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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 June 30, 2002
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
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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 June 30, 2002.
COUNTY BANK CORP
FORM 10-Q
For the Quarter ended June 30, 2002
PART I: FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Balance Sheets-
At June 30, 2002 and December 31, 2001 4
Statements of Income-
For the three months and six months June 30, 2002
and June 30, 2001 5
Statement of Cash Flows
For the six months ended June 30, 2002 and June 30, 2001 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
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, 2001.
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.
3
CONSOLIDATED FINANCIAL STATEMENTS
BALANCE SHEETS (in thousands) (Unaudited)
June 30 December 31
2002 2001
ASSETS
Cash and due from banks $ 12,069 $ 13,383
Investment securities held to maturity 24,983 26,531
Investment securities available for sale 40,688 36,797
Other securities 541 541
---------- ----------
Total investment securities 66,212 63,869
Federal funds sold 4,850 6,550
Loans 147,524 143,053
Less: Reserve for possible loan losses 2,202 2,139
---------- ----------
Net loans 145,322 140,914
Bank premises and equipment 4,619 4,431
Interest receivable and other assets 3,011 3,048
---------- ----------
TOTAL ASSETS $ 236,083 $ 232,195
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Non-interest bearing demand $ 35,952 $ 35,003
Interest bearing demand 67,252 68,117
Savings 46,514 42,135
Time 56,232 58,596
---------- ----------
Total deposits 205,950 203,851
Interest payable and other liabilities 2,038 1,891
---------- ----------
TOTAL LIABILITIES 207,988 205,742
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 11,593 10,274
Unrealized gains and losses on securities available
for sale 1,936 1,613
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 28,095 26,453
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 236,083 $ 232,195
========== ==========
4
CONSOLIDATED INCOME STATEMENTS (Unaudited) (Unaudited)
(in thousands) Three months ended Six months ended
June 30 June 30
2002 2001 2002 2001
INTEREST INCOME
Interest and fees on loans $ 2,636 $ 2,923 $ 5,238 $ 5,891
Interest on investments: taxable 444 493 867 1,057
Interest on investments: nontaxable 348 327 699 644
Interest on Federal funds sold 45 81 73 167
--------- --------- --------- ---------
TOTAL INTEREST INCOME 3,473 3,824 6,877 7,759
INTEREST EXPENSE
Demand deposits 236 497 476 1,132
Savings deposits 174 212 336 452
Time deposits 582 745 1,193 1,510
TOTAL INTEREST EXPENSE 992 1,454 2,005 3,094
--------- --------- --------- ---------
NET INTEREST INCOME 2,481 2,370 4,872 4,665
Provision for possible loan losses 50 60 110 120
--------- --------- --------- ---------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 2,431 2,310 4,762 4,545
OTHER INCOME
Service fees on loan and deposit accounts 290 295 568 575
Other 404 341 783 634
--------- --------- --------- ---------
TOTAL OTHER INCOME 694 636 1,351 1,209
OTHER EXPENSES
Salaries and employee benefits 1,124 1,096 2,235 2,160
Net occupancy expense 240 246 482 498
Other 536 479 981 897
--------- --------- --------- ---------
TOTAL OTHER EXPENSE 1,900 1,821 3,698 3,555
INCOME BEFORE PROVISION FOR FEDERAL
INCOME TAX 1,225 1,125 2,415 2,199
Provision for Federal income tax 292 273 575 534
--------- --------- --------- ---------
NET INCOME 933 852 1,840 1,665
========= ========= ========= =========
EARNINGS PER SHARE
Net income $ 0.79 $ 0.72 $ 1.55 $ 1.40
Cash dividend declared $ 0.22 $ 0.20 $ 0.44 $ 2.90
5
STATEMENT OF CASH FLOWS (Unaudited)
(in thousands) Six months ended
June 30
2002 2001
Cash flows from operating activities
Net income $ 1,840 $ 1,665
Adjustments to reconcile net income to net cash
provided from operating activities
Depreciation 230 259
Provision for loan losses 110 120
Net amortization and accretion of securities 111 52
Deferred income taxes - -
Net gain on sale of investment securities - -
(Gain) loss on other real estate owned (31) (4)
Net change in accrued interest receivable (133) 14
Net change in accrued interest payable and other (20) (159)
---------- ----------
Net cash provided by operating activities 2,107 1,947
Cash flows form investing activities
Proceeds from calls of investment securities: AFS 2,552 7,364
