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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, 2002
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 $48,766,000.
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, 2002.
The following documents are incorporated into the 10-K by reference:
The Annual Report to Shareholders, December 31, 2002, Part I, Part II.
Proxy statement dated March 27, 2003, 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 2002. Total assets grew to $240,316,000
on December 31, 2002, while total deposits grew to $208,418,000. Total assets
grew 3.5% while total deposits grew 2.2%. These numbers were similar to the
previous year. The Federal Reserve Board lowered interest rates 50 basis points
one time during 2002 after lowering rates eleven times during 2001. Customers
responded to the lower rate volatility by choosing more traditional savings
deposit categories. The Corporation expects moderate growth through 2003.
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.
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
2
Corp. of Ionia, MI operates four branch locations in the Bank's market area
after recently expanding a loan production office to a full service branch. 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 eleven 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 116 and 119 on December 31,
2002 and 2001, 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 (%)
Interest margin analysis as a % of 2002 2001 2000 2002 2001 2000 2002 2001 2000
earning assets
Assets
Securities:
US Government & agencies $ 28,271 $ 30,394 $28,247 $ 1,379 $ 1,864 $ 1,854 4.90% 6.10% 6.60%
State and political subdivisions* 29,451 27,305 22,826 2,133 2,030 1,708 7.20% 7.40% 7.50%
Other securities 5,614 3,036 1,346 238 82 53 4.20% 2.70% 3.90%
-------- -------- -------- ------- ------- -------
Total investment securities 63,336 60,735 52,419 3,750 3,976 3,615 5.90% 6.60% 6.90%
Federal funds sold 7,300 8,326 6,748 117 312 430 1.60% 3.70% 6.40%
Loans:
Commercial loans* 93,008 83,129 79,365 6,433 6,842 7,280 6.90% 8.20% 9.20%
Real estate mortgages 25,844 28,255 30,003 1,963 2,294 2,361 7.60% 8.10% 7.90%
Consumer loans 29,579 27,716 28,345 2,293 2,369 2,550 7.80% 8.50% 9.00%
-------- -------- -------- ------- ------- -------
Total loans 148,431 139,100 137,713 10,689 11,505 12,191 7.20% 8.30% 8.90%
-------- -------- --------
Total average earning assets $219,067 $208,161 $196,880 14,556 15,793 16,236 6.60% 7.60% 8.20%
======== ======== ========
Total average assets $236,302 $225,248 $212,993
======== ======== ========
Interest bearing liabilities:
Deposits:
NOW account deposits $ 67,003 $67,946 $ 60,283 857 1,853 2,541 1.30% 2.70% 4.20%
Savings deposits 45,801 38,335 39,847 650 842 1,069 1.40% 2.20% 2.70%
Time deposits over $100,000 11,932 10,970 8,703 470 563 510 3.90% 5.10% 5.90%
Other time deposits 45,826 45,434 43,200 1,825 2,325 2,339 4.00% 5.10% 5.40%
-------- -------- -------- ------- ------- -------
Total deposits 170,562 162,685 152,033 3,802 5,583 6,459 2.20% 3.40% 4.20%
Federal funds purchased 13 - 12 - - 1 - - -
-------- -------- -------- ------- ------- -------
Total interest bearing liabilities 170,575 162,685 152,045 3,802 5,583 6,460 2.20% 3.40% 4.20%
------- ------- -------
Demand deposits 35,399 34,347 34,429
Other liabilities 2,230 2,347 1,585
Stockholders' equity 28,098 25,869 24,934
-------- -------- --------
Total liabilities and stockholders' equity $236,302 $225,248 $212,993
======== ======== ========
Interest expense as a % of average earning assets 1.70% 2.70% 3.30%
