ 1,231,114,346
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 983,475,641 $ 766,063,617
Borrowings from the Federal Home Loan Bank 212,535,037 347,962,999
Other short-term borrowings 32,196,967 19,345,885
Current taxes payable 1,072,369 1,721,187
Interest payable on deposits and borrowings 3,299,227 3,061,932
Post retirement benefits payable 2,784,807 2,501,480
Employee profit sharing retirement and bonuses payable 2,105,745 2,396,542
Other liabilities 3,227,794 2,411,093
--------------- ---------------
Total liabilities 1,240,697,587 1,145,464,735
--------------- ---------------
Minority interest 161,526 --
--------------- ---------------
Stockholders' equity
Common stock, $2.50 par value
Authorized: 12,000,000 shares
Issued: 9,061,064 shares in 2000 and 1999 22,652,660 22,652,660
Surplus 13,903,294 13,903,294
Undivided profits 66,866,994 58,181,480
Treasury stock, at cost (453,016 shares) (7,399,628) (7,399,628)
Accumulated other comprehensive income (1,973,578) (1,688,195)
--------------- ---------------
Total stockholders' equity 94,049,742 85,649,611
--------------- ---------------
Total liabilities and stockholders' equity $ 1,334,908,855 $ 1,231,114,346
=============== ===============
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
1
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements (continued)
CCBT FINANCIAL COMPANIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months ended September 30, Nine Months ended September 30,
2000 1999 2000 1999
------------- -------------- ------------- --------------
(Unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 15,900,554 $ 12,299,918 $ 44,334,344 $ 36,315,791
Interest on short term interest-bearing deposits 356,103 117,989 659,053 553,663
Interest on federal funds sold 29,975 --- 29,975 ---
Taxable interest income on securities 7,339,386 6,848,598 21,873,218 18,780,732
Tax-exempt interest income on securities 264,348 219,039 690,810 583,595
Dividends on securities 451,558 309,411 1,298,480 1,082,775
----------- ----------- ------------ ------------
Total interest income 24,341,924 19,794,955 68,885,880 57,316,556
----------- ----------- ------------ ------------
INTEREST EXPENSE:
Interest on deposits 7,636,029 4,553,343 17,901,379 13,095,992
Interest on borrowings from the Federal Home Loan Bank 3,487,223 4,633,261 14,417,815 14,378,087
Interest on other short-term borrowings 412,674 264,447 1,003,120 582,513
----------- ----------- ------------ ------------
Total interest expense 11,535,926 9,451,051 33,322,314 28,056,592
----------- ----------- ------------ ------------
Net interest income 12,805,998 10,343,904 35,563,566 29,259,964
Provision for loan losses --- --- --- ---
Net interest income after provision for loan losses 12,805,998 10,343,904 35,563,566 29,259,964
----------- ----------- ------------ ------------
NON-INTEREST INCOME:
Financial advisor fees 1,442,366 1,419,402 4,779,861 4,328,516
Deposit account service charges 495,650 480,074 1,469,236 1,456,362
Branch banking fees 832,337 768,162 2,312,947 2,289,264
Electronic banking fees 429,933 688,674 1,428,785 1,357,869
Loan servicing and other loan fees 39,330 37,178 225,233 84,485
Brokerage fees and commissions 218,575 216,134 752,216 741,243
Net gain on sale of securities 44,931 223,779 73,233 282,883
Net gain on sale of loans 31,144 51,869 58,798 346,046
Insurance commissions 304,722 --- 499,315 ---
Other income 150,278 83,829 419,224 267,091
----------- ----------- ------------ ------------
Total non-interest income 3,989,266 3,969,101 12,018,848 11,153,759
----------- ----------- ------------ ------------
NON-INTEREST EXPENSE:
Salaries 3,799,920 3,194,678 10,486,815 9,223,502
Employee benefits 1,624,850 1,329,083 4,610,371 3,672,350
Building and equipment 1,277,941 1,166,694 3,566,320 3,273,409
Data processing 759,273 759,236 2,201,146 2,250,609
Accounting and legal fees 209,846 219,253 671,530 612,210
Other outside services 509,830 462,851 1,547,574 1,399,334
Amortization of goodwill 395,835 --- 455,609 ---
Delivery and communication 386,234 357,711 1,129,960 995,000
Directors' fees 86,250 75,250 262,000 226,250
Marketing and advertising 318,103 179,949 842,407 605,077
Printing and supplies 210,845 190,620 604,052 559,627
Insurance 98,081 70,315 286,324 205,906
Branch conversion expenses 249,808 --- 249,808 ---
All other expenses 308,282 275,382 1,273,114 769,692
----------- ----------- ------------ ------------
Total operating expense 10,235,098 8,281,022 28,187,030 23,792,966
----------- ----------- ------------ ------------
Minority interest (6,917) --- (17,413) ---
----------- ----------- ------------ ------------
Net income before taxes 6,567,083 6,031,983 19,412,797 16,620,757
Applicable income taxes 2,199,774 2,181,763 6,591,100 6,012,077
----------- ----------- ------------ ------------
Net income $ 4,367,309 $ 3,850,220 $12,821,697 $10,608,680
=========== =========== ============ ============
Average shares outstanding 8,608,048 8,887,753 8,608,048 8,957,493
Basic earnings per share $0.51 $0.43 $1.49 $1.18
Diluted earnings per share $0.51 $0.43 $1.49 $1.18
Cash dividends declared $0.16 $0.14 $0.48 $0.42
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
2
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements (continued)
CCBT FINANCIAL COMPANIES, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months ended September 30,
<TABLE>
<CAPTION>
2000 1999
--------------- --------------
CASH PROVIDED BY OPERATING ACTIVITIES (Unaudited)
<S> <C> <C>
Net income $12,821,697 $10,608,680
Adjustments to reconcile net income to net cash flow
provided by operating activities:
Provision for loan losses -- --
Depreciation and amortization 1,726,808 1,620,726
Net amortization (accretion) of securities 5,126,638 2,964,928
Amortization of deferred loan fees (97,509) 148,128
Net gain on sale of investment securities (73,233) (282,883)
(Prepaid) deferred income taxes (1,046,754) 1,110,485
Net gain on sale of loans (58,798) (346,046)
Net change in:
Loans held for sale 35,230 3,823,795
Accrued interest receivable (1,402,854) 972,582
Accrued expenses and other liabilities 1,046,526 14,877,862
Other, net (2,986,764) 5,405,143
------------- ------------
Net cash provided by operating activities 15,090,987 40,903,400
------------- ------------
CASH USED BY INVESTING ACTIVITIES
Net increase in loans (130,355,375) (111,570,024)
Proceeds from sale of loans 8,749,600 74,288,570
Dispositions of property from defaulted loans 70,000 115,000
Maturities of securities 546,702,601 382,302,840
Purchases of available for sale securities (783,033,661) (550,411,066)
Sales of available for sale securities 297,988,862 60,863,759
Purchases of premises and equipment (5,608,672) (1,396,719)
------------- ------------
Net cash used by investing activities (65,486,645) (145,807,640)
------------- ------------
CASH PROVIDED BY FINANCING ACTIVITIES
Net increase in deposits 217,412,024 71,563,513
Net (decrease) increase in borrowings from the
Federal Home Loan Bank (135,427,962) 29,953,460
Net increase in other short-term borrowings 12,851,082 14,349,592
Purchases of CCBT Financial Companies, Inc.
