<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
_x_ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
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 38-0746239
83 W. Nepessing St., Lapeer, MI 48446
(810) 664-2977
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
1,200,000 shares, Common Stock, $5.00 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 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_____
The aggregate market value of the voting stock held by nonaffiliates of the
registrant was $28,111,359.
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of latest practicable date.
There are 593,236 shares of common stock ($5.00 par value) outstanding as of
December 31, 1997.
The following documents are incorporated into the 10-K by reference:
The Annual Report to Shareholders, December 31, 1997, Part I, Part II.
Proxy Statement dated March 25, 1998, Part III.
<PAGE> 2
FORM 10K
ITEM 1. BUSINESS
County Bank Corp, a one bank holding company, was formed on January 3, 1989 by
converting and exchanging, except for the shares of dissenting shareholders,
each share of Lapeer County Bank & Trust Co. (the Bank) into one share of
County Bank Corp (the Corporation). As a result, the Corporation became the
sole shareholder and parent of the Bank.
The Bank was chartered in 1902, is headquartered in Lapeer, MI., and serves all
of Lapeer County (the County) and portions of surrounding counties. Lapeer has
an approximate population of 6,500 people, while the County has in excess of
75,000 people. Lapeer is located 60 miles north of metropolitan Detroit, the
largest city in Michigan, 30 miles north of Pontiac, MI., and 20 miles east of
Flint, MI.
The Corporation serves the County through the subsidiary Bank at seven
locations. The main office is located at 83 W. Nepessing St., in downtown
Lapeer. A drive-in location is located at the corner of Pine St. and Clay St.,
across from the main office. A full service office is located in the south end
of Lapeer at 637 south M-24. Attica Township is served by a full service
Attica Office located at 4515 Imlay City Rd. Full service offices are located
in Elba Township at 5508 Davison Road and in Metamora Township on M-24, south
of Lapeer. One Automated Teller Machines located Lapeer Regional Hospital,
1375 N. Main St., Lapeer. The Bank opened a full service branch located in a
grocery store at Bryan's Market, 6002 N. Lapeer Rd., North Branch, MI.
The Corporation offers commercial banking services through the Bank at the main
office and the six branches throughout the County. The customer base extends
to all sections of the County and includes all segments of the population,
including individuals, retail businesses, farming operations, and industrial
plants. This locally-owned full service bank offers all traditional deposit
and loan services. The Trust department, with full trust powers, is in its
third decade of providing customers with employee benefit plans, estate
planning services, and complete trust services.
The Corporation faces substantial competition for financial services. Our
chief competitor is First of America Bank-Southeast, which has six branches
throughout the County. Independent Bank Corp. of Ionia, MI. acquired Pioneer
Bank and Kingston Bank which operate three locations in the Bank's market area.
In 1997 Independent Bank Corp opened a loan production office in a Lapeer
shopping center. First Chicago-NBD Bank, NA has a branch office north of the
city limits of Lapeer. Citizens Commercial and Savings Bank of Flint also has
a branch in the County. Tri-County Bank has offices in Imlay City and Almont.
CSB Bank of Capac has an office in Imlay City and Oxford Bank opened an in
Dryden. There are two offices of Citizen's Federal Savings and Loan. The
County is served by two credit unions, Lapeer County School Employees Credit
Union and the Lapeer County Community Credit Union. There are three securities
brokers, First of Michigan Corp., Paine Webber & Co., and Edward D. Jones & Co.
A number of other securities brokers serve the County through Flint offices.
Comerica Bank operates a Comerimart branch in a local grocery store.
