Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarter ended September 30, 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 1,118,315 shares of common stock outstanding as of September 30, 2004
COUNTY BANK CORP
FORM 10-Q
For the Quarter ended September 30, 2004
PART I: FINANCIAL INFORMATION PAGE
Item 1. Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and the Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk 11
Item 4. Controls and Procedures 11
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports of Form 8-K 11
All items except those set forth above are inapplicable and have been omitted.
SIGNATURES 15
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)
(Unaudited)
September 30 December 31
2004 2003
ASSETS
Cash and cash equivalents $ 13,624 $ 14,072
Investment securities available for sale 44,004 42,590
Investment securities held to maturity 20,674 23,167
Other securities 541 541
-------- --------
Total investment securities 65,219 66,298
Loans 163,961 161,714
Less: Reserve for possible loan losses 2,023 2,136
-------- --------
Net loans 161,938 159,578
Bank premises and equipment 6,053 6,052
Interest receivable and other assets 3,049 2,662
-------- --------
TOTAL ASSETS $249,883 $248,662
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Non-interest bearing demand $ 40,516 $ 39,463
Interest bearing demand 63,299 64,103
Savings 52,914 54,694
Time 57,432 56,711
-------- --------
Total deposits 214,161 214,971
Other borrowed funds 3,230 --
Interest payable and other liabilities 2,621 2,337
-------- --------
TOTAL LIABILITIES 220,012 217,308
STOCKHOLDERS' EQUITY
Common Stock-$5.00 par value, 3,000,000 shares
Authorized, 1,118,315 shares outstanding in 2004 and
1,186,472 shares outstanding in 2003 5,592 5,932
Surplus 8,634 8,634
Undivided profits 13,180 14,621
Unrealized gains and losses on securities available
for sale 2,465 2,167
-------- --------
TOTAL STOCKHOLDERS' EQUITY 29,871 31,354
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $249,883 $248,662
======== ========
4
CONSOLIDATED INCOME STATEMENTS
(in thousands)
(Unaudited) (Unaudited)
Three months ended Nine months ended
September 30 September 30
2004 2003 2004 2003
INTEREST INCOME
Interest and fees on loans $2,419 $2,415 $7,223 $7,644
Interest on investments: taxable 276 247 830 800
Interest on investments: nontaxable 351 359 1,065 1,049
Interest on Federal funds sold 24 42 61 126
------ ------ ------ ------
TOTAL INTEREST INCOME 3,070 3,063 9,179 9,619
INTEREST EXPENSE
Demand deposits 137 101 344 357
Savings deposits 78 100 245 342
Time deposits 406 459 1,228 1,444
Federal funds purchased -- -- 2 --
Other borrowed funds 24 -- 35 --
------ ------ ------ ------
TOTAL INTEREST EXPENSE 645 660 1,854 2,143
------ ------ ------ ------
NET INTEREST INCOME 2,425 2,403 7,325 7,476
Provision for possible loan losses -- 5 -- 35
------ ------ ------ ------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 2,425 2,398 7,325 7,441
OTHER INCOME
Service fees on loan and deposit accounts 372 301 977 887
Other 306 456 1,177 1,219
------ ------ ------ ------
TOTAL OTHER INCOME 678 757 2,154 2,106
OTHER EXPENSES
Salaries and employee benefits 1,313 1,266 3,912 3,711
Net occupancy expense 248 227 757 703
Other 474 536 1,511 1,528
------ ------ ------ ------
TOTAL OTHER EXPENSE 2,035 2,029 6,180 5,942
INCOME BEFORE PROVISION FOR FEDERAL
INCOME TAX 1,068 1,126 3,299 3,605
Provision for Federal income tax 236 257 737 847
------ ------ ------ ------
NET INCOME 832 869 2,562 2,758
====== ====== ====== ======
EARNINGS PER SHARE
Net income $ 0.74 $ 0.73 $ 2.24 $ 2.32
Cash dividend declared $ 0.27 $ 0.24 $ 0.80 $ 0.72
5
Consolidated Statement of Comprehensive Income
(in thousands)
(Unaudited) (Unaudited)
Three months ended Nine months ended
September 30 September 30
2004 2003 2004 2003
------ ------ ------ ------
Net Income $ 848 $ 869 $2,562 $2,758
Other Comprehensive income (loss):
Change in unrealized gain in securities available for sale, net of tax 635 (289) 299 26
------ ------ ------ ------
Comprehensive income $1,483 $ 580 $2,861 $2,784
====== ====== ====== ======
Consolidated Statement of Changes in Stockholders' Equity
(in thousands)
Total
Common Retained Accumulated Shareholders'
Stock Earnings OCI Equity
Balance - December 31, 2003 $ 5,932 $ 23,255 $ 2,167 $ 31,354
Net Income -- 2,562 -- 2,562
Change in unrealized gain on securities available for sale, net of tax -- -- 298 298
Repurchase of Common Stock (340) (3,091) -- (3,431)
Cash dividends -- (912) -- (912)
-------- -------- -------- --------
Balance - June 30, 2004 $ 5,592 $ 21,814 $ 2,465 $ 29,871
======== ======== ======== ========
6
STATEMENT OF CASH FLOWS
(in thousands)
(Unaudited)
Nine months ended
September 30
2004 2003
Cash flows from operating activities
Net income $ 2,562 $ 2,758
Adjustments to reconcile net income to net cash
provided from operating activities
Depreciation 332 310
Provision for loan losses -- 35
Net amortization and accretion of securities 163 139
Net change in accrued interest receivable (387) (213)
Net change in accrued interest payable and other 129 21
-------- --------
Net cash provided by operating activities 2,799 3,050
Cash flows form investing activities
Proceeds from maturities of investment securities: AFS 7,732 11,357
Proceeds from maturities of investment securities: HTM 2,541 2,170
Purchase of investment securities: AFS (8,828) (16,233)
Purchase of investment securities: HTM (76) (2,043)
Net (increase) decrease in loans (2,360) 4,755
Premises and equipment expenditures (333) (1,236)
-------- --------
Net cash provided from (used in) investing activities (1,324) (1,230)
Cash flows from financing activities
Net increase (decrease) in interest bearing and
non-interest bearing demand accounts 249 999
Net increase (decrease) in savings and time deposits (1,059) 4,213
Proceeds from issuance of long term debt 3,431 --
Repayment of long term debt (201) --
Payment to repurchase common stock (3,431) --