common stock in open market -- (6,244,288)
Cash dividends paid on common stock (4,136,183) (3,771,025)
------------- ------------
Net cash provided by financing activities 90,698,961 105,851,252
------------- ------------
Net increase in cash and cash equivalents 40,303,303 947,012
Cash and cash equivalents at beginning of period 45,622,428 29,490,715
------------- ------------
Cash and cash equivalents at end of period $85,925,731 $30,437,727
============= ============
</TABLE>
Note: Cash equivalents include amounts due from banks, short term
interest-bearing deposits and federal funds sold.
<TABLE>
<CAPTION>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<S> <C> <C>
Cash paid for:
Interest $33,085,019 $27,883,338
Income taxes 7,067,843 4,360,000
Non-cash transactions:
Additions to property from defaulted loans $ 70,000 $ 1,615,000
Loans to finance OREO property -- 100,000
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
3
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements (continued)
CCBT FINANCIAL COMPANIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Nine Months ended September 30,
<TABLE>
<CAPTION>
2000 1999
--------------- -------------
(Unaudited)
<S> <C> <C>
Net income $ 12,821,697 $ 10,608,680
------------- -------------
Unrealized holding (losses) gains on securities available for sale (356,893) 184,767
Reclassification of gains on securities held in income (73,233) (282,883)
------------- -------------
Net unrealized losses (430,126) (98,116)
Related tax effect 144,743 48,103
------------- -------------
Net other comprehensive loss (285,383) (50,013)
------------- -------------
Comprehensive income $ 12,536,314 $ 10,558,667
============= =============
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
CCBT FINANCIAL COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Nine Months ended September 30,
<TABLE>
<CAPTION>
2000 1999
--------------- ---------------
(Unaudited)
COMMON STOCK
<S> <C> <C> 6
Balance, beginning of the year $ 22,652,660 $ 22,652,660
--------------- ---------------
Balance, September 30 22,652,660 22,652,660
--------------- ---------------
SURPLUS
Balance, beginning of the year 13,903,294 13,903,294
--------------- ---------------
Balance, September 30 13,903,294 13,903,294
--------------- ---------------
UNDIVIDED PROFITS
Balance, beginning of the year 58,181,480 46,704,129
Net Income 12,821,697 10,608,680
Dividends declared (4,136,183) (3,771,024)
--------------- ---------------
Balance, September 30 66,866,994 53,541,785
--------------- ---------------
TREASURY STOCK
Balance, beginning of the year (7,399,628) --
Purchase of Treasury stock -- (6,244,288)
--------------- ---------------
Balance, September 30 (7,399,628) (6,244,288)
--------------- ---------------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance, beginning of the year (1,688,195) 282,317
Net other comprehensive loss (285,383) (50,013)
--------------- ---------------
Balance, September 30 (1,973,578) 232,304
--------------- ---------------
TOTAL STOCKHOLDERS' EQUITY $ 94,049,742 $ 84,085,755
=============== ===============
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
4
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements (continued)
CCBT FINANCIAL COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Nine months ended September 30, 2000 and 1999
Business
CCBT Financial Companies, Inc. (the "Company") was incorporated under
the laws of the Commonwealth of Massachusetts on October 8, 1998 under the name
of CCBT Bancorp, Inc. (the "Bancorp") at the direction of the Board of Directors
and management of Cape Cod Bank and Trust Company (the "Bank") for the purpose
of becoming a bank holding company for the Bank. On February 11, 1999, Bancorp
became the holding company for the Bank by acquiring 100% of the outstanding
shares of the Bank's common stock in a 1:1 exchange for Bancorp common stock.
During 1999, the Company's name was changed to CCBT Financial Companies, Inc.
The Bank's charter was converted to that of a national bank effective September
1, 1999. Currently, the Company's business activities are conducted primarily
through the Bank.
Basis of Presentation
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. Certain amounts have been reclassified in the September
30, 1999 financial statements to conform to the 2000 presentation. In the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three months and nine months ended September 30, 2000 are not
necessarily indicative of the results that may be expected for the current
fiscal year. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on Form
10-K for the year ended December 31, 1999.
Minority Interest
During the second quarter of 2000, the Bank concluded its purchase of
51% of the firm of Murray & MacDonald Insurance Services, Inc. of Falmouth,
Massachusetts. The minority interest amounts shown in the Company's consolidated
balance sheet and income statements represent the interest of the minority
shareholder in that company.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
This Form 10Q contains certain statements that may be considered
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. The Company's future results could differ materially from those
projected in the forward-looking statements as a result, among other factors, of
changes in national or regional economic conditions, changes in loan default and
charge-off rates, reductions in deposit levels necessitating increased borrowing
to fund loans and investments, changes in interest rates, changes in the size
and nature of the Company's competition, uncertainties relating to the ability
of the Company and its suppliers, vendors and other third parties to resolve
Year 2000 issues in a timely manner, and changes in the assumptions used in
making such forward-looking statements.
