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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, 2004
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, 2004.
COUNTY BANK CORP
FORM 10-Q
For the Quarter ended March 31, 2004
PART I: FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Balance Sheets-At March 31, 2004 and December 31, 2003 4
Statements of Income-For the three months ended March 31, 2004
and March 31, 2003 5
Statement of Cash Flows
For the three months ended March 31, 2004 and March 31, 2003 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 10
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 14
This report includes forward-looking statements within the meaning of section
27a of the Securities Act of 1933, as amended, which involve inherent risks and
uncertainties. A number of important factors could cause actual results to
differ materially from those in the forward-looking statements. Those factors
include the economic environment, competition, products and pricing in the
geographic area and business areas in which County Bank Corp (the Corporation)
operates, prevailing interest rates, changes in government regulations and
policies affecting financial services companies, credit quality and credit risk
management, changes in the banking industry including the effects of
consolidation resulting form possible mergers of financial institutions,
acquisitions and integration of acquired businesses. The Corporation undertakes
no obligation to release revisions to these forward-looking statements or
reflect events or circumstances after the date of this report.
2
Part I - Financial Information
Item I - Financial Statements
Introduction to Financial Statements
The consolidated financial statements of County Bank Corp and subsidiary, Lapeer
County Bank & Trust Co., have been prepared, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted pursuant to such rules and regulations. The Company believes that the
disclosures are adequate to make the information presented not misleading when
read in conjunction with financial statements and the notes thereto included in
County Bank Corp's Form 10-K as filed with the Securities and Exchange
Commission for the year ended December 31, 2003.
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
The nature of the financial services industry is such that, other than described
below, the use of estimates and management judgment are not likely to present a
material risk to the financial statements. In cases where estimates or
management judgment are required, internal controls and processes are
established to provide assurance that such estimates and management judgments
are materially correct to the best of management's knowledge.
Allowance for Loan Losses. Accounting for loan classifications, accrual status,
and determination of the allowance for loan losses is based on regulatory
guidance. This guidance includes, but is not limited to, generally accepted
accounting principles, the uniform retail credit classification and joint policy
statement on the allowance for loan losses methodologies issued by the Federal
Financial Institutions Council. Accordingly, the allowance for loan losses
includes a reserve calculation based on an evaluation of loans determined to be
impaired, risk ratings, historical losses, loans past due, and other subjective
factors.
3
CONSOLIDATED FINANCIAL STATEMENTS
BALANCE SHEETS (in thousands)
March 31 December 31
2004 2003
ASSETS
Cash and due from banks $ 10,758 $ 13,172
Investment securities available for sale 41,190 42,590
Investment securities held to maturity 22,809 23,167
Other securities 541 541
-------- --------
Total investment securities 64,540 66,298
Federal funds sold 10,550 900
Loans 158,189 161,714
Less: Reserve for possible loan losses 2,128 2,136
-------- --------
Net loans 156,061 159,578
Bank premises and equipment 6,220 6,052
Interest receivable and other assets 3,068 2,662
-------- --------
TOTAL ASSETS $251,197 $248,662
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Non-interest bearing demand $ 39,493 $ 39,463
Interest bearing demand 63,992 64,103
Savings 55,779 54,694
Time 57,017 56,711
-------- --------
Total deposits 216,281 214,971
Interest payable and other liabilities 2,595 2,337
-------- --------
TOTAL LIABILITIES 218,876 217,308
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 15,129 14,621
Unrealized gains and losses on securities available
for sale 2,626 2,167
-------- --------
TOTAL STOCKHOLDERS' EQUITY 32,321 31,354
-------- --------
TOTAL LIABILITES AND STOCKHODERS' EQUITY $251,197 $248,662
======== ========
4
CONSOLIDATED INCOME STATEMENTS
(in thousands)
Three months ended
March 31
2004 2003
INTEREST INCOME
Interest and fees on loans $2,388 $2,640
Interest on investments: taxable 280 288
Interest on investments: nontaxable 353 346
Interest on Federal funds sold 14 33
------ ------
TOTAL INTEREST INCOME 3,035 3,307
INTEREST EXPENSE
Demand deposits 104 134
Savings deposits 93 117
Time deposits 417 504
Interest on Federal funds purchased 2 --
------ ------
TOTAL INTEREST EXPENSE 616 755
------ ------
