SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Capital Stock The Nasdaq Stock Market, Inc.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. |X| Yes |_| No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. |X|
The aggregate market value of the voting stock held by non-affiliates of
the registrant, based on the $25.65 price on February 28, 2002, on the Nasdaq
National Market was $190,462,069. Although Directors and executive officers of
the registrant were assumed to be "affiliates" of the registrant for the
purposes of this calculation, this classification is not to be interpreted as an
admission of such status.
As of February 28, 2002, 8,621,048 shares of the registrant's common stock
were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the CCBT Financial Companies, Inc. Notice of Annual Meeting and
definitive Proxy Statement for the Annual Meeting of Stockholders to be held on
April 25, 2002 are incorporated by reference into Part III of this Form 10-K.
FORWARD-LOOKING STATEMENTS
This report contains certain statements that may be considered "forward-looking
statements" under the Private Securities Litigation Reform Act of 1995. CCBT
Financial Companies, Inc. (the "Company" or the "Registrant") may also make
written or oral forward-looking statements in other documents we file with the
Securities and Exchange Commission, in our annual reports to stockholders, in
press releases and other written materials, and in oral statements made by our
officers, directors or employees. You can identify forward-looking statements by
the use of the words "believe," "expect," "anticipate," "intend," "estimate,"
"assume," "will," "should," the negatives of such words, and other similar
expressions which predict or indicate future events and trends and which do not
relate to historical matters. These forward-looking statements involve known and
unknown risks, uncertainties and other factors, some of which are beyond our
control. These risks, uncertainties and other factors may cause the Company's
actual results to materially differ from those projected in the forward-looking
statements. Some of the factors that might cause these differences include the
following: changes in the volume of loan originations, fluctuations in
prevailing interest rates, increases in costs to borrowers of loans held,
increases in costs of funds and changes in the assumptions used in making such
forward-looking statements. In addition, the factors listed under "Risk Factors
and Factors Affecting Forward Looking Statements," beginning on page 5 of this
report may result in these differences. Readers should carefully review the
factors described under "Risk Factors and Factors Affecting Forward Looking
Statements." You should be aware that there may be other factors that could
cause these differences. You should not place undue reliance on our
forward-looking statements.
The forward-looking statements contained in this report were based on
information, plans and estimates at the date of this report, and the Company
assumes no obligations to update any forward-looking statements to reflect new
information, future events or other changes.
PART I
Item 1. Business.
General.
The Company was incorporated under the laws of the Commonwealth of
Massachusetts on October 8, 1998 under the name CCBT Bancorp, Inc. at the
direction of the Board of Directors and management of Cape Cod Bank and Trust
Company (the "Bank") for the purpose of becoming a bank holding company for the
Bank. On February 11, 1999, the Company became the holding company for the Bank
by acquiring 100% of the outstanding shares of the Bank's common stock in a 1:1
exchange for the Company's common stock (the "Reorganization"). At a special
stockholders' meeting held July 29, 1999, CCBT Bancorp, Inc.'s name was changed
to CCBT Financial Companies, Inc. This name change became effective September
23, 1999. The Bank's charter was converted to a national bank on September 1,
1999. Currently, the Company's business activities are conducted primarily
through the Bank.
Cape Cod Bank and Trust Company, N.A. is the main operating subsidiary of
the Company and is a federally chartered commercial bank with trust powers. The
Bank is the result of a merger between the Hyannis Trust Company and the Cape
Cod Trust Company in 1964 and a subsequent merger with the Buzzards Bay National
Bank in 1974. The main office of the Bank is located at 307 Main Street,
Hyannis, Barnstable County, Massachusetts. There are 28 other banking offices
located in Barnstable and Plymouth Counties in Massachusetts. The Bank is a
member of the Federal Deposit Insurance Corporation, of the Federal Reserve
System and the Federal Home Loan Bank of Boston ("FHLB"). At December 31, 2001,
the Bank employed 376 people on a full-time basis and another 68 people on a
part-time basis.
Financial information contained in this report for periods and dates prior
to February 11, 1999 is that of the Bank. Since the Bank is the main operating
subsidiary of the Company, financial information contained in this report for
periods and dates after February 11, 1999 is essentially financial information
of the Bank. Certain amounts have been reclassified in the 2000 and 1999
financial statements to conform to the 2001 presentation.
During the quarter ended March 31, 1999, the Company's Board of Directors
authorized the repurchase of up to 5% of the Company's stock in the open market.
Consistent with that authorization, the Company repurchased 453,016 shares
(5.0%) during 1999, at an average cost of $16.33 per share.
During the second quarter of 1999, the Bank formed a real estate investment
trust as a subsidiary of the Bank to utilize several advantages afforded to the
Bank, such as a way of centralizing mortgages more efficiently, the flexibility
to raise additional capital and the beneficial tax treatment provided by the
structure of a real estate investment trust. Under the name of CCBT Preferred
Corp., this new corporation purchased 100% of the commercial mortgage loans of
the Bank on May 14, 1999, and retained the Bank as servicer of those loans.
During the second quarter of 2000, the Bank acquired 51% of the stock of
Murray & MacDonald Insurance Services, Inc. of Falmouth, Massachusetts (the
"Agency"), a full service insurance agency offering property, casualty,
2
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's President,
Douglas D. MacDonald, has continued to serve as President of the Agency, and he
directs all insurance activities for the Bank.
In addition to the acquisition of the Agency, the Bank 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.
The Bank 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.
The Bank's principal sources of revenue are loans and investments, which
accounted for 81% of gross income during 2001. Of the remaining portion, 2% was
received from service charges. The balance was derived from Trust Department
services income and other items. Banking services for individuals include
checking accounts, regular savings accounts, NOW accounts, money market deposit
accounts, certificates of deposit, club accounts, mortgage loans, consumer
loans, safe deposit services, trust services, discount brokerage and investment
services, and insurance services. The Company also owns and maintains 35
automated teller machines which are connected to the AMEX, CIRRUS, NYCE,
NOVUS/DISCOVER, MASTERCARD, VISA, MAESTRO and PLUS networks. Trust Department
services include estate, trust, tax returns, agency, investment management,
discount brokerage, custodial services, and IRA accounts. The Company has no
foreign operations.
Competition
The Company faces substantial competition for loan origination and for the
attraction and retention of deposits. Competition for loan origination arises
primarily from other commercial banks, thrift institutions, credit unions and
mortgage companies. The Company competes for loans on the basis of product
variety and flexibility, competitive interest rates and fees, service quality
and convenience.
Competition for the attraction and retention of deposits arises primarily
from other commercial banks, thrift institutions, co-operative banks, and credit
unions having a presence within and around the market area served by the Bank's
main office and its community branches and ATM network. There are approximately
twelve of these financial institutions in the Bank's market area. In addition,
the Company competes with regional and national firms that offer stocks, bonds,
mutual funds, and other investment alternatives to the general public. The
Company competes on its ability to satisfy savers' and investors' requirements,
such as product alternatives, competitive rates, liquidity, service quality,
convenience, and safety against loss of principal and earnings. Management
believes that the Company's emphasis on personal service and convenience,
coupled with active involvement within the communities it serves, contributes to
its ability to compete successfully. Moreover, under the Gramm-Leach-Bliley Act
of 1999 (the "Gramm-Leach-Bliley Act"), effective March 11, 2000, securities
firms, insurance companies and other financial services providers that elect to
become financial holding companies may acquire banks and other financial
institutions. The Gramm-Leach-Bliley Act may significantly change the
competitive environment in which the Company and its subsidiaries conduct
business. See "The Financial Services Modernization Legislation" below. The
financial services industry is also likely to become more competitive as further
technological advances enable more companies to provide financial services.
These technological advances may diminish the importance of depository
institutions and other financial intermediaries in the transfer of funds between
parties.
Supervision and Regulation
Regulation of the Company. The Company is a Massachusetts corporation and a
bank holding company subject to regulation and supervision by the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board") pursuant
to the Bank Holding Company Act of 1956, as amended (the "Bank Holding Company
Act"), and files with the Federal Reserve Board an annual report and such
additional reports as the Federal Reserve Board may require. The Federal Reserve
Board has the authority to issue orders to bank holding companies to cease and
desist from unsound banking practices and violations of conditions imposed by,
or violations of agreements with, the Federal Reserve Board. The Federal Reserve
Board is also empowered to assess civil money penalties against companies or
individuals who violate the Bank Holding Company Act, or orders or regulations
thereunder, to order termination of non-banking activities of non-banking
subsidiaries of bank holding companies, and to order termination of ownership
and control of a non-banking subsidiary by a bank holding company. As a bank
holding company, the Company's activities are limited to the business of banking
and activities closely related or incidental to banking. The Company may not
directly or indirectly acquire the ownership or control of more than 5 percent
of any class of voting shares or substantially all of the assets of any company
that is not engaged in activities closely related to banking and also generally
must provide notice to, or obtain approval of, the Federal Reserve Board in
connection with any such acquisition.