The following discussion should be read in conjunction with the
accompanying consolidated financial statements and selected consolidated
financial data included within this report. Given that the Company's principal
5
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
activity 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.
In addition to the acquisition of Murray & MacDonald Insurance
Services, Inc., the Company also completed its acquisition of two branches of
Fleet Bank, in Wareham and Falmouth, Massachusetts during the second quarter of
2000. These branches added approximately $55 million deposits, at a 15.5%
premium, to the Bank at June 30, 2000. This premium is being amortized at the
rate of $1.2 million per year over a 7 year period.
CCBT Financial Companies, Inc. is a bank holding company. Its sole
subsidiary, Cape Cod Bank and Trust Company, N. A., is a commercial bank with
twenty-eight banking offices and 32 ATMs located in Barnstable and Plymouth
Counties in Massachusetts as well as around the clock telephone and computer
banking. As such, its principal business activities are the acceptance of
deposits from businesses and individuals and the making of loans. The Bank also
has a sizable trust department. The Bank's core market is comprised of retail,
wholesale and manufacturing businesses; primary households (including a
significant retirement population); and a growing number of second home owners.
In addition, a substantial non-core vacation population contributes to seasonal
deposit growth.
(The remainder of this page intentionally left blank)
6
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
CCBT FINANCIAL COMPANIES, INC.
NET INTEREST INCOME, NET INTEREST MARGIN
Three Months Ended September 30, 2000
<TABLE>
<CAPTION>
2000 1999
-------------------------------------- -------------------------------------
Interest Average Interest Average
Average Income/ Yield Average Income/ Yield
Balance Expense Rate Paid Balance Expense Rate Paid
----------- ---------- --------- ---------- -------- ---------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Securities
Mortgage-backed securities $ 24,998 $ 477 7.63% $ 52,191 $ 487 3.73%
U.S. Government CMOs 125,509 2,399 7.65% 158,446 2,263 5.71%
U.S. Government agencies 26,339 454 6.89% 30,659 470 6.13%
Other CMOs 43,330 856 7.90% 74,840 1,067 5.70%
State & municipal agencies 19,826 256 5.17% 28,475 226 3.17%
Other securities 215,815 4,000 7.41% 211,799 2,982 5.63%
Unrealized (losses) gains (3,258) -- 1,071 -- --
-------- ---------- ----------- -----
Total securities 452,559 8,442 7.46% 557,481 7,495 5.38%
-------- ---------- ----------- -----
Loans
Commercial 72,479 1,796 9.91% 70,906 1,644 9.27%
Commercial construction 35,152 842 9.58% 14,331 322 8.99%
Residential construction 57,747 943 6.53% 41,901 608 5.80%
Commercial mortgages 220,570 5,158 9.35% 203,001 4,492 8.85%
Industrial revenue bonds 1,716 34 7.86% 1,248 24 7.69%
Residential mortgages 343,793 6,025 7.01% 263,780 4,478 6.79%
Home equity 34,269 858 10.02% 21,421 475 8.87%
Consumer 8,806 244 11.08% 9,903 257 10.38%
Overdrafts 637 -- 730 -- --
----------- ---------- ----------- --------
Total Loans 775,169 15,900 8.20% 627,221 12,300 7.84%
----------- ---------- ----------- --------
Total earning assets 1,227,728 24,342 7.93% 1,184,702 19,795 6.68%
---------- --------
Non - earning assets 73,143 59,976
----------- ----------
Total assets $ 1,300,871 $1,244,678
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
NOW accounts $ 133,146 244 0.73% $ 116,193 240 0.83%
Regular savings 148,456 1,159 3.12% 169,486 1,228 2.90%
Money Market accounts 165,402 1,617 3.91% 149,419 1,169 3.13%
Time certificates of deposit 289,722 4,615 6.37% 156,612 1,916 4.89%
----------- ---------- ----------- --------
Total interest bearing deposits 736,726 7,635 4.15% 591,710 4,553 3.08%
----------- ---------- ----------- --------
Borrowings
Federal Home Loan Bank 217,149 3,488 6.42% 335,477 4,633 5.52%
Other short-term borrowings 29,016 413 5.69% 25,090 265 4.22%
----------- ---------- ----------- --------
Total borrowings 246,165 3,901 6.34% 360,567 4,898 5.43%
----------- ---------- ----------- --------
Total interest bearing liabilities 982,891 11,536 4.69% 952,277 9,451 3.97%
---------- --------
Demand deposits 221,020 193,429
Non-interest bearing liabilities 6,971 11,187
Stockholders' equity 89,989 87,785
----------- ----------
Total liabilities & equity $ 1,300,871 $1,244,678
=========== ==========
Net interest income/ spread $ 12,806 3.24% $ 10,344 2.71%
========= ========
Net interest margin (NII/Avg Earning Assets) 4.15% 3.49%
</TABLE>
7
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
CCBT FINANCIAL COMPANIES, INC.
VOLUME/RATE ANALYSIS
Three months ended September 30, 2000 vs September 30, 1999
<TABLE>
<CAPTION>
Changes in income/expense due to
-----------------------------------
Volume Rate Total
----------- -------- --------
(Dollar amounts in thousands)
<S> <C> <C> <C>
EARNING ASSETS
Securities
Mortgage-backed securities $ (389) $ 379 $ (10)
U.S. Government CMOs (555) 691 136
U.S. Government agencies (71) 55 (16)
Other CMOs (540) 329 (211)
State & municipal agencies (91) 121 30
Other securities 66 952 1,018
------- ------- -------
Total securities (1,580) 2,527 947
------- ------- -------
Loans
Commercial 38 114 152
Commercial construction 487 33 520
Residential construction 246 88 334
Commercial mortgages 403 263 666
Industrial revenue bonds 9 1 10
Residential mortgages 1,392 155 1,547
Home equity 306 77 383
Consumer (30) 17 (13)
------- ------- -------
Total Loans 2,851 748 3,599
------- ------- -------
Total earning assets 1,271 3,275 4,546
------- ------- -------
INTEREST BEARING LIABILITIES
Deposits
NOW accounts 33 (29) 4
Regular savings (160) 91 (69)
Money Market accounts 142 306 448
Time certificates of deposit 1,890 809 2,699
------- ------- -------
Total interest bearing deposits 1,905 1,177 3,082
------- ------- -------
Borrowings
Federal Home Loan Bank (1,782) 637 (1,145)
Other short-term borrowings 49 99 148
------- ------- -------
Total borrowings (1,733) 736 (997)
------- ------- -------
Total interest bearing liabilities 172 1,913 2,085
------- ------- -------
Net changes due to volume/rate $ 1,099 $ 1,362 $ 2,461
======= ======= =======
</TABLE>
8
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
RESULTS OF OPERATIONS
Three Months ended September 30, 2000 vs September 30, 1999
Sources of funds
As shown in the table on page 7, average interest bearing deposits
increased $145.0 million or 24.5% during the third quarter 2000 versus the third
quarter 1999 including acquired deposits of the Bank's new offices in Falmouth
and Wareham. With exception to the lower rate on NOW accounts, the cost of those
funds rose in the 2000 period as management increased deposit rates in response
to generally rising market rates. During the second quarter, the Company
introduced a one year certificate of deposit with an aggressive and popular
7.20%APY. Concurrently, average borrowed funds, notably FHLB borrowings,
declined in the 2000 period while rates paid on these borrowed funds increased.
