10-Q 1 form10q40046-810.txt 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 June 30, 2001 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 [ ] Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. There were 8,615,548 shares of common stock outstanding as of August 9, 2001.
TABLE OF CONTENTS ----------------- Section Description Page No. ------- ----------- -------- PART I FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statements of Financial Condition (Unaudited) 3 June 30, 2001 and December 31, 2000 Consolidated Statements of Income (Unaudited) 4 Three and Six Months Ended June 30, 2001 and 2000 Consolidated Statements of Cash Flows (Unaudited) 5 Six Months Ended June 30, 2001 and 2000 Consolidated Statements of Comprehensive Income (Unaudited) 6 Six Months Ended June 30, 2001 and 2000 Consolidated Statements of Changes in Stockholders' Equity (Unaudited) 6 Six Months Ended June 30, 2001 and 2000 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition 7-18 and Results of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk 19 PART II OTHER INFORMATION Item 1. Legal Proceedings 19 Item 2. Changes in Securities and Use of Proceeds 19 Item 3. Defaults upon Senior Securities 19 Item 4. Submission of Matters to a Vote of Security Holders 19 Item 5. Other Information 19 Item 6. Exhibits and Reports on Form 8-K 19 SIGNATURES 20
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PART I FINANCIAL INFORMATION ITEM 1. Financial Statements CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION June 30, December 31, 2001 2000 --------------- --------------- ASSETS (Unaudited) Cash and due from banks $ 55,480,037 $ 49,371,492 Short term interest-bearing deposits 382,969 16,843,538 Securities available for sale at fair value 444,098,037 426,742,801 Federal Home Loan Bank stock, at cost 22,125,400 22,125,400 Federal Reserve Bank stock, at cost 1,180,700 1,180,700 Total loans 918,591,270 848,490,319 Less: Reserve for loan losses (12,222,359) (12,153,944) --------------- --------------- Net loans 906,368,911 836,336,375 Loans held for sale 1,768,472 860,840 Premises and equipment 17,460,972 16,633,912 Deferred tax assets 3,241,634 4,512,589 Accrued interest receivable on securities 2,758,771 3,353,580 Principal and interest receivable on loans 4,523,438 4,331,987 Intangibles 8,763,756 9,555,425 Other assets 11,986,902 12,070,707 --------------- --------------- Total assets $ 1,480,139,999 $ 1,403,919,346 =============== =============== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits $ 927,015,564 $ 973,302,664 Borrowings from the Federal Home Loan Bank 403,651,359 291,286,797 Other short-term borrowings 30,648,821 24,520,157 Current taxes payable 316,857 2,267,117 Interest payable on deposits and borrowings 3,108,512 4,206,555 Post retirement benefits payable 3,086,505 2,830,386 Employee profit sharing retirement and bonuses payable 1,530,361 2,946,642 Other liabilities 3,206,315 3,705,815 --------------- --------------- Total liabilities 1,372,564,294 1,305,066,133 --------------- --------------- Minority interest 70,071 124,435 --------------- --------------- Stockholders' equity Common stock, $1.00 par value: Authorized: 12,000,000 shares Issued: 9,061,064 9,061,064 9,061,064 Surplus 27,494,890 27,494,890 Undivided profits 76,013,518 69,896,759 Treasury stock, at cost (453,016 shares) (7,399,628) (7,399,628) Accumulated other comprehensive income (loss) 2,335,790 (324,307) --------------- --------------- Total stockholders' equity 107,505,634 98,728,778 --------------- --------------- Total liabilities and stockholders' equity $ 1,480,139,999 $ 1,403,919,346 =============== ===============
The accompanying notes are an integral part of these unaudited, consolidated financial statements. 3
PART I FINANCIAL INFORMATION ITEM 1. Financial Statements (continued) CONSOLIDATED STATEMENTS OF INCOME Three Months Ended June 30, Six Months Ended June 30, 2001 2000 2001 2000 ------------ ------------ ------------ ------------ INTEREST INCOME: (Unaudited) (Unaudited) Interest and fees on loans $ 17,453,717 $ 14,718,174 $ 34,588,499 $ 28,433,790 Interest on short term interest-bearing deposits 134,334 229,134 323,695 302,950 Taxable interest income on securities 7,070,495 6,869,437 15,160,057 14,533,832 Tax-exempt interest income on securities 229,888 218,504 466,885 426,462 Dividends on securities 362,473 484,084 780,415 846,922 ------------ ------------ ------------ ------------ Total interest income 25,250,907 22,519,333 51,319,551 44,543,956 ------------ ------------ ------------ ------------ INTEREST EXPENSE Interest on deposits 6,747,503 5,401,427 14,521,220 10,265,350 Interest on borrowings from the Federal Home Loan Bank 5,640,327 5,344,440 10,606,711 10,930,592 Interest on other short-term borrowings 199,680 331,321 476,764 590,446 ------------ ------------ ------------ ------------ Total interest expense 12,587,510 11,077,188 25,604,695 21,786,388 ------------ ------------ ------------ ------------ Net interest income 12,663,397 11,442,145 25,714,856 22,757,568 Provision for loan losses -- -- ------------ ------------ ------------ ------------ ------------ ------------ Net interest income after provision for loan losses 12,663,397 11,442,145 25,714,856 22,757,568 ------------ ------------ ------------ ------------ NON-INTEREST INCOME Financial Advisor fees 1,887,868 1,829,900 3,648,231 3,337,495 Deposit account service charges 539,891 485,407 1,041,637 973,586 Branch banking fees 819,913 766,538 1,537,309 1,480,610 Electronic banking fees 475,817 610,350 958,165 998,852 