Net interest margin/net interest yield as a %
of average earning assets $10,754 $10,210 $ 9,776 4.90% 4.90% 5.00%
======= ======= =======
Net interest yield as a % of average assets 4.60% 4.50% 4.60%
* A tax adjustment of $825, $741, and $659 has been added to 2002, 2001 and 2000
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 2002 vs 2001 2001 vs 2000
Change in Change in Change in Total Change in Change in Change in Total
Volume Rate Rate/volume Volume Rate Rate/volume
Assets
Securities:
US Government & agencies $(130) $ (381) $ 26 $ (485) $ 141 $ (122) $ (9) $ 10
State and political subdivisions 160 (52) (5) 103 335 (11) (2) 322
Other securities 70 47 39 156 67 (17) (21) 29
----- -------- ------ -------- ----- -------- ------ ------
Total investment securities 100 (386) 60 (226) 543 (150) (32) 361
Federal funds sold (38) (179) 22 (195) 101 (177) (41) (117)
Loans:
Commercial loans 813 (1,092) (130) (409) 345 (748) (35) (438)
Real estate mortgages (196) (148) 13 (331) (138) 75 (4) (67)
Consumer loans 159 (220) (15) (76) (57) (127) 2 (182)
----- -------- ------ -------- ----- -------- ------ ------
Total loans 776 (1,460) (132) (816) 150 (800) (37) (687)
----- -------- ------ -------- ----- -------- ------ ------
Total average earning assets 838 (2,025) (50) (1,237) 794 (1,127) (110) (443)
Interest bearing liabilities:
NOW account deposits (26) (984) 14 (996) 323 (897) (114) (688)
Savings deposits 164 (298) (58) (192) (41) (194) 8 (227)
Time deposits over $100,000 49 (131) (11) (93) 133 (63) (17) 53
Other time deposits 20 (516) (4) (500) 121 (128) (8) (15)
----- -------- ------ -------- ----- -------- ------ ------
Total deposits 207 (1,929) (59) (1,781) 536 (1,282) (131) (877)
Federal funds purchased - - - - - - - -
----- -------- ------ -------- ----- -------- ------ ------
Total interest bearing liabilities 207 (1,929) (59) (1,781) 536 (1,282) (131) (877)
----- -------- ------ -------- ----- -------- ------ ------
Net Interest Income $ 631 $ (96) $ 9 $ 544 $ 258 $ 155 $ 21 $ 434
===== ======== ====== ======== ===== ======== ====== ======
II. Investment Portfolio
A. Book values of the investment portfolio (000's)
2002 2001 2000
U.S. Treasury securities and obligations of
U.S. government corporations of agencies $ 6,077 $11,101 $18,789
Obligations of states and political subdivisions 29,333 29,062 25,260
Other securities 6,030 3,811 1,937
Mortgage backed securities 17,831 19,895 14,966
-------------------------------
Total securities $59,271 $63,869 $60,952
===============================
5
B. Maturity distribution of the Investment portfolio.
Book Value Yield (%)
(000's)
US Government securities Maturity distribution:
One year or less $ 4,079 3.78
Over one year through five years 1,998 5.44
Over five years through ten years
Over ten years -
State and political subdivisions*
Maturity distribution:
One year or less 1,655 8.01
Over one year through five years 8,593 7.02
Over five years through ten years 15,297 6.74
Over ten years 3,788 7.12
Mortgage-backed securities 17,831 4.98
Other securities 6,030 2.70
III. Loan Portfolio
A. Types of loans
2002 2001 2000 1999 1998
Commercial $ 81,349 $ 64,029 $ 65,267 $ 64,547 $ 50,658
Real estate mortgage 37,265 38,499 28,184 31,502 35,457
Installment 20,413 24,083 27,561 27,625 28,322
Construction 16,288 16,442 15,963 10,977 5,738
-------- -------- -------- -------- --------
Total loans $155,315 $143,053 $136,975 $134,651 $120,175
======== ======== ======== ======== ========
B. Maturities and Sensitivities of Loans to Changes in Interest Rates as of
December 31, 2002 (000's).