3
The Financial Services Modernization Legislation. The Gramm-Leach-Bliley
Act established a comprehensive framework to permit affiliations among
commercial banks, insurance companies, securities firms, and other financial
service providers by revising and expanding the Bank Holding Company Act
framework to permit bank holding companies that qualify and elect to be treated
as financial holding companies to engage in a range of financial activities
broader than would be permissible for traditional bank holding companies, such
as the Company, that have not elected to be treated as financial holding
companies. "Financial activities" is broadly defined to include not only
banking, insurance, and securities activities, but also merchant banking and
additional activities that the Federal Reserve Board, in consultation with the
Secretary of the Treasury, determines to be financial in nature, incidental to
such financial activities, or complementary activities that do not pose a
substantial risk to the safety and soundness of depository institutions or the
financial system generally.
In order to become a financial holding company, a bank holding company,
such as the Company, must meet certain tests and file an election form with the
Federal Reserve Board. Specifically, to qualify, all of a bank holding company's
subsidiary banks must be well-capitalized and well-managed, as measured by
regulatory guidelines. In addition, to engage in the new activities, each of the
bank holding company's banks must have been rated "satisfactory" or better in
the most recent federal Community Reinvestment Act evaluation of each bank. At
this time, the Company has not elected to become a financial holding company.
Capital Requirements. The Federal Reserve Board has adopted capital
adequacy guidelines pursuant to which it assesses the adequacy of capital in
examining and supervising a bank holding company and in analyzing applications
to it under the Bank Holding Company Act. These capital adequacy guidelines
generally require bank holding companies to maintain total capital equal to 8%
of total risk-adjusted assets and off-balance sheet items (the `Total Risk-Based
Capital Ratio'), with at least one-half of that amount consisting of Tier I or
core capital and the remaining amount consisting of Tier II or supplementary
capital. Tier I capital for bank holding companies generally consists of the sum
of common stockholders' equity and perpetual preferred stock (subject in the
case of the latter to limitations on the kind and amount of such stocks which
may be included as Tier I capital), less goodwill and other non-qualifying
intangible assets. Tier II capital generally consists of hybrid capital
instruments; perpetual preferred stock, which is not eligible to be included as
Tier I capital; term subordinated debt and intermediate-term preferred stock;
and, subject to limitations, general allowances for loan losses. Assets are
adjusted under the risk-based guidelines to take into account different risk
characteristics.
In addition to the risk-based capital requirements, the Federal Reserve
Board requires bank holding companies to maintain a minimum leverage capital
ratio of Tier I capital (defined by reference to the risk-based capital
guidelines) to total average assets (the `Leverage Ratio') of 3.0%. Total
average assets for this purpose does not include goodwill and any other
intangible assets and investments that the Federal Reserve Board determines
should be deducted from Tier I capital. The Federal Reserve Board has announced
that the 3.0% Leverage Ratio requirement is the minimum for the top-rated bank
holding companies without any supervisory, financial or operational weaknesses
or deficiencies or those, which are not experiencing or anticipating significant
growth.
The Company currently is in compliance with both the Risk Based Capital
Ratio and the Leverage Ratio requirements. At December 31, 2001, the Company had
a Tier I Risk Based Capital Ratio equal to 10.5% and a Total Risk Based Capital
Ratio equal to 11.6% and a Leverage Ratio equal to 7.3%. U.S. bank regulatory
authorities and international bank supervisory organizations, principally the
Basel Committee on Banking Supervision, currently are considering changes to the
risk-based capital adequacy framework which ultimately could affect the
appropriate capital guidelines, including changes (such as those relating to
lending to registered broker-dealers) that are of particular relevance to banks,
such as the Bank, that engage in significant securities activities.
Limitations on Acquisitions of Common Stock. The Federal Change in Bank
Control Act prohibits a person or group of persons from acquiring `control' of a
bank holding company unless the Federal Reserve Board has been given at least 60
days to review the proposal. Under a rebuttable presumption established by the
Federal Reserve Board, the acquisition of 10% or more of a class of voting stock
of a bank holding company, such as the Company, with a class of securities
registered under Section 12 of the Securities Exchange Act of 1934, as amended
(the `Exchange Act') would, under the circumstances set forth in the
presumption, constitute the acquisition of control.
In addition, any company, as that term is broadly defined in the statute,
would be required to obtain the approval of the Federal Reserve Board under the
Bank Holding Company Act before acquiring 25% (5% in the case of
4
an acquirer that is a bank holding company) or more, or such lesser percentage
of our outstanding common stock as the Federal Reserve Board deems to constitute
control over us.
Regulation of the Bank. As a nationally-chartered commercial bank, the Bank
is subject to regulation and examination by the Office of the Comptroller of the
Currency ("OCC"). Relevant statutes and regulations govern, among other things,
lending and investment powers, deposit activities, borrowings, maintenance of
surplus and reserve accounts, distribution of earnings, and payment of
dividends. The Bank is also subject to regulatory provisions covering such
matters as issuance of capital stock, branching, and mergers and acquisitions.
Federal Deposit Insurance Corporation ("FDIC"). The FDIC insures the Bank's
deposit accounts up to $100,000 per depositor.
Federal Reserve Board Regulations. Regulation D promulgated by the Federal
Reserve Board requires all depository institutions, including the Bank, to
maintain reserves against their transaction accounts (generally, demand
deposits, NOW accounts and certain other types of accounts that permit payments
or transfer to third parties) or non-personal time deposits (generally, money
market deposit accounts or other savings deposits held by corporations or other
depositors that are not natural persons, and certain other types of time
deposits), subject to certain exemptions. Because required reserves must be
maintained in the form of either vault cash, a non-interest bearing account at a
Federal Reserve Bank or a pass-through account as defined by the Federal Reserve
Board, the effect of this reserve requirement is to reduce the amount of the
institution's interest-bearing assets.
Community Reinvestment Act. The Community Reinvestment Act ("CRA") requires
the OCC to evaluate the Bank's performance in helping to meet the credit needs
of the community. Massachusetts has also enacted a similar statute that requires
the Commissioner to evaluate the Bank's performance in helping to meet community
credit needs. Management believes the Bank is currently in compliance with all
CRA requirements.
Customer Information Security. The Federal Reserve Board, the OCC and other
bank regulatory agencies have adopted final guidelines (the "Guidelines") for
safeguarding confidential customer information. The Guidelines require each
financial institution, under the supervision and ongoing oversight of its Board
of Directors, to create a comprehensive written information security program
designed to ensure the security and confidentiality of customer information,
protect against any anticipated threats or hazards to the security or integrity
of such information; and protect against unauthorized access to or use of such
information that could result in substantial harm or inconvenience to any
customer.
Privacy. The Gramm-Leach-Bliley Act requires financial institutions to
implement policies and procedures regarding the disclosure of nonpublic personal
information about consumers to nonaffiliated third parties. In general, the
statute requires the Company to explain to consumers the Company's policies and
procedures regarding the disclosure of such nonpublic personal information, and,
except as otherwise required by law, the Company is prohibited from disclosing
such information except as provided in the Company's policies and procedures.
USA Patriot Act. The Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the
"Patriot Act"), designed to deny terrorists and others the ability to obtain
anonymous access to the United States financial system, has significant
implications for depository institutions, brokers, dealers and other businesses
involved in the transfer of money. The Patriot Act mandates or will require
financial institutions to implement additional policies and procedures with
respect to, or additional measures designed to address, any or all of the
following matters, among others: money laundering; suspicious activities and
currency transaction reporting; and currency crimes.
Risk Factors And Factors Affecting Forward Looking Statements
The discussion set forth below contains certain statements that may be
considered "forward-looking statements." Forward-looking statements involve
known and unknown risks, uncertainties and other factors that may cause the
Company's actual results to materially differ from those projected in the
forward-looking statements. You should carefully review the factors below and
should not place undue reliance on our forward-looking statements. For further
information regarding forward-looking statements, you should review the
discussion under "FORWARD-LOOKING STATEMENTS" on page 2 of this report.
The Company's experience in banking activities may not aid the Company's
expansion into non-banking activities. 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.
See "Business - General." Although the Company has significant experience in
providing bank-related services, this expertise may not assist us in our
expansion into non-banking activities. As a result, we may be exposed to risks
associated with, among
5
other things, (1) a lack of market and product knowledge or awareness of other
industry related matters; and (2) an inability to attract and retain qualified
employees with experience in these non-banking activities. See "Business."
The Bank's business is seasonal and is largely dependent upon the market
area on Cape Cod. The Company experiences a wide swing in its liquidity each
year as a result of the dependence of its customer base on the seasonal tourist
and vacation business on Cape Cod. The Bank receives substantially all of its
deposits from and makes substantially all of its loans to individuals and
businesses on Cape Cod. A decline in the economy on Cape Cod, or in the United
States generally, may have a material adverse effect on the operating results of
the Company.