Cash dividends paid (912) (854)
-------- --------
Net cash provided from (used in) financing activities (1,923) 4,358
-------- --------
Net increase (decrease) in cash and equivalents (448) 6,178
Cash and equivalents at beginning of year 14,072 20,251
-------- --------
Cash and equivalents at end of period $ 13,624 $ 26,429
======== ========
Cash paid for:
Interest $ 1,843 $ 2,212
Income taxes $ 498 $ 905
7
NOTE 1. INVESTMENTS
(in thousands)
The carrying amount and approximate market value of securities held to maturity
were as follows
September 30, 2004
Amortized Gross Gross Estimated
Cost Unrealized Unrealized Market
Gains Losses Value
Obligations of states and political subdivisions $19,148 $ 992 $ 6 $20,134
Mortgage-backed securities 1,526 36 -- 1,562
------- ------- ------- -------
Total $20,674 $ 1,028 $ 6 $21,696
======= ======= ======= =======
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
September 30, 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 $14,560 $ 33 $ 66 $14,527
Obligations of states and political subdivisions 13,652 563 38 14,177
Corporate securities 2,914 3,174 9 6,079
Mortgage-backed securities 9,143 139 61 9,221
------- ------- ------- -------
Total $40,269 $ 3,909 $ 174 $44,004
======= ======= ======= =======
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
======= ======= ======= =======
8
NOTE 2. LOANS
(in thousands)
9/30/2004 12/31/2003
Commercial $ 16,425 $ 26,180
Commercial Real estate mortgage 73,586 64,288
Real estate mortgage 34,456 37,164
Installment 28,743 23,555
Construction 10,751 10,527
-------- --------
Total loans $163,961 $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 -- 35
Loans charged off 129 66
Recoveries 16 26
-------- --------
Balance at end of the period $ 2,023 $ 2,160
======== ========
Reserve as a percent of total loans 1.23% 1.34%
Loans outstanding to executive officers, directors, principal $ 4,559 $ 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. Loan
demand increased moderately during the second quarter and the growth trend
continued into the third quarter in the areas of commercial loans and home
equity loans. Mortgage loan activity continued to decline as a result of stable
to rising interest rates and remains soft. The demand for traditional consumer
loans continues to decline. Overall loan growth was 1.4% since December 31,
2003.
Savings and time deposits increased $1,059,000 while interest bearing and
non-interest bearing demand deposits increased $249,000 during the first nine
months of the year. Deposit customers are seeking increases in deposit rates,
yet they continue to seek safety for their principal. Low returns in short term
deposits such as interest bearing demand are not an incentive for depositors.
Activity in the investment portfolio moderated. Cash flow from mortgage backed
securities declined as a result of increasing interest rates and reduced
refinancing activity. Municipal investments remained stable as maturities and
calls were reinvested. 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
9
to supplement income but remain liquid enough to meet loan demand. Increasing
loan demand is reducing investment activity.
Capital Resources
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. The Corporation arranged to borrow the funds necessary to complete the
purchase.
The Corporation paid a quarterly dividend of $.26 per share during the first and
$.27 per share on a reduced number of shares during the second quarter and third
quarters. 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 10.9% on September 30, 2004 after payment of the dividends and
retirement of the stock. 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.
Results of Operations
Increasing 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 recovery of loan demand increased the
Bank's loan to deposit ratio from 74.6% on June 30, 2004 to 76.5% on September
30, 2004. Consequently, the quarterly FTE interest margin as percent of average
assets for the third quarter grew to 4.19 from 4.18 in the first quarter. The
second quarter interest margin was 4.24% due to the recovery of non accrual
interest on some larger nonperforming loans that were resolved. The interest
spread grew to 4.20%. Management anticipates that the Federal Reserve Bank will
increase interest rates over the next few quarters and pressure on the interest
margin will ease as variable interest rates increase. However, time and indexed
deposit rates tend to increase in anticipation in these rate increases. Loan
rates are carefully negotiated to maintain margin, particularly when fixed rate
financing is requested. Other income levels fell in the third quarter due to the
increased level of second quarter income due to gains on the sale of other real
estate. The Bank introduced the Courtesy Overdraft Service in the third quarter,
and customer response is strong. Other expense categories performed at the
comparable levels to previous years. The Bank's return on average assets was
1.34% during the third 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 $2,000 in the third 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.
10
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.
The Corporation purchased and retired 68,157 shares of stock at a total price of
$3,431,000 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, 2004, 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
September 30, 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 September 30, 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 September 2, 2004 in response to regulation FD
containing a press release relative to the payment of the third quarter
dividend.
11
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
November 12, 2004
COUNTY BANK CORP
/s/Joseph H. Black
-------------------------------------
Joseph H. Black
Treasurer and Chief Financial Officer
12
EXHIBIT INDEX
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