Proceeds from maturities of investment securities: AFS 2,000 1,995
Proceeds from calls of investment securities: HTM 652 1,899
Proceeds from maturities of investment securities: HTM 1,497 124
Purchase of investment securities: AFS (8,032) (5,807)
Purchase of investment securities: HTM (601) (1,537)
Net (increase) decrease in loans (4,549) (1,781)
Proceeds from the sale of other real estate 201 28
Premises and equipment expenditures (418) (524)
---------- ----------
Net cash provided from (used in) investing activities (6,698) 1,761
Cash flows from financing activities
Net increase (decrease) in interest bearing and
non-interest bearing demand accounts 84 (4,224)
Net increase (decrease) in savings and time deposits 2,015 3,131
Cash dividends paid (522) (3,441)
---------- ----------
Net cash provided from (used in) financing activities 1,577 (4,534)
---------- ----------
Net increase (decrease) in cash and equivalents (3,014) (826)
Cash and equivalents at beginning of year 19,933 22,357
---------- ----------
Cash and equivalents at end of period $ 16,919 $ 21,531
========== ==========
Cash paid for:
Interest $ 2,064 $ 3,141
Income taxes $ 632 $ 588
6
NOTE 1. INVESTMENTS
(in thousands)
The carrying amount and approximate market value of securities held to maturity
were as follows
June 30, 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 $ - $ - $ - $ -
Obligations of states and political subdivisions 21,738 999 20 22,717
Mortgage-backed securities 3,245 80 - 3,325
-------- -------- -------- ----------
Total $ 24,983 $ 1,079 $ 20 $ 26,042
======== ======== ========= ==========
The carrying amount and approximate market value of securities held to maturity
were as follows
December 31,2001
Amortized Gross Gross Estimated
Cost Unrealized Unrealized Market
Gains Losses Value
Obligations of states and political subdivisions $ 22,662 $ 583 $ 108 $ 23,137
Mortgage-backed securities 3,869 101 - 3,970
-------- -------- -------- ----------
Total $ 26,531 $ 684 $ 108 $ 27,107
======== ======== ========= ==========
The carrying amount and approximate market value of securities available for
sale were as follows
June 30, 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 $ 9,015 $ 103 $ - $ 9,118
Obligations of states and political subdivisions 7,532 309 1 7,840
Corporate securities 3,000 2,450 86 5,364
Mortgage-backed securities 18,208 168 10 18,366
-------- -------- -------- ----------
Total $ 37,755 $ 3,030 $ 97 $ 40,688
======== ======== ========= ==========
The carrying amount and approximate market value of securities available for
sale were as follows
December 31,2001
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 $ 11,028 $ 75 $ 2 $ 11,101
Obligations of states and political subdivisions 6,317 152 70 6,399
Corporate securities 1,005 2,266 - 3,271
Mortgage-backed securities 16,004 120 98 16,026
-------- -------- -------- ----------
Total $ 34,354 $ 2,613 $ 170 $ 36,797
======== ======== ========= ==========
7
NOTE 2. LOANS
(in thousands)
6/30/02 12/31/01
Commercial $ 70,615 $ 64,029
Real estate mortgage 39,079 38,499
Installment 22,394 24,083
Construction 15,436 16,442
---------- ----------
$ 147,524 $ 143,053
========== ==========
Transactions in the reserve for possible loan losses were as follows for the
six months ended June 30:
2002 2001
Beginning balance at beginning of period $ 2,139 $ 1,951
Provision charged to earnings 110 120
Loans charged off 52 38
Recoveries 5 51
---------- ----------
Balance at end of the period $ 2,202 $ 2,084
========== ==========
Reserve as a percent of total loans 1.49% 1.50%
Loans outstanding to executive officers, $ 3,188 $ 2,586
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
ITEM 2. MANAGEMENTS' DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
Financial Condition
Loan demand increased through the second quarter of 2002. Net loans increased
$3,881,000 in addition to increases of $681,000 in the first three months. New
loan activity was strong in commercial loan categories. Mortgage loan activity
moderated as a result of stable interest rates and all eligible loans were sold
in the secondary market. The demand for traditional consumer loans remained
soft, although the Corporation experienced continued success with targeted
promotions. Home equity lines of credit increased as a result of low rates
offered as part of a promotion the Corporation is running during 2002.