General business risks could adversely impact the Company's business. The
banking business is subject to various business risks. Continued success depends
in large part on the contributions of our senior management personnel. The
volume of loan originations is dependent upon demand for loans of the type
originated and serviced by the Company and the competition in the marketplace
for such loans. The level of consumer confidence, fluctuations in real estate
values, fluctuations in prevailing interest rates and fluctuations in investment
returns expected by the financial community could combine to make loans of the
type originated by the Company less attractive. In addition, the Company may be
adversely affected by other factors that could (a) increase the cost to the
borrower of loans held by the Company, (b) create alternative lending sources
for such borrowers or (c) increase the cost of funds of the Bank at a rate
faster than an increase in interest income, thereby narrowing net interest rate
margins. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
The Company could be adversely impacted by applicable regulatory changes or
modifications. The Company is subject to extensive regulation by federal and
state governmental authorities and is subject to various laws and judicial and
administrative decisions imposing requirements and restrictions on part or all
of its operations. There can be no assurance that these laws, rules and
regulations will not be modified in the future, which could make compliance much
more difficult or expensive, restrict ability to originate, broker or sell loans
or otherwise adversely affect business or prospects. See "Supervision and
Regulation."
Proposed legislation may result in increased regulation of the Company's
business. From time to time, various types of federal and state legislation have
been proposed that could result in additional regulation of, and modifications
of restrictions on, the business of the Company. It cannot be predicted whether
any legislation currently being considered will be adopted or how such
legislation or any other legislation that might be enacted in the future would
affect the business of the Company.
6
EXECUTIVE OFFICERS OF THE REGISTRANT
All officers were elected to their positions on April 26, 2001 to serve
until the annual meeting on April 25, 2002 and until their successors are duly
elected.
Age at Title and Area of Date Appointed Date of
Officer 12/31/01 Responsibility to Present Position Employment
- ---
Stephen B. Lawson 60 President, Chief Executive Officer and Director 10/08/98 12/06/65
Robert T. Boon 47 Executive Vice President 01/04/01 04/01/85
John S. Burnett 55 Clerk 10/08/98 09/07/71
Robert R. Prall 58 Executive Vice President 01/04/01 06/01/93
Noal D. Reid 57 Chief Financial Officer and Treasurer 10/08/98 10/16/72
Larry K. Squire 54 Executive Vice President 01/04/01 05/17/71
Business Experience During the Past Five Years
Stephen B. Lawson President, Chief Executive Officer, 7/01/92 (Bank)
President, CEO and Director, 10/08/98 (the Company)
Robert T. Boon Chief Trust Officer 10/13/95 (Bank)
Chief Investment Officer, 06/29/98 (Bank)
Executive Vice President, 01/04/01 (Bank)
John S. Burnett Vice President, 12/11/80 (Bank)
Clerk, 10/08/98 (the Company)
Robert R. Prall Sr. V.P., Loan Administration, 6/01/93 (Bank)
Chief Lending Officer, 1/01/97 (Bank)
Executive Vice President, 01/04/01 (Bank)
Noal D. Reid Chief Financial Officer and Treasurer, 9/15/95 (Bank)
Chief Financial Officer and Treasurer, 10/08/98 (the Company)
Chief Financial Officer and Cashier, 9/01/99 (Bank)
Larry K. Squire Chief Operating Officer, 9/15/95 (Bank)
Executive Vice President, 01/04/01 (Bank)
7
Item 2. Properties.
A. Properties owned by the Bank - Banking Offices of Cape Cod Bank and Trust
Company, N.A.:
1) 307 Main Street, Hyannis - Main Office
2) 835 Main Street, Osterville - Branch Office
3) 536 Main Street, Harwichport - Branch Office
4) 1095 Route 28, South Yarmouth - Branch Office
5) 40 Main Street, Orleans - Branch Office
6) Shank Painter Road, Provincetown - Branch Office
7) 121 Main Street, Buzzards Bay - Branch Office
8) 119 Route 6A, Sandwich - Branch Office
9) Route 6A and Underpass Road, Brewster - Branch Office
10) 700 Route 6A, Dennis - Branch Office
11) 397 Palmer Avenue, Falmouth - Branch Office
12) 693 Main Street, Chatham - Branch Office
13) Main Street, Wellfleet - Branch Office
14) 249 Worcester Court, Falmouth - Branch Office
15) 237 Main Street, Wareham - Branch office
16) 495 Station Avenue, South Yarmouth - Branch Office
None of the above offices is subject to any mortgage lien or any other
material encumbrance. The main office is located in Hyannis, Massachusetts, and
is a modern, two-story brick building located on approximately two acres of
land. The Harwichport office and the Buzzards Bay office are somewhat larger
than the remaining offices, having formerly been the main offices of the Cape
Cod Trust Company and the Buzzards Bay National Bank prior to merger. The Bank
also owns a house in Meredith, New Hampshire, one in Orlando, Florida, and one
in Killington, Vermont, which are used as vacation sites by its employees.
B. Rental of Bank Premises of Cape Cod Bank and Trust Company, N.A.: The
land on which the Hyannis Airport Rotary Office is located is leased from the
Barnstable Municipal Airport for $58,173 per year until 2005. The banking office
located in Pocasset on the corner of MacArthur Boulevard and Barlow's Landing
Road is leased from Paul J. Medeiros for $25,000 per year plus taxes and other
expenses under a lease expiring in 2005. A banking office at the intersection of
Route 28 and Camp Opechee Road, Centerville is leased for $59,000 in 2002 with
an increase of $2,500 per year plus taxes and other expenses under a lease
expiring in 2008 with right to renew for an additional ten-year period. The
Route 134, South Dennis branch office is leased from Chamberlain Realty for
$44,000 in 2002 and is adjusted annually with the Consumer Price Index ("CPI").
The lease expires in 2002 with right to renew for up to fifteen years. The
banking office at Skaket Corners, Orleans is leased from Skaket Associates for
$65,550 in 2002; $75,380 in 2003, 2004 and 2005; and $86,690 in 2006 and 2007
plus taxes and other expenses under a lease expiring in 2007. The Bank also
operates a Customer Service Center that is leased from the Davenport Realty
Trust, South Yarmouth for $111,972 per year (adjustable annually with CPI) plus
taxes and other expenses under a lease expiring in 2012. The banking office
located in the Village Green Shopping Center on Brackett Road, North Eastham is
leased from Alan G. Vadnais for $11,040 per year with a 5% increase annually
under a lease expiring in 2002. The Bank also rents a building next door to the
Customer Service Center from Davenport Realty Trust, South Yarmouth for $76,200
in 2002 to 2011 and $19,050 in 2012. In addition, the Bank also rents office
spaces from Stop & Shop for $476,000 per year under a lease expiring in 2005.
The Bank also pays rent of $26,400 for Automated Teller Machines (ATMs) in 2002.
Item 3. Legal Proceedings.
The Company is not involved in any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
8
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The common stock of the Company and, prior to the Reorganization, of the
Bank is quoted on the Nasdaq National Market System under the symbol "CCBT". The
table below shows the high and low trading prices of the stock for each quarter
in the past two years and the dividends declared each quarter. According to the
Company's transfer agent, there were approximately 1,000 stockholders of record
as of February 28, 2002. The number of holders of record does not reflect the
number of persons or entities who or which held their stock in nominee or
"street" name through various brokerage firms or other entities.
2000 2001
----------------------------------------- --------------------------------------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
------- ------- ------- ------- ------- ------- ------- -------
Market price: $15.25 $15.9375 $20 $18.8125 $22.75 $29.99 $30.96 $22.44
High
Low $12.625 $13.125 $15.50 $17 $18.625 $21.16 $23.70 $26
Dividends declared $0.16 $0.16 $0.16 $0.16 $0.18 $0.18 $0.18 $0.18
per share
Item 6. Selected Consolidated Financial Data.
2001 2000 1999 1998 1997
----------
(Dollar amounts in thousands except per share amounts)
Total assets $1,454,667 $1,403,919 $1,231,114 $1,177,530 $973,105
Stockholders' equity 115,316 98,729 85,650 83,542 75,636
Net interest income 53,200 48,345 40,796 37,767 36,907
Provision for loan losses -- -- -- -- --
Non-interest income 22,922 16,211 18,268 17,036 20,174
Non-interest expense 46,058 38,281 32,517 34,196 35,642
Provision for income taxes 10,622 9,101 10,086 8,050 8,190
Net income 19,464 17,229 16,461 12,557 13,249
Book value per share $13.38 $11.47 $9.95 $9.22 $8.35
Basic earnings per share(1) 2.26 2.00 1.85 1.39 1.46
Diluted earnings per share 2.25 2.00 1.85 1.38 1.46
Cash dividends per share .72 .64 .56 .50 .42
Return on average assets 1.32% 1.35% 1.35% 1.15% 1.45%
Return on average stockholders' equity 18.4% 19.3% 19.6% 15.8% 18.7%
Dividend payout ratio 31.86% 32.00% 30.27% 35.97% 28.77%
Equity to assets ratio 7.14% 6.97% 6.89% 7.28% 7.75%
(1) Based on average shares outstanding: 8,613,106 in 2001; 8,608,048 in 2000;
8,876,776 in 1999; 9,061,064 in 1998 and in 1997.
9
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation.
This Form 10-K contains certain statements that may be considered
"forward-looking statements." Forward-looking statements involve known and
unknown risks, uncertainties and other factors, including, but not limited to,
those factors described under the caption "Risk Factors and Factors Affecting
Forward-Looking Statements," that may cause the Company's actual results to
materially differ from those projected in the forward-looking statements. You
should not place undue reliance on our forward-looking statements. For further
information regarding forward-looking statements, you should review the
discussion under the caption "FORWARD LOOKING STATEMENTS" on page 2 of this
report.