Loan servicing and other loan fees 42,520 130,318 102,192 185,903 Brokerage fees and commissions 240,331 250,096 489,451 533,641 Net gain (loss) on sales of securities 392,063 49,394 852,557 28,302 Net gain on sales of loans 280,409 4,597 422,040 27,654 Insurance commissions 420,093 194,592 886,741 194,592 Other income 276,248 128,040 387,710 268,946 ------------ ------------ ------------ ------------ Total non-interest income 5,375,153 4,449,232 10,326,033 8,029,581 ------------ ------------ ------------ ------------ NON-INTEREST EXPENSE Salaries 4,381,449 3,529,577 8,327,408 6,686,895 Employee benefits 1,677,057 1,436,467 3,538,255 2,985,521 Building and equipment 1,421,257 1,170,409 2,751,104 2,288,379 Data processing 809,260 752,252 1,586,980 1,441,873 Accounting and legal fees 258,083 258,454 472,760 461,684 Other outside services 589,037 565,146 1,098,225 1,037,744 Amortization of intangibles 395,833 56,701 791,666 59,774 Delivery and communications 471,557 415,051 996,048 743,726 Directors' fees 85,800 88,250 171,600 175,750 Marketing and advertising 591,479 320,441 939,731 524,304 Printing and supplies 308,377 227,036 445,752 393,207 Insurance 109,918 92,423 247,388 188,243 All other expenses 363,663 357,090 772,496 964,831 ------------ ------------ ------------ ------------ Total operating expense 11,462,770 9,269,297 22,139,413 17,951,931 ------------ ------------ ------------ ------------ Minority Interest (17,753) (10,496) (5,584) (10,496) ------------ ------------ ------------ ------------ Net income before taxes 6,593,533 6,632,576 13,907,060 12,845,714 Applicable income taxes 2,207,861 2,279,237 4,691,404 4,391,326 ------------ ------------ ------------ ------------ Net income $ 4,385,672 $ 4,353,339 $ 9,215,656 $ 8,454,388 ============ ============ ============ ============ Average shares outstanding 8,608,048 8,608,048 8,608,048 8,608,048 Basic earnings per share $ 0.51 $ 0.50 $ 1.07 $ 0.98 Diluted earnings per share $ 0.51 $ 0.50 $ 1.07 $ 0.98 Cash dividends declared $ 0.18 $ 0.16 $ 0.36 $ 0.32
The accompanying notes are an integral part of these unaudited, consolidated financial statements. 4
PART I FINANCIAL INFORMATION ITEM 1. Financial Statements (continued) CONSOLIDATED STATEMENTS OF CASH FLOWS For the Six Months Ended June 30, 2001 2000 ------------- ------------- (Unaudited) CASH PROVIDED BY OPERATING ACTIVITIES Net income $ 9,215,656 $ 8,454,388 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses -- -- Depreciation and amortization 2,030,413 1,099,517 Net amortization of securities 460,380 13,645,606 Accretion of deferred loan fees (242,509) (235,135) Net gain on sale of investment securities (852,557) (28,302) Deferred (prepaid) income tax expense (3,221,215) (479,321) Net gain on sale of loans (422,040) (27,654) Net change in: Loans held for sale (907,632) 200,000 Accrued interest receivable 403,358 (805,935) Accrued expenses and other liabilities (2,757,705) (899,581) Other, net 4,314,069 (7,118,894) ------------- ------------- Net cash provided by operating activities 8,020,218 13,804,689 ------------- ------------- CASH USED BY INVESTING ACTIVITIES Net increase in loans (104,163,380) (87,675,346) Proceeds from sale of loans 34,618,367 6,453,313 Dispositions of property from defaulted loans -- 70,000 Maturities of securities 187,778,611 114,130,910 Purchase of available for sale securities (270,323,202) (147,307,413) Sales of available for sale securities 67,467,964 57,060,977 Purchases of premises and equipment (2,857,831) (5,214,744) ------------- ------------- Net cash used by investing activities (87,479,471) (62,482,303) ------------- ------------- CASH PROVIDED BY FINANCING ACTIVITIES Net (decrease) increase in deposits (46,287,100) 136,659,420 Net increase (decrease) in borrowings from the Federal Home Loan Bank 112,364,562 (93,647,994) Net increase in other short-term borrowings 6,128,664 5,685,220 Cash dividends paid on common stock (3,098,897) (2,758,896) ------------- ------------- Net cash provided by financing activities 69,107,229 45,937,750 ------------- ------------- Net decrease in cash and cash equivalents (10,352,024) (2,739,864) Cash and cash equivalents at beginning of year 66,215,030 45,622,428 ------------- ------------- Cash and cash equivalents at end of period $ 55,863,006 $ 42,882,564 ============= ============= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for: Interest $ 26,702,737 $ 22,475,774 Income taxes 7,179,819 4,467,843 Non-cash transactions: Additions to property from defaulted loans $ -- $ 70,000
The accompanying notes are an integral part of these unaudited, consolidated financial statements. 5
PART I FINANCIAL INFORMATION ITEM 1. Financial Statements (continued) CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the Six Months Ended June 30, 2001 2000 ----------- ---------- (Unaudited) Net income $9,215,656 $8,454,388 ----------- ---------- Unrealized holding gains (losses) on securities available for sale 5,380,784 (31,096) Reclassification of gains on securities realized in income (852,557) (28,302) ----------- ---------- Net unrealized gains (losses) 4,528,227 (59,398) Related tax effect (1,868,130) 2,106 ------------ ----------- Net other comprehensive income (loss) 2,660,097 (57,292) ------------ ----------- Comprehensive income $ 11,875,753 $8,397,096 ============ ========== CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY For the Six Months Ended June 30, 2001 2000 ------------ ----------- (Unaudited) COMMON STOCK Balance, beginning of the year $ 9,061,064 $ 9,061,064 ------------ ----------- Balance, June 30 9,061,064 9,061,064 ------------ ----------- SURPLUS Balance, beginning of the year 27,494,890 27,494,890 ------------ ----------- Balance, June 30 27,494,890 27,494,890 ------------ ----------- UNDIVIDED PROFITS Balance, beginning of the year 69,896,759 58,181,480 Net income 9,215,656 8,454,388 Cash dividends declared (3,098,897) (2,758,896) ------------ ----------- Balance, June 30 76,013,518 63,876,972 ------------ ---------- TREASURY STOCK Balance, beginning of the year (7,399,628) (7,399,628) ------------- ------------ Balance, June 30 (7,399,628) (7,399,628) ------------- ------------ ACCUMULATED OTHER COMPREHENSIVE INCOME Balance, beginning of the year (324,307) (1,688,195) Net other comprehensive income 2,660,097 (57,292) ------------ ----------- Balance, June 30 2,335,790 (1,745,487) ------------ ----------- TOTAL STOCKHOLDERS' EQUITY $107,505,634 $91,287,811 ============ ===========
The accompanying notes are an integral part of these unaudited, consolidated financial statements. 6 PART I FINANCIAL INFORMATION ITEM 1. Financial Statements (continued) CCBT FINANCIAL COMPANIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Six Months Ended June 30, 2001 and 2000 (Unaudited) Business CCBT Financial Companies, Inc. ("Company") was incorporated under the laws of the Commonwealth of Massachusetts on October 8, 1998 under the name of CCBT Bancorp, Inc. at the direction of the Board of Directors and management of Cape Cod Bank and Trust Company ("Bank") for the purpose of becoming a bank holding company for the Bank. On February 11, 1999, Bancorp became the holding company for the Bank by acquiring 100% of the outstanding shares of the Bank's common stock in a 1:1 exchange for Bancorp common stock. During 1999, the Company's name was changed to CCBT Financial Companies, Inc. The Bank's charter was converted to that of a national bank effective September 1, 1999. Currently, the Company's business activities are conducted primarily through the Bank. During the second quarter of 2000, the Company, through its wholly-owned subsidiary, Cape Cod Bank and Trust Company N.A., acquired 51% of the stock of Murray & MacDonald Insurance Services, Inc. (the "Agency") of Falmouth, Massachusetts, a full service insurance Agency offering property, casualty, life, accident and health products to clients on Cape Cod. The Agency has been in business since 1972 and has license agreements with more than thirty insurance firms. As part of the transaction, Murray & MacDonald President Douglas D. MacDonald will continue as President of the Agency, and will direct all insurance activities for the Bank. In addition to the acquisition of Murray & MacDonald Insurance Services, Inc., the Company also completed its acquisition of two branch banking offices, in Falmouth and Wareham, Massachusetts, from Fleet Bank during the second quarter of 2000. These branches added approximately $55 million in deposits at a 15.5% premium, at June 30, 2000. Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principals for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principals for complete financial statements. Certain amounts have been reclassified in the June 30, 2000 financial statements to conform to the 2001 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 six months ended June 30, 2001 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, 2000. ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations General This Form 10Q contains certain statements that may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company's actual results could differ materially from those projected in the forward-looking statements as a result, among other factors, of changes in general, national or regional economic conditions, changes in loan default and charge-off rates, reductions in deposit levels necessitating increased borrowing to fund loans and investments, changes in interest rates, changes in the size and nature of the Company's competition, and changes in the assumptions used in making such forward-looking statements. 7 PART I FINANCIAL INFORMATION ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) The following discussion should be read in conjunction with the accompanying consolidated financial statements and selected consolidated financial data included within this report. Given that the Company's principal activity currently is ownership of the Bank, for ease of reference, the term "Company" in this item generally will refer to the investments and activities of the Company and the Bank except where otherwise noted. CCBT Financial Companies, Inc. is a bank holding company. Its sole subsidiary, Cape Cod Bank and Trust Company, N.A. is the largest commercial bank headquartered in Barnstable County. It offers a wide range of commercial banking services for individuals, businesses, non-profit organizations, governmental units and fiduciaries. The Bank receives substantially all of its deposits from and makes substantially all of its loans to individuals and businesses on Cape Cod, although the Bank has some loans on properties outside its market area, including some sizable participations in commercial mortgages. The Bank's core market is comprised of retail, wholesale, and manufacturing businesses; primary households (including a significant retirement population); and a growing number of second homeowners. In addition, a substantial non-core vacation population contributes to seasonal deposit growth. 8 PART I FINANCIAL INFORMATION ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (cont.)