The Corporation is regulated as a bank holding company by the Board of
Governors of the Federal Reserve System pursuant to the terms of the Bank
Holding Company Act of 1956. This act requires the approval of the Federal
Reserve Board before the Corporation may acquire or merge with any other
banking institution, limits the activities that the Corporation may engage in
to activities so closely related to banking or managing or controlling banks as
to be a proper incident thereto, and
County Bank Corp 1997 10-K Page 1
<PAGE> 3
prohibits the Corporation from acquiring an interest in a bank located outside
the state in which the operations of its subsidiaries are principally
conducted, unless such acquisition is specifically authorized by the state
in which the acquired bank is located. In November 1985, the State of Michigan
passed legislation to allow interstate banking with neighboring states which
also have laws that permit interstate banking. The Corporation is obligated to
comply with the regulations of the Securities and Exchange Commission. As a
state member institution, the Bank is obligated to comply with the regulations
of the Federal Reserve Board and the regulations of the Financial Institutions
Bureau (FIB) of the State of Michigan. The Financial Institutions Bureau of
the State of Michigan has the authority to examine and regulate the Bank and
works closely with the Federal Reserve Bank of Chicago coordinating alternate
examinations of the Bank. The FIB has the authority to issue cease and desist
orders against unsafe and unsound banking practices, and the authority to close
a bank in the event it should become insolvent. In addition, the Bank's
business is directly affected by the monetary policies of the Board of
Governors of the Federal Reserve System. The Bank's deposits are insured by
the Federal Deposit Insurance Corporation.
The Federal Deposit Insurance Corporation Improvement Act of 1991 creates a new
statutory framework that applies to every insured depository institution a
system of supervisory actions indexed to the capital level of the individual
institution. The purpose of the statutory provision is to resolve the problems
of insured depository institutions at the least possible long term loss to the
deposit insurance fund. Five capital categories have been established from
well capitalized to critically undercapitalized. Each category below well
capitalized brings an increasing number of supervisory actions intended to
strengthen the institution. These actions range from limitations on the
acceptance of brokered deposits to requiring dismissal of management,
divestiture of institutions by the parent, approval of capital distributions,
and more. In addition, regulatory authority is expanded by the development of
operating and management standards, review of executive compensation, increased
accounting principles, and increased independence of Audit committees. The
number of full time equivalent employees totaled 120 and 117 on December 31,
1997 and 1996 respectively.
County Bank Corp 1997 10-K Page 2
<PAGE> 4
<TABLE>
<CAPTION>
Table I. Average Assets (000's) Income (000's) Yield (%)
Interest margin analysis as a %
of average earning 1997 1996 1995 1997 1996 1995 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Securities:
US Gov't & agencies................... 29,482 31,543 35,477 1,956 1,994 2,110 6.63% 6.32% 5.95%
State and political subdivisions*..... 15,594 14,167 14,886 1,246 1,159 1,255 7.99% 8.18% 8.43%
Corporate securities.................. 22 64 140 1 4 8 4.55% 6.25% 5.71%
Other securites....................... 1,206 854 579 38 35 32 3.15% 4.10% 5.53%
Total investment securities........... 46,304 46,628 51,082 3,241 3,192 3,405 7.00% 6.85% 6.67%
Bank time deposits.................... 0 0 0 0 0 0 0.00% 0.00% 0.00%
