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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 10 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2001
Commission files 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 38-0746239
83 W. Nepessing St. Lapeer, MI 48446
(810) 664-2977
Securities registered pursuant to section 12(b) of the act: none
Securities registered pursuant to 12(g) of the Act:
3,000,000 shares, common stock, $5.00 par value
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 ___
The aggregate market value of the voting shares of stock held by nonaffiliates
of the registrant was $44,323,803.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of the latest practicable date.
There are 1,186,472 shares of common stock ($5.00 par value) outstanding as of
December 31, 2001.
The following documents are incorporated into the 10-K by reference:
The Annual Report to Shareholders, December 31, 2001, Part I, Part II.
Proxy statement dated March 29, 2002, Part III.
Form 10-K
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.
ITEM 1. BUSINESS
County Bank Corp, a one bank holding company, was formed on January 3, 1989 by
converting and exchanging, except for the shares of dissenting stockholders,
each share of Lapeer County Bank & Trust Co. (the Bank) into one share of County
Bank Corp (the Corporation). As a result, the Corporation became the sole
stockholder and parent of the Bank.
The Bank was chartered in 1902, is headquartered in Lapeer, MI, and serves all
of Lapeer County (the County) and portions of surrounding counties. Lapeer has
an approximate population of 9,100 people while the County has in excess of
90,000 people. Lapeer is located 60 miles north of metropolitan Detroit, the
largest city in Michigan, 30 miles north of Pontiac, MI, and 20 miles east of
Flint, MI.
The Corporation serves the County through the subsidiary Bank at eight
locations. The main office is located at 83 W. Nepessing St., in downtown
Lapeer. A drive through location is located at the corner of Pine St. and Clay
St. across form the main office. A full service office is located in the south
end of Lapeer at 637 south M-24. Attica Township is served by a full service
office located at 4515 Imlay City Rd. Full service offices are located in Elba
Township at 5508 Davison Road and in Metamora Township on M-24, south of Lapeer.
A full service office serves the City of Imlay City at 1875 S. Cedar St., Imlay
City, MI. One automated teller machine (ATM) is located in Lapeer Regional
Hospital, 1375 N. Main St., Lapeer. One cash dispensing machine is located the
lobby of Lapeer Cinemas at 1650 Demille Rd., Lapeer, MI. A full service branch
is located in Bryan's Market, a grocery store, at 6002 N. Lapeer Rd., North
Branch, MI. One automated teller machine is located in the Whistle Stop Party
Store at 3670 North Branch Rd., North Branch, MI.
The Corporation grew moderately during 2001. Total assets grew to $232,195,000
on December 31, 2001, while total deposits grew to $203,851,000. Total assets
grew 3.08% while total deposits grew 3.58%. These numbers were lower than
previous years, but the economic environment impacted banking activity
throughout 2001. Deposits and loans did not grow as in previous years as rates
were reduced eleven times by the Federal Reserve Board. The Corporation expects
moderate growth through 2002, although indications are that economic activity is
increasing. The Corporation expects that rates will rise modestly throughout the
year in response.
The Corporation offers commercial banking services through the Bank at the main
office and the six branches throughout the County. The customer base extends to
all sections of the County and includes all segments of the population,
including individuals, retail businesses, farming operations, and industrial
plants. This locally owned full service Bank offers commercial and personal
checking, savings and time deposit services; the Bank offers commercial and
industrial loans, real estate mortgages and consumer loans. The trust
department, with full trust powers, is in its third decade of providing
customers with employee benefit plans, estate planning services, and complete
trust services.
2
The Corporation faces substantial competition for financial services. Our chief
competitor is National City Bank of Michigan/Illinois. National City operates
branches throughout the County. Independent Bank Corp. of Ionia, MI operates
three branch locations in the Bank's market area and a loan production office in
a Lapeer shopping center. Bank One operates an office north of the city limits
of Lapeer. Tri-County Bank has offices in Imlay City and Almont. CSB Bank of
Capac has an office in Imlay City and Almont. Oxford Bank operates a branch in
Dryden. There are two offices of Citizen's Federal Savings and Loan in the
County. Two credit unions, Lapeer County School Employees Credit Union and The
Lapeer County Community Credit Union, which operates offices in Lapeer and Imlay
City, serve the County. There are two securities brokers, First of Michigan
Division of Fahnestock & Co., Inc. and Edward D. Jones & Co. A number of other
securities brokers serve the County through Flint offices. Comerica Bank
operates a Comerimart branch in a local grocery store. The local telephone book
lists fifteen financial planners and twenty mortgage brokers.
