Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the Quarter ended September 30, 2002
Commission file number: 0-17482
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the transition period from ____ to _____
County Bank Corp
Michigan EIN 38-0746329
83 W. Nepessing St., Lapeer, MI 48446
(810) 664-2977
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.
Yes X No
--- ---
Indicate the number of shares outstanding as of each of the issuer's classes of
common stock, as of the latest practicable date.
There are 1,186,472 shares of common stock outstanding as of September 30, 2002.
COUNTY BANK CORP
FORM 10-Q
For the Quarter ended September 30, 2002
PART I: FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Balance Sheets-
At September 30, 2002 and December 31, 2001 4
Statements of Income-
For the three months and nine months ended September 30, 2002 and 2001 5
Statement of Cash Flows
For the nine months ended September 30, 2002 and 2001 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and the Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk 9
Item 4. Controls and Procedures 10
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 6. Exhibits and Reports of Form 8-K 10
All items except those set forth above are inapplicable and have been omitted.
SIGNATURES AND CERTIFICATIONS 11
This report includes forward-looking statements within the meaning of section
27a of the Securities Act of 1933, as amended, which involve inherent risks and
uncertainties. A number of important factors could cause actual results to
differ materially from those in the forward-looking statements. Those factors
include the economic environment, competition, products and pricing in the
geographic area and business areas in which County Bank Corp (the Corporation)
operates, prevailing interest rates, changes in government regulations and
policies affecting financial services companies, credit quality and credit risk
management, changes in the banking industry including the effects of
consolidation resulting form possible mergers of financial institutions,
acquisitions and integration of acquired businesses. The Corporation undertakes
no obligation to release revisions to these forward-looking statements or
reflect events or circumstances after the date of this report.
2
Part I - Financial Information
Item I - Financial Statements
Introduction to Financial Statements
The consolidated financial statements of County Bank Corp and subsidiary, Lapeer
County Bank & Trust Co., have been prepared, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted pursuant to such rules and regulations. The Company believes that the
disclosures are adequate to make the information presented not misleading when
read in conjunction with financial statements and the notes thereto included in
County Bank Corp's Form 10-K as filed with the Securities and Exchange
Commission for the year ended December 31, 2001.
The financial information presented reflects all adjustments (consisting only of
normal recurring adjustments) which are, in the opinion of management, necessary
for a fair statement of the results for the interim periods presented. The
results for interim periods are not necessarily indicative of the results to be
expected for the year.
3
CONSOLIDATED FINANCIAL STATEMENTS
BALANCE SHEETS (in thousands) (Unaudited)
September 30 December 31
2002 2001
ASSETS
Cash and due from banks $ 12,771 $ 13,383
Investment securities held to maturity 24,857 26,531
Investment securities available for sale
36,616 36,797
Other securities 541 541
-------- --------
Total investment securities 62,014 63,869
Federal funds sold 400 6,550
Loans 151,633 143,053
Less: Reserve for possible loan losses 2,201 2,139
-------- --------
Net loans 149,432 140,914
Bank premises and equipment 4,829 4,431
Interest receivable and other assets 2,886 3,048
-------- --------
TOTAL ASSETS $232,332 $232,195
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Non-interest bearing demand $ 33,432 $ 35,003
Interest bearing demand 63,919 68,117
Savings 46,043 42,135
Time 57,391 58,596
-------- --------
Total deposits 200,785 203,851
Interest payable and other liabilities 2,546 1,891
-------- --------
TOTAL LIABILITIES 203,331 205,742
STOCKHOLDERS' EQUITY
Common Stock-$5.00 par value, 3,000,000 shares
authorized and 1,186,472 shares outstanding 5,932 5,932
Surplus 8,634 8,634
Undivided profits 12,307 10,274
Unrealized gains and losses on securities available for sale 2,128 1,613
-------- --------
TOTAL STOCKHOLDERS' EQUITY 29,001 26,453
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $232,332 $232,195
======== ========
4
CONSOLIDATED INCOME STATEMENTS (Unaudited) (Unaudited)
(in thousands) Three months ended Nine months ended
September 30 September 30
2002 2001 2002 2001