The remaining sources of funds, i.e., noninterest bearing demand deposits, other
liabilities and capital, averaged 8.7% higher, including average demand deposit
growth of $27.6 million or 14.3% again, including acquired deposits. In total,
average sources of funds increased $56.2 million or 4.5% period to period, while
the average cost of interest bearing funds increased from 3.97% during the
quarter ended September 30, 1999 to 4.69% for the same period in 2000.
Uses of funds
When compared to the third quarter of 1999, average earning assets
were higher in 2000 by 3.6% with a 23.6% increase in average loans outstanding
partially offset by reduced investments. Average earning assets approximated 95%
of average total assets in each period. Loan growth was spearheaded by
residential mortgage, home equity and related construction lending, up a
combined $108.7 million or 33.2% in an active local market. Combined commercial
lending activities contributed another $40.4 million or 14.0% growth. Consistent
with the general rise in market rates, the average yield on earning assets rose
to 7.93% for the three months ended September 30, 2000 from the 6.68% reported
for the comparable period in 1999.
Net interest income
Net interest income was $12.8 million for the three months ended
September 30, 2000 as compared to $10.3 million for the same period in 1999, up
23.8%. The spread and net interest margin ratios were 3.24% and 4.15%,
respectively, for the quarter just completed, as compared to 2.71% and 3.49%,
respectively, for the comparable 1999 period. As shown in the Volume/Rate
Analysis table on page 8, the Company's net interest income improved in both
volume and rate categories during the third quarter 2000 as compared to the same
quarter last year.
Provision for loan losses
No provisions were made to the reserve for possible loan losses in
the quarters ended September 30, 2000 or 1999. Management believes that, upon
continuing review of loan payment and quality statistics, the current reserve
continues to be adequate to cover possible losses.
Non-interest income
Non-interest income totaled $3.99 million for the three months ended
September 30, 2000, virtually identical to that earned during the same period in
1999. New revenues from insurance activities were offset by reduced electronic
banking fees and lower net gains on sales of securities. The former resulted
from the sale of the credit card merchant portfolio in late 1999, a portfolio
which had historically generated seasonally high income.
9
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Non-interest expenses
During the third quarter of 2000, noninterest expenses totaled $10.2
million, $1.9 million or 23.6% greater than the expenses of the comparable
period last year. Approximately one half of this increase reflect direct
expenses of the newly acquired insurance agency, one time conversion costs
relating to the newly acquired branches, and amortization of intangibles arising
from both acquisitions. Salaries and benefits, the largest combined category of
expense, rose $901 thousand or 19.9% to total $5.0 million for the third quarter
of 2000. While salaries and commissions increased 9.3% in 2000 versus 1999,
deferred origination costs on residential mortgages declined such that the total
increased $401 thousand or nearly 12.8%. Increased benefits expenses include a
greater current provision for possible performance-based compensation awards at
year end, consistent with increased profitability thus far in 2000. Higher
marketing and printing costs reflect the Company's entrance into new markets,
i.e., Wareham, Massachusetts and insurance services. All other expense
categories are in line with management expectations .
Minority interest
The third quarter minority interest on the 49% minority holding of
Murray & MacDonald Insurance Services, Inc. includes some initial investment in
increasing that company's ability to provide additional service to its enlarged
customer base.
Income taxes
Combined State and Federal income tax expense was $2.2 million for
the quarter ended September 30, 2000 and $2.2 million was recorded for the same
quarter in 1999. The combined effective State and Federal tax rate was 33.5% of
pretax income in the third quarter of 2000 and 36.2% of pretax net income for
1999.
Net income
Consolidated net income of $4.4 million, represented earnings per
share of $0.51 for the three months ended September 30, 2000 as compared to $3.9
million or $0.43 per share for the comparable quarter last year. Annualized
returns on average assets and average equity were 1.34% and 19.3%, respectively,
for the three months ended September 30, 2000 as compared to 1.23% and 17.40%,
respectively, for the prior comparable period.
(The remainder of this page intentionally left blank)
10
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
CCBT FINANCIAL COMPANIES, INC.