The Corporation is regulated by the Board of Governors of the Federal Reserve
System pursuant to the terms of the Bank Holding Company Act of 1956. This act
requires the approval of the Federal Reserve Board before the Corporation may
acquire or merge with any other banking institution, limits the activities that
the Corporation may engage in to activities so closely related to banking or
managing or controlling banks as to be a proper incident thereto, and prohibits
the Corporation from acquiring an interest in a bank located outside the state
in which the operations of its subsidiaries are principally conducted, unless
such acquisition is specifically authorized by the state in which the acquired
bank is located. In November 1985, the State of Michigan passed legislation to
allow interstate banking with neighboring states that also have laws that permit
interstate banking. The Corporation is obligated to comply with the regulations
of the Securities and Exchange Commission. As a state member institution, the
Bank is obligated to comply with the regulations of the Federal Reserve Board
and the regulations of the Office of Financial and Insurance Services (OFIS) of
the State of Michigan. The OFIS of the State of Michigan has the authority to
examine and regulated the Bank and works closely with the Federal Reserve Bank
of Chicago coordinating alternate examinations of the Bank. The OFIS has the
authority to issue cease and desist orders against unsafe and unsound banking
practices, and the authority to close a bank in the event it should become
insolvent. In addition, the Bank's business is directly affected by the monetary
policies of the Board of Governors of the Federal Reserve System. The Federal
Deposit Insurance Corporation insures the Bank's deposits.
The Federal Deposit Insurance Corporation Act of 1991 creates a new statutory
framework that applies to every insured depository institution a system of
supervisory actions indexed to the capital level of the individual institution.
The purpose of the provision is to resolve the problems of insured depository
institutions at the least possible long term loss to the deposit insurance fund.
Five capital categories have been established from well capitalized to
critically under capitalized. Each category below well capitalized brings an
increasing number of supervisory actions intended to strengthen the institution.
These actions range from limitations on the acceptance of brokered deposits to
requiring dismissal of management, divestiture of institutions by the parent,
approval of capital distributions, and more. In addition, regulatory authority
is expanded by the development of operation and management standards, review of
executive compensation, increased accounting principles, and increased
dependence on audit committees.
The number of full time equivalent employees totaled 119 and 120 on December 31,
2001 and 2000, respectively.
3
Guide 3. Statistical disclosures:
I. Distribution of Assets, Liabilities and Stockholders' Equity; Interest
Rates and Interest (000's)
Table I.
Average Assets (000's) Income (000's) Yield (%)
2001 2000 1999 2001 2000 1999 2001 2000 1999
Assets
Securities:
US Gov't & agencies $ 30,394 $ 28,247 $ 29,819 $1,864 $1,854 $1,788 6.1% 6.6% 6.0%
State and political subdivisions* 27,305 22,826 20,672 2,030 1,708 1,598 7.4% 7.5% 7.7%
Other securities 3,036 1,346 1,605 82 53 49 2.7% 3.9% 3.1%
-------- -------- -------- ------ ------ ------ ---- --- ---
Total investment securities 60,735 52,419 52,096 3,976 3,615 3,435 6.6% 6.9% 6.6%
Federal funds sold 8,326 6,748 8,512 312 430 419 3.8% 6.4% 4.9%
Loans:
Commercial loans* 83,129 79,365 65,578 6,842 7,280 5,668 8.2% 9.2% 8.6%
Real estate mortgages 28,255 30,003 32,994 2,294 2,361 2,435 8.1% 7.9% 7.4%
Consumer loans 27,716 28,345 28,843 2,369 2,550 2,703 8.6% 9.0% 9.4%
-------- -------- -------- ------ ------ ------ ---- --- ---
Total loans 139,100 137,713 127,415 11,505 12,191 10,806 8.3% 8.9% 8.5%
-------- -------- -------- ------ ------ ------ ---- --- ---
Total average earning assets $208,161 $196,880 $187,645 15,793 16,236 14,660 7.6% 8.2% 7.8%
======== ======== ======== ====== ====== ====== ==== === ===
Total average assets $225,248 $212,993 $202,995
======== ======== ========
Interest bearing liabilities:
Deposits:
NOW account deposits 67,946 60,283 50,200 1,853 2,541 1,642 2.7% 4.2% 3.3%
Savings deposits 38,335 39,847 42,891 842 1,069 1,150 2.2% 2.7% 2.7%
Time deposits over $100,000 10,970 8,703 8,515 563 510 439 5.1% 5.9% 5.2%
Other time deposits 45,434 43,200 42,330 2,325 2,339 2,142 5.1% 5.4% 5.1%
-------- -------- -------- ------ ------ ------ ---- --- ---
Total deposits 162,685 152,033 143,936 5,583 6,459 5,373 3.4% 4.2% 3.7%
Federal funds purchased 0 12 0 0 1 0 0.0% 0.0% 0.0%
Long-term debt 0 0 0 0 0 0 0.0% 0.0% 0.0%
-------- -------- -------- ------ ------ ------ ---- --- ---
Total interest bearing liabilities 162,685 152,045 143,936 5,583 6,460 5,373 3.4% 4.2% 3.7%
------ ------ ------ ---- --- ---
Demand deposits 34,347 34,429 34,014
Other liabilities 2,347 1,585 1,805
Stockholders' equity 25,869 24,934 23,240
-------- -------- --------
Total liabilities and stockholders' equity $225,248 $212,993 $202,995
======== ======== ========
Interest expense as a % of average earning assets 2.7% 3.3% 3.3%
---- --- ---
Net interest margin/net interest yield as a %
of average earning assets $10,210 $ 9,776 $9,287 4.9% 5.0% 4.9%
======= ======= ====== ==== === ===
Net interest yield as a % of average assets 4.5% 4.6% 4.6%
==== === ===
* A tax adjustment of $741, $659, and $653 has been added to 2001, 2000 and 1999
income respectively to reflect the impact of a 34% Federal income tax rate in
each year. Non accruing loans are reported in their related categories and
reduce the related yields.