Federal funds sold.................... 5,209 4,657 3,053 286 248 179 5.49% 5.33% 5.86%
Loans:
Commercial loans*..................... 54,210 51,247 48,219 4,937 4,660 4,531 9.11% 9.09% 9.40%
Real estate mortgages................. 37,258 30,784 23,729 3,144 2,564 2,064 8.44% 8.33% 8.70%
Consumer loans........................ 28,192 28,403 29,047 2,428 2,451 2,400 8.61% 8.63% 8.26%
Total loans........................... 119,660 110,434 100,995 10,509 9,675 8,995 8.78% 8.76% 8.91%
Total average earning assets.......... 171,173 161,719 155,130 14,036 13,115 12,579 8.20% 8.11% 8.11%
Total average assets.................. 181,270 172,312 165,081
Interest bearing liabilities:
Deposits:
NOW account deposits.................. 41,132 37,176 29383 1,397 1,206 866 3.40% 3.24% 2.95%
Savings deposits...................... 42,416 41,595 44,813 1,262 1,223 1,309 2.98% 2.94% 2.92%
Time deposits over $100,000........... 4,994 4,507 5,342 263 239 306 5.27% 5.30% 5.73%
Other time deposits................... 42,245 41,683 42,835 2,153 2,153 2,165 5.10% 5.17% 5.05%
Total deposits........................ 130,787 124,961 122,373 5,075 4,821 4,646 3.88% 3.86% 3.80%
Federal funds purchased............... 34 16 129 2 1 8 5.88% 6.25% 6.20%
Long-term debt........................ 0 0 0 0 0.00% 0.00% 0.00%
Total interest bearing liabilities.... 130,821 124,977 122,502 5,077 4,822 4,654 3.88% 3.86% 3.80%
Demand deposits....................... 28,648 27,121 24,908
Other liabilities..................... 1,465 1,355 1,079
Stockholders' equity.................. 21,143 18,859 16,592
Total liabilities and stockholders'
equity.............................. 182,077 172,312 165,081
Interest expense as a % of average earning assets 2.97% 2.98% 3.00%
Net interest margin/net interest yield as a %
of average earning assets 8,959 8,293 7,925 5.23% 5.13% 5.11%
Net interest yield as a % of average assets 4.92% 4.81% 4.80%
</TABLE>
* A tax adjustment of $473, $449, and $465 has been added to 1997, 1996 and
1995 income respectively to reflect the impact of a 34% Federal income tax rate
in each year. Non accruing loans are reported in their related categories and
reduce the related yields.
<PAGE> 5
<TABLE>
<CAPTION>
Rate/volume variance analysis 1996 vs 1995 1995 vs 1994
Change in Change in Change in Total Change in Change in Change in Total
Volume Rate Rate/volume Volume Rate Rate/volume
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Securities:
US Gov't & agencies (130) 99 (7) (38) (234) 133 (15) (116)
State and political subdivisions* 117 (27) (3) 87 (61) (38) 2 (97)
Corporate securities (3) (1) 1 (3) (4) 1 (1) (4)
Other securites 14 (8) (3) 3 15 (8) (4) 3
Total investment securities (2) 63 (12) 49 (284) 88 (18) (214)
Bank time deposits 0 0 0 0 0 0 0 0
Federal funds sold 29 8 1 38 94 (16) (9) 69
Loans:
Commercial loans* 270 7 0 277 285 (146) (9) 130
Real estate mortgages 539 34 7 580 614 (88) (26) 500
Consumer loans (18) (5) 0 (23) (53) 107 (3) 51
Total loans 791 36 7 834 846 (127) (38) 681
Total average earning assets 818 107 (4) 921 656 (55) (65) 536
Interest bearing liabilities:
NOW account deposits 128 57 6 191 230 87 23 340
Savings deposits 24 15 0 39 (94) 9 (1) (86)
Time deposits over $100,000 26 (2) 0 24 (48) (23) 4 (67)
Other time deposits 29 (29) 0 0 (58) 48 (2) (12)
Total deposits 207 41 6 254 30 121 24 175
Federal funds purchased 1 0 0 1 (7) 0 0 (7)
Long-term debt 0 0 0 0 0 0 0 0
Total interest bearing liabilities 208 41 6 255 23 121 24 168
Net Interest Income 610 66 (10) 666 633 (176) (89) 368
</TABLE>
<PAGE> 6
Guide 3. Statistical Disclosures:
I. Distribution of Assets, Liabilities and Stockholder's Equity; Interest
Rates and Interest Differential.
Refer to Table I and Table II for a presentation of the information required by
this item.
