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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 March 31, 2003
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 of 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 March 31, 2003.
COUNTY BANK CORP
FORM 10-Q
For the Quarter ended March 31, 2003
PART I: FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Balance Sheets-
At March 31, 2003 and December 31, 2002 4
Statements of Income-
For the three months ended March 31, 2003 and March 31, 2002 5
Statement of Cash Flows
For the three months ended March 31, 2003 and March 31, 2002 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 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 from 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, 2002.
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.
Critical Accounting Policies
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.
3
CONSOLIDATED FINANCIAL STATEMENTS
BALANCE SHEETS (in thousands)
March 31 December 31
2003 2002
ASSETS
Cash and due from banks $ 10,824 $ 14,401
Investment securities available for sale 32,653 34,690
Investment securities held to maturity 23,827 24,040
Other securities 541 541
---------- ---------
Total investment securities 57,021 59,271
Federal funds sold 15,400 5,850
Loans 155,821 155,315
Less: Reserve for possible loan losses 2,172 2,165
---------- ---------
Net loans 153,649 153,150
Bank premises and equipment 4,962 4,934
Interest receivable and other assets 2,950 2,710
---------- ---------
TOTAL ASSETS $244,806 $240,316
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Noninterest-bearing demand $ 38,734 $ 33,704
Interest bearing demand 63,026 66,809
Savings 53,018 50,215
Time 57,142 57,690
---------- ---------
Total deposits 211,920 208,418
Interest payable and other liabilities 2,731 2,483
---------- ---------
TOTAL LIABILITIES 214,651 210,901
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 13,266 12,595
Unrealized gains and losses on securities available
for sale 2,323 2,254
---------- ---------
TOTAL STOCKHOLDERS' EQUITY 30,155 29,415
---------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $244,806 $240,316
========== =========
4
CONSOLIDATED INCOME STATEMENTS
(in thousands) Three months ended
March 31
2003 2002
INTEREST INCOME
Interest and fees on loans $ 2,640 $ 2,602
Interest on investments: taxable 288 423
Interest on investments: nontaxable 346 351
Interest on Federal funds sold 33 28
--------- ---------
TOTAL INTEREST INCOME 3,307 3,404
INTEREST EXPENSE
Demand deposits 134 240
Savings deposits 117 162
Time deposits 504 611
Interest on Federal funds purchased - -
--------- ---------
TOTAL INTEREST EXPENSE 755 1,013
--------- ---------
NET INTEREST INCOME 2,552 2,391
Provision for possible loan losses 15 60
--------- ---------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 2,537 2,331
OTHER INCOME
Service fees on loan and deposit accounts 294 278
Other 364 379
--------- ---------
TOTAL OTHER INCOME 658 657
OTHER EXPENSES
Salaries and employee benefits 1,216 1,111
Net occupancy expense 241 242
Other 484 445
--------- ---------
TOTAL OTHER EXPENSE 1,941 1,798
INCOME BEFORE PROVISION FOR FEDERAL
INCOME TAX 1,254 1,190
Provision for Federal income tax 300 283
--------- ---------
NET INCOME 954 907
========= =========
EARNINGS PER SHARE
Net income $ 0.80 $ 0.76
Cash dividend declared $ 0.24 $ 0.22
5
STATEMENT OF CASH FLOWS
(in thousands) Three months ended
March 31
2003 2002
Cash flows from operating activities
Net income $ 954 $ 907
Adjustments to reconcile net income to net cash
provided from operating activities
Depreciation and amortization 103 115
Provision for loan losses 15 60
Net amortization and accretion of securities 53 58
Net change in accrued interest receivable and other (292) (285)
Net change in accrued interest payable and other 214 228
--------- --------
Net cash provided by operating activities 1,047 1,083
Cash flows from investing activities
Proceeds from maturities of investment securities: AFS 3,510 3,765
Proceeds from maturities of investment securities: HTM 202 287
Purchase of investment securities: AFS (1,410) (3,306)
Purchase of investment securities: HTM -- (354)
Net increase in loans (514) (741)
Proceeds from the sale of other real estate 52
Premises and equipment expenditures (131) (33)
--------- --------
Net cash provided by (used in) investing activities 1,709 (382)
Cash flows from financing activities
Net increase in interest bearing and
non-interest bearing demand accounts 1,247 836
Net increase in savings and time deposits 2,255 1,389
Cash dividends paid (285) (261)
--------- --------
Net cash provided by financing activities 3,217 1,964
--------- --------
Net increase in cash and equivalents 5,973 2,665
Cash and equivalents at beginning of year $ 20,251 $ 19,933
--------- --------
Cash and equivalents at end of period $ 26,224 $ 22,598
========= ========
Cash paid for:
Interest $ 773 $ 1,026
Income taxes -- --
6
NOTE 1. INVESTMENTS
(in thousands)
The carrying amount and approximate market value of securities held to maturity
were as follows
March 31, 2003
Amortized Gross Gross Estimated
Cost Unrealized Unrealized Market
Gains Losses Value
Obligations of states and political subdivisions $21,179 $ 1,222 $ 14 $22,387
Mortgage-backed securities 2,648 113 -- 2,761
------- ------- ------- -------
$23,827 $ 1,335 $ 14 $25,148
Total ======= ======= ======= =======
The carrying amount and approximate market value of securities held to maturity
were as follows
December 31, 2002