Commercial Loans
Fixed rate loans with a maturity of:
Three months or less $ 1,047
Over three months through twelve months 4,379
One year through five years 40,456
Over five years 3,112
-------
Total fixed rate loans 48,994
Floating rate loans with a repricing frequency of:
Quarterly or more frequently 32,355
-------
Total commercial loans $81,349
=======
Real estate construction loans Fixed rate loans with a maturity of:
Three months or less $ 1,439
Over three months through twelve months 1,179
One year through five years 3,950
-------
Total fixed rate loans 6,568
Floating rate loans with a repricing frequency of:
Quarterly or more frequently 9,720
-------
Total real estate construction loans $16,288
=======
6
C. Risk Elements
1. Nonaccrual, Past Due, and Restructured Loans (000's)
12/31/02 12/31/01 12/31/00 12/31/99 12/31/98
Loans 90 days past due and still accruing
Commercial loans $ 801 $ 19 $ 5 $ 125 $ 174
Real estate loans - 80 - - -
Installment loans 28 72 69 21 98
------ ------ ------ ------ ------
Total loans 90 days pas due $ 829 $ 171 $ 74 $ 146 $ 272
====== ====== ====== ====== ======
Non accruing loans
Commercial loans $ 458 $ 577 $1,177 $ 802 $ 910
Real estate loans - 85 163 87 45
Installment loans 101 108 225 128 197
------ ------ ------ ------ ------
Total non accruing loans $ 559 $ 770 $1,565 $1,017 $1,152
====== ====== ====== ====== ======
There were no restructured loans
For the year ended 2002, if the loans reported as nonaccrual had earned at the
contracted interest rate, $38,700 of interest income would have been recorded.
Interest income of $4,900 was recorded on these loans in 2002.
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.
2. Potential Problem Loans
Management identified one potential problem loan in the amount of $325,000 that
is experiencing difficulties in the liquidation of the business and may cease
making the contractual payments before satisfactory resolution of the problems
are achieved. The Bank is secured on the credit and no potential loss has been
identified.
Foreign Outstandings
Not applicable
3. Loan concentrations
As of December 31, 2002, 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, 2002, 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)
2002 2001 2000 1999 1998
Balance at beginning of the period $2,139 $1,951 $1,913 $1,881 $1,957
Charge offs:
Commercial 12 28 172 240 157
Real estate - - - - -
Installment 113 77 91 137 69
Construction - - - - -
------------------------------------------------------
Total charge offs 125 105 263 377 226
Recoveries:
Commercial 2 87 42 68 10
Real estate - - - - -
Installment 19 11 19 21 20
Construction - - - - -
------------------------------------------------------
Total recoveries 21 98 61 89 30
------------------------------------------------------
Net charge offs 104 7 202 288 196
Provision charged to earnings 130 195 240 320 120
------------------------------------------------------
Balance at the end of the period $2,165 $2,139 $1,951 $1,913 $1,881
======================================================
Ratio of net charge offs during the period to 0.07% 0.01% 0.16% 0.23% 0.16%
average loans during the period
Net charged off loans totaled $104,000 during 2002. Most charged off loans were
the result of deficiency balances on repossessed automobiles and other assets
financed by retail consumers. Management's review of underwriting practices on
these loans indicated that most losses resulted from reasonable risk assumed
when the loans were originated.
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 Const Unallocated Total
December 31, 2002 $ 941 $ 43 $ 122 $ 95 $ 964 $ 2,165
% of loans in category 52.4% 24.0% 13.1% 10.5% 100.0%
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%
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 $ 2,622
Over three through six months 1,830
Over six months through twelve months 3,029
Over twelve months 5,152
-------
$12,633
=======
E. Not applicable
VI. Return on Equity and Assets
2002 2001 2000
Return on assets (%) 1.62 1.56 1.55
Return on equity (%) 13.6 13.6 13.2
Dividend payout ratio (%) 39.2 123.2 37.2
Equity to assets ratio (%) 12.2 11.4 11.8
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 2003.
The Bank intends to build a full service branch in Deerfield Township during
2003; the market is currently served from a grocery store branch.