II. Investment Portfolio
Refer to Footnote 3 of the accompanying financial statements on page 9 of the
Annual Report to shareholders for the information required by this item, except
for:
Weighted average yields on a tax equivalent basis:
<TABLE>
<CAPTION>
Book Yield (%)
Value (000's)
<S> <C> <C>
US Government securities
Maturity distribution:
One year or less: $2,042 6.77
Over one year through five years: 5,025 6.13
Over five years through ten years: 3,980 7.65
Over ten years: --
State and political subdivisions
Maturity distribution:
One year or less: 1,438 5.37
Over one year through five years: 4,180 5.24
Over five years through ten years: 6,776 5.33
Over ten years: 6,633 5.21
Mortgage-backed securities 15,731 6.66
Other securities 1,482 2.91
</TABLE>
County Bank Corp 1997 10-K Page 3
<PAGE> 7
III. Loan Portfolio
A. Types of Loans
Refer to Footnote 4 of the accompanying financial statements on page 10
of the Annual Report to shareholders for the information required by this
item.
B. Maturities and Sensitivities of Loans to Changes in Interest Rates as of
December 31, 1997. (000's)
<TABLE>
<CAPTION>
Commercial Loans
<S> <C>
Fixed rate loans with a maturity of:
Three months or less $ 2,961
Over three months through twelve months 4,996
One year through five years 21,102
Over five years 709
-------
Total fixed rate loans 29,768
Floating rate loans
with a repricing frequency of:
Quarterly or more frequently 24,301
-------
Total Commercial loans $54,069
=======
Real-estate construction loans:
Fixed rate loans with a maturity of
over three months through twelve months: 235
=======
</TABLE>
C. Risk Elements.
1. Nonaccrual, Past Due and Restructured Loans. (000's)
<TABLE>
<CAPTION>
12/31/97 12/31/96
<S> <C> <C>
Loans 90 days past due and still accruing
Commercial loans 111 12
Real estate loans 124 0
Installment loans 31 30
------ ------
Total loans 90 days past due 266 42
====== ======
Non-accruing loans
Commercial loans 642 302
Real estate loans 170 0
Installment loans 82 23
------ ------
Total non accruing loans 894 325
====== ======
</TABLE>
There were no restructured loans.
For the year ended 1997, if the loans reported as nonaccrual loans had earned
at the contracted interest rate, $87,000 of interest income would have been
recorded. No interest income was recorded on these loans in 1997.
County Bank Corp 1997 10-K Page 4
<PAGE> 8
It is the policy of the Corporation to place loans on a nonaccruing status
when management feels that a significant risk of non-repayment exists.
Criteria for evaluating repayment risk will include the borrowers payment
history, past due status, and financial condition. Loans on which the
required payment of principal or interest has not been received within 90
days of the due date are placed on nonaccrual status.
2. Potential Problem Loans.
As of December 31, 1997 management identified seven potential problem loans
in the commercial loan portfolio. The seven loans totaled $655,000 and
management allocated $70,000 of the allowance for loan losses for these
credits.
3. Foreign Outstandings
Not Applicable
4. Loan Concentrations
As of December 31, 1997 there were no loan concentrations other than those
categories already reported that exceed 10% of total loans.
D. Other Interest Bearing Assets
As of December 31, 1997, there was no other interest bearing assets that
would have been classified 90 days past due and still accruing if it were a
loan.
IV. Summary of Loan Loss Experience
Analysis of Allowance for Loan Losses (000's)
<TABLE>
<CAPTION>
12/31/97 12/31/96
<S> <C> <C>
Balance at beginning of period $1,805 $1,687
Charge offs:
Commercial 0 62
Real-estate 0 0
Installment 59 48
Construction 0 0
------ ------
Total charge offs 59 110
Recoveries:
Commercial 63 72
Real-estate 0 0
Installment 28 36
Construction 0 0
------ ------
Total Recoveries 91 108
Net Charge offs (32) 2
------ ------
Provision charged to operations 120 120
Balance at end of period $1,957 $1,805
====== ======
Ratio of net charge offs during the period
to average loans during the period -0.03% 0.03%
</TABLE>
Net Charged off loans resulted in net recoveries of $32,000 in 1997. Loan
growth continued to be strong in 1997. Management allocated $120,000 from
earnings to maintain a strong loan to deposit ratio of 1.58%
County Bank Corp 1997 10-K Page 5
<PAGE> 9
Net charged off loans totaled $2,000 in 1996. The Reserve for loan losses
totaled 1.53% of total loans on December 31, 1996. Management provided
$120,000 from earnings to the reserve in order to maintain the high level of
protection. Loans have been growing aggressively, and management intends to
maintain a high quality portfolio with solid protection for the future.