4
Table II. The dollar amounts of changes in interest income and interest expense
are presented in the accompanying table. The change in volume is calculated by
multiplying the change in volume by the old rate. The change in rate is
calculated by multiplying the change in rate by the old volume. The change in
rate volume is calculated by multiplying the change in rate by the change in
volume.
Rate/volume variance analysis 2001 vs 2000 2000 vs 1999
Change in Change in Change in Total Change in Change in Change in Total
Volume Rate Rate/volume Volume Volume Rate Rate/volume Volume
Assets
Securities:
US Gov't & agencies $141 ($122) ($9) $10 ($94) $169 ($9) $66
State and political subdivisions* 335 (11) (2) 322 167 (51) (6) 110
Other securities 67 (17) (21) 29 (8) 14 (2) 4
---- ----- --- --- ---- ---- --- -----
Total investment securities 543 (150) (32) 361 65 132 (17) 180
Federal funds sold 101 (177) (42) (118) (87) 123 (25) 11
Loans:
Commercial loans* 345 (748) (35) (438) 1,192 347 73 1,612
Real estate mortgages (138) 75 (4) (67) (221) 161 (14) (74)
Consumer loans (57) (127) 3 (181) (47) (108) 2 (153)
---- ----- --- --- ---- ---- --- -----
Total loans 150 (800) (36) (686) 924 400 61 1,385
---- ----- --- --- ---- ---- --- -----
Total average earning assets 794 (1,127) (110) (443) 902 655 19 1,576
Interest bearing liabilities:
NOW account deposits 323 (897) (114) (688) 330 474 95 899
Savings deposits (41) (194) 8 (227) (82) 1 0 (81)
Time deposits over $100,000 133 (63) (17) 53 10 60 1 71
Other time deposits 121 (128) (7) (14) 44 150 3 197
---- ----- --- --- ---- ---- --- -----
Total deposits 536 (1,282) (130) (876) 302 685 99 1,086
Federal funds purchased 0 0 (1) (1) 0 0 1 1
Long-term debt 0 0 0 0 0 0 0 0
---- ----- --- --- ---- ---- --- -----
Total interest bearing liabilities 536 (1,282) (131) (877) 302 685 100 1,087
---- ----- --- --- ---- ---- --- -----
Net Interest Income $258 $ 155 $ 21 $434 $600 ($30) ($81) $ 489
==== ===== ==== ==== ==== ==== === =====
II. Investment Portfolio
A. Book values of the investment portfolio (000's)
2001 2000 1999
U.S. Treasury securities and obligations of
U.S. government corporations of agencies $ 11,101 $ 18,789 $ 12,547
Obligations of states and political subdivisions 29,062 25,260 21,600
Other securities 3,811 1,937 1,290
Mortgage backed securities 19,895 14,966 14,317
------------- ------------ ------------
Total securities $ 63,869 $ 60,952 $ 49,754
============ ============ ============
5
B. Maturity distribution of the Investment portfolio.
Book Value Yield (%)
(000's)
US Government securities
Maturity distribution:
One year or less $ 2,008 4.59
Over one year through five years 4,093 3.78
Over five years through ten years 5,000 6.83
Over ten years -
State and political subdivisions*
Maturity distribution:
One year or less 2,181 7.43
Over one year through five years 7,403 7.58
Over five years through ten years 13,708 7.20
Over ten years 5,770 7.41
Mortgage-backed securities 19,895 5.71
Other securities 3,271 2.09
III. Loan Portfolio
A. Types of loans
2001 2000 1999 1998 1997
Commercial $ 64,029 $ 65,267 $ 64,547 $ 50,658 $ 52,072
Real estate mortgage 38,499 28,184 31,502 35,457 39,332
Installment 24,083 27,561 27,625 28,322 27,141
Construction 16,442 15,963 10,977 5,738 3,062
-------- -------- -------- -------- ---------
Total loans $143,053 $136,975 $134,651 $120,175 $ 121,607
======== ======== ======== ======== =========
B. Maturities and Sensitivities of Loans to Changes in Interest Rates as of
December 31, 2001 (000's).