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 17 of the accompanying Annual Report to Shareholders
10
ITEM 6. SELECTED FINANCIAL DATA
Refer to Page 16 of the accompanying Annual Report to Shareholders, except for:
(000's)
2002 2001 2000 1999 1998
Total Assets $240,316 $232,195 $225,258 $207,397 $197,486
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 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
2002 2001 2000 1999 1998
Interest income $ 13,731 $ 15,052 $ 15,578 $ 14,027 $ 13,826
Interest expense 3,802 5,583 6,460 5,373 5,355
-----------------------------------------------------------
Net interest income 9,929 9,469 9,118 8,654 8,471
Provision for possible loan losses 130 195 240 320 120
-----------------------------------------------------------
Net interest income after provision for
possible loan losses 9,799 9,274 8,878 8,334 8,351
Other income 2,731 2,482 2,245 2,597 2,283
Other expense 7,507 7,091 6,693 6,487 6,175
-----------------------------------------------------------
Income before provision for Federal 5,023 4,665 4,430 4,444 4,459
income tax
Provision for Federal income tax 1,207 1,150 1,129 1,166 1,239
-----------------------------------------------------------
Net income $ 3,816 $ 3,515 $ 3,301 $ 3,278 $ 3,220
===========================================================
Per share:
Net income $ 3.22 $ 2.96 $ 2.78 $ 2.76 $ 2.71
===========================================================
Dividends declared $ 1.26 $ 3.65 $ 1.04 $ 0.94 $ 2.90
===========================================================
Summary of Operations 2002 by quarter
4th qtr 3rd qtr 2nd qtr 1st qtr
Interest income $ 3,407 $ 3,447 $ 3,473 $ 3,404
Interest expense 851 946 992 1,013
-----------------------------------------------
Net interest income 2,556 2,501 2,481 2,391
Provision for possible loan losses - 20 50 60
-----------------------------------------------
Net interest income after provision for
possible loan losses 2,556 2,481 2,431 2,331
Other income 658 722 694 657
Other expense 1,888 1,921 1,900 1,798
-----------------------------------------------
Income before provision for Federal 1,326 1,282 1,225 1,190
income tax
Provision for Federal income tax 325 307 292 283
-----------------------------------------------
Net income $ 1,001 $ 975 $ 933 $ 907
===============================================
Per share:
Net Income $ 0.84 $ 0.82 $ 0.79 $ 0.77
===============================================
Dividends declared $ 0.60 $ 0.22 $ 0.22 $ 0.22
===============================================
11
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
===============================================
Net interest income
The Federal Reserve Board's Open Market Committee reduced rates fifty basis
points during 2002 after eleven rate reductions during 2001. Deposit, loan and
securities yields declined during the year in response to the previous rate
reductions as maturing instruments renewed at lower rates. The lack of return on
investment opportunities encouraged customers to return to the traditional
deposit categories such as every Day interest statement savings accounts and
money market deposit accounts. The Corporation experienced growth of 19.2% in
savings accounts, which are comprised of these two categories. Commercial loan
demand remained strong; the Corporation posted a 27% increase in this category
of loan. Falling rates encouraged borrowers to refinance mortgages. The
Corporation is currently selling most of the refinanced mortgages to the
secondary market and the mortgage portfolio declined as a result. The market for
traditional consumer loans continues to shrink as car leases, 0% financing from
the auto finance companies and home equity loans remain popular. The Corporation
was able to maintain its interest margin during 2002. The return on average
earning assets declined 1% while the total deposit cost dropped 1.2%. Interest
expense as a percent of average earning assets declined 1%. The Bank's net
interest yield on a Federal tax equivalent (FTE) basis was 4.6% in 2002 compared
to 4.5% in 2001. The Corporation continues to match rate sensitive assets and
rate sensitive liabilities to maintain margins in different rate environments.
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 $104,000 in 2002. Net charged off loans recorded in 2001 were $7,000.
Provisions for possible loan losses were $130,000 in 2002 and $195,000 for 2001.
The ratio of reserve for possible loan losses to gross loans equaled 1.4% and
1.5% in 2002 and 2001, 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% during
2002. Trust income increased as a result of a new fee structure introduced in
2001. The Corporation had not increased its fee structure for several years.
Declining market values in accounts where fees are based on asset values
continued to have a negative effect on trust income. Other income categories
increased by 26.9% as a result in increases in mortgage servicing income, the
capitalization of mortgage servicing rights and gains on sale of mortgages in
the secondary market.