B. Allocation of the Allowance for Loan Losses (000's)
<TABLE>
1997 1996
Balance at December 31, Applicable to:
<CAPTION>
Amount % of loans Amount % of loans
in category in category
to total to total
loans loans
<S> <C> <C> <C> <C>
Commercial 179 43.75% 181 43.40%
Real-estate mortgage 0 31.82% 0 27.83%
Installment 48 21.96% 35 26.36%
Construction --- 2.47% --- 2.41%
Unallocated 1,730 N/A 1,589 N/A
------ ------
$1,957 100.00% $1,805 100.00%
====== ======
</TABLE>
V. Deposits
A. Refer to Item I of the Guide 3 statistical disclosures for a presentation
of the information required by this item.
B. Not applicable
C. Not applicable
D. Maturities of time certificates of deposits of $100,000 or more. (000's)
<TABLE>
<S> <C>
Three months or less $2,698
Over three months through six months 549
Over six months through twelve months 916
Over twelve months 1,706
------
$5,869
======
</TABLE>
E. Not applicable
County Bank Corp 1997 10-K Page 6
<PAGE> 10
<TABLE>
<CAPTION>
VI. Return on Equity and Assets. 1997 1996
<S> <C> <C>
Return on assets (%) 1.74 1.73
Return on equity (%) 15.00 15.80
Dividend payout ratio (%) 31.90 30.46
Equity to assets ratio (%) 11.61 10.94
</TABLE>
VII. Short-Term Borrowings
Not applicable
ITEM 2. PROPERTY
The following is a tabulation of facilities owned by the Bank.
<TABLE>
<CAPTION>
App. Building Date
Description/Location Square Feet Occupied
<S> <C> <C>
Main Office 34,948 09/15/02
83 W. Nepessing St.
Lapeer, MI
Elba Office 3,744 10/22/85
5508 Davison Rd
Lapeer, MI
Pine-Clay Office 528 01/05/68
305 Pine St.
Lapeer, MI
Southgate Office 1,700 11/02/70
637 S. Main St.
Lapeer, MI
Attica Office 4,158 06/27/79
4515 Imlay City Rd.
Attica, MI
Land directly east of 01/01/79
the Southgate office.
Metamora Office 2,668 09/18/89
3414 S. Lapeer Rd
Metamora, MI
</TABLE>
County Bank Corp 1997 10-K Page 7
<PAGE> 11
ITEM 3. LEGAL PROCEEDINGS
No material legal proceeding is pending to which the Corporation or the Bank is
party, or of which any of their property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
The information called for by the items within this part is included in the
Corporation's Annual Report to shareholders for the year ended December 31,
1997, and is incorporated herein by reference, as follows:
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Page 16
ITEM 6. SELECTED FINANCIAL DATA.
Page 15, except for: (000's)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Total Assets $186,841 $177,786 $169,877 $166,666 $157,664
Long Term Debt $0 $0 $0 $0 $0
</TABLE>
County Bank Corp 1997 10-K Page 8
<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
EARNINGS
Major components of the operating results of the Corporation for 1997, 1996,
and 1995 are presented in the accompanying table, Summary of Operations. A
discussion of these results is presented in greater detail in subsequent pages.