NET INTEREST INCOME 2,419 2,552
Provision for possible loan losses -- 15
------ ------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 2,419 2,537
OTHER INCOME
Service fees on loan and deposit accounts 299 294
Other 359 364
------ ------
TOTAL OTHER INCOME 658 658
OTHER EXPENSES
Salaries and employee benefits 1,300 1,216
Net occupancy expense 255 241
Other 481 484
------ ------
TOTAL OTHER EXPENSE 2,036 1,941
INCOME BEFORE PROVISION FOR FEDERAL
INCOME TAX 1,041 1,254
Provision for Federal income tax 226 300
------ ------
NET INCOME 815 954
====== ======
EARNINGS PER SHARE
Net income $ 0.69 $ 0.80
Cash dividend declared $ 0.26 $ 0.24
5
STATEMENT OF CASH FLOWS
(in thousands)
Three months ended
March 31
2004 2003
Cash flows from operating activities
Net income $ 815 $ 954
Adjustments to reconcile net income to net cash
provided from operating activities
Depreciation and amortization 99 103
Provision for loan losses -- 15
Net amortization and accretion of securities 55 66
Net change in accrued interest receivable and other (406) (271)
Net change in accrued interest payable and other 21 214
-------- --------
Net cash provided by operating activities 584 1,081
Cash flows form investing activities
Proceeds from maturities of investment securities: AFS 4,050 3,510
Proceeds from maturities of investment securities: HTM 350 202
Purchase of investment securities: AFS (2,000) (1,410)
Purchase of investment securities: HTM -- --
Net (increase) decrease in loans 3,517 (548)
Proceeds from the sale of other real estate -- 52
Premises and equipment expenditures (267) (131)
-------- --------
Net cash provided by investing activities 5,650 1,675
Cash flows from financing activities
Net increase (decrease) in interest bearing and
non-interest bearing demand accounts (81) 1,247
Net increase in savings and time deposits 1,391 2,255
Cash dividends paid (308) (285)
-------- --------
Net cash provided by financing activities 1,002 3,217
-------- --------
Net increase in cash and equivalents 7,236 5,973
Cash and equivalents at beginning of year 14,072 20,251
-------- --------
Cash and equivalents at end of period $ 21,308 $ 26,224
======== ========
Cash paid for:
Interest $ 612 $ 773
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, 2004
Amortized Gross Gross Estimated
Cost Unrealized Unrealized Market
Gains Losses Value
Obligations of states and political subdivisions $20,986 $ 1,291 $ 4 $22,273
Mortgage-backed securities 1,823 55 -- 1,878
------- ------- ------- -------
Total $22,809 $ 1,346 $ 4 $24,151
======= ======= ======= =======
The carrying amount and approximate market value of securities held to maturity
were as follows
December 31, 2003
Amortized Gross Gross Estimated
Cost Unrealized Unrealized Market
Gains Losses Value
Obligations of states and political subdivisions $21,182 $ 1,287 $ 19 $22,450
Mortgage-backed securities 1,985 61 -- 2,046
------- ------- ------- -------
Total $23,167 $ 1,348 $ 19 $24,496
======= ======= ======= =======
The carrying amount and approximate market value of securities available for
sale were as follows
March 31, 2004
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 $12,035 $ 135 $ -- $12,170
Obligations of states and political subdivisions 10,844 617 18 11,443
Corporate securities 2,931 3,081 26 5,986
Mortgage-backed securities 11,400 209 18 11,591
------- ------- ------- -------
Total $37,210 $ 4,042 $ 62 $41,190
======= ======= ======= =======
The carrying amount and approximate market value of securities available for
sale were as follows
December 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 $13,035 $ 16 $ 150 $12,901
Obligations of states and political subdivisions 10,864 562 45 11,381
Corporate securities 2,940 2,836 35 5,741
Mortgage-backed securities 12,468 184 85 12,567
------- ------- ------- -------
Total $39,307 $ 3,598 $ 315 $42,590
======= ======= ======= =======
7
NOTE 2. LOANS
(in thousands) 3/31/2004 12/31/2003
Commercial $ 18,067 $ 26,180
Commercial Real estate mortgage 69,331 64,288
Real estate mortgage 35,149 37,164
Installment 28,409 23,555
Construction 7,233 10,527
-------- --------
Total loans $158,189 $161,714
======== ========
Transactions in the reserve for possible loan losses were as follows for the
three months ended March 31:
2004 2003
Beginning balance at beginning of period $2,136 $2,165
Provision charged to earnings -- 15
Loans charged off 9 21
Recoveries 1 13
------ ------
Balance at end of the period $2,128 $2,172
====== ======
Reserve as a percent of total loans 1.35% 1.39%
Loans outstanding to executive officers, directors, principal $4,228 $3,631
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 falling loan demand through the first quarter. Net
loans decreased $3,517,000 in the first three months. New loan activity in
commercial loan categories did not replace commercial loan repayments. Mortgage
loan activity declined as a result of stable to rising interest rates. The
demand for traditional consumer loans remained soft. Home equity lines of credit
increased, but did not offset decreases in other loan categories. Total loans
declined 2.2% during the quarter.