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 discussion generally will refer to the investments and
activities of the Company and the Bank, except where otherwise noted.
Cape Cod Bank and Trust Company, N.A. is the largest commercial bank
headquartered on Cape Cod in Barnstable County, Massachusetts. The Bank's
twenty-nine banking offices are principally engaged in accepting deposits from
individuals and businesses, and in making loans. The Bank also has a substantial
Trust Department, managing assets in excess of $677 million at December 31, 2001
on behalf of its clients. 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.
2001 COMPARED WITH 2000
Source and Use of Funds. On average, deposits during 2001 increased from
the prior year by $74,452,000 or 9% with core deposits, consisting of demand,
NOW, money market, and savings accounts, accounting for $49,300,000, of this
increase and time deposits accounting for the remaining $25,152,000. In
contrast, total deposits of $903,391,000 at December 31, 2001 reflect a decrease
of $69,912,000 or 7% when compared to the prior year-end. Core deposits
increased by $50,682,000 or 8% while time deposits decreased by $120,594,000 or
37% from the prior year-end. The decrease in year end balances in time deposits
can be attributed to the maturity of a significant amount of one year
Certificates of Deposit during the year following a special interest rate
offered during 2000 as well as the decrease in the interest rate being offered
on these products. Additional funds were raised through increased borrowings.
Borrowings from the Federal Home Loan Bank increased in 2001, on average, by
$100,877,000 or 34%, compared to the prior year. At December 31, 2001, these
borrowings amounted to $384,314,000, an increase of $93,027,000 or 32% over
year-end 2000.
In addition, CCBT Statutory Trust I, a subsidiary of the Company, issued
$5,000,000 of Trust Preferred Securities during the third quarter of 2001. At
December 31, 2001, total loans including loans held for sale were $892,641,000,
an increase of $43,290,000 or 5.1% when compared to the prior year-end. This
increase was primarily in the Commercial Mortgage portfolio, which increased
$22,398,000 or 9%, as well as Home Equity lines of credit, which increased
$15,959,000 or 43%. Residential Mortgages, including loans held for sale, were
lower at year-end 2001 by $9,582,000 or 2% due to the sale of $168,648,000 of
Residential Mortgages during the year. On average, total loans increased
$139,047,000 or 18.4% over the prior year. Average loan growth was led by
Residential Mortgages, which increased $77,445,000 or 23%. Other loan
categories, which experienced significant average growth include Commercial
Mortgages, up $29,175,000 or 13%, and Commercial Construction loans, up
$17,600,000 or 57%. Home Equity lines of credit were higher, on average, by
$13,362,000 or 432% than the prior year. At December 31, 2001, securities,
including Federal Home Loan Bank and Federal Reserve Bank stock, were up by
$13,039,000 or 3% over the prior year-end. The increase in Other debt securities
of $22,118,000 or 12% was partially offset by declines in collateralized
mortgage obligations and U.S. Government agencies. On average, the increase in
securities was $54,039,000 or 12% with Other securities accounting for
$42,671,000 of this increase, or 20%. Collateralized mortgage obligations were
higher, on average, by $15,144,000 or 8% while U.S. Government agencies declined
by $9,457,000 or 36%.
Net Interest Income. Net interest income was $53,200,000 for the year ended
December 31, 2001 as compared to $48,345,000 for the prior year, an increase of
10%. Lower yields on earning assets were offset by the increased volume of
earning assets as well as lower yields on interest bearing liabilities. The
spread and net interest margin ratios were 3% and 4% respectively, for the year
ended December 31, 2001, compared to 3% and 4%, respectively for the year 2000.
Provision for Loan losses. Recoveries on loans previously charged off
exceeded charge-offs during 2001 by $98,000. Despite overall growth in the loan
portfolio in 2001, management's assessment of the risks in the loan portfolio at
December 31, 2001 as well as the Company's recent loss experience, whereby
recoveries have actually exceeded charge-offs since 1997, resulted in no
provision for loan losses in 2001. The allowance for loan losses was 1.39% and
1.43% of total loans at December 31,2001 and 2000, respectively.
10
Other Income and Expense. Non-interest income increased by $6,712,000 or
41% over the prior year-end. Of this increase, $2,103,000 and $2,867,000,
respectively, can be attributed to net gains on the sale of securities and
loans. Insurance commissions have increased $763,000 compared to the prior year
results, which only included the Agency's revenues from the date of purchase.
However, the increase in insurance commissions can also be attributed to
increased volume as a result of the referral of bank customers to the Agency.
Non-interest expenses totaled $46,058,000 for the year ended December 31,
2001, a $7,778,000 or 20% increase from the comparable 2000 period. Salaries and
employee benefits rose $5,191,000 or 25% with commissions accounting for
$1,397,000 of this increase and salaries, in line with management expectations,
increasing $2,294,000. The increased benefits expense of $1,668,000 is largely
attributable to increases in performance-based compensation programs and
increases in medical and dental insurance costs. Increased expenses in other
categories include amortization of intangibles for acquisitions completed during
the second quarter of 2000, building and equipment expenses for additional
locations and depreciation and amortization related to upgraded computer
equipment and software, and marketing and advertising costs incurred for the
launch of the Company's new logo.
Provision for Income Taxes. For the year ended December 31, 2001, the
provision for income taxes was $10,622,000, an increase of 17% over the prior
year's provision of $9,101,000. These provisions reflect a combined effective
federal and state income tax rate of 35% in 2001 and 2000, respectively.
Net Income. Net income of $19,464,000 for the year ended December 31, 2001
reflects an increase over 2000 results of $2,236,000 or 13%. Basic earnings per
share of $2.26 represents a $.26 increase in 2001 compared to 2000 results.
2000 COMPARED WITH 1999
Source and Use of Funds. At year-end 2000, total deposits of $973,303,000
were $207,239,000, or 27% greater than at the prior year-end. Demand deposits
increased $34,280,000 or 20% and NOW deposits increased $19,145,000 or 16%.
Money Market deposits increased $25,506,000 or 18%, while Other Savings declined
by $14,903,000 or 9%. Significant deposit growth occurred in time deposits with
Certificates of Deposit greater than $100,000 increasing $35,493,000 or 59% and
Other Time Deposits increasing $107,718,000 or 89% from the prior year-end. The
growth in deposits can be attributed to the acquisition of approximately $55
million in deposits from Fleet Bank as well as the offering of a 7.20% APY on a
one year certificate of deposit during the year. Also, during the second quarter
of 2000, the Bank accepted $25 million in brokered deposits, which are included
in Other Time Deposits. On average for the year, total deposits of $863,577,000
exceeded the prior year average by $113,496,000 or 15%. Demand deposits were
higher on average by $22,228,000 or 13% and NOW deposits were higher on average
by $10,808,000 or 9%. Money market deposits were higher on average by $9,154,000
or 6%, while Other Savings were lower by $14,848,000 on average, for a decrease
of 9%. Average Certificates of Deposit greater than $100,000 increased by
$36,907,000 or 93% and average Other Time Deposits increased by $49,247,000 or
41%. During 2000, Securities decreased by $76,068,000 on average or 14%,
however, at year-end Securities were lower by $36,552,000 or 8% when compared to
the prior year-end as the Company's investment options were more favorable
during the fourth quarter of the year.
At year-end 2000, total loans of $848,490,000 were $173,748,000, or 26%
greater than at the prior year-end. Loans secured by real estate accounted for
this growth with Residential Mortgages up $102,852,000 or 35%, Equity Lines of
Credit up $14,342,000 or 62%, and Construction loans up $19,169,000 or 28%.
Additionally, Commercial Real Estate loans increased $38,548,000 or 19%. The
Company made a sizable investment in participation loans during the year, which
contributed $40,052,000 in total to the Commercial Mortgage and Commercial Loan
categories at December 31, 2000. On average for the year, total loans of
$755,451,000 exceeded the prior year average by $125,344,000 or 20%. Residential
Mortgages increased $69,373,000 on average or 26% and Equity Lines of Credit
increased $9,454,000 on average or 44%. Construction loans also contributed to
the growth in average loan balances, increasing $28,030,000 on average or 50%.
Additional funds were utilized by management to reduce Federal Home Loan Bank
borrowings, which decreased by $56,676,000 or 16% from the prior year-end.
Net Interest Income. On average, interest rates were higher in 2000 than
they were in 1999, which increased the yields on the Bank's securities and
loans. The cost of the Bank's deposits and borrowings also increased, but by a
smaller amount. Because of the positive spread between the return on earning
assets and the cost of funds, the Bank's net interest income increased.
Accordingly, net interest income increased by $7,549,000, an increase of 19%.
Provision for Loan losses. Recoveries on loans previously charged off
exceeded charge-offs during 2000. Management determined that additions to the
reserve for loan losses were unnecessary in 2000, notwithstanding the growth in
the loan portfolio. See "Reserve for Loan Losses" below.