Savings deposits increased while time deposits decreased during the first six
months of the year. Our Choice product, which offers a short term market rate
with check writing privileges remained strong, but balances declined as rates
declined. Balances in interest bearing demand accounts declined after tax
payments in April. Deposit customers are waiting for increases in deposit rates
anticipated later in the year.
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.
Capital Resources
8
The Corporation paid a quarterly dividend of $.22 per share during the first
quarter and second 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 18.8 on June 30, 2002 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
second quarter grew to 4.51% from 4.45% in the first quarter of 2002. The
interest spread increased from 4.26% to 4.35%. These increases are a result of
the increase in the Bank's loan to deposit ratio during the second quarter.
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
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 second quarter and 1.56% 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 $43,000 in the second quarter after $4,000 during the first quarter of
2002. Management continues to review the reserve for loan losses based on
economic conditions in the immediate market area. Losses are well controlled,
delinquency ratios are stable and loan growth is expected to moderate. After
specific review of the loan portfolio and review of historical projections,
management reduced its provision for loan losses.
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, 2001. There have been no events or changes to the
Corporations' assets and liabilities that significantly alter those risk
disclosures.
9
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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A.) Exhibit 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ENACTED PURSUANT TO
SECTION 906 OF THE SARBANNES-OXLEY ACT OF 2002
In connection with the Quarterly Report of County Bank Corp on
form 10-Q for the period ending June 30, 2002, as filed with the
Securities and Exchange Commission on the date hereof (the
"Report"), I Curt Carter, Chief Executive Officer of the Company,
certify, pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
(1) The Report fully complies with the requirements of
section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
(2) The Information contained in the Report fairly presents
in all material respects, the financial condition and
results of operations of the Company.
/s/ Curt Carter
Curt Carter
Chief Executive Officer
August 14, 2002
Exhibit 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ENACTED PURSUANT TO
SECTION 906 OF THE SARBANNES-OXLEY ACT OF 2002
In connection with the Quarterly Report of County Bank Corp on
form 10-Q for the period ending June 30, 2002, as filed with the
Securities and Exchange Commission on the date hereof (the
"Report"), I Joseph H. Black, Chief Financial Officer of the
Company, certify, pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(3) The Report fully complies with the requirements of
section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
(4) The Information contained in the Report fairly presents
in all material respects, the financial condition and
results of operations of the Company.
/s/ Joseph H. Black
Joseph H. Black
Chief Financial Officer
August 14, 2002
I, Susanne Dickey, Assistant Financial Officer of the Company,
concur with the above statement.
/s/ Susanne Dickey
Susanne Dickey
Assistant Financial Officer
August 14, 2002
B) A form 8-K was filed on May 29, 2002 in response to regulation FD
containing a press release relative to the payment of the first
quarter dividend, and on June 28, 2002 containing the President's
letter to Shareholders.
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
August 14, 2002
COUNTY BANK CORP
/s/ JOSEPH H. BLACK
--------------------
Joseph H. Black
Treasurer
11