Amortized Gross Gross Estimated
Cost Unrealized Unrealized Market
Gains Losses Value
Obligations of states and political subdivisions $21,224 $ 1,339 $ 5 $22,558
Mortgage-backed securities 2,816 88 -- 2,904
------- ------- ------- -------
Total $24,040 $ 1,427 $ 5 $25,462
======= ======= ======= =======
The carrying amount and approximate market value of securities available for
sale were as follows
March 31, 2003
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 $ 5,273 $ 49 $ 14 $ 5,308
Obligations of states and political subdivisions 7,744 478 7 8,215
Corporate securities 2,966 2,719 61 5,624
Mortgage-backed securities 13,151 355 -- 13,506
------- ------- ------- -------
Total $29,134 $ 3,601 $ 82 $32,653
======= ======= ======= =======
The carrying amount and approximate market value of securities available for
sale were as follows
December 31,2002
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 $ 6,008 $ 70 $ 1 $ 6,077
Obligations of states and political subdivisions 7,605 505 1 8,109
Corporate securities 2,974 2,584 -- 5,558
Mortgage-backed securities 14,688 327 69 14,946
------- ------- ------- -------
Total $31,275 $ 3,486 $ 71 $34,690
======= ======= ======= =======
7
NOTE 2. LOANS
(in thousands) 3/31/03 3/31/02
Commercial $ 84,605 $ 65,428
Real estate mortgage 37,702 38,406
Installment 24,212 25,046
---------- ----------
Construction 9,302 14,910
$ 155,821 $ 143,790
========== ==========
Transactions in the reserve for possible loan losses were as follows
for the three months ended March 31:
2003 2002
Beginning balance at beginning of period $ 2,165 $ 2,139
Provision charged to earnings 15 60
Loans charged off 21 6
Recoveries 13 2
--------- ---------
Balance at end of the period $ 2,172 $ 2,195
========= =========
Reserve as a percent of total loans 1.39% 1.53%
Loans outstanding to executive officers, directors, $ 3,631 $ 3,356
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
The Corporation experienced moderate loan demand through the first quarter. Net
loans increased $506,000 in the first three months. New loan activity was mild
in commercial loan categories. Mortgage loan activity increased as a result of
low interest rates, but most of the eligible loans were sold in the secondary
market. The demand for traditional consumer loans remained soft, although the
Corporation has experienced success with targeted promotions. Home equity lines
of credit increased, although many credit lines were rewritten in mortgage
restructuring.
Savings deposits increased while interest bearing demand deposits decreased
during the first three months of the year. Our Choice product, which offers a
short term market rate with check writing privileges declined due to continued
low rates. Balances in non-interest bearing demand accounts increased in
anticipation of tax payments. Deposit customers are waiting for increases in
deposit rates.
Increases in deposit accounts and maturities in the investment portfolio met
demands for new loans. Activity in the investment portfolio increased as loan
demand moderated. 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
remain liquid enough to meet loan demand.
8
Capital Resources
The Corporation paid a quarterly dividend of $.24 per share during the first
quarter. Strong capital ratios in excess of regulatory requirements enabled the
Board of Directors to take this action. The Corporation's tier one risk-based
capital ratio was 17.4% on March 31, 2003 after payment of the dividends.
Financial institutions are considered to be adequately capitalized if this ratio
exceed 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 quarterly FTE return on average assets for the
first quarter fell to 4.53% from 4.58% in the fourth quarter of 2002. The
interest spread declined from 4.50% to 4.46%. Management anticipates that the
Federal Reserve Bank will make fewer 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 return on average assets was 1.57% during the first quarter.
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 $8,000 in the first quarter of 2003. Management continues to fund the
reserve for loan losses based on deteriorating economic conditions in the
immediate market area related to the slow down in the automobile industry.
Higher losses and delinquency ratios are anticipated, although they are not
expected to become unmanageable.
Liquidity
There were not 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, 2002. 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 in not currently involved in legal proceedings that
are of a material nature.
B) A form 8-K was filed on March 5, 2003 in response to regulation FD
containing a press release relative to the payment of the first
quarter dividend.
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
May 12, 2003
COUNTY BANK CORP
/s/ Joseph H. Black
-------------------
Joseph H. Black
Treasurer and Chief Financial Officer
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: May 12, 2003
By:
/s/ Curt Carter
- ---------------
Curt Carter
President and Chief Executive Officer
12
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: May 12, 2003
By:
/s/ Joseph H. Black
- -------------------
Joseph H. Black
Treasurer and Chief Financial Officer
13
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
99.1 Certification pursuant to 18 U.S.C. Section 1350, as enacted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification pursuant to 18 U.S.C. Section 1350, as enacted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002