Commercial Loans
Fixed rate loans with a maturity of:
Three months or less $2,460
Over three months through twelve months 2,946
One year through five years 30,426
Over five years 3,641
-------
Total fixed rate loans 39,473
Floating rate loans with a repricing
frequency of:
Quarterly or more frequently 24,556
-------
Total commercial loans $64,029
=======
Real estate construction loans
Fixed rate loans with a maturity of:
Three months or less $396
Over three months through twelve months 1,578
One year through five years 4,580
-------
Total fixed rate loans 6,554
Floating rate loans with a repricing
frequency of:
Quarterly or more frequently 9,888
-------
Total real estate construction loans $16,442
=======
6
C. Risk Elements
1. Nonaccrual, Past Due, and Restructured Loans (000's)
12/31/01 12/31/00 12/31/99 12/31/98 12/31/97
Loans 90 days past due and still accruing
Commercial loans $ 19 $ 5 $ 125 $ 174 $ 111
Real estate loans 80 0 0 0 124
Installment loans 72 69 21 98 31
-------- --------- ---------- ---------- ---------
Total loans 90 days past due 171 74 146 272 266
======== ========= ========== ========== =========
Non accruing loans
Commercial loans 577 1,177 802 910 642
Real estate loans 85 163 87 45 170
Installment loans 108 225 128 197 82
-------- --------- ---------- ---------- ---------
Total non accruing loans $ 770 $ 1,565 $ 1,017 $ 1,152 $ 894
======== ========= ========== ========== =========
There were no restructured loans
For the year ended 2001, if the loans reported as nonaccrual had earned at the
contracted interest rate, $51,000 of interest income would have been recorded.
No interest income was recorded on these loans in 2001.
The Corporation places loans on a nonaccruing status when management feels that
a significant risk of non-repayment exists. Criteria for evaluating risk include
the borrowers' payment histories, past due status, and financial condition.
Loans on which the required payment of principal or interest has not been
received within 90 days of the due date are placed on nonaccrual status.
1. Potential Problem Loans
As of December 31, 2001, management identified three potential problem loans in
the commercial loan portfolio. The three loans totaled $348,000. Management
allocated $99,000 of the allowance for loan losses for these credits.
2. Foreign Outstandings
Not applicable
3. Loan concentrations
As of December 31, 2001, there were no loan concentrations other than those
categories already reported that exceed 10% of total loans.
D. Other Interest Bearing Assets
As of December 31, 2001, there was no other interest bearing asset that would
have been classified 90 days past due and still accruing if it were a loan.
7
IV. Summary of Loan Loss Experience
A. Analysis of Allowance for Loan Losses (000's)
2001 2000 1999 1998 1997
Balance at beginning of the period $ 1,951 $ 1,913 $ 1,881 $ 1,957 $ 1,805
Charge offs:
Commercial 28 172 240 157 -
Real estate - - - - -
Installment 77 91 137 69 59
Construction - - - - -
------- ------ ------ ------- ------
Total charge offs 105 263 377 226 59
Recoveries:
Commercial 87 42 68 10 63
Real estate - - - - -
Installment 11 19 21 20 28
Construction - - - - -
------- ------ ------ ------- ------
Total recoveries 98 61 89 30 91
------- ------ ------ ------- ------
Net charge offs 7 202 288 196 (32)
Provision charged to earnings 195 240 320 120 120
------- ------ ------ ------- ------
Balance at the end of the period $ 2,139 $ 1,951 $ 1,913 $ 1,881 $ 1,957
======= ======= ======= ======= =======
Ratio of net charge offs during the period to 0.01% 0.16% 0.23% 0.16% -0.03%
average loans during the period
Net charged off loans totaled $7,000 for 2001. Two commercial loans from a
number of years previously were recovered, one as a result of final settlements
of legal action and the other as a result of the economic recovery of the
borrower. Consumer loans continued to experience losses as collateral values
deteriorate faster than estimates. Recoveries of consumer loans continue to
develop as a result of bankruptcy and judgement proceedings.
Net charged off loans totaled $202,000 for 2000. Two commercial loans accounted
for $112,000 of the net charged off loans. One loan was the result of the legal
resolution of a long standing collection effort and the second resulted from the
charge down of a loan to an appraised real estate value. Installment loans
charged off declined as a result of increased collection and underwriting
vigilance.
Net charged off loans totaled $288,000 for 1999. Charged off loans as a result
of consumer loan activity increased. Most losses resulted from deficiency
balances from repossessed collateral. One commercial loan resulted in a loss of
$150,000. The Bank expects to recover some of this loss. The Bank allocated
$320,000 to the reserve for loan losses to replenish the reserve and maintain
the ratio of the reserve for loan losses to total loans in the face of strong
loan growth.