Non-interest expense
Major components of non-interest expense are salaries and employee benefits,
occupancy and equipment expenses and other operating expenses. Personnel expense
increased 5.5% compared to 7.4% in 2001. Occupancy expenses decreased 4.6%
despite ongoing remodeling expenses to the main office. Other expenses increased
12.6% for the year. The Corporation celebrated the 100th anniversary of the Bank
during 2002; the effort was welcomed and appreciated by our customers. The
Corporation experienced higher consultant fees for assistance in developing a
technology plan for the future and some assistance in tax issues relative to the
remodeling effort that has progressed for the last few years. Legal fees
continue to be an issue as we move forward through these increasingly uncertain
times.
FINANCIAL CONDITION
Average assets for the Corporation totaled $236,302,000, $225,248,000 and
$212,993,000 in 2002, 2001 and 2000 respectively. The 5.0% growth in average
assets follows a 5.7% growth in 2001 and a 4.9% average growth in 2000. Average
loans grew 6.7% while average interest bearing deposits grew 4.8%. Average
earning assets grew 4.8% compared to average total deposit growth of 4.5%.
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 and the minimal expenses of
the Corporation. Dividends upstreamed to the Corporation were $1,514,000 in 2002
and $4,331,000 in 2001.
The estimated market value of U.S. Government securities and U.S. Agency
securities totaled 11.5% of total deposits on December 31, 2002. The percentage
for 2001 was 15.8%. 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 540 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% for both 2002 and 2001.
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 19.2% on December 31,
2002 and was 19.9% on December 31, 2001. 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 2002 and in 2001. In addition, the Corporation paid a one-time cash
dividend of $2.50 per share on March 30, 2001. Cash dividends totaled $1,495,000
in 2002 and $4,331,000 in 2001.Dividends per share equaled $1.26 in 2002 and
$3.65 in 2001. 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. The Corporation did not issue any shares of stock in 2002 or 2001.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Rate sensitivity analysis (000's), December 31, 2002
Repricing period in days 0-30 31-90 91-180 181-365 0-365 0ver 365
Rate sensitive assets (RSA):
Federal fund sold $ 5,850 $ - $ - $ - $ 5,850 $ -
Investment securities 8,252 715 4,353 9,439 22,759 36,512
Loans 53,435 1,860 4,465 5,203 64,963 90,352
--------------------------------------------------------------------
Total rate sensitive assets 67,537 2,575 8,818 14,642 93,572 126,864
Rate sensitive liabilities (RSL):
Demand deposits 38,804 - 38,804 28,005
Savings deposits 22,607 - 22,607 27,608
Time deposits 6,278 5,602 9,620 11,608 33,108 24,582
--------------------------------------------------------------------
Total rate sensitive liabilities 67,689 5,602 9,620 11,608 94,519 80,195
Repricing gap (RSA-RSL) $ (152) $ (3,027) $ (802) $ 3,034 $ (947) $ 46,669
====================================================================
As a percent of capital -0.5% -10.3% -2.7% 10.3% -3.2% 158.7%
As a percent of total assets -0.1% -1.3% -0.3% 1.3% -0.4% 19.4%
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, 2002
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 $ 57 $ 38 $ 19 $ (19) $ (38) $ (57)
As a percent of net int income 0.5% 0.3% 0.2% -0.2% -0.3% -0.5%
As a percent of net income 1.3% 0.9% 0.4% -0.4% -0.9% -1.3%
As a percent of net int income(FTE) 0.3% 0.2% 0.1% -0.1% -0.2% -0.3%
As a percent of net income (FTE) 0.9% 0.6% 0.3% -0.3% -0.6% -0.9%
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
14
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 3-14 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 27, 2003 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 58 Employee 36 years
Officer President & 14 years
Chief Executive
Officer
Present term 14 years
Bruce J. Cady 50 Employee 3 years
Officer Vice President 3 years
Present term 3 years
Laird A. Kellie 58 Employee 20 years
Officer Secretary 14 years
Present term 14 years
Joseph H. Black 53 Employee 13 years
Officer Treasurer & 13 years
Chief Financial
Officer
Present term 13 years
ITEM 11. EXECUTIVE COMPENSATION
Pages 4-6
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Page 2
15
Director Number Percentage of
of shares outstanding
stock
Dr. David H. Bush 47,600 4.01
Michael H. Blazo 20,012 1.69
Bruce J. Cady 500 0.04
Curt Carter 8,340 0.70
Patrick A. Cronin 2,654 0.22
Thomas K. Butterfield 29,400 2.48
James A. Harrington 33,512 2.82
Ernest W. Lefever 1,518 0.13
Tim Oesch 4,500 0.38
Charles Schiedegger 11,598 0.98
Executive Officers and Directors, as a group, own 159,934 shares or 13.5% of
1,186,472 total outstanding shares of common stock of Corporation as of December
31, 2002.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Page 6
Item 14. CONTROLS AND PROCEDURES.