NET INTEREST INCOME, NET INTEREST MARGIN
Nine Months Ended September 30, 2000
<TABLE>
<CAPTION>
2000 1999
--------------------------------------- --------------------------------------
Interest Average Interest Average
Average Income/ Yield Average Income/ Yield
Balance Expense Rate Paid Balance Expense Rate Paid
-------------- ---------- --------- ----------- --------- --------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Securities
Mortgage-backed securities $ 29,119 $ 1,697 7.77% $ 67,636 $ 2,446 4.82%
U.S. Government CMOs 135,188 7,395 7.29% 149,747 5,566 4.96%
U.S. Government agencies 27,981 1,369 6.63% 27,420 1,166 5.67%
Other CMOs 54,345 2,879 7.06% 67,989 2,724 5.34%
State & municipal agencies 20,039 691 6.07% 21,742 610 4.86%
Other securities 206,047 10,521 6.92% 198,939 8,489 5.69%
Unrealized (losses) gains (2,636) -- -- 682 -- --
---------- ---------- ----------- --------
Total securities 470,083 24,552 7.08% 534,155 21,001 5.24%
---------- ---------- ----------- --------
Loans
Commercial 79,584 5,754 9.80% 74,212 5,043 9.06%
Commercial construction 28,483 2,005 9.40% 13,451 893 8.85%
Residential construction 52,396 2,486 6.23% 39,031 1,712 5.85%
Commercial mortgages 216,032 14,823 9.17% 204,553 13,593 8.86%
Industrial revenue bonds 1,297 82 11.87% 1,312 74 10.57%
Residential mortgages 317,450 16,390 6.88% 256,165 12,851 6.69%
Home equity 29,252 2,117 9.67% 21,062 1,361 8.62%
Consumer 8,692 677 10.39% 10,418 789 10.10%
Overdrafts 469 -- -- 645 -- --
---------- ---------- ----------- --------
Total Loans 733,655 44,334 8.08% 620,849 36,316 7.80%
---------- ---------- ----------- --------
Total earning assets 1,203,738 68,886 7.71% 1,155,004 57,317 6.62%
---------- --------
Non - earning assets 59,951 54,728
---------- -----------
Total assets $1,263,689 $ 1,209,732
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
NOW accounts $ 121,475 680 0.75% $ 112,355 $ 690 0.82%
Regular savings 149,684 3,463 3.09% 162,185 3,488 2.87%
Money Market accounts 148,750 4,083 3.67% 143,788 3,314 3.07%
Time certificates of deposit 220,917 9,675 5.85% 153,158 5,604 4.88%
---------- ---------- ----------- --------
Total interest bearing deposits 640,826 17,901 3.73% 571,486 13,096 3.06%
---------- ---------- ----------- --------
Borrowings
Federal Home Loan Bank 315,825 14,418 6.09% 356,294 14,378 5.38%
Other short-term borrowings 24,680 1,003 5.43% 19,287 583 4.03%
---------- ---------- ----------- --------
Total borrowings 340,505 15,421 6.05% 375,581 14,961 5.31%
---------- ---------- ----------- --------
Total interest bearing liabilities 981,331 33,322 4.54% 947,067 28,057 3.95%
---------- --------
Demand deposits 186,769 167,692
Non-interest bearing liabilities 7,644 9,783
Stockholders' equity 87,945 85,190
---------- ---------------
Total liabilities & equity $1,263,689 $ 1,209,732
========== ===============
Net interest income/ spread $ 35,564 3.18% $ 29,260 2.67%
======= ========
Net interest margin (NII/Avg Earning Assets) 3.95% 3.38%
</TABLE>
11
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
CCBT FINANCIAL COMPANIES, INC.
VOLUME/RATE ANALYSIS
Nine months ended September 30, 2000 vs September 30, 1999
<TABLE>
<CAPTION>
Changes in income/expense due to
----------------------------------------
Volume Rate Total
----------- ---------- ----------
(Dollar amounts in thousands)
<S> <C> <C> <C>
EARNING ASSETS
Securities
Mortgage-backed securities $ (1,821) $ 1,072 $ (749)
U.S. Government CMOs (669) 2,498 1,829
U.S. Government agencies 26 177 203
Other CMOs (635) 790 155
State & municipal agencies (70) 151 81
Other securities 336 1,696 2,032
-------- ---------- ----------
Total securities (2,833) 6,384 3,551
-------- ---------- ----------
Loans
Commercial 380 331 711
Commercial construction 1,030 82 1,112
Residential construction 606 168 774
Commercial mortgages 777 453 1,230
Industrial revenue bonds (1) 9 8
Residential mortgages 3,122 417 3,539
Home equity 562 194 756
Consumer (133) 21 (112)
-------- ---------- ----------
Total Loans 6,343 1,675 8,018
-------- ---------- ----------
Total earning assets 3,510 8,059 11,569
-------- ---------- ----------
INTEREST BEARING LIABILITIES
Deposits
NOW accounts 54 (64) (10)
Regular savings (280) 255 (25)
Money Market accounts 126 643 769
Time certificates of deposit 2,729 1,342 4,071
-------- ---------- ----------
Total interest bearing deposits 2,629 2,176 4,805
-------- ---------- ----------
Borrowings
Federal Home Loan Bank (1,742) 1,782 40
Other short-term borrowings 191 229 420
-------- ---------- ----------
Total borrowings (1,551) 2,011 460
-------- ---------- ----------
Total interest bearing liabilities 1,078 4,187 5,265
-------- ---------- ----------
Net changes due to volume/rate $ 2,432 $ 3,872 $ 6,304
======== ========== ==========
</TABLE>
12
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
RESULTS OF OPERATIONS
Nine months ended September 30, 2000 vs September 30, 1999
Sources of funds
As shown in the table on page 11, average interest bearing deposits
outstanding increased $69.3 million when comparing the nine months of 2000
versus the same period in 1999 and include deposits acquired during the second
quarter, 2000. With exception to lowered rates on NOW accounts, the cost of
those funds was greater in the 2000 period as management raised deposit rates in
response to generally rising market rates. Average borrowed funds decreased
$35.0 million in the 2000 period. The rates paid on these borrowed funds were
higher than in the 1999 period, again reflecting the general rise in market
rates. The remaining sources of funds, i.e., noninterest bearing demand
deposits, other liabilities and capital, averaged 7.5% higher in the 2000
period, including demand deposit growth of $19.1 million or 11.4%. In total,
average sources of funds increased $54.0 million or 4.5% while the average cost
of interest bearing funds rose from 3.95% during the nine months ended September
30, 1999 to 4.54% in 2000.
Uses of funds
Average loans were higher by $112.8 million or 18.2% in 2000 while
investments were lower by $64.1 million or 12.0%, and on a combined basis,
approximated 95% of average total assets during each period. Loan growth was
spearheaded by residential mortgage, home equity and related construction
lending, up $82.8 million or 26.2% in an active local market. Accordingly, the
investment portfolio declined in size with reductions occurring primarily in
mortgage related categories. During the nine months ended September 30, 2000 the
average yield on earning assets rose to 7.71% from the 6.62% reported for the
comparable period in 1999.