Other Income and Expense. Non-interest income increased by $1,438,000 or
10% over the prior year-end results excluding the gain of $3,495,000 in 1999 on
the sale of the Merchant Credit Card portfolio. Increased Financial Advisor
(Trust) and Electronic Banking fees as well as the addition of revenues from
insurance activities contributed to
11
this increase. Operating expenses increased $5,764,000 or 18% over 1999.
Salaries and benefits, the largest combined category of expense, accounted for
$2.8 million of this increase. Increased expenses in other categories include
one time conversion expenses of new branches, amortization of intangibles
resulting from acquisitions and increased marketing and advertising costs to
support the Company's entrance into new markets.
Provision for Income Taxes. As a result of lower pretax income, the
provision for income taxes decreased by 10%.
Net Income. As a result of the foregoing factors, net income for 2000 was
$17,228,749, an increase of 5% from the previous year.
MATURITY STRUCTURE OF ASSETS AND LIABILITIES
AND SENSITIVITY TO CHANGES IN INTEREST RATES
Fixed Rate Securities
-----------------------------------------------------------------
U.S. Government State and Other
Agencies Municipal Securities
------------------- ---------------------- ---------------------
Weighted Weighted Weighted
Adjusted Average Adjusted Average Adjusted Average
Cost Yield Cost Yield Cost Yield
---- ----- ---- ----- ---- -----
Term to maturity: (Dollar amounts in thousands)
One year or less $60,852 4.42% $18,639 2.81% $142,703 6.70%
Over one year through five years 15,295 5.41% 4,525 4.64% 18,043 6.43%
Over five years 46 6.66% 950 4.83% 1,224 5.11%
------- ------- --------
Totals $76,193 4.62% $24,114 3.23% $161,970 6.66%
======= ======= ========
Included in fixed rate debt securities are $240,534,000 of collateralized
mortgage obligations, mortgage-backed securities, and other debt securities.
These have been distributed based on estimates of their principal cash flows
rather than their contractual final maturities. The balance, largely fixed rate
municipal securities, are distributed on the basis of contractual maturity.
Floating Rate Securities
-----------------------------------------------------------------
U.S. Government State and Other
Agencies Municipal Securities
------------------- ---------------------- ---------------------
Weighted Weighted Weighted
Adjusted Average Adjusted Average Adjusted Average
Cost Yield Cost Yield Cost Yield
---- ----- ---- ----- ---- -----
(Dollar amounts in thousands)
Term to repricing/maturity:
One year or less $44,103 3.74% -- -- $127,124 3.54%
Over one year through five years -- -- -- -- -- --
Over five years -- -- --
-- -- --
------- ------- --------
Totals $44,103 3.74% -- -- $127,124 3.54%
======= ======= ========
The Company's investment securities are subject to market risk in the
following ways. $171,227,000 of the investment securities owned as of December
31, 2001 are floating rate instruments tied to various indices, primarily LIBOR.
Lesser amounts are tied to Treasury rates and other indices. The majority of
these floating rate instruments are subject to interest rate caps that range
from 8% to 24%. If interest rates rise enough so that there is a significant
possibility that a given security will become subject to its interest rate cap,
the market value of that security will be reduced. This risk is greater to the
extent that the remaining life of the investment is longer. The Company's
floating rate investments have an average life of about two years. Market risk
may also result from the fact that various indices will not always move by the
same amount when interest rates increase. This may cause securities tied to one
index to perform
12
less well than securities tied to other indices. Most of the remaining
$262,277,000 of securities are fixed-rate collateralized mortgage obligations
("CMOs"), mortgage backed securities and other debt securities. Fixed-rate
investments have market risk because their rate of return does not change at all
with the general level of interest rates. Because homeowners are less likely to
refinance their mortgages at higher rates, an additional characteristic of CMOs
and mortgage-backed securities is that their principal payments tend to slow
when interest rates rise. If the fixed rate earned on the investment is lower
than the new market rate, this can result in a decline in the value of these
securities. Almost all of the Company's fixed-rate CMOs have very short average
lives and have interest rates above current market levels, which reduces the
market risk of these securities. The average life of the Company's fixed-rate
investments is less than two years.
Fixed Rate Loans
----------------
Commercial Construction Other
Loans Loans Loans
----- ----- -----
(Dollar amounts in thousands)
Term to maturity:
One year or less $7,668 $33,702 $25,483
Over one year through five years 7,648 19,208 122,545
Over five years 3,550 2,017 23,642
------- ------- --------
Totals $18,866 $54,927 $171,670
======= ======= ========
Included in fixed rate loans maturing in one year or less are $1,414,000 of
customer account overdrafts.
Floating Rate Loans
-------------------
Commercial Construction Other
Loans Loans Loans
----- ----- -----
(Dollar amounts in thousands)
Term to repricing/maturity:
One year or less $66,081 $40,259 $342,799
Over one year through five years -- -- 189,665
Over five years -- -- 24
------- ------- --------
Totals $66,081 $40,259 $532,488
======= ======= ========
Most residential mortgage loans are adjustable rate mortgages subject to
interest rate caps.
The remaining maturity of time certificates of deposit as of December 31, 2001
was as follows:
Fixed Rate
-----------------------
Certificates of Deposit
$100,000 or more Less than $100,000
---------------- ------------------
(Dollar amounts in thousands)
Remaining maturity:
Three months or less $33,104 $ 53,877
Over three months through six months 10,204 42,328
Over six months through 12 months 5,163 35,108
Over one year through five years 4,652 19,884
Over five years -- --
------- --------
Totals $53,123 $151,197
======= ========
Other deposits may be withdrawn by the customer without notice or penalty.
The rates paid thereon are reviewed each month and changed at the Company's
option as often as indicated by changing market conditions.
Generally, the Company's strategy is to price deposits that reflect market
rates, offering higher alternative rates based on increasing amounts deposited.
Interest rates paid are frequently reviewed and are modified to reflect changing
conditions.
13
The remaining maturity of borrowings from the Federal Home Loan Bank as of
December 31, 2001 was as follows:
Fixed Rate
-----------------------------
FHLB Borrowings
-----------------------------
Remaining maturity: (Dollar amounts in thousands)
Three months or less $207,000
Over three months through six months 2,065
Over six months through 12 months 10,000
Over one year through five years 146,571
Over five years 18,678
--------
Totals $384,314
========
Rates paid on other interest-bearing liabilities change daily.
Loans
The following is a summary of loans outstanding as of the dates indicated:
December 31,
-------------------------------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
(Dollar amounts in thousands)
Commercial loans $84,947 $76,275 $ 77,776 $70,767 $72,190
Construction mortgage loans 95,186 87,978 68,809 47,940 34,798
Commercial mortgage loans 264,934 242,536 203,988 207,860 198,944
Industrial revenue bonds 1,163 1,603 1,137 1,344 1,883
Residential mortgage loans 429,840 430,951 313,757 254,320 203,462
Consumer loans 8,221 9,147 9,275 11,589 15,903
-------- -------- -------- -------- --------
Total loans $884,291 $848,490 $674,742 $593,820 $527,180
======== ======== ======== ======== ========
Allowance for Loan Losses
The allowance for loan losses is an estimate of the amount necessary to
absorb probable losses in the loan portfolio. The allowance consists of
specific, general and unallocated components. Commercial real estate and
commercial business loans are evaluated individually for allowance purposes.
Other categories of loans are generally evaluated as a group. The specific
component relates to loans that are classified as doubtful, substandard or
special mention. Loans classified as doubtful are considered impaired in
accordance with SFAS No. 114, and an allowance is determined using a discounted
cash flow calculation. Loss factors for substandard loans are based on a loss
migration database, while loss factors for all other categories of loans are
based on the Company's historical loss experience with similar loans of similar
quality as determined by the Company's internal rating system. Loss factors are
then adjusted for additional points that consider qualitative factors such as
current economic trends (both local and national), concentrations, growth and
performance trends, and the results of risk management assessments. Accordingly,
increases or decreases in the amount of each loan category as well as the
ratings of the loans within each category are considered in calculating the
overall allowance. The allowance is an estimate, and ultimate losses may vary
from current estimates. As adjustments become necessary, they are reported in
earnings of the periods in which they become known.
In addition, the Company's allowance for loan losses is periodically
reviewed by the OCC as part of their examination process. The OCC may require
the Company to make additions to the allowance based upon judgments different
from those of management.
14
Non-performing Assets and Loan Loss Experience
Non-performing assets as of December 31 were as follows:
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
(Dollar amounts in thousands)
Nonaccrual loans $1,802 $2,192 $1,777 $7,468 $2,770
Loans past due 90 days or more and still accruing -- -- -- -- --
Property from defaulted loans 1,500 1,500 1,500 -- 621
------ ------ ------ ------ ------
Total non-performing assets $3,302 $3,692 $3,277 $7,468 $3,391
====== ====== ====== ====== ======
Restructured troubled debt performing in
accordance with amended terms, not included above $ 224 $ 237 $ 626 $ 478 $1,131
====== ====== ====== ====== ======
Accrual of interest income on loans is discontinued when it is questionable
whether the borrower will be able to pay principal and interest in full and/or
when loan payments are 60 days past due unless the loan is fully secured by real
estate or other collateral and in the process of collection.