Net charged off loans totaled $196,000 in 1998. One borrower accounted for
$150,000 of the total charged off loans. Management allocated $120,000 from
earnings to maintain a strong reserve for loan losses to total loans ratio of
1.57%
8
B. Allocation of the Allowance for Loan Losses (000's)
Real estate
Balances: Commercial Mortgage Installment Construction Unallocated Total
December 31, 2001 $ 872 $ 15 $ 289 $ 95 $ 868 $ 2,139
% of loans in category 44.8% 26.9% 16.8% 11.5% 100.0%
December 31, 2000 $ 653 $ 30 $ 159 $ 124 $ 985 $ 1,951
% of loans in category 47.6% 20.6% 20.1% 11.7% 100.0%
December 31, 1999 $ 492 $ 5 $ 135 $ - $ 1,281 $ 1,913
% of loans in category 47.9% 23.4% 20.5% 8.2% 100.0%
December 31, 1998 $ 276 $ - $ 73 $ - $ 1,532 $ 1,881
% of loans in category 42.1% 29.5% 23.6% 4.8% 100.0%
December 31, 1997 $ 179 $ - $ 48 $ - $ 1,730 $ 1,957
% of loans in category 43.7% 31.8% 22.0% 2.5% 100.0%
V. Deposits
A. Refer to Item I of the Guide 3 statistical disclosures for a presentation
of the information required by this item.
B. Not applicable
C. Not applicable
D. Maturities of time certificates of deposits of $100,000 or more. (000's)
Three months or less $ 4,807
Over three through six months 2,113
Over six months through twelve months 2,457
Over twelve months 3,159
----------
$ 12,536
==========
A. Not applicable
VI. Return on Equity and Assets
2001 2000 1999
Return on assets (%) 1.56 1.55 1.61
Return on equity (%) 13.60 13.20 14.10
Dividend payout ratio (%) 123.20 37.24 33.84
Equity to assets ratio (%) 11.40 11.79 11.45
VI. Short-term Borrowings
Not applicable
9
ITEM 2. PROPERTY
The following is a tabulation of facilities owned by the Bank. All property is
used in the delivery of services to the customer base. Over the past few years,
all properties have been appropriately reviewed and upgraded or remodeled to
continue providing quality service to our customers. The main office is in the
last stages of remodeling and will be completely renovated by the end of 2002.
App. Date
Building
Description/location Square Occupied
footage
Main office 34,948 9/15/02
83 W. Nepessing St.
Lapeer, MI
Elba Office 3,744 10/22/85
5508 Davison Rd.
Lapeer, MI
Pine-Clay office 528 1/5/68
305 Pine St.
Lapeer, MI
Southgate Office 1,700 11/2/70
637 S. Main St.
Lapeer, MI
Attica Office 4,158 6/27/79
4515 Imlay City Rd.
Attica, MI
Metamora Office 2,668 9/18/89
3414 S Lapeer Rd.
Metamora, MI
Imlay City Office 2,668 8/11/99
1875 S Cedar St.
Imlay City, MI
ITEM 3. LEGAL PROCEEDINGS
No material legal proceeding is pending to which the Corporation or the Bank is
the party, or of which any of their property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Refer to Page 16 of the accompanying Annual Report to Shareholders
10
ITEM 6. SELECTED FINANCIAL DATA
Refer to Page 15 of the accompanying Annual Report to Shareholders, except for:
(000's)
2001 2000 1999 1998 1997
Total Assets $232,195 $ 225,258 $ 207,397 $ 197,486 $ 186,841
Long Term Debt - - - - -
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND THE
RESULTS OF OPERATIONS.
EARNINGS
Major components of the operating result of the Corporation for 2001, 2000 and
1999 are presented in the accompanying table, Summary of Operations. A
discussion of these results is presented in greater detail in subsequent pages.