Savings deposits increased 1.3% while interest bearing demand deposits decreased
..2% 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 .1%.
Deposit customers are waiting for increases in deposit rates and continue to
seek safety for their principal.
Activity in the investment portfolio moderated. Cash flow from mortgage backed
securities continued at accelerated speeds as a result of low interest rates and
refinancing activity. Municipal investments declined as bonds were called. The
Corporation is shortening its securities investment targets in anticipation of
rising rates. The Corporation determined to increase liquidity during the first
quarter and consequently reduced its investment activity. 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 $.26 per share during the first.
Strong capital ratios in excess of regulatory requirements enabled the Board of
Directors to take this action. The Bank's tier one risk-based capital ratio was
17.8 on March 31, 2004 after payment of the dividends. Financial institutions
are adequately capitalized if this ratio exceeds 4.0% and well capitalized if
the ratio exceeds 6.0%. The primary use of the Corporation's capital is to
support growth.
The Corporation increased liquidity during the first quarter in anticipation of
the need to purchase up to 96,000 shares of stock from the estate of its largest
shareholder. The Corporation purchased 68,157 shares from the estate at a price
of $50.35 per share on April 16, 2004 and does not anticipate the purchase of
any additional shares. The shares were retired and no plans exist to reissue
them at the current time. The Corporation arranged to borrow the funds necessary
to complete the purchase.
Results of Operations
Stable then declining interest rates and loan repayments reduced 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 interest margin as
percent of average assets for the first quarter fell to 4.18% from 4.20% in the
fourth quarter of 2003. The interest spread remained 4.18%. Management
anticipates that the Federal Reserve Bank will make few changes to interest
rates in the next few quarters and pressure on the interest margin will continue
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 1.30% 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 loan volumes, the
level and composition of non-accrual, past due and renegotiated or reduced rate
loans, current economic conditions, estimated market value of any underlying
collateral, adverse conditions that may effect a borrower's ability to repay,
and an evaluation of each borrower's credit worthiness. This evaluation is
inherently subjective as it requires estimates that are susceptible to
significant revision as more information comes to light. 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 2004. Management did not fund the
reserve for loan losses based on a strong ratio of loan loss reserve to total
loans and stable risk factors in the loan portfolio.
Liquidity
There were no significant changes to the Corporation's liquidity risk during the
quarter. Liquidity is required to meet loan demand and pay dividends to
shareholders. The Corporation maintains sufficient liquidity in Federal Funds
Sold to meet normal liquidity demands. The Corporation maintains an available
for sale portfolio of U.S. Government bonds and U.S. Government Sponsored Agency
bonds as additional insurance against liquidity risk.
9
The Corporation purchased and retired 68,157 stares of stock at a total price of
$3,432,000 by borrowing funds from a correspondent bank. The anticipated demand
on liquidity will be less than $200,000 per quarter for the next five years.
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, 2003. There have been no events or changes to the
Corporations' assets and liabilities that significantly alter those risk
disclosures.
ITEM 4. Controls and Procedures
The Company carried out an evaluation, under the supervision and with the
participation of the Company's management, including the Company's Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures as of
September 30, 2003, pursuant to Exchange Act Rule 13a-15. Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that the Company's disclosure controls and procedures were effective as of March
31, 2004, 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.
There was no change in the Company's internal control over financial reporting
that occurred during the Company's fiscal quarter ended March 31, 2004, that has
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.
PART II.
ITEM 1. LEGAL PROCEEDINGS
The Corporation from time to time is involved in legal proceedings arising in
the ordinary course of business, which in aggregate involve amounts that are
believed by management to be immaterial to the financial condition of the
Corporation. The Corporation is not currently involved in legal proceedings that
are of a material nature.
ITEM 6. EXHIBITS AN REPORTS OF FORM 8-K
A) Exhibits
B) A form 8-K was filed on March 4, 2004 in response to regulation FD containing
a press release relative to the payment of the second 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 13, 2004
COUNTY BANK CORP
/s/Joseph H. Black
-------------------------------------
Joseph H. Black
Treasurer and Chief Financial Officer
11
10-Q EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
EX-31.1 Certification of Chief Executive Officer pursuant to Section 302
EX-31.2 Certification of Chief Financial Officer pursuant to Section 302
EX-32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
EX-32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
12