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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, 2005
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 March 31, 2005
COUNTY BANK CORP
FORM 10-Q
For the Quarter ended March 31, 2005
PAGE
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets- 4
Statements of Income- 5
Statement of Cash Flows- 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 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 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, 2004
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
2005 2004
ASSETS
Cash and due from banks $ 10,656 $ 11,293
Investment securities available for sale 42,268 43,740
Investment securities held to maturity 19,877 20,176
Other securities 541 541
-------- --------
Total investment securities 62,686 64,457
Federal funds sold - 3,500
Loans 170,975 167,334
Less: Reserve for possible loan losses 1,991 2,012
-------- --------
Net loans 168,984 165,322
Bank premises and equipment 6,187 6,067
Interest receivable and other assets 3,082 2,622
-------- --------
TOTAL ASSETS $251,595 $253,261
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Non-interest bearing demand $ 38,043 $ 40,614
Interest bearing demand 64,385 64,766
Savings 54,129 54,179
Time 57,191 57,253
-------- --------
Total deposits 213,748 216,812
Fed funds purchased 1,850
Other Borrowed Funds 2,890 3,060
Interest payable and other liabilities 2,657 2,889
-------- --------
TOTAL LIABILITIES 221,145 222,761
STOCKHOLDERS' EQUITY
Common Stock-$5.00 par value, 3,000,000 shares
authorized and 1,118,315 shares outstanding in 2005 and 2004 5,591 5,591
Surplus 8,634 8,634
Undivided profits 14,045 13,491
Unrealized gains and losses on securities available for sale 2,180 2,784
-------- --------
TOTAL STOCKHOLDERS' EQUITY 30,450 30,500
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $251,595 $253,261
======== ========
4
CONSOLIDATED INCOME STATEMENTS
(in thousands)
Three months ended
March 31
2005 2004
INTEREST INCOME
Interest and fees on loans $ 2,567 $ 2,388
Interest on investments: taxable 278 280
Interest on investments: nontaxable 344 353
Interest on Federal funds sold 10 14
-------- --------
TOTAL INTEREST INCOME 3,199 3,035
INTEREST EXPENSE
Demand deposits 221 104
Savings deposits 93 93
Time deposits 409 417
Interest on Federal funds purchased 2 2
Other borrowed funds 30 -
-------- --------
TOTAL INTEREST EXPENSE 755 616
-------- --------
NET INTEREST INCOME 2,444 2,419
Provision for possible loan losses - -
-------- --------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 2,444 2,419
OTHER INCOME
Service fees on loan and deposit accounts 379 299
Other 325 359
-------- --------
TOTAL OTHER INCOME 704 658
OTHER EXPENSES
Salaries and employee benefits 1,279 1,300
Net occupancy expense 276 255
Other 477 481
-------- --------
TOTAL OTHER EXPENSE 2,032 2,036
INCOME BEFORE PROVISION FOR FEDERAL
INCOME TAX 1,116 1,041
Provision for Federal income tax 250 226
-------- --------
NET INCOME 866 815
======== ========
EARNINGS PER SHARE
Net income $ 0.77 $ 0.69
Cash dividend declared $ 0.28 $ 0.26
5
STATEMENT OF CASH FLOWS
(in thousands)
Three months ended
March 31
--------------------
2005 2004
-------- --------
Cash flows from operating activities
Net income $ 866 $ 815
Adjustments to reconcile net income to net cash
provided from operating activities
Depreciation and amortization 123 99
Net amortization and accretion of securities 36 55
Net change in accrued interest receivable and other (460) (406)
Net change in accrued interest payable and other 80 21
-------- --------
Net cash provided by operating activities 645 584
Cash flows form investing activities
Proceeds from maturities of investment securities: AFS 532 4,050
Proceeds from maturities of investment securities: HTM 288 350
Purchase of investment securities: AFS - (2,000)
Purchase of investment securities: HTM - -
Federal funds purchased 1,850 -
Net (increase) decrease in loans (3,662) 3,517
Premises and equipment expenditures (243) (267)
-------- --------
Net cash provided by investing activities (1,235) 5,650
Cash flows from financing activities
Net increase (decrease) in interest bearing and
non-interest bearing demand accounts (2,952) (81)
Net increase (decrease) in savings and time deposits (112) 1,391
Repayment of long term debt (170) -
Cash dividends paid (313) (308)
-------- --------
Net cash provided from by financing activities (3,547) 1,002
-------- --------
Net increase (decrease) in cash and equivalents (4,137) 7,236
Cash and equivalents at beginning of year 14,793 14,072
-------- --------
Cash and equivalents at end of period $ 10,656 $ 21,308
======== ========
Cash paid for:
Interest $ 719 $ 612
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, 2005
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
Obligations of states and political subdivisions $ 18,569 $ 602 $ 46 $ 19,125
Mortgage-backed securities 1,308 14 - 1,322
-------- -------- -------- --------
Total $ 19,877 $ 616 $ 46 $ 20,447
======== ======== ======== ========
The carrying amount and approximate market value of securities held to maturity
were as follows
December 31,2004
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
Obligations of states and political subdivisions $ 18,787 $ 843 $ 5 $ 19,625
Mortgage-backed securities 1,389 26 1 1,414
-------- -------- -------- --------
Total $ 20,176 $ 869 $ 6 $ 21,039
======== ======== ======== ========
The carrying amount and approximate market value of securities available for
sale were as follows
March 31, 2005
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
U.S. Government securities and obligations of
U.S. Government corporations and political
subdivisions $ 14,555 $ - $ 382 $ 14,173
Obligations of states and political subdivisions 13,617 315 108 13,824
Corporate securities 2,905 3,435 - 6,340