Net Interest Income, Net Interest Margin Three Months Ended June 30, ------------------------------------------------------------------------------- 2001 2000 ----------------------------------- ---------------------------------- Average Average Average Average Balance Interest Yield Balance Interest Yield ----------------------------------- ---------------------------------- (Dollar amounts in thousands) ASSETS Securities: Mortgage-backed securities $ 36,694 $ 518 5.65% $ 31,477 $ 570 7.24% CMOs 187,016 2,850 6.10% 182,106 3,245 7.13% U.S. Government agencies 15,916 152 3.87% 28,256 453 6.52% State and municipal obligations 20,064 230 6.04% 20,710 226 5.77% Other securities 261,502 4,047 6.27% 198,493 3,308 6.78% ------- ----- ------- ----- Total securities 521,192 7,797 6.08% 461,042 7,802 6.89% ------- ----- ------- ----- Loans: Commercial 93,196 1,937 8.43% 85,155 2,058 9.56% Commercial construction 48,320 943 7.83% 27,271 652 9.56% Residential construction 48,835 818 6.62% 53,077 832 6.27% Commercial mortgages 245,737 5,548 9.06% 216,547 4,930 9.11% Industrial revenue bonds 1,300 21 9.16% 1,046 24 13.26% Residential mortgages 415,091 7,134 6.88% 309,963 5,319 6.86% Home equity 42,302 828 7.85% 28,555 689 9.64% Consumer 8,702 225 10.90% 8,993 214 9.86% ------- ----- ------- ----- Total loans 903,483 17,454 7.75% 730,607 14,718 8.05% ------- ----- ------- ----- Total earning assets 1,424,675 25,251 7.11% 1,191,649 22,520 7.61% --------- --------- Cash and due from banks 37,552 35,760 Non-earning assets 30,713 20,543 ---------- ---------- Total assets $1,492,940 $1,247,952 ========== ========== LIABILITIES & STOCKHOLDERS' EQUITY Deposits: NOW accounts $ 138,333 180 0.52% $119,999 217 0.72% Regular savings 140,168 832 2.38% 146,989 1,135 3.10% Money Market accounts 164,757 1,296 3.15% 142,975 1,315 3.69% Certificates of Deposit of $100,000 or more 105,731 1,557 5.91% 66,336 982 5.95% Other time deposits 196,663 2,883 5.88% 127,435 1,753 5.53% ------- ----- ------- ----- Total interest bearing deposits 745,652 6,748 3.63% 603,734 5,402 3.59% ------- ----- ------- ----- Borrowings: Federal Home Loan Bank 412,679 5,640 5.48% 347,059 5,344 6.19% Other short-term borrowings 26,309 200 3.04% 24,315 331 5.48% ------- ----- ------- ----- Total borrowings 438,988 5,840 5.34% 371,374 5,675 6.14% ------- ----- ------- ----- Total interest-bearing liabilities 1,184,640 12,588 4.26% 975,108 11,077 4.56% ------ ------ Demand deposits 199,080 177,335 Non-interest bearing liabilities 6,347 7,792 Stockholders' equity 102,873 87,717 ---------- ---------- Total liabilities & equity $1,492,940 $1,247,952 ========== ========== Net interest income/spread $12,663 2.85% $11,443 3.05% ======= ======= Net interest margin (NII/Avg. Earning Assets) 3.57% 3.86%
9 PART I FINANCIAL INFORMATION ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (cont.) RESULTS OF OPERATIONS Three Months Ended June 30, 2001 vs. June 30, 2000 Source and Use of Funds When compared to the second quarter of 2000, average interest bearing deposits were higher by 23.5% or $141.9 million in the second quarter of 2001. Significant growth occurred in time deposits with Certificates of Deposit greater than $100,000 increasing 59.4% or $39.4 million and Other time deposits increasing 54.3% or $69.2 million. This growth includes deposits acquired from Fleet at the end of the second quarter of 2000 as well as the offering of a 7.20% APY on a one year certificate of deposit during the second and third quarters of 2000. Non-interest bearing demand deposits increased 12.3% or $21.7 million in the second quarter of 2001 when compared to the same period in 2000. Additional funds were raised through increased borrowings from the Federal Home Loan Bank, up 18.9% or $65.6 million in the second quarter of 2001 as compared to the same quarter of 2000. On average, securities were higher by $60.2 million or 13.0% during the second quarter of 2001 when compared to the second quarter of 2000. With the most significant growth occuring in the Other Securities category which increased, on average, $63.0 million or 31.7%. When compared to the second quarter of 2000, average loans were higher in 2001 by 23.7% or $172.9 million. Loan growth was spearheaded by residential mortgage lending, up $105.1 million or 33.9% in a very active local market. Additionally, Home Equity loans were up $13.7 million for a 48.1% increase for the second quarter of 2001 as compared to 2000. Net interest income