Summary of Operations
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Interest income 13,556 12,666 12,114 10,768 10,492
Interest expense 5,162 4,823 4,654 3,858 4,023
------ ------ ------ ------ ------
Net interest income 8,394 7,843 7,460 6,910 6,469
Provision for possible loan losses 120 120 240 120 275
Net interest income after provision ------ ------ ------ ------ ------
for possible loan losses 8,274 7,723 7,220 6,790 6,194
Other income 2,166 2,216 1,971 1,800 1,666
Other expenses 6,064 5,739 5,669 5,624 5,507
------ ------ ------ ------ ------
Income before provision for
Federal income tax 4,376 4,200 3,522 2,966 2,353
Provision for Federal income taxes 1,215 1,220 948 848 596
------ ------ ------ ------ ------
Net income 3,161 2,980 2,574 2,118 1,757
Per Share ====== ====== ====== ====== ======
Net income 5.33 5.02 4.34 3.57 2.96
====== ====== ====== ====== ======
Dividends declared 1.70 1.53 1.27 1.04 0.87
====== ====== ====== ====== ======
</TABLE>
Net Interest Income
The Bank experinced strong loan demand on 1997. Total growth in loans was
5.2%. This is less than the11.7% growth the Bank experienced in 1996. The Bank
sold $1,671,000 of mortgages and $1,729,000 if student loans to the seconcday
markets. Total loan grwoth adjusted for these sales was 8.1%. Deposit growth
was 4.1%. Most growth took place in demand deposit and interestbearing demand
deposit categories. Both categories increased 8% over 1996 year end balances.
The Bank's loan to deposit ratio increased to 75.9%. Net interest yield on a
Federal tax equivalent (FTE) basis as a percent of average assets was 4.9%,
4.8% and 4.8% for 1997, 1996 and 1995, respectively. The FTE adjustment is
derived by deviding tax exempt interest interest income by .66 to reflect the
Corporation's 34% tax rate.
County Bank Corp 1997 10-K Page 9
<PAGE> 13
Rate sensitivity analysis (000's), December 31, 1996
<TABLE>
<CAPTION>
Repricing period in days 0-30 31-90 91-180 181-365 0-365 Over 365
<S> <C> <C> <C> <C> <C> <C>
Rate sensitive assets (RSA)
Federal funds sold 3,550 0 0 0 3,550 0
Investment securities 8,918 310 1,903 2,972 14,103 33,184
Loans 29,679 2,487 4,350 8,758 45,274 78,330
------- ------ ------ ------- ------- -------
Total rate sensitive assets 42,147 2,797 6,253 11,730 62,927 111,514
Rate sensitive liabilities (RSL)
Demand deposits 44,359 0 0 0 44,359 29,741
Savings deposits 20,326 0 0 0 20,326 20,250
Time deposits 14,630 3,258 3,630 9,033 30,551 17,693
------- ------ ------ ------- ------- -------
Total rate sensitive liab. 79,315 3,258 3,630 9,033 95,236 67,684
Repricing gap (RSA-RSL) (37,168) (461) 2,623 2,697 (32,309) 43,830
As a percent of capital -166.8% -2.1% 11.8% 12.1% -145.0% 196.7%
As a percent of total assets -19.9% -0.2% 1.4% 1.4% -17.3% 23.5%
</TABLE>
In the above table, scheduled payments on loans and securities are included at
the earlier of their next scheduled principal reduction or repricing
opportunity.
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 possible loan losses resutled in net
recoveries of $32,000 in 1997. Net charged off loans were $2,000 in 1996, and
$177,000 in 1995. Provisions for possible loan losses were $120,000, $120,000
and $240,000 for the respective periods. The ratio of reserve for possible
loan lossed to gross loans was 1.6%, 1.5% and 1.6% on December 31, 1997, 1996
and 1995, respectively.
Non-interest Income
Non-interest income is composed of trust department income, service charges on
deposit accounts, fees for providing other services to customers, gains on
securities sales and other income. Service charges on deposit accounts declined
5.1% in 1997 following a 3.5% increase in 1996. Nonsufficient funds and
overdraft fee income declined although demand accounts and balances increased.