Summary of Operations
2001 2000 1999 1998 1997
Interest income $15,052 $15,578 $14,027 $13,826 $13,556
Interest expense 5,583 6,460 5,373 5,355 5,162
------- ------- ------- ------- -------
Net interest income 9,469 9,118 8,654 8,471 8,394
Provision for possible loan losses 195 240 320 120 120
------- ------- ------- ------- -------
Net interest income after provision for
possible loan losses 9,274 8,878 8,334 8,351 8,274
Other income 2,482 2,245 2,597 2,283 2,166
Other expense 7,091 6,693 6,487 6,175 6,064
------- ------- ------- ------- -------
Income before provision for Federal income tax 4,665 4,430 4,444 4,459 4,376
Provision for Federal income tax 1,150 1,129 1,166 1,239 1,215
------- ------- ------- ------- -------
Net income $ 3,515 $ 3,301 $ 3,278 $ 3,220 $ 3,161
======= ======= ======= ======= =======
Per share:
Net income $ 2.96 $ 2.78 $ 2.76 $ 2.71 $ 2.66
======= ======= ======= ======= =======
Dividends declared $ 3.65 $ 1.04 $ 0.94 $ 2.90 $ 0.85
======= ======= ======= ======= =======
Summary of Operations 2001 by quarter
4th qtr 3rd qtr 2nd qtr 1st qtr
Interest income $3,571 $3,722 $3,824 $3,935
Interest expense 1,112 1,377 1,454 1,640
------ ------ ------ ------
Net interest income 2,459 2,345 2,370 2,295
Provision for possible loan losses 15 60 60 60
------ ------ ------ ------
Net interest income after provision for
possible loan losses 2,444 2,285 2,310 2,235
Other income 628 645 636 573
Other expense 1,735 1,801 1,821 1,734
------ ------ ------ ------
Income before provision for Federal income tax 1,337 1,129 1,125 1,074
Provision for Federal income tax 336 280 273 261
------ ------ ------ ------
Net income $1,001 $ 849 $ 852 $ 813
====== ====== ====== ======
Per share:
Net Income $ 0.84 $ 0.72 $ 0.72 $ 0.68
====== ====== ====== ======
Dividends declared $ 0.55 $ 0.20 $ 0.20 $ 2.70
====== ====== ====== ======
11
Summary of Operations 2000 by quarter
4th qtr 3rd qtr 2nd qtr 1st qtr
Interest income $4,116 $3,966 $3,828 $3,668
Interest expense 1,774 1,656 1,559 1,471
------ ------ ------ ------
Net interest income 2,342 2,310 2,269 2,197
Provision for possible loan losses 60 60 60 60
------ ------ ------ ------
Net interest income after provision for
possible loan losses 2,282 2,250 2,209 2,137
Other income 516 595 566 568
Other expense 1,611 1,686 1,723 1,673
------ ------ ------ ------
Income before provision for Federal income tax 1,187 1,159 1,052 1,032
Provision for Federal income tax 305 298 268 258
------ ------ ------ ------
Net income $ 882 $ 861 $ 784 $ 774
====== ====== ====== ======
Per share:
Net Income $ 0.74 $ 0.73 $ 0.66 $ 0.65
====== ====== ====== ======
Dividends declared $ 0.50 $ 0.18 $ 0.18 $ 0.18
====== ====== ====== ======
Net interest income
Balances increased in time and savings deposits during the year while balances
in interest bearing and non-interest bearing demand accounts declined. This was
a result of eleven reductions in the Federal funds target by the Federal Reserve
Board's Open Market Committee. The reductions, totaling 4.75%, reduced the rate
of return available in the Bank's Choice account and other competitive money
market deposit accounts. Consequently, customers returned to time deposits to
protect yield in the falling market and to ordinary savings accounts to maintain
stability. The result was a moderate growth in deposits and a reduction in the
Corporation's interest cost. Loan demand remained moderate through the first
three quarters of the year, then rebounded strongly in the fourth quarter. Net
increases in loans totaled $6,078,000 for the year. The Corporation's loan to
deposit ratio increased to 70.2% at year-end 2001 from 69.6% at year-end 2000.
This moderate growth in loans allowed the Corporation to increase its investment
portfolio slightly above $2,000,000 after accounting for the changes in value of
the available for sale portfolio. The net result of the changes enabled the
Corporation to maintain its net interest margin as a percent of average assets
on a Federal tax equivalent (FTE) basis of 4.54%. The FTE adjustment in derived
by dividing the tax-exempt interest by .66 to reflect the Corporation's 34% tax
rate
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 nonaccrual, 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 $7,000 in 2001. Net charged off loans recorded in 2000 were $202,000.
Provisions for possible loan losses were $195,000 in 2001 and $240,000 for 2000.
The ratio of reserve for possible loan losses to gross loans equaled 1.5% and
1.4% in 2001 and 2000, respectively.
12
Non-interest income
Non-interest income is composed of trust department income, service charges on
deposit accounts, fees for providing other services to customers, gains on
securities sales and other income. Non-interest income increased 10.6% during
2001. Trust income fell as a result of declining market values in accounts where
fees are based on asset values, although the number of trust accounts increased
during the year. Service charges on deposit accounts increased 8.01% as a result
of growth in deposits and increases in fees. Other income categories increased
by 27.8% as a result of increases in mortgage servicing income, the
capitalization of mortgage servicing rights, fees resulting from increased ATM
and debit card activity and increased sweep management fees. The gain on sale of
assets resulted primarily from a gain on the sale of one property in other real
estate.
Non-interest expense
Major components of non-interest expense are salaries and employee benefits,
occupancy and equipment expenses and other operating expenses. Salaries and
employee benefits increased 7.4% as a result of increases in salaries partly due
to a compensation study that resulted in adjusting some salaries to market
conditions, a one time recovery of vacation expense in 2000 resulting from a
change in vacation policy, and normal increases in salaries and benefits.