Loans are classified "substandard" when they are not adequately protected
by the current sound worth and paying capacity of the debtor or of the
collateral. At December 31, 2001, $14,182,000 of loans were included in this
category, in addition to loans reported above. The Company's loan classification
system also includes a category for loans that are monitored for possible
deterioration in credit quality. At December 31, 2001, $2,323,000 of loans were
included in this category. In addition, it is possible that there may be losses
on other loans that have not been specifically identified.
The changes in the reserve for loan losses during the five years ended December
31 were as follows:
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
(Dollar amounts in thousands)
Balance, beginning of year $12,154 $11,158 $11,108 $10,962 $11,417
Provision for loan losses -- -- -- -- --
Charge-offs:
Commercial loans (275) (108) (347) (353) (400)
Construction mortgage loans -- -- -- -- --
Commercial mortgage loans -- -- (186) (86) (69)
Industrial revenue bonds -- -- -- -- --
Residential mortgage loans -- -- -- (1) (119)
Consumer loans (71) (60) (77) (166) (749)
Recoveries on loans previously charged off:
Commercial loans 321 826 351 475 653
Construction mortgage loans 84 89 60 47 --
Commercial mortgage loans 6 216 190 174 120
Industrial revenue bonds -- -- -- -- --
Residential mortgage loans -- 10 -- 23 8
Consumer loans 33 23 59 33 101
------- ------- ------- ------- -------
Balance, end of year $12,252 $12,154 $11,158 $11,108 $10,962
======= ======= ======= ======= =======
15
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
(Dollar amounts in thousands)
Allocation of ending balance:
Commercial loans $ 2,219 $ 1,502 $ 1,457 $1,578 $1,676
Construction mortgage loans 787 802 755 705 521
Commercial mortgage loans 5,903 5,838 5,681 5,822 6,587
Industrial revenue bonds 14 16 20 23 28
Residential mortgage loans 2,335 3,361 2,725 2,460 1,610
Consumer loans 994 635 520 520 540
------- ------- ------- ------- -------
Balance, end of year $12,252 $12,154 $11,158 $11,108 $10,962
======= ======= ======= ======= =======
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Ratio of net charge-offs (recoveries) -- (0.13)% (0.01)% (0.03)% 0.09%
to average loans outstanding
Recoveries on loans previously charged off exceeded charge-offs therefore
management determined that additions to the reserve for loan losses were
unnecessary in 2001, notwithstanding the growth in the loan portfolio. The
reserve represented 1.39% of total loans at December 31, 2001, 1.43% of total
loans at December 31, 2000 and 1.65% at December 31, 1999. Although management
believes that upon review of loan quality and payment statistics, the reserve is
adequate to cover losses likely to result from loans in the current portfolio at
December 31, 2001, there can be no assurance that the reserve is adequate or
that additional provisions might not become necessary.
Liquidity
The Company normally experiences a wide swing in its liquidity each year as
a result of the seasonal nature of the economy in its market area. Liquidity is
usually at its high in late summer and early fall and the annual low point is
usually in the spring.
With the exception of the year ended December 31, 1999, substantially all
of the amount shown as cash and due from banks at year end is made up of checks
and similar items in the process of collection or was needed to satisfy a
requirement to maintain a portion of deposits in an account at the Federal
Reserve. Accordingly, it does not represent a source of liquidity. At year end
December 31, 1999, however, a portion of cash and due from banks was accumulated
to honor potential customer demands arising from Year 2000 concerns. The Company
did not experience these potential customer demands.
In general, investment securities could also be sold if necessary to meet
liquidity needs. In that event, a gain or loss would be realized if the market
value of the securities sold was not equal to their cost, adjusted for the
amortization of premium or accretion of discount. The Bank can also borrow funds
using investment securities as collateral, and it has a line of credit of
$5,000,000 from the Federal Home Loan Bank of Boston. The Bank has also
established a line of credit of $7,000,000 for the purchase of federal funds
from SunTrust Bank and may also borrow from the Federal Reserve if necessary.
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY;
AVERAGE INTEREST RATES AND INTEREST SPREAD
The average amount outstanding for certain categories of interest-earning
assets and interest-bearing liabilities, the interest income or expense and the
average yields earned or rates paid thereon, are summarized in the following
table for the three years ended December 31, 2001. Nonaccrual loan balances have
been included in their respective loan categories, which reduces the calculated
yields. A portion of the income reported in certain of the asset categories is
not subject to federal income tax, making it relatively more valuable. The
computed yields shown have not been adjusted for taxable equivalency. As an
indication of the amount of change in the general level of interest rates
between years, the average rate on overnight federal funds traded among banks
was 3.88%, 6.26% and 4.97% during 2001, 2000 and 1999, respectively.
16
Net Interest Income, Net Interest Margin
Years ended December 31,
2001 2000 1999
--------------------------- --------------------------- ---------------------------
Average Average Average Average Average Average
Balance Interest Yield Balance Interest Yield Balance Interest Yield
------- -------- ----- ------- -------- ----- ------- -------- -----
(Dollar amounts in thousands)
ASSETS
Securities:
Mortgage-backed securities $ 29,253 $ 1,868 6.38% $27,465 $ 2,173 7.91% $60,641 $ 3,394 5.60%
CMOs 194,463 11,948 6.14% 179,319 13,189 7.36% 226,971 12,069 5.32%
U.S. Government agencies 16,905 869 5.14% 26,362 1,775 6.73% 26,610 1,400 5.26%
State and municipal obligations 23,571 948 5.23% 19,678 921 4.68% 21,643 822 3.80%
Other securities 252,251 14,689 5.82% 209,580 14,621 6.97% 202,607 12,215 6.03%
------- ------ ------- ------ ------- ------
Total securities 516,443 30,322 5.93% 462,404 32,679 7.07% 538,472 29,900 5.55%
------- ------ ------- ------ ------- ------
Loans:
Commercial 83,973 6,692 7.97% 77,352 7,529 9.73% 73,487 6,650 9.05%
Commercial construction 48,461 3,529 7.28% 30,861 2,899 9.39% 14,937 1,342 8.98%
Residential construction 48,513 3,038 6.26% 52,789 3,316 6.28% 40,683 2,388 5.87%
Commercial mortgages 248,865 22,064 8.87% 219,690 20,298 9.24% 204,275 18,139 8.88%
Industrial revenue bonds 1,324 91 9.65% 1,382 114 8.25% 1,278 98 7.67%
Residential mortgages 410,753 27,913 6.80% 333,308 23,199 6.96% 263,935 17,672 6.70%
Home equity 44,296 3,245 7.33% 30,934 3,001 9.70% 21,480 1,876 8.73%
Consumer 8,313 861 10.36% 9,135 934 10.22% 10,032 1,042 10.39%
------- ------ ------- ------ ------- ------
Total loans 894,498 67,433 7.54% 755,451 61,290 8.11% 630,107 49,207 7.81%
------- ------ ------- ------ ------- ------
Total earning assets 1,410,941 97,755 6.97% 1,217,855 93,969 7.72% 1,168,579 79,107 6.77%
------ ------ ------
Non-earning assets 67,263 61,027 52,179
--------- --------- ---------
Total assets $1,478,204 $1,278,882 $1,220,758
========== ========== ==========
LIABILITIES & STOCKHOLDERS' EQUITY
Interest bearing deposits:
NOW accounts $ 139,485 745 0.53% $ 124,663 928 0.74% $113,855 936 0.82%
Regular savings 146,656 3,247 2.21% 148,790 4,639 3.12% 163,638 4,755 2.91%
Money Market accounts 173,675 4,828 2.78% 154,187 5,748 3.73% 145,033 4,484 3.09%
Certificates of Deposit of
$100,000 or more 86,255 4,708 5.46% 76,672 5,682 7.41% 39,765 2,021 5.08%
Other time deposits 183,887 10,024 5.45% 168,318 9,127 5.42% 119,071 5,832 4.90%
------- ------ ------- ----- ------- -----
Total interest bearing deposits 729,958 23,552 3.23% 672,630 26,124 3.88% 581,362 18,028 3.10%
------- ------ ------- ----- ------- -----
Borrowings:
Federal Home Loan Bank 394,827 20,090 5.09% 293,950 18,098 6.16% 356,276 19,405 5.45%
Other short-term borrowings 30,854 913 2.96% 25,579 1,402 5.48% 20,898 878 4.20%
------- ------ ------- ----- ------- -----
Total borrowings 425,681 21,003 4.93% 319,529 19,500 6.10% 377,174 20,283 5.38%
------- ------ ------- ----- ------- -----
Total interest-bearing 1,155,639 44,555 3.86% 992,159 45,624 4.60% 958,536 38,311 4.00%
------ ----- -----
liabilities
Demand deposits 208,071 190,947 168,719
Non-interest bearing liabilities 8,878 6,614 9,348
Stockholders' equity 105,616 89,162 84,155
---------- ---------- ----------
Total liabilities & equity $1,478,204 $1,278,882 $1,220,758
========== ========== ==========
Net interest income/spread $53,200 3.11% $48,345 3.12% $40,796 2.77%
======= ======= =======
Net interest margin (NII/Avg. Earning Assets) 3.77% 3.97% 3.49%
17
CHANGES IN NET INTEREST INCOME DUE TO
CHANGES IN VOLUME AND RATE
The effect on net interest income from changes in interest rates and in the
amounts of interest-earning assets and interest-bearing liabilities is
summarized in the following table. These amounts were calculated directly from
the amounts included in the preceding table. The amount allocated to change in
volume was calculated by multiplying the change in volume by the average of the
interest rates earned or paid in the two periods. The amount allocated to change
in rate was calculated by multiplying the change in rate by the average volume
over the two periods. In 2001, declining rates had a negative impact on net
interest income. However, the growth in earning assets exceeded the growth in
interest bearing liabilities resulting in an increase in net interest income
when compared to 2000. In 2000, higher interest rates increased interest income
more than interest expense because the Company had more earning assets than
interest-bearing liabilities and the rates paid on many types of deposits were
not increased by as much as investment rates increased. Repayments of Federal
Home Loan Bank borrowings by the Company also contributed to reduced interest
expense.