Service charges on demand accounts decreased as customers chose accounts where
fees are offset by deposit balances. Other income declined 7.5% in 1997
primarily due to the high volume of other income posted in 1996. The Bank
posted a recovery of previously accrued expenses of $70,000 provided to cover
environmental costs of a property in other real estate that carried no book
value. The property was sold in 1997 for $20,000 with
County Bank Corp 1997 10-K Page 10
<PAGE> 14
limited environmental costs. Other income in 1996 increased 28.1% as a result
of the repayment of two loans that were previously carried as nonaccrual loans.
The customers were on the way to working out their problems and the loans were
renewed on an accrual basis. The interest that was earned during the period of
nonaccrual was capitalized in the renewed loan. This interest was carried
in the general ledger as deferred credits until the customers fully established
their improved repayment capability. The deferred credits were recorded as
income on an interest basis as the new loans were repaid. Both properties were
sold, and the Bank recovered all of its investment. The deferred credits were
booked directly to other income rather than interest income so that comparative
yield calculations would not be distorted. The total amount of deferred credits
posted to other income total $242,000.
Non-interest expense
Major components of non-interest expense are salaries and employee benefits,
occupancy and equipment expenses, and other operating expenses. Salaries and
employee benefits, the largest component of non-interest expense, increased
4.2% in 1997 after a 4.0% increase in 1996. Full time equivalent employees
increased to 120 at year end 1997 from 117 at year end 1996. Occupancy
expenses increased 26.3% after a 4.8% increase in 1996. This was primarily the
result of increased depreciation expenses as a result of remodeling older areas
of the Bank's main office building and expenses of conversion to a new
computer system in late 1997. Other expenses decreased by 1.3%.
The Corporation recognizes potential risk if data processing systems important
to its operations and the operations of key suppliers fail to properly
recognize the year 2000. Consequently, the Corporation is analyzing the risks
and measuring the costs of mitigating the risks. The Corporation does not
believe further costs to avoid the risks will be significant.
FINANCIAL CONDITION
Average assets for the Corporation totaled $181,270,000, $172,312,000 and
$165,081,000 for 1997, 1996, and 1995, respectively. This 5.1% growth in
average assets improved from 4.4% in 1996. The increase was supported by 4.8%
growth in average deposits. Average loans grew 8.3% in 1997. The Corporation
continues to increase the loans to deposits ratio resulting in increased
interest margins and net income.
Liquidity
The anticipated liquidity requirements of the Corporation can be met by
upstreaming dividends from the subsidiary Bank. Refer to footnote 11 of the
accompanying financial statements for a discussion of the restrictions on
undivided profits of the subsidiary. The anticipated cash needs of the
Corporation are for the payment of dividends to current stockholders.
Dividends upstreamed to the Corporation were $1,009,000 in 1997 and $908,000 in
1996.
The estimated value of U.S. Government and U.S. Government Agency securities
totaled 17.1% of total deposits on December 31, 1997. This percentage for 1996
was 20.4. The Corporation is able to meet normal demands for liquidity through
loan repayments, securities payments and deposit growth.
CAPITAL
The Corporation's return on equity reached 15.0% in 1997, a slight decline from
the 15.8% return achieved in 1996 and the 15.5% return earned in 1995.
Effective December 31, 1992 the Bank is required to maintain capital in excess
of 8.0% of risk-based assets as defined by the Federal reserve Board. Refer to
footnote 13 of the accompanying financial statements for a tabular presentation
of the Corporations capital adequacy.
The Corporation's Board of Directors declared a $4.00 per share cash dividend
to shareholders of record on April 10, 1998 to be paid on April 24, 1998 at its
March 18, 1998 Board meeting. This one time cash dividend recognizes the
support of the Corporations' shareholders, acknowledges the Corporations high
levels of capital and still maintains protection for our depositors.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Pages 3-13
County Bank Corp 1997 10-K Page 11
<PAGE> 15
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None
PART III
The information called for by the items within this part is included in County
Bank Corp's 1997 Proxy Statement and is incorporated herein by reference