Occupancy and equipment expenses increased 4.6% as a result of ongoing
remodeling expenses to the main office. These expenses will continue into 2002;
the remodeling projects should conclude during 2002. Other expenses increased
3.3% for the year
FINANCIAL CONDITION
Average assets for the Corporation totaled $225,272,000, $212,993,000 and
$202,995,000 in 2001, 2000 and 1999 respectively. The 5.7% growth in average
assets follows a 4.9% growth in 2000 and a 7.0% average growth in 1999. Average
loans grew 1.0% while average interest bearing deposits grew 7.0%. Average
earning assets grew 5.7% compared to total deposit growth of 5.8%.
Liquidity
The anticipated requirements of the Corporation can be met by upstreaming
dividends from the subsidiary Bank. Refer to footnote 10 of the accompanying
financial statements for a discussion of the restrictions on undivided profits
of the subsidiary. The anticipated cash needs of the Corporation are for the
payment of annual dividends to current stockholders. Dividends upstreamed to the
Corporation were $4,331,000 in 2001 and $1,234,000 in 2000.
The estimated market value of U.S. Government securities and U.S. Agency
securities totaled 15.8% of total deposits on December 31, 2001. The percentage
for 2000 was 17.1%. The Corporation is able to meet normal demands for liquidity
through loan repayments, securities payments and deposit growth. The Bank
maintains a liquidity plan for use in the event of unforeseen liquidity
problems. The plan incorporates prearranged lines of credit and a plan for the
liquidation of certain types of assets if the liquidity problem continued beyond
the time that normal cash flows would meet the demand.
CAPITAL
The corporation has 517 stockholders representing 1,186,472 shares of common
stock. Refer to page 16 of the Corporation's Annual Report for a discussion of
the market for this stock.
The Corporation's return on average equity totaled 13.6% in 2001 and 13.2% in
2000. Effective December 31, 1992, the Corporation is required to maintain
capital in excess of 8% of risk-weighted assets as defined by the Federal
Reserve Board. The Corporation's capital to risk-weighted asset ratio was 19.1%
on December 31, 2001 and was 19.9% on December 31, 2000. Refer to footnote 13 of
the accompanying financial statements for a tabular presentation of the
Corporation's capital adequacy.
13
The Corporation paid quarterly cash dividends and paid a special dividend in
December 2001. In addition, the Corporation paid a one time cash dividend of
$2.50 per share on March 30, 2001. Cash dividends totaled $4,331,000 in 2001 and
$1,234,000 in 2000. Dividends per share equaled $3.65 in 2001 and $1.04 in 2000.
The Corporation normally pays dividends at a rate between 30% to 40% of net
income. The Corporation expects to pay dividends in that range in the future.
On March 17,1999 the Board of Directors declared a 100 percent stock dividend to
holders of common stock on March 28, 1999 payable April 20, 1999. All per share
data in this narrative have been restated to reflect the new number of shares.
At the April 20, 2000 annual meeting, the stockholders of the Corporation
increased the authorized shares of the Corporation to 3,000,000. The Corporation
did not issue any shares of stock in 2001, or 2000.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Rate sensitivity analysis (000's), December 31, 2001
Repricing period in days 0-30 31-90 91-180 181-365 0-365 0ver 365
Rate sensitive assets (RSA):
Federal fund sold 6,550 0 0 0 6,550 0
Investment securities 14,198 2,383 2,543 4,876 24,000 39,869
Loans 44,785 1,896 4,172 6,474 57,327 85,726
------ ----- ----- ----- ------ ------
Total rate sensitive assets 65,533 4,279 6,715 11,350 87,877 125,595
Rate sensitive liabilities (RSL):
Demand deposits 43,823 0 43,823 24,294
Savings deposits 19,582 0 19,582 22,553
Time deposits 6,641 6,077 8,552 13,681 34,951 23,645
----- ----- ----- ------ ------ ------
Total rate sensitive liabilities 70,046 6,077 8,552 13,681 98,356 70,492
Repricing gap (RSA-RSL) -4,513 -1,798 -1,837 -2,331 -10,479 54,563
====== ====== ====== ====== ======= ======
As a percent of capital -17.04% -6.79% -6.94% -8.80% -39.57% 206.06%
As a percent of total assets -1.94% -0.77% -0.79% -1.00% -4.51% 23.49%
The preceding table represents management's analysis of repricing probabilities
for 2002. The Asset/liability management committee meets monthly to review the
impact of changes in rates and market pricing on the Corporation's interest
earning assets and interest paying liabilities. Customers' responses to interest
rates and deposit products are reviewed. Loan demand is discussed and methods to
answer customers needs are reviewed. The rate sensitivity of current production
of both loans and deposits are reviewed. Management's goal is to achieve a
balance between rate sensitive assets and rate sensitive liabilities in order to
maintain a reasonable interest margin in changing rate environments.