(a) Evaluation of Disclosure Controls and Procedures. Within the 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 Vice President and Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective in timely alerting them to
material information relating to the Company (including its consolidated
subsidiaries) required to be included in the Company's periodic SEC filings.
(b) Changes in internal controls. There were no significant changes made in the
Company's internal controls or in other factors that could significantly affect
these internal controls subsequent to the date of the evaluation performed by
the Company's Chief Executive Officer and Chief Financial Officer.
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON 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 2002
and are incorporated herein by reference in Item 8:
Balance Sheets--December 31, 2002 and 2001 Page 3
Statements of Income--years ended December 31, 2002, 2001 and 2000 Page 5
Statements of Changes in Stockholders' equity--years ended December 31, 2002, 2001 and Page 4
2000
Statements of Cash Flows--years ended December 31, 2002, 2001 and 2000 Page 6
Notes to Financial Statements Pages 7-14
Report of Independent Public Accountants dated January 22, 2003 Page 15
(a)(2) Not applicable
(a)(3) The following exhibits are required to be filed with this report by item
14(c):
16
(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, 2002 (filed
herewith)
(21) Subsidiary of the Registrant: Lapeer County Bank & Trust Co., a Michigan
Corporation
(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 18, 2002 and December 03, 2002.
(c) See (a)(3)
(d) Not applicable
17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
County Bank Corp
/s/ Joseph H. Black
-------------------
By:
Joseph H. Black
Treasurer and Chief Financial Officer
Date: March 25, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/ Curt Carter
Curt Carter, President and Chief Executive
Officer
Date: March 25, 2003
/s/ Joseph H. Black
Joseph H. Black, Treasurer and Chief
Financial Officer
Date: March 25, 2003
/s/ David H Bush
----------------
David H. Bush, Director, Date: March 25, 2003
/s/ James F. Harrington
-----------------------
James F. Harrington, Director, Date: March 25, 2003
/s/ Patrick A. Cronin
---------------------
Patrick A. Cronin, Director, Date: March 25, 2003
/s/ Timothy Oesch
-----------------
Timothy Oesch, Director, Date: March 25, 2003
/s/ Thomas K. Butterfield
-------------------------
Thomas K. Butterfield, Director, Date: March 25, 2003
/s/ Ernest W. Lefever
---------------------
Ernest W. Lefever, Director, Date: March 25, 2003
18
CERTIFICATIONS
I, Curt Carter, certify that:
1. I have reviewed this annual report on Form 10-K of County Bank
Corp.;
2. Based on my knowledge, this annual 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
annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual 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 period in which this annual 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
annual report (the "Evaluation Date"); and
c) Presented in this annual 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; and
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 annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date or our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: March 25, 2003
By: /s/ Curt Carter
---------------
Curt Carter, President and Chief Executive Officer
19
I, Joseph H. Black, certify that:
6. I have reviewed this annual report on Form 10-K of County Bank
Corp.;
7. Based on my knowledge, this annual 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
annual report;
8. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
9. 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:
d) 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 period in which this annual report is being prepared;
e) 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
annual report (the "Evaluation Date"); and
f) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
10. 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):
c) 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; and
d) 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 annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date or our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: March 25, 2003
By: /s/ Joseph H. Black
-------------------
Joseph H. Black, Treasurer and Chief Financial Officer
20
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
(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,
2002 (filed herewith)
(21) Subsidiary of the Registrant: Lapeer County Bank & Trust Co., a
Michigan Corporation
(99.1) Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(99.2) Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002