2001 compared to 2000 2000 compared to 1999
----------------------------- ---------------------------------
Change Due to Increase Change Due to Increase
(Decrease) (Decrease)
----------------------------- ---------------------------------
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
(Dollar amounts in thousands)
EARNING ASSETS
Securities:
Mortgage-backed securities $ 128 $ (433) $ (305) $(2,211) $ 990 $(1,221)
CMOs 1,022 (2,263) (1,241) (2,894) 4,014 1,120
U.S. Government agencies (561) (345) (906) 3 372 375
State & municipal obligations 193 (166) 27 (84) 183 99
Other securities 2,729 (2,661) 68 517 1,889 2,406
----- ------ ------ ------ ----- -----
Total securities 3,511 (5,868) (2,357) (4,669) 7,448 2,779
----- ------ ------ ------ ----- -----
Loans:
Commercial 586 (1,423) (837) 363 516 879
Commercial construction 1,467 (837) 630 1,463 94 1,557
Residential construction (268) (10) (278) 736 192 928
Commercial mortgages 2,642 (876) 1,766 1,397 762 2,159
Industrial revenue bonds (5) (18) (23) 8 8 16
Residential mortgages 5,328 (614) 4,714 4,736 791 5,527
Home equity 1,138 (894) 244 871 254 1,125
Consumer (85) 12 (73) (93) (15) (108)
----- ------ ------ ------ ----- -----
Total loans 10,803 (4,660) 6,143 9,481 2,602 12,083
----- ------ ------ ------ ----- -----
Total earning assets 14,314 (10,528) 3,786 4,812 10,050 14,862
----- ------ ------ ------ ----- -----
INTEREST BEARING LIABILITIES
Interest bearing deposits:
NOW accounts 94 (277) (183) 85 (93) (8)
Regular savings (57) (1,335) (1,392) (447) 331 (116)
Money Market accounts 634 (1,554) (920) 312 952 1,264
Certificates of deposit 617 (1,591) (974) 2,306 1,355 3,661
of $100,000 or more
Other time deposits 846 51 897 2,541 754 3,295
----- ------ ------ ------ ----- -----
Total interest bearing deposits 2,134 (4,706) (2,572) 4,797 3,299 8,096
----- ------ ------ ------ ----- -----
Borrowings:
Federal Home Loan Bank 5,644 (3,652) 1,992 (3,616) 2,309 (1,307)
Other short-term borrowings 223 (712) (489) 227 297 524
----- ------ ------ ------ ----- -----
Total borrowings 5,867 (4,364) 1,503 (3,389) 2,606 (783)
----- ------ ------ ------ ----- -----
Total interest bearing 8,001 (9,070) (1,069) 1,408 5,905 7,313
----- ------ ------ ------ ----- -----
liabilities
Net changes due to volume/rate $ 6,313 $ (1,458) $ 4,855 $ 3,404 $ 4,145 $ 7,549
======= ======== ======= ======= ======= =======
18
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Market risk is the risk of loss from adverse changes in market prices. In
particular, the market prices of interest-earning assets may be affected by
changes in interest rates. Since net interest income (the difference or spread
between the interest earned on loans and investments and the interest paid on
deposits and borrowings) is the Company's primary source of revenue, interest
rate risk is the most significant non-credit related market risk to which the
Company is exposed. Net interest income is affected by changes in interest rates
as well as fluctuations in the level and duration of the Company's assets and
liabilities.
Interest rate risk is the exposure of net interest income to adverse
movements in interest rates. In addition to directly impacting net interest
income, changes in interest rates can also affect the amount of new loan
originations, the ability of borrowers to repay variable rate loans, the volume
of loan prepayments and refinancings, the carrying value of investment
securities classified as available for sale and the flow and mix of deposits.
The Company's Asset/Liability Management Committee, comprised of several
Directors with senior management, is responsible for managing interest rate risk
in accordance with policies approved by the Board of Directors regarding
acceptable levels of interest rate risk, liquidity and capital. The Committee
meets monthly and sets the rates paid on deposits, approves loan pricing and
reviews investment transactions.
The Company is subject to interest rate risk in the event that rates either
increase or decrease. In the event that interest rates increase, the value of
net assets (the liquidation value of stockholders' equity) would decline. At
December 31, 2001, it is estimated that an increase in interest rates of 200
basis points (for example, an increase in the prime rate from 4.5% to 6.5%)
would reduce the value of net assets by $19,420,000. On the other hand, if
interest rates were to decrease, the value of net assets would increase.
Although the value of net assets is subject to risk if interest rates rise
(but not if rates fall) the opposite is true of the Company's earnings. If
interest rates were to increase, net interest income would increase because the
Company has more interest-earning assets than it has interest-bearing
liabilities and because much of this excess amount reprices within a short
period of time. As a result, net interest income is instead subject to the risk
of a decline in rates. Not only are there fewer interest-bearing liabilities to
reprice, but many of these liabilities could not reprice much lower because the
rates paid on them are already low. Accordingly, if interest rates were to
decrease by 200 basis points (for example, a decrease in the prime rate from
4.5% to 2.5%) it is estimated that net interest income would decrease by
$6,014,000. On the other hand, if interest rates were to increase, net interest
income would increase.
At December 31, 2000, it was estimated that the value of the net assets of
the Company would decline by $20,407,000 if interest rates were to increase by
200 basis points and that the Company's net interest income would decline by
$4,261,000 if interest rates were to decline by 200 basis points. The
year-to-year change in these estimates is a result of a lengthening of the
duration of the net assets of the Company.
Item 8. Financial Statements and Supplementary Data.
FINANCIAL STATEMENTS INDEX
o Independent Auditors' Reports
o Consolidated Statements of Condition at December 31, 2001, 2000 and 1999
o Consolidated Statements of Income for the Three Years Ended December 31,
2001
o Consolidated Statements of Cash Flows for the Three Years Ended December
31, 2001
o Consolidated Statements of Comprehensive Income for the Three Years Ended
December 31, 2001
o Consolidated Statements of Changes in Stockholders' Equity for the Three
Years Ended December 31, 2001
o Notes to Consolidated Financial Statements
19
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of
CCBT Financial Companies, Inc.
We have audited the accompanying consolidated statement of condition of
CCBT Financial Companies, Inc. and subsidiaries as of December 31, 2001, and the
related consolidated statements of income, cash flows, comprehensive income and
changes in stockholders' equity, for the year then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CCBT
Financial Companies, Inc. and subsidiaries as of December 31, 2001, and the
results of their operations and their cash flows for the year then ended, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Wolf & Company, P.C.
- ------------------------
Boston, Massachusetts
February 1, 2002
20
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
CCBT Financial Companies, Inc.
We have audited the consolidated statements of condition of CCBT Financial
Companies, Inc. as of December 31, 2000 and 1999, and the related consolidated
statements of income, cash flows, comprehensive income and changes in
stockholders' equity, for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of CCBT Financial
Companies, Inc. as of December 31, 2000 and 1999, and the consolidated results
of its operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.