Income rate shock analysis, December 31, 2001
The difference in projected income assuming the following basis point change in
rates:
Changes in rates (bp's) -300 -200 -100 100 200 300
Change in cash flow $ 257 $ 171 $ 86 $ (86) $ (171) $ (257)
As a percent of net int income 2.4% 1.6% 0.8% -0.8% -1.6% -2.4%
As a percent of net income 6.5% 4.4% 2.2% -2.2% -4.4% -6.5%
As a percent of net int income (FTE) 1.6% 1.1% 50.0% -0.5% -1.1% -1.6%
As a percent of net income (FTE) 4.3% 2.9% 1.4% -1.4% -2.9% -4.3%
14
The preceding table presents the difference in net income in the event of a real
and immediate change in rates from +/- 300 basis points (bp). It is based on the
previous table and is management's calculation based on management's assessment
of the most likely scenario as a response to such an event.
The Federal Reserve Bank evaluates the Corporation on its management of risk
factors effecting the organization. These risks include credit, liquidity,
market, operational, fiduciary, legal and reputational. Credit, liquidity, and
market risk were discussed in earlier sections of this narrative. Legal matters
are discussed in ITEM 13. The Board of Directors discusses matters relating to
its reputation and performance in the community at its regular meetings and two
planning meetings held during the year
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Refer to Pages 3-13 of the accompanying Annual Report to Shareholders.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
The information called for the items within this part is included in County Bank
Corp's March 29, 2002 Proxy Statement and is incorporated herein by reference,
as follows:
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Page 3 except for:
Executive Officers Ages Office Service
Curt Carter 57 Employee 35 years
Officer President 13 years
Present term 13 years
Bruce J. Cady 49 Employee 2 years
Officer Vice 2 years
President
Present term 2 years
Laird A. Kellie 57 Employee 19 years
Officer Secretary 13 years
Present term 13 years
Joseph H. Black 52 Employee 12 years
Officer Treasurer 12 years
Present term 12 years
ITEM 11. EXECUTIVE COMPENSATION
Pages 4-6
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Page 2
15
Number Percentage of
Director of shares outstanding stock
Dr. David H. Bush 46,300 3.90
Michael H. Blazo 20,012 1.69
Curt Carter 7,772 0.66
Patrick A. Cronin 2,554 0.22
Thomas K. Butterfield 29,400 2.48
James A. Harrington 20,187 1.70
Ernest W. Lefever 1,318 0.11
Tim Oesch 4,300 0.36
Charles Schiedegger 11,116 0.94
Executive Officers and Directors, as a group, own 143,559 shares or 12.1% of
1,186,472 total outstanding shares of common stock of Corporation as of December
31, 2001.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Page 6
PART IV
Item 14. EXHIBITS FINANCIAL STATEMENT SCHEDULES, AND REPORTS OF FORM 8-K.
(a)(1) The following financial statement schedules of the Corporation and Bank
are included in the Annual Report to its stockholders for the year ended 2001
and are incorporated herein by reference in Item 8:
Balance Sheets--December 31, 2001 and 2000 Page 3
Statements of Income--years ended December 31, 2001, 2000 and 1999 Page 5
Statements of Changes in Stockholders' equity--years ended December 31, 2001, 2000 and 1999 Page 4
Statements of Cash Flows--years ended December 31, 2001, 2000 and 1999 Page 6
Notes to Financial Statements Pages 7-13
Report of Independent Public Accountants dated January 22, 2002 Page 14
(a)(2) Not applicable
(a)(3) The following exhibits are required to be filed with this report by item
14(c):
(3) Articles of Incorporation and By-laws (previously filed as Exhibits to the
Corporation's registration statement on form 8-A, filed January 24, 1989 and
incorporated herein by reference).
(13) Annual Report to Stockholders for the year ended December 31, 2001 (filed
herewith)
(21) Subsidiary of the Registrant: Lapeer County Bank & Trust Co., a Michigan
Corporation
(23) Consent of Experts and Counsel: Letter of consent form Plante & Moran, LLP
dated March 28, 2002
(b) Two reports on form 8-K were filed during the last quarter of the year
covered by this report in response to Regulation FD. Reports were file on
November 29, 2001 and December 28, 2001.
(c) See (a) (3)
(d) Not applicable
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized, on March 28, 2002
County Bank Corp
/s/ Curt Carter
--------------------------
Curt Carter, President
/s/ Joseph H. Black
--------------------------
Joseph H. Black, Treasurer
/s/ Timothy Oesch
-------------------------
Timothy Oesch
/s/ Charles Schiedegger
-------------------------
Charles Schiedegger
/s/ Ernest W. Lefever
-------------------------
Ernest W. Lefever
/s/ Patrick A. Cronin
-------------------------
Patrick A. Cronin
17