------- ------- ------- -------
INTEREST INCOME
Interest and fees on loans $ 2,690 $ 2,844 $ 7,928 $ 8,735
Interest on investments: taxable 387 439 1,254 1,496
Interest on investments: nontaxable
349 335 1,048 979
Interest on Federal funds sold 21 104 94 271
------- ------- ------- -------
TOTAL INTEREST INCOME 3,447 3,722 10,324 11,481
INTEREST EXPENSE
Demand deposits 215 451 691 1,583
Savings deposits 169 211 505 663
Time deposits 562 715 1,755 2,225
------- ------- ------- -------
TOTAL INTEREST EXPENSE 946 1,377 2,951 4,471
------- ------- ------- -------
NET INTEREST INCOME 2,501 2,345 7,373 7,010
Provision for possible loan losses 20 60 130 180
------- ------- ------- -------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 2,481 2,285 7,243 6,830
OTHER INCOME
Service fees on loan and deposit accounts 310 296 878 871
Other 412 349 1,195 983
------- ------- ------- -------
TOTAL OTHER INCOME 722 645 2,073 1,854
OTHER EXPENSES
Salaries and employee benefits 1,168 1,076 3,403 3,236
Net occupancy expense 260 249 742 747
Other 493 476 1,474 1,373
------- ------- ------- -------
TOTAL OTHER EXPENSE 1,921 1,801 5,619 5,356
INCOME BEFORE PROVISION FOR FEDERAL
INCOME TAX 1,282 1,129 3,697 3,328
Provision for Federal income tax 307 280 882 814
------- ------- ------- -------
NET INCOME 975 849 2,815 2,514
======= ======= ======= =======
EARNINGS PER SHARE
Net income $ 0.82 $ 0.72 $ 2.37 $ 2.12
Cash dividend declared $ 0.22 $ 0.20 $ 0.66 $ 3.10
5
STATEMENT OF CASH FLOWS (Unaudited)
(in thousands) Nine months ended
September 30
2002 2001
-------- --------
Cash flows from operating activities
Net income $ 2,815 $ 2,514
Adjustments to reconcile net income to net cash
provided from operating activities
Depreciation 346 363
Provision for loan losses 130 180
Net amortization and accretion of securities 166 65
Deferred income taxes - -
Net gain on sale of investment securities - -
(Gain) loss on other real estate owned (31) (4)
Net change in accrued interest receivable (76) (313)
Net change in accrued interest payable and other 390 111
-------- --------
Net cash provided by operating activities 3,740 2,916
Cash flows form investing activities
Proceeds from calls of investment securities: AFS 5,005 12,068
Proceeds from maturities of investment securities: AFS 5,944 2,998
Proceeds from calls of investment securities: HTM 652 1,946
Proceeds from maturities of investment securities: HTM 2,024 817
Purchase of investment securities: AFS (10,112) (15,955)
Purchase of investment securities: HTM (1,043) (1,758)
Net (increase) decrease in loans (8,580) (1,264)
Proceeds from the sale of other real estate 201 28
Premises and equipment expenditures (744) (784)
-------- --------
Net cash provided from (used in) investing activities (6,653) (1,904)
Cash flows from financing activities
Net increase (decrease) in interest bearing
and non-interest bearing demand accounts (5,769) (4,351)
Net increase (decrease) in savings and time deposits 2,703 6,126
Cash dividends paid (783) (3,677)
-------- --------
Net cash provided from (used in) financing activities (3,849) (1,902)
-------- --------
Net increase (decrease) in cash and equivalents (6,762) (890)
Cash and equivalents at beginning of year 19,933 22,357
-------- --------
Cash and equivalents at end of period $ 13,171 $ 21,467
======== ========
Cash paid for:
Interest $ 3,046 $ 4,508
Income taxes $ 726 $ 823
6
NOTE 1. INVESTMENTS
(in thousands)
The carrying amount and approximate market value of securities held to maturity
were as follows
September 30, 2002
Amortized Gross Gross Estimated
Cost Unrealized Unrealized Market
Gains Losses Value
Obligations of states and political subdivisions $21,812 $ 1,487 $ 1 $23,298
Mortgage-backed securities 3,045 92 - 3,137
------- ------- ------- -------
Total $24,857 $ 1,579 $ 1 $26,435
======= ======= ======= =======
The carrying amount and approximate market value of securities held to maturity
were as follows
December 31, 2001
Amortized Gross Gross Estimated
Cost Unrealized Unrealized Market
Gains Losses Value
Obligations of states and political subdivisions $22,662 $ 583 $ 108 $23,137
Mortgage-backed securities 3,869 101 - 3,970
------- ------- ------- -------
Total $26,531 $ 684 $ 108 $27,107
======= ======= ======= =======
The carrying amount and approximate market value of securities available for
sale were as follows
September 30, 2002
Amortized Gross Gross Estimated
Cost Unrealized Unrealized Market
Gains Losses Value
U.S. Government securities and obligations of
U.S. Government corporations and political subdivisions $ 6,011 $ 101 $ - $ 6,112
Obligations of states and political subdivisions 7,612 579 1 8,190
Corporate securities 2,983 2,294 78 5,199
Mortgage-backed securities 16,786 329 - 17,115
------- ------- ------- -------
Total $33,392 $ 3,303 $ 79 $36,616