Mortgage-backed securities 7,887 105 61 7,931
--------- --------- --------- ---------
Total $ 38,964 $ 3,855 $ 551 $ 42,268
========= ========= ========= =========
The carrying amount and approximate market value of securities available for
sale were as follows
December 31, 2004
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
U.S. Government securities and obligations of
U.S. Government corporations and political
subdivisions $ 14,558 $ 12 $ 119 $ 14,451
Obligations of states and political subdivisions 13,634 490 47 14,077
Corporate securities 2,905 3,802 - 6,707
Mortgage-backed securities 8,425 128 48 8,505
--------- --------- --------- ---------
Total $ 39,522 $ 4,432 $ 214 $ 43,740
========= ========= ========= =========
7
NOTE 2. LOANS
(in thousands)
3/31/2005 12/31/2004
--------- ----------
Commercial $ 15,536 $ 18,080
Commercial Real estate mortgage 71,473 67,505
Real estate mortgage 32,339 32,604
Installment 35,844 36,902
Construction 15,783 12,243
--------- ---------
Total loans $ 170,975 $ 167,334
========= =========
Transactions in the reserve for possible loan losses were as follows for the
three months ended March 31:
2005 2004
---- ----
Beginning balance at beginning of period $ 2,012 $ 2,136
Provision charged to earnings - -
Loans charged off 28 9
Recoveries 7 1
-------- --------
Balance at end of the period $ 1,991 $ 2,128
======== ========
Reserve as a percent of total loans 1.16% 1.27%
Loans outstanding to executive officers, directors, 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 $ 4,940 $ 4,228
ITEM 2. MANAGEMENTS' DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
Financial Condition
The Corporation experienced increasing loan demand through the first quarter.
Net loans increased $3,662,000 in the first three months. Commercial loan
categories increased 3.7% since year end 2004. Mortgage loan balances increased
1.5%. The demand for traditional consumer loans remained soft. Home equity lines
of credit increased .9%. Total loans increased 2.2% during the quarter.
Statement and passbook savings deposits increased 1.2% while interest bearing
demand deposits decreased .6% during the first three months of the year. The
Corporation's Choice product, which offers a short term market rate with check
writing privileges increased due to increasing rates but could not offset the
decline in other interest bearing demand categories. Balances in non-interest
bearing demand accounts declined 6.3%. Time deposits in denominations of
$100,000 or more grew 1.6% while time deposits in denominations of less than
$100,000, IRA deposits and Money Market Deposit Accounts declined. Total deposit
balances declined 1.4% for the period.
Purchase activity in the investment portfolio declined. 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 matured.
The Corporation used cash generated by the investment portfolio to fund loan
demand. 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 $.28 per share during the first
quarter. 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 17.4 on March 31, 2005 after payment of dividends to the Corporation.
The Corporation's tier one risk-based ratio was 15.8%. Financial institutions
are adequately capitalized if this ratio exceeds 4.0% and well capitalized if
the ratio exceeds 6.0%. The Corporation is repaying a loan to Comerica Bank
acquired during the previous year to retire a portion of stock from the estate
of its largest shareholder. The current balance is $2,890,000 and requires a
payment of $170,000 plus interest per quarter. The primary use of the
Corporation's capital is to support growth.
Results of Operations
Increasing interest rates combined with a declining investment portfolio
resulted in a stable interest margin. The Corporation'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
remained at 4.21% from 4.21% in the fourth quarter of 2004. The interest spread
was 4.12%. Management anticipates that the Federal Reserve Bank will increase
interest rates in the next few quarters and pressure on the interest margin will
continue as deposit customers seek a higher return. Loan rates are carefully
negotiated to maintain margin, particularly when fixed rate financing is
requested. The Corporation's return on average assets was 1.37% during the
first quarter. The Corporation introduced Courtesy Overdraft Services in July
of 2004, resulting in increased income in service charges on deposit accounts.
Other expenses have remained consistent with previous periods as the
Corporation continues to emphasize control of non-interest expense.
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 $11,000 in the first quarter of 2005. 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
Increased loan demand and declining deposits increased demands on the
Corporation's liquidity. Liquidity is required to meet loan demand, retire the
Corporation's long term debt and pay dividends to shareholders. The Corporation
normally buys or sells Federal funds to balance liquidity. The Corporation
maintains lines of credit of $5,000,000 with two correspondent banks to meet
short-term liquidity demands. During the
9
quarter, the Corporation occasionally used this credit facility, borrowing a
maximum of $2,650,000 one day in January. 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, 2004. 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
March 31, 2005, 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, 2005, 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, 2005, 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
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, 2005
COUNTY BANK CORP
/s/Joseph H. Black
--------------------------------------
Joseph H. Black
Treasurer and Chief Financial Officer
11
EXHIBIT INDEX
EX. 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