Net interest income
Net interest income was $35.6 million for the nine months ended
September 30, 2000 as compared to $29.3 million for the same period in 1999, up
21.5%. The spread and net interest margin ratios were 3.18% and 3.95%,
respectively, for the nine months ended September 30, 2000 as compared to 2.67%
and 3.38%, respectively, for the comparable 1999 period. While consumer
attraction to lower residential mortgage rate opportunities lowered yields on
the residential mortgage portfolio and the securities portfolio in 1999,
interest rates have been rising in 2000, thereby having the opposite effect.
These factors, along with increased commercial and commercial real estate
construction lending, are significant contributors to the increased net interest
income. As shown on the Volume/Rate Analysis on page 12, the Company's net
interest income improved on both volume and rate increases during the first nine
months of 2000 as compared to the same period in 1999.
Provision for possible loan losses
No provisions were made to the reserve for possible loan losses in
the quarters ended September 30, 2000 or 1999. Management believes that, upon
continuing review of loan payment and quality statistics, the current reserve
continues to be adequate to cover possible losses.
Non-interest income
Non-interest income totaled $12.0 million for the nine months ended
September 30, 2000, up $865 thousand or 7.8% compared to the $11.2 million
earned during the same period in 1999. Higher Financial Advisor (trust and
investment) fees, loan fees and insurance commissions contributed to this
increase, along with increased income from electronic banking. See also comments
regarding noninterest income changes during the third quarter
13
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
2000 within this document entitled "Results of Operations - Three Months ended
September 30, 2000 vs Three Months ended September 30, 1999".
Non-interest expense
During the first nine months of 2000, noninterest expenses totaled
$28.2 million, $4.4 million or 18.5% greater than the expenses of the comparable
period last year. Salaries and benefits, the largest combined category of
expense, rose $2.2 million or 17.1% to total $15.1 million for the first nine
months of 2000 while All other expenses increased $539 thousand reflecting
one-time write-offs of $303 thousand and an increased commitment to training and
education, as reported in the first quarter of 2000. Other expense categories
reflect, in part, additional expenses of the insurance services operation, one
time conversion expenses of new branches, amortization of intangibles resulting
from acquisitions, and general increases in the cost of Bank operations in
accordance with expectations.
Minority interest
The year-to-date minority interest on the 49% minority holding of
Murray & MacDonald Insurance Services, Inc. includes some initial investment in
increasing that company's ability to provide additional service to its enlarged
customer base.
Income taxes
The combined State and Federal income tax expense was $6.6 million
for the nine months ended September 30, 2000, up $579 thousand or 9.6% over the
same period last year on higher pretax income. The combined effective State and
Federal tax expense equaled 33.9% of pretax income thus far in 2000 as compared
to 36.2% in 1999.
Net income
Consolidated net income was $12.8 million representing earnings per
share of $1.49 for the nine months ended September 30, 2000 as compared to $10.6
million or $1.18 per share for the comparable nine months ended September 30,
1999. Annualized returns on average assets and average equity were 1.36% and
19.5%, respectively, for the nine months ended September 30, 2000 as compared to
1.17% and 16.65%, respectively, for the nine months ended September 30, 1999.
(The remainder of this page intentionally left blank)
14
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
COMPARATIVE ANALYSIS OF SELECTED PERIOD-END ASSETS,
LIABILITIES AND CAPITAL
The Company had $1.33 billion of consolidated total assets, $983.4
million of deposits and $94.0 million of stockholders' equity at September 30,
2000. Its capital to assets ratio was 7.05%, exceeding all regulatory
requirements. As compared to reported balances at December 31, 1999, Securities
available for sale, at fair value, decreased $70.4 million or 15.2%, while
portfolio loans, net of reserves, increased $121.9 million or 18.4%. Deposits
increased $217.4 million or 28.4% while borrowed funds decreased $122.6 million
or 33.4%.
Investment Securities
The adjusted cost and estimated market values of investment
securities available for sale at September 30, 2000 and December 31, 1999 were
as follows:
<TABLE>
<CAPTION>
September 30, 2000
( in thousands)
-------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C>
U. S. Government agency CMOs $ 138,934 $ 946 $ 4,364 $ 135,516
Other U. S. Government agencies 23,428 3 396 23,035
Other collateralized mortgage obligations 46,134 857 295 46,696
State and municipal obligations 18,336 --- --- 18,336
Other debt securities 169,446 630 749 169,327
------------ ----------- ----------- -------------
Totals $ 396,278 $ 2,436 $ 5,804 $ 392,910
============ =========== =========== =============
December 31, 1999
(in thousands)
-------------------------------------------------------------------------
Gross Gross Estimated
Adjusted Unrealized Unrealized Market
Cost Gains Losses Value
--------------- -------------- --------------- ----------------
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 172,542 429 752 172,219
------------ ----------- ----------- -------------
Totals $ 466,317 $ 3,201 $ 6,139 $ 463,379
============ =========== =========== =============
</TABLE>
Investment securities declined $70.5 million to $392.9 million at
September 30, 2000, with deference to significant loan growth. Reductions
primarily occurred in U.S. Government and other collateralized mortgage
obligations. At September 30, 2000, Other debt securities consisted of
approximately $137.0 million floating rate and $32.3 million short term fixed
rate securities, nearly all backed by assets other than residential mortgages.
15
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Sales of securities produced net gains of $45 thousand during the
quarter ended September 30, 2000 compared to net gains of $224 thousand during
the same period in 1999. Net gains on security sales amounted to $73 thousand
and $283 thousand for the nine months ended September 30, 2000 and 1999,
respectively.
Loans
The following is a summary of the Company's outstanding loan balances
as of the dates indicated.