======= ======= ======= =======
The carrying amount and approximate market value of securities available for
sale were as follows
December 31, 2001
Amortized Gross Gross Estimated
Cost Unrealized Unrealized Market
Gains Losses Value
U.S. Government securities and obligations of
U.S. Government corporations and political subdivisions $11,028 $ 75 $ 2 $11,101
Obligations of states and political subdivisions 6,317 152 70 6,399
Corporate securities 1,005 2,266 - 3,271
Mortgage-backed securities 16,004 120 98 16,026
------- ------- ------- -------
Total $34,354 $ 2,613 $ 170 $36,797
======= ======= ======= =======
7
NOTE 2. LOANS
(in thousands) 9/30/02 12/31/01
Commercial $ 73,670 $ 64,029
Real estate mortgage 39,294 38,499
Installment 24,717 24,083
Construction 13,952 16,442
-------- --------
$151,633 $143,053
======== ========
Transactions in the reserve for possible loan losses were as follows
for the nine months ended June 30:
2002 2001
Beginning balance at beginning of period $2,139 $1,951
Provision charged to earnings 130 180
Loans charged off 83 64
Recoveries 15 93
------ ------
Balance at end of the period $2,201 $2,160
====== ======
Reserve as a percent of total loans 1.45% 1.51%
Loans outstanding to executive officers, $2,938 $3,221
directors, principal shareholders and
their related companies. In the opinion
of management, such loans were made on
the same terms and conditions as those to
other borrowers and did not involve more
that the normal risk of collectability
ITEM 2. MANAGEMENTS' DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
Financial Condition
Loan demand increased through the third quarter of 2002. Net loans increased
$4,018,000 in addition to increases of $4,562,000 in the first six months. New
loan activity was strong in commercial loan categories. Mortgage loan activity
increased as a result of declining interest rates. All eligible loans were sold
in the secondary market. The demand for traditional consumer loans remained
soft, although the Corporation experienced continued success with targeted
promotions. Home equity lines of credit increased as a result of low rates
offered as part of a promotion the Corporation is running during 2002.
Savings deposits increased while time deposits decreased during the first nine
months of the year. Our Choice product, which offers a short term market rate
with check writing privileges remained strong, but balances declined as rates
declined. Balances in interest bearing demand accounts declined after tax
payments in April and continued to moderately decline through the remaining
months of the year.
Maturities in the investment portfolio and federal funds sold met demands for
new loans. Activity in the investment portfolio decreased as loan demand
increased. The Corporation is shortening its securities investment targets in
anticipation of increased loan demand and rising rates. The Corporation
continues to seek investment opportunities to supplement income but remains
liquid enough to meet loan demand.
Capital Resources
The Corporation paid a quarterly dividend of $.22 per share during each of the
first three quarters. Strong capital ratios in excess of regulatory requirements
enabled the Board of Directors to take this action. The
8
Corporation's tier one risk-based capital ratio was 17.6 on September 30, 2002
after payment of the dividends. Financial institutions are considered to be
adequately capitalized if this ratio exceeds 4.0% and well capitalized if the
ratio exceeds 6.0%. The primary use of the Corporation's capital is to support
growth. The Corporation is remodeling and modernizing its main office facilities
to support operations for the future.
Results of Operations
Stable interest rates created challenges for the Bank's interest margin. The
Bank's asset and liability repricing opportunities are closely matched over the
short term. Pressure builds from loan customers seeking to lock interest rates
for longer terms and deposit customers are more sensitive to competitor's
interest rate offerings. The FTE net interest margin net interest margin through
the third quarter was 4.51%. This margin was a result of the increase in the
Bank's loan to deposit ratio this year. Management anticipates that the Federal
Reserve Bank will make few changes to interest rates in the next few quarters
and pressure on the interest margin will increase as more assets reprice at a
lower return. Loan rates are carefully negotiated to maintain margin,
particularly when fixed rate financing is requested. Other income and other
expense categories performed at the comparable levels to previous years. The
Bank's year to date return on average assets was 1.61% at the end of the third
quarter; at the end of the third quarter in 2001, this ratio was 1.56%.