Net interest income was $12.7 million for the three months ended June 30, 2001 as compared to $11.4 million for the same period in 2000 up 10.7%. The spread and net interest margin ratios were 2.85% and 3.57%, respectively, for the three months ended June 30, 2001 as compared to 3.05% and 3.86%, respectively, for the comparable 2000 period. Provision for loan losses No provisions were made to the reserve for loan losses in the quarters ended June 30, 2001 or 2000. Management believes that, upon continuing review of loan payment and quality statistics, the current reserve continues to be adequate to cover losses likely to result from loans in the current portfolio. Non-interest Income and Expense Non-interest income totaled $5.4 million for the three months ended June 30, 2001, up 20.8% compared to the $4.4 million earned during the same period in 2000. Net gains on the sale of securities and loans as well as the addition of revenues from insurance activities contributed significantly to this increase. During the second quarter of 2001, non-interest expenses totaled $11.5 million, greater than the $9.3 million expended during the comparable period last year by $2.2 million or 23.7%. Salaries and employee benefits rose $1.1 million or 22.0%. Increased expenses in other categories include amortization of intangibles resulting from acquisitions, increased building and equipment expenses attributable to the addition of two branch offices and the new South Yarmouth headquarters, and marketing and advertising costs incurred for a campaign to launch the Company's new logo. 10 PART I FINANCIAL INFORMATION ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (cont.) Income taxes Applicable State and Federal income tax expense of $2.2 million for the quarter ended June 30, 2001 was 3.1% less than the $2.3 million recorded for the same quarter in 2000, a reflection of lower pretax net income. The combined effective State and Federal tax rate was 34% of pretax net income for each period presented. Net income Consolidated net income was $4.4 million representing earnings per share of $0.51 for the three months ended June 30, 2001 as compared to $4.4 million or $0.50 per share for the comparable three months ended June 30, 2000. Annualized returns on average assets and average equity were 1.18% and 17.10%, respectively, for the three months ended June 30, 2001 as compared to 1.40% and 19.96%, respectively, for the three months ended June 30, 2000. 11 PART I FINANCIAL INFORMATION ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (cont.)
Net Interest Income, Net Interest Margin Six Months Ended June 30, ------------------------------------------------------------------------------- 2001 2000 ----------------------------------- ---------------------------------- Average Average Average Average Balance Interest Yield Balance Interest Yield ----------------------------------- ---------------------------------- (Dollar amounts in thousands) ASSETS Securities: Mortgage-backed securities $ 37,061 $ 1,219 6.58% $31,611 $ 1,220 7.72% CMOs 182,421 6,282 6.89% 198,131 7,019 7.09% U.S. Government agencies 19,091 510 5.41% 28,892 916 6.45% State and municipal obligations 21,087 481 6.01% 20,205 434 5.68% Other securities 253,789 8,240 6.58% 200,314 6,521 6.62% ------- ------- ------- ------- Total securities 513,449 16,732 6.62% 479,153 16,110 6.83% ------- ------ ------- ------- Loans: Commercial 86,756 3,758 8.78% 83,175 3,958 9.67% Commercial construction 45,241 1,868 8.33% 25,112 1,163 9.31% Residential construction 49,180 1,590 6.43% 49,691 1,543 6.14% Commercial mortgages 241,153 10,957 9.16% 213,739 9,665 9.09% Industrial revenue bonds 1,432 53 10.53% 1,085 48 12.57% Residential mortgages 407,810 14,230 6.98% 304,133 10,365 6.82% Home equity 40,145 1,691 8.50% 26,716 1,259 9.47% Consumer 8,611 441 10.73% 9,019 433 10.04% ------- ------- ------- ------- Total loans 880,328 34,588 7.90% 712,670 28,434 8.02% ------- ------- ------- ------- Total earning assets 1,393,777 51,320 7.44% 1,191,823 44,544 7.56% ------ ------ Cash and due from banks 37,185 32,175 Non-earning assets 30,835 20,895 ---------- ---------- Total assets $1,461,797 $1,244,893 ========== ========== LIABILITIES & STOCKHOLDERS' EQUITY Deposits: NOW accounts $135,369 405 0.60% $115,575 436 0.76% Regular savings 141,856 1,860 2.64% 150,305 2,304 3.08% Money Market accounts 163,091 2,752 3.40% 140,333 2,466 3.53% Certificates of Deposit of $100,000 or more 114,062 3,461 