September 30, December 31,
2000 1999
------------ -------------
(in thousands)
Mortgage loans on real estate:
Residential $ 367,795 $ 290,722
Commercial 222,999 203,987
Construction 91,957 68,809
Equity lines of credit 35,426 23,036
----------- ------------
718,177 586,554
----------- ------------
Other loans
Commercial 68,544 77,776
Industrial revenue bonds 1,668 1,137
Consumer 9,068 9,275
----------- ------------
79,280 88,188
----------- ------------
Total loans 797,457 674,742
Less: Allowance for loan losses (11,973) (11,158)
----------- ------------
Loans, net $ 785,484 $ 663,584
=========== ============
Loans held for sale $ 165 $ 200
=========== ============
Portfolio loans increased $122.7 million or 18.2% to $797.5 million
at September 30, 2000 as compared to December 31, 1999, led by residential
mortgage loans and equity lines of credit which increased a combined $89.5
million or 28.5%. During the period, new residential mortgage volume in the
residential loan category included originations of $5.4 million at fixed rates
and $60.1 million at adjustable rates. Commercial real estate loans increased
$19.0 million or 9.3% while combined residential and commercial real estate
construction loans increased $23.1 million or 33.6%. Included in this latter
category are a number of new loan participations for the construction of office
buildings in the Boston area. Commercial loans decreased $9.2 million or 11.9%
as the seasonal upswing in the economy enabled businesses to pay balances down.
Non performing assets and loan loss experience:
As shown in the next table, non-performing assets were $3.8 million
or 0.28% of total assets at September 30, 2000 compared to $3.3 million or 0.27%
of total assets at December 31, 1999. Accrual of interest income on loans is
discontinued when it is questionable whether the borrower will be able to pay
the principal and interest in full and/or when loan payments are 60 days past
due, or 90 days past due if the loan is fully secured by real estate or other
collateral held by the Bank.
16
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------ ----------------
(in thousands)
<S> <C> <C>
Nonaccrual loans $ 2,270 $ 1,777
Loans past due 90 days or more and still accruing ---- ----
Property from defaulted loans 1,500 1,500
---------- ---------
Total non-performing assets $ 3,770 $ 3,277
========== =========
Restructured troubled debt performing in accordance
with amended terms, not included above $ 239 $ 626
========== =========
</TABLE>
The following is a summary of the activity in the reserve for loan losses for
the indicated periods:
<TABLE>
<CAPTION>
Nine months ended September 30,
2000 1999
---------------- ---------------
(in thousands)
<S> <C> <C>
Balance at the beginning of the period $ 11,158 $ 11,108
Provisions --- ---
Recoveries 966 542
----------- -----------
12,124 11,650
Less: Charge-offs (151) (336)
----------- -----------
Balance at the end of the period $ 11,973 $ 11,314
=========== ===========
</TABLE>
Management believes that, upon review of loan quality and payment
statistics, provisions from current income were unnecessary in the indicated
periods, notwithstanding growth in the loan portfolio. The reserve represented
1.50% of total loans at September 30, 2000, 1.65% at December 31, 1999 and 1.80%
at September 30, 1999. Management considers the reserve to be adequate at
September 30, 2000, although there can be no assurance that the reserve is
adequate or that additional provisions might be necessary.
The Company had outstanding commitments to originate new residential
and commercial mortgages of $33.0 million at September 30, 2000 and $57.0
million at December 31, 1999. Additional unadvanced funds on various loan types
at September 30, 2000 are shown in the next table.
(The remainder of this page intentionally left blank)
17
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Additional Unadvanced Loan Commitments
September 30, December 31,
2000 1999
--------- ---------
(in thousands)
Commercial loans
Dealer floor plan $ 11,999 $ 8,067
Lines of credit 42,320 54,735
Other 4,435 1,781
Commercial mortgages
Construction 17,547 20,197
Other 1,043 613
Residential mortgages
Home equity 42,457 34,734
Consumer loans
Lines of credit 2,812 2,023
--------- ---------
Total $ 122,613 $ 122,150
========= =========
Deposits
The following table is a summary of deposits outstanding as of the
dates indicated:
September 30, December 31,
2000 1999
------------ -------------
(in thousands)
Demand deposits $ 221,639 $ 167,624
NOW accounts 140,730 120,307
Savings deposits 148,194 158,142
Money market accounts 168,314 138,287
Certificates of deposit greater than $100,000 89,270 60,666
Other time deposits 215,329 121,038
------------ ------------
Total deposits $ 983,476 $ 766,064
============ ============
Reflecting core deposit growth, the recent acquisition of branches in
Wareham and Falmouth, Massachusetts and the seasonal nature of the Cape Cod
economy as discussed in "Liquidity" on page 20 herein, total deposits at
September 30, 2000 were $217.4 million or 28.4% higher than total deposits at
December 31, 1999. Generally, the Company's strategy is to price deposits that
reflect national market rates, offering higher alternative rates based on
increasing amounts deposited. Between May and September 2000, the Bank initiated
a premium offering rate of 7.20%APY for a one-year CD which has proven
successful. Also during the second quarter 2000, the Company accepted $25
million brokered deposits, included in Other time deposits in the table above.
Interest rates paid are frequently reviewed and are modified to reflect changing
conditions.
18
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Borrowed Funds
Historically, the Company has selectively engaged in short and long
term borrowings from the Federal Home Loan Bank of Boston, and has sold
securities under agreements to repurchase, to fund loans and investments. At
September 30, 2000, borrowed funds totaled $244.7 million, nearly $122.6 million
or 33.4% lower than borrowed funds at December 31, 1999. This decrease responds
to the previously described deposit growth during the period.
Stockholders' Equity
The Company's capital to assets ratio was 7.05% at September 30, 2000
compared to 6.96% December 31,1999.
The Company (on a consolidated basis) and the Bank are subject to
various regulatory capital requirements administered by the federal banking
agencies. Failure to meet minimum capital requirements can initiate certain
mandatory and possible additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the Company's and the Bank's
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and/or the Bank must meet
specific capital guidelines that involve quantitative measures of their assets,
liabilities and certain off-balance-sheet items as calculated under regulatory
accounting practices. Holding companies, such as the Company, are not subject to
prompt corrective action provisions. The capital amounts and classification are
also subject to qualitative judgments by the regulators about components, risk
weightings, and other factors. Quantitative measures established by regulation
to ensure capital adequacy require the Company and the Bank to maintain minimum
amounts of total and Tier 1 capital (as defined) to average assets (as defined).