Provision for Possible Loan Losses
Management realizes that loan losses cannot be predicted with absolute
certainty. The Corporation adheres to a loan review procedure that identifies
loans that may develop into problem credits. The adequacy of the reserve for
possible loan losses is evaluated against the listings that result from the
review procedure, historical net loan loss experience, current and projected
loan volumes, the level and composition of non-accrual, past due and
renegotiated or reduced rate loans, current and anticipated economic conditions
and an evaluation of each borrower's credit worthiness. Based on these factors,
management determines the amount of the provision for possible loan losses
needed to maintain an adequate reserve for possible loan losses. The amount of
the provision for possible loan losses is recorded as current expense and may be
greater or less than the actual net charged off loans.
Activity related to the reserve for loan losses resulted in net charged off
loans of $68,000 in 2002. Management continues to review the reserve for loan
losses based on economic conditions in the immediate market area. Losses are
well controlled, delinquency ratios are stable and loan growth is expected to
moderate. After specific review of the loan portfolio and review of historical
projections, management reduced its provision for loan losses to $130,000 for
the fiscal year 2002.
Liquidity
There were no significant changes to the Corporation's liquidity risk during the
quarter. Liquidity is required to meet loan demand and pay dividends to
shareholders. The Corporation maintains sufficient liquidity in Federal Funds
Sold to meet normal liquidity demands. The Corporation maintains an available
for sale portfolio of U.S. Government bonds and U.S. Government Sponsored Agency
bonds as additional insurance against liquidity risk.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Corporation reported market risk detail in its 10-K filing for the year
ended December 31, 2001. There have been no events or changes to the
Corporations' assets and liabilities that significantly alter those risk
disclosures.
9
ITEM 4. CONTROLS AND PROCEDURES
Within 90 days prior to the date of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's President and Chief Executive Officer and
Treasurer and Chief Financial Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures pursuant to
Exchange Act Rule 13a-14. Based upon that evaluation, the President and Chief
Executive Officer and Treasurer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures are effective in timely alerting to
material information relating to the Company (including its consolidated
subsidiaries) required to be included in the Company's periodic SEC filings.
PART II.
ITEM 1. LEGAL PROCEEDINGS
The Corporation from time to time is involved in legal proceedings arising in
the ordinary course of business, which in aggregate involve amounts that are
believed by management to be immaterial to the financial condition of the
Corporation. The Corporation is not currently involved in legal proceedings that
are of a material nature.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A.) Exhibit 99.1
Exhibit 99.2
B) A form 8-K was filed on September 11, 2002 in response to regulation FD
containing a press release relative to the payment of the first quarter
dividend, and on September 27, 2002 containing the President's letter
to Shareholders.
10
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.
August 14, 2002
COUNTY BANK CORP
/s/ JOSEPH H. BLACK
--------------------
Joseph H. Black
Treasurer
11
CERTIFICATIONS
I, Curt Carter, President and Chief Executive Officer of County Bank Corp,
certify that:
1. I have reviewed this quarterly report of Form 10-Q of County Bank Corp
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operation and cash
flows of the registrant as of, and for the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the reporting period in which this report is being
prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"), and;
c) Presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
evaluation date;
5. The registrant's other certifying officers and I have disclosed based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize, and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls;
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The Registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in the
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 14, 2002
By: /s/ Curt Carter
---------------------------------
Curt Carter
President and Chief Executive Officer
I, Joseph H. Black, Treasurer and Chief Financial Officer, certify that:
1. I have reviewed this quarterly report of Form 10-Q of County Bank Corp
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operation and cash
flows of the registrant as of, and for the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the reporting period in which this report is being
prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"), and;
c) Presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
evaluation date;
5. The registrant's other certifying officers and I have disclosed based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize, and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls;
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The Registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in the
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 14, 2002
By: /s/ Joseph H. Black
Joseph H. Black
Treasurer and Chief Financial Officer
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
EX-99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
EX-99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002