6.12% 62,963 1,813 5.79% Other time deposits 199,997 6,043 6.09% 123,174 3,247 5.30% ------- ----- ------- ----- Total interest bearing deposits 754,375 14,521 3.88% 592,350 10,266 3.49% ------- ----- ------- ----- Borrowings: Federal Home Loan Bank 378,700 10,606 5.65% 365,706 10,930 6.01% Other short-term borrowings 26,122 478 3.68% 22,487 590 5.28% ------- ----- ------- ----- Total borrowings 404,822 11,084 5.52% 388,193 11,520 5.97% ------- ------ ------- ------ Total interest-bearing liabilities 1,159,197 25,605 4.45% 980,543 21,786 4.47% ------ ------ Demand deposits 193,995 169,455 Non-interest bearing liabilities 8,301 7,984 Stockholders' equity 100,304 86,911 ---------- ---------- Total liabilities & equity $1,461,797 $1,244,893 ========== ========== Net interest income/spread $25,715 2.99% 22,758 3.09% ======= ====== Net interest margin (NII/Avg. Earning Assets) 3.72% 3.84%
12 PART I FINANCIAL INFORMATION ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (cont.) RESULTS OF OPERATIONS Six Months Ended June 30, 2001 vs. June 30, 2000 Source and Use of Funds Average interest bearing deposits increased $162.0 million or 27.4% when comparing the first half of 2001 with the same period in 2000. Significant growth occurred in average Time deposits with Certificates of Deposit greater than $100,000 increasing $51.1 milllion or 81.2%, and Other time deposits increasing $76.8 million or 62.4%. This growth includes deposits acquired from Fleet at the end of the second quarter of 2000 as well as the offering of a 7.20% APY on a one year certificate of deposit during the second and third quarters of 2000. Non-interest bearing demand deposits increased $24.6 million or 14.5% on average, in the first six months of 2001 when compared to the same period in 2000. Average borrowings increased by $16.6 million or 4.3% in the 2001 period. When compared to the first six months of 2000, average loans were higher in 2001 by $167.7 million or 23.5%. Residential mortgages contributed significantly to this growth, up $103.7 million or 34.1%, while commercial construction and mortgage loans increased $47.5 million or 19.9%. Additionally, Home Equity loans were up $13.4 million for a 50.3% increase for the first six months of 2001 as compared to 2000. On average, Securities increased $34.3 million or 7.2% during the first half of 2001 when compared to the same period in 2000. This growth was led by an increase of $53.5 million, or 26.7%, on average, in Other securities. Net interest income Net interest income was $25.7 million for the six months ended June 30, 2001 as compared to $22.8 million for the same period in 2000 up 13.0%. The spread and net interest margin ratios were 2.99% and 3.72%, respectively, for the six months ended June 30, 2001 as compared to 3.09% and 3.84%, respectively, for the comparable 2000 period. Provision for loan losses No provisions were made to the reserve for loan losses in the quarters ended June 30, 2001 or 2000. Management believes that, upon continuing review of loan payment and quality statistics, the current reserve continues to be adequate to cover losses likely to result from loans in the current portfolio. Non-interest Income and Expense Non-interest income totaled $10.3 million for the six months ended June 30, 2001, up 28.6% compared to the $8.0 million earned during the same period in 2000. Net gains on the sale of securities and loans as well as the addition of revenues from insurance activities contributed significantly to this increase. During the first six months of 2001, non-interest expenses totaled $22.1 million, greater than the $18.0 million expended during the comparable period last year by $4.1 million or 23.3%. Salaries and employee benefits rose $2.2 million or 22.7%. Increased expenses in other categories include amortization of intangibles resulting from acquistions, increased building and equipment expenses attributable to the addition of two branch offices and the new South Yarmouth headquarters, and marketing and advertising costs incurred for a campaign to launch the Company's new logo. 13 PART I FINANCIAL INFORMATION ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (cont.) Income taxes Applicable State and Federal income tax expense of $4.7 million for the six months ended June 30, 2001 was 6.8% greater than the $4.4 million recorded for the same period in 2000, a reflection of higher pretax net income. The combined effective State and Federal tax rate was 34% of