/s/ Grant Thornton LLP
- ----------------------
Boston, Massachusetts
February 9, 2001
21
CONSOLIDATED STATEMENTS OF CONDITION
December 31,
-----------------------------------------------------
ASSETS 2001 2000 1999
------------- --------------- ----------------
Cash and due from banks $ 51,204,747 $ 49,371,492 $ 43,415,100
Short term interest-bearing deposits 10,857,540 16,843,538 2,207,328
Securities available for sale at fair value 438,349,833 426,742,801 463,379,414
Federal Home Loan Bank stock, at cost 23,502,600 22,125,400 22,125,400
Federal Reserve Bank stock, at cost 1,235,050 1,180,700 1,096,700
Total loans 884,291,338 848,490,319 674,742,548
Less: Allowance for loan losses (12,251,907) (12,153,944) (11,158,126)
------------- --------------- ----------------
Net loans 872,039,431 836,336,375 663,584,422
------------- --------------- ----------------
Loans held for sale 8,349,342 860,840 200,000
Premises and equipment 18,496,280 16,633,912 12,396,729
Deferred tax assets 2,619,189 4,512,589 4,657,933
Accrued interest receivable on securities 2,632,117 3,353,580 2,850,366
Interest receivable on loans 3,736,071 4,331,987 3,156,914
Intangibles 7,972,088 9,555,425 --
Other assets 13,672,642 12,070,707 12,044,040
-------------- --------------- ----------------
Total assets $1,454,666,930 $1,403,919,346 $1,231,114,346
============== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 903,390,528 $ 973,302,664 $ 766,063,617
Borrowings from the Federal Home Loan Bank 384,314,318 291,286,797 347,962,999
Other short-term borrowings 30,735,238 24,520,157 19,345,885
Subordinated debt 5,000,000 -- --
Current taxes payable 2,064,060 2,267,117 1,721,187
Interest payable on deposits and borrowings 2,410,159 4,206,555 3,061,932
Post retirement benefits payable 3,293,458 2,881,892 2,501,480
Employee profit sharing retirement and bonuses payable 4,214,186 2,946,642 2,396,542
Other liabilities 3,925,378 3,654,309 2,411,093
------------- ------------- -------------
Total liabilities 1,339,347,325 1,305,066,133 1,145,464,735
------------- ------------- -------------
Minority interest 3,602 124,435 --
------------- ------------- -------------
Commitments and contingencies (Notes 5 and 12)
Stockholders' equity
Common stock, $1.00 par value:
Authorized: 12,000,000 shares
Issued: 9,061,064 9,061,064 9,061,064 9,061,064
Surplus 27,473,395 27,494,890 27,494,890
Undivided profits 83,156,834 69,896,759 58,181,480
Treasury stock, at cost (440,641 shares in 2001)
(453,016 shares in 2000 and 1999) (7,197,493) (7,399,628) (7,399,628)
Accumulated other comprehensive income (loss) 2,822,203 (324,307) (1,688,195)
----------- ---------- ----------
Total stockholders' equity 115,316,003 98,728,778 85,649,611
----------- ---------- ----------
Total liabilities and stockholders' equity $1,454,666,930 $1,403,919,346 $1,231,114,346
============== ============== ==============
The accompanying notes are an integral part of these financial statements.
22
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31,
--------------------------------
2001 2000 1999
---- ---- ----
INTEREST & DIVIDEND INCOME
Interest and fees on loans $67,433,306 $61,289,410 $49,206,774
Interest on short term interest-bearing deposits 509,594 934,679 675,357
Interest on federal funds sold 3,909 107,610 --
Taxable interest income on securities 27,488,845 28,996,374 26,993,403
Tax-exempt interest income on securities 934,219 910,454 775,355
Dividends on securities 1,384,945 1,730,510 1,456,359
---------- ---------- ----------
Total interest & dividend income 97,754,818 93,969,037 79,107,248
---------- ---------- ----------
INTEREST EXPENSE
Interest on deposits 23,552,091 26,123,306 18,028,054
Interest on borrowings from the Federal Home Loan Bank 20,089,588 18,097,810 19,405,176
Interest on other short-term borrowings 765,525 1,402,676 877,907
Interest on subordinated debt 147,975 -- --
---------- ---------- ----------
Total interest expense 44,555,179 45,623,792 38,311,137
---------- ---------- ----------
Net interest income 53,199,639 48,345,245 40,796,111
Provision for loan losses -- -- --
---------- ---------- ----------
Net interest income after provision for loan losses 53,199,639 48,345,245 40,796,111
---------- ---------- ----------
NON-INTEREST INCOME
Financial advisor fees 6,909,406 6,433,397 5,957,566
Deposit account service charges 2,129,856 1,967,843 1,915,777
Branch banking fees 3,110,268 3,073,595 3,049,663
Electronic banking fees 1,749,624 1,705,453 1,829,980
Loan servicing and other loan fees 59,342 232,815 167,504
Brokerage fees and commissions 1,311,197 1,032,582 1,041,553
Net gain on sales of securities 2,187,219 84,602 234,301
Net gain on sales of loans 2,955,530 88,063 219,587
Insurance commissions 1,573,101 809,931 --
Gain on sale of credit card merchant portfolio 248,166 296,001 3,494,733
Other income 688,449 486,271 356,875
---------- ---------- ----------
Total non-interest income 22,922,158 16,210,553 18,267,539
---------- ---------- ----------
NON-INTEREST EXPENSE
Salaries 17,653,413 14,399,574 12,381,649
Employee benefits 8,164,248 6,227,247 5,454,900
Building and equipment 5,434,329 4,889,482 4,340,295
Data processing 2,987,162 2,721,222 2,793,269
Accounting and legal fees 954,684 771,361 891,402
Other outside services 2,407,688 2,217,641 1,966,130
Amortization of intangibles 1,583,333 851,443 --
Delivery and communications 1,898,007 1,564,002 1,376,039
Directors' fees 278,971 280,125 294,691
Marketing and advertising 1,774,334 1,252,521 906,818
Printing and supplies 872,002 781,718 753,762
Insurance 473,146 376,081 285,681
Branch conversion expenses -- 283,218 --
All other expenses 1,576,940 1,664,972 1,071,531
---------- ---------- ----------
Total non-interest expense 46,058,257 38,280,607 32,516,167
---------- ---------- ----------
Minority interest (23,299) (54,504) --
---------- ---------- ----------
Net income before taxes 30,086,839 26,329,695 26,547,483
Applicable income taxes 10,622,422 9,100,946 10,086,390
---------- ---------- ----------
Net income $19,464,417 $17,228,749 $16,461,093
=========== =========== ===========
Average shares outstanding - basic 8,613,106 8,608,048 8,876,776
Basic earnings per share $2.26 $2.00 $1.85
Diluted earnings per share $2.25 $2.00 $1.85
$ .72 $ .64 $ .56
The accompanying notes are an integral part of these financial statements
23
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
--------------------------------
2001 2000 1999
---- ---- ----
CASH PROVIDED BY OPERATING ACTIVITIES
Net income $ 19,464,417 $ 17,228,749 $ 16,461,093
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,283,720 3,226,343 2,139,147
Net (accretion) amortization of securities (5,610,231) 4,891,652 3,020,243
Amortization of net deferred loan costs 1,308,577 744,250 595,459
Net gain on sales of securities (2,187,219) (84,602) (234,301)
Deferred income tax (benefit) expense (369,967) (622,294) 1,998,127
Net gain on sale of loans (2,955,530) (88,063) (219,587)
Net loss on disposal of premises and equipment -- 57,155 --
Gain on sale of credit card merchant portfolio (248,166) (296,001) (3,494,733)
Net change in:
Proceeds from sales (originations) of loans held for sale, net (5,709,420) (660,840) 17,940,522
Accrued interest receivable (1,317,379) (1,619,663) 1,657,531
Accrued expenses and other liabilities 153,782 3,008,301 2,648,346
Other, net (1,287,972) 136,932 5,398,311
---------------- -------------- --------------
Net cash provided by operating activities 5,524,612 25,921,919 47,910,158
---------------- -------------- --------------
CASH USED BY INVESTING ACTIVITIES
Net increase in loans (86,431,069) (177,021,763) (164,453,508)
Proceeds from sale of portfolio loans 52,840,954 12,188,480 85,294,654
Dispositions of property from defaulted loans -- 70,000 115,000
Maturities of available-for-sale securities 514,544,235 248,979,523 496,592,930
Purchase of available-for-sale securities (656,605,300) (312,851,725) (563,093,625)
Sales of available-for-sale securities 143,661,360 97,908,163 82,270,203
Purchases of premises and equipment (4,562,749) (4,199,951) (2,386,550)
Purchase of Federal Home Loan Bank stock (1,377,200) -- --
Purchase of Federal Reserve Bank stock (54,350) (84,000) (1,096,700)
Sale of premises and equipment -- 50,000 --
Acquisition of banking offices -- 35,874,054 --
Acquisition of 51% of Murray & MacDonald
Insurance Services, Inc.
-- (1,199,094) --
---------------- -------------- --------------
Net cash used by investing activities (37,984,119) (100,286,313) (66,757,596)
---------------- -------------- --------------
CASH PROVIDED BY FINANCING ACTIVITIES
Net (decrease) increase in deposits (69,912,136) 151,972,396 38,166,642
Advances of borrowings from the Federal Home Loan Bank 1,855,224,404 2,001,323,981 1,062,525,072
Repayments of borrowings from the Federal Home Loan Bank (1,762,196,883) (2,058,000,183) (1,058,068,756)
Net increase in other short-term borrowings 6,215,081 5,174,272 4,739,563
Proceeds from issuance of subordinated debt 5,000,000 -- --
Purchase of treasury stock -- -- (7,399,628)
Issuance of common stock under stock option plan 180,640 -- --
Cash dividends paid on common stock (6,204,342) (5,513,470) (4,983,742)
---------------- -------------- --------------
Net cash provided by financing activities 28,306,764 94,956,996 34,979,151
---------------- -------------- --------------
Net increase (decrease) in cash and cash equivalents (4,152,743) 20,592,602 16,131,713
Cash and cash equivalents at beginning of year 66,215,030 45,622,428 29,490,715
---------------- -------------- --------------
Cash and cash equivalents at end of year $ 62,062,287 $ 66,215,030 $ 45,622,428
=============== =============== ===============
SUPP