The following schedule displays these capital guidelines and the ratios of the
Company and the Bank as of September 30, 2000:
Minimum September 30, 2000
Regulatory ------------------
Guidelines Company Bank
----------- --------- -------
Tier 1 leverage capital 3.00% 6.61% 6.46%
Tier 1 capital to risk-weighted assets 4.00% 9.66% 9.38%
Total capital to risk-weighted assets 8.00% 10.90% 10.63%
The Company's book value at September 30, 2000 was $10.93 per share
compared to $9.95 per share at December 31, 1999.
19
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
LIQUIDITY
The Bank normally experiences a seasonal swing in its liquidity each
year due to the nature of the economy in its market area. Liquidity is usually
high in late summer and early fall and the annual low point is usually in the
early spring. The Bank's investment portfolio is of high quality and is highly
marketable although a gain or loss would be realized if the market value of
securities sold were not equal to their adjusted book value at date of sale.
Alternately, the Bank can borrow funds using investment securities as
collateral. The Bank has an available line of credit of $5.0 million from the
Federal Home Loan Bank of Boston, has established a line of credit for the
purchase of federal funds from a regional bank and may borrow from the Federal
Reserve Bank if necessary.
ASSET/LIABILITY MANAGEMENT
Through the Asset/Liability Management Committee ("ALCO"), a
subcommittee of the Board of Directors of the Bank, the Company and the Bank
monitor the level and general mix of earning assets and interest bearing
liabilities, with particular attention to those assets and liabilities which are
rate-sensitive. The primary objective of ALCO is to manage interest rate risk in
accordance with policies approved by the Board of Directors regarding acceptable
levels of interest rate risk, liquidity and capital. The committee meets monthly
and sets the rates paid on deposits, approves loan pricing and reviews
investment transactions.
Given the substantial liquidity from cash flow and maturities of the
Company's investment portfolio, the sizable proportion of rate sensitive loans
to total loans, and the large core deposit base, ALCO believes the Company to be
moderately asset-sensitive to changes in interest rates. Nevertheless, the
Company's strategy has included the funding of certain fixed rate loans with
medium term borrowed funds in order to mitigate a margin squeeze should interest
rates rise.
The Cape Cod market is one in which competing financial institutions
frequently offer a wide range of yields for similar deposit products. Within
this market, the Company finds it necessary, from time to time, to offer higher
rates than it would otherwise justify, thereby increasing pressure on net
interest income. In order to offset this pressure somewhat, the Company is
strategically focusing on customer relationship profitability.
COMPUTER PROCESSING IN THE YEAR 2000
The statements in the following section include "Year 2000 readiness
disclosure" within the meaning of the Year 2000 Information and Readiness Act of
1998.
Much computer software has been written which allows the year in a
date to be recognized and/or stored based on a two-digit number, i.e.,
"12/31/99", clearly recognizable as meaning December 31, 1999. The same is true
of a variety of hardware devices with built-in clock-calendars, such as
computers. In some cases, this could 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 had not been 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 Bank's ability to do business.
For the Bank's internal computer processing, it was determined to be
necessary to replace some of its computers and to acquire more recent versions
of certain software. $800,000 was spent for this purpose in 1998 and an
additional $540,000 was spent in 1999. These costs have been capitalized and are
being depreciated over the useful lives of the items purchased.
20
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
The Bank relies on outside vendors for much of its critical data
processing. Prior to December 31, 1999, these vendors assured the Bank that they
were Year 2000 compliant. The Bank's testing confirmed this on those systems
that were considered to be critical or high risk. Contingency plans for
processing of 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 has not
experienced computer failures of any kind affecting either internal or
subcontracted computer processing as of September 30, 2000.
The Bank is also dependent on other providers in the conduct of its
business, most notably for electrical power and telecommunications. Had these
providers experienced Year 2000 problems, disruption of service, especially if
prolonged, could have seriously effected the Bank's ability to conduct business
as usual. The Company has not experienced any disruption of services from these
providers.
Certain of the Bank'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 a customer's ability to make loan
payments to the Bank. To the Company's knowledge, no customers have been
seriously affected by Year 2000 problems.
Other customers may withdraw funds from the Bank in anticipation of
possible Year 2000 disruptions. The Bank has traditionally maintained a
substantial liquidity position in the normal course of doing business, and
expects to continue to maintain a liquid investment portfolio to meet any
unusual deposit outflows.
Although the Company has not experienced any Year 2000 related
problems, some additional dates remain which might disrupt its normal business
operations. 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.
October 10 First date to require an eight digit date field Status: open
December 31 2000/2001 year end Status: open
Please refer to the statement regarding "Forward-Looking Information"
at the beginning of Part II, Item 7 of this 10Q entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations" with
regard to any forward-looking statements in this section. Although management of
the Bank and the Company believe that their responses to the Year 2000 issue are
appropriate, neither the Bank nor the Company can guarantee their Year 2000
readiness, nor that of material vendors or customers, nor the effectiveness of
contingency plans in the event of a failure in any of the Bank's computer
systems.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
For a discussion of the Company's management of market risk exposure,
see "Asset/Liability Management" in Item 2 of Part I of this report and Item 7A
of Part II of the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999 (the "1999 Annual Report").
For quantitative information about market risk, see Item 7A of Part
II of the Company's 1999 Annual Report.
There have been no material changes in the quantitative and
qualitative disclosures about market risk as of September 30, 2000 from those
presented in the Company's 1999 Annual Report.
21
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PART II OTHER INFORMATION
ITEM 1. Legal Proceedings
There are no material legal proceedings to which the Company is a
party or to which any of its property is subject, although the Company is a
party to ordinary routine litigation incidental to its business.
ITEM 2. Changes in Securities and Use of Proceeds
Not applicable
ITEM 3. Defaults Upon Senior Securities
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
Not applicable
ITEM 5. Other information
Not applicable
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Description
-------------------
27 Financial data schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the three
month period ended September 30, 2000.
22
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
(Registrant) CCBT FINANCIAL COMPANIES, INC.
-----------------------------
Date: November 9, 2000
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/s/ Stephen B. Lawson
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Stephen B. Lawson, President and Chief Executive Officer
/s/ Noal D. Reid
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Noal D. Reid, Chief Financial Officer and Treasurer
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