pretax net income for each period presented. Net income Consolidated net income was $9.2 million representing earnings per share of $1.07 for the six months ended June 30, 2001 as compared to $8.5 million or $0.98 per share for the comparable six months ended June 30, 2000. Annualized returns on average assets and average equity were 1.27% and 18.53%, respectively, for the six months ended June 30, 2001 as compared to 1.37% and 19.56%, respectively, for the six months ended June 30, 2000. COMPARATIVE ANALYSIS OF SELECTED PERIOD-END ASSETS, LIABILITIES AND CAPITAL The Company had $1.48 billion consolidated total assets, $927.0 million deposits and $107.5 million stockholders' equity at June 30, 2001. Its capital to assets ratio was 7.3%, exceeding all regulatory requirements. As compared to reported balances at December 31, 2000, securities available for sale at fair value increased $17.4 million or 4.10%, gross loans increased $70.1 million or 8.3%, deposits decreased $46.3 million or 4.8% and borrowed funds increased $118.5 million or 37.5%. Investment Securities The adjusted cost and estimated market values of investment securities which the Company classified as available for sale at June 30, 2001 and December 31, 2000 were as follows:
June 30, 2001 -------------------------------------------------------------- Gross Gross Estimated Adjusted Unrealized Unrealized Market Cost Gains Losses Value ---- ----- ------ ----- (Dollar amounts in thousands) U.S. Government agency CMOs $155,173 $1,798 $1,032 $155,939 Other U.S. Government agencies 11,087 20 1 11,106 Other collateralized mortgage obligations 50,167 1,164 234 51,097 State and municipal obligations 26,928 -- -- 26,928 Other debt securities 196,779 2,450 201 199,028 -------- ------ ------ -------- Totals $440,134 $5,432 $1,468 $444,098 ======== ====== ====== ======== December 31, 2000 -------------------------------------------------------------- Gross Gross Estimated Adjusted Unrealized Unrealized Market Cost Gains Losses Value ---- ----- ------ ----- (Dollar amounts in thousands) U.S. Government agency CMOs $140,472 $1,412 $2,437 $139,447 Other U.S. Government agencies 22,663 31 200 22,494 Other collateralized mortgage obligations 47,746 526 529 47,743 State and municipal obligations 25,479 3 -- 25,482 Other debt securities 190,946 1,484 853 191,577 -------- ------ ------ -------- Totals $427,306 $3,456 $4,019 $426,743 ======== ====== ====== ========
14 PART I FINANCIAL INFORMATION ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (cont.) Investment securities available for sale increased $17.4 million, from $426.7 million at December 31, 2000 to $444.1 million at June 30, 2001. Net gains from security sales were $392 thousand and during the quarter and six months ended June 30, 2001, respectively, compared to net gains of $49 thousand and $28 thousand, respectively, during the same periods in 2000. Loans The following is a summary of the Company's outstanding loan balances as of the dates indicated:
June 30, December 31, 2001 2000 ------------- ------------- Mortgage loans on real estate Residential $422,480,663 $393,574,418 Commercial 247,776,045 242,535,682 Construction 100,308,751 87,978,360 Equity lines of credit 44,103,592 37,377,120 Other loans Commercial 94,100,820 76,274,801 Industrial revenue bonds 1,273,509 1,602,973 Consumer 8,547,890 9,146,965 ------------- ------------- Total loans 918,591,270 848,490,319 Less: Reserve for loan losses (12,222,359) (12,153,944) ------------ ------------ Total portfolio loans, net $906,368,911 $836,336,375 ============ ============ Loans held for sale $ 1,768,472 $ 860,840 ============ ============
As shown in the table above, total loans increased $70.1 million or 8.26% to $918.6 million at June 30, 2001 as compared to December 31, 2000, with significant growth occuring in the residential mortgage and commercial loan portfolios, up $28.9 and $17.8 million, respectively. New residential mortgage originations of $23.4 million fixed rate and $61.9 million adjustable rate were achieved in the second quarter 2001. During the same period, the Company sold $24.2 million residential mortgages, producing net gains of $312.3 thousand. Non performing assets and loan loss experience As shown in the following table non-performing assets were $3.3 million or .22% of total assets at June 30, 2001 compared to $3.7 million or .26% of total assets at December 31, 2000. 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.
June 30, December 31, 2001 2000 ------ ------ (Dollar amounts in thousands) Nonaccrual loans $1,802 $2,192 Loans past due 90 days or more and still accruing -- -- Property from defaulted loans 1,500 1,500 ------ ------ Total non-performing assets $3,302 $3,692 ====== ====== Restructured troubled debt performing in accordance with amended terms, not included above $ 233 $ 237 ====== =======
15 PART I FINANCIAL INFORMATION ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (cont.) The following is a summary of the activity in the reserve for loan losses for the indicated periods:
Six Months Ended June 30, 2001 2000 -------- -------- Balance, beginning of the period $ 12,154 $ 11,158 Provision for loan losses -- -- Charge-offs (114) (57) Recoveries on loans previously charged off 182 567 -------- -------- Balance, end of the period $ 12,222 $ 11,668 ======== ========
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 1.33% of total loans at June 30, 2001, 1.43% at December 31, 2000, and 1.54% at June 30,2000. Management considers the reserve to be adequate at June 30, 2001, 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 $55.4 million at June 30, 2001 and $57.8 million at December 31, 2000 which are not reflected on the consolidated statements of financial condition. Additional unadvanced loan funds are summarized as follows for the indicated periods:
June 30, December 31, 2001 2000 -------- -------- (Dollar amounts in thousands) Commercial loans Dealer floor plan $ 9,579 $ 9,134 Lines of credit 35,344 46,743 Other 3,711 3,657 Commercial mortgages Construction 19,260 14,129 Other 11,692 2,896 Residential mortgages Home equity 51,255 45,733 Consumer loans Lines of credit 2,996 2,861 -------- -------- Total $133,837 $125,153 ======== ========
16 PART I FINANCIAL INFORMATION ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (cont.) Deposits The following table is a summary of deposits outstanding as of the dates indicated:
June 30, 2001 December 31, 2000 ------------- ----------------- Deposits Demand $216,129,578 $201,904,120 NOW 140,036,174 139,452,453 Money market 169,774,077 163,793,368 Other savings 140,476,255 143,239,002 Certificates of deposit greater than $100,000 73,899,345 96,159,335 Other time 186,700,135 228,754,386 ----------- ----------- Total deposits $927,015,564 $973,302,664 ============ ============
Reflecting the maturity of $25 million in brokered deposits and the seasonal nature of Cape Cod economy as discussed in "Liquidity" on page 18 herein, total deposits at June 30, 2001 are $46.3 million or 4.8% lower than total deposits at December 31, 2000. Generally, the Company's strategy is to price deposits according to local market rates, offering higher alternative rates based on increasing amounts deposited. Interest rates paid are frequently reviewed and are modified to reflect changing conditions. Borrowed Funds Historically, the Company has selectively engaged in short and long term borrowings from the Federal Home Loan Bank of Boston, and has sold securities under agreements to repurchase, to fund loans and investments. At June 30, 2001, borrowed funds totaled $434.3 million, up 37.5% or $118.5 million compared to borrowed funds at December 31,2000. This increase offsets the seasonal deposit decline described under the section entitled "Deposits" above and contributes to the support of heretofore described loan growth. Stockholders' Equity The Company's capital to assets ratio was 7.26% at June 30, 2001 compared to 7.03% at December 31, 2000. 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 June 30, 2001. 17 PART I FINANCIAL INFORMATION ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (cont.)
Minimum June 30, 2001 Regulatory ------------------------------ Guidelines Company Bank ------------------------------------------------------ Tier 1 leverage capital 4.00% 6.44% 6.43% Tier 1capital to risk-weighted assets 4.00% 9.37% 9.35% Total capital to risk-weighted assets 8.00% 10.56% 10.53%
The Company's book value at June 30, 2001 was $12.49 per share compared to $11.47 per share at December 31, 2000. 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 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. The Bank may borrow from the Federal Reserve Bank if necessary. ASSET/LIABILITY MANAGEMENT Through the Company's Asset/Liability Management Committee ("ALCO"), which is comprised of senior management and several Directors, the Company monitors 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. NEW ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. These Statements change the accounting for business combinations and goodwill and intangible assets. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Use of the pooling-of-interests method is prohibited. SFAS No. 142, which is effective January 1, 2002, changes the accounting for goodwill from an amortization method to an impairment-only approach. In addition, this Statement requires that acquired intangible assets, as defined, be amortized over their useful lives. Management is currently evaluating the impact of adopting this Statement on the consolidated financial statements. 18 PART I FINANCIAL INFORMATION ITEM 3. Quantitative and Qualitative Disclosures about Market Risk For a discussion of the Company's management of market risk exposure, see "Asset/Liability Management" in Item 2 of Part I of this report and Item 7A of Part II of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000 (the "2000 Annual Report"). For quantitative information about market risk, see Item 7A of Part II of the Company's 2000 Annual Report. There have been no material changes in the quantitative and qualitative disclosures about market risk as of June 30, 2001 from those presented in the Company's 2000 Annual Report. PART II OTHER INFORMATION ITEM 1. Legal proceedings There are no material legal proceedings to which the Company is a party or to which any of its property is subject, although the Company is a party to ordinary routine litigation incidental to its business. ITEM 2. Changes in securities and use of proceeds Not applicable ITEM 3. Defaults upon senior securities Not applicable ITEM 4. Submission of matters to a vote of security holders Not applicable ITEM 5. Other information Not applicable ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits None (b) Reports on Form 8-K On May 22, 2001, a report on Form 8-K was filed by the Company pertaining to a change in the Company's independent auditors. 19 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: August 14, 2001 --------------- /s/STEPHEN B. LAWSON, President and Chief Executive Officer ----------------------------------------------------------- Stephen B. Lawson, President and Chief Executive Officer /s/NOAL D. REID, Chief Financial Officer and Treasurer ------------------------------------------------------ Noal D. Reid, Chief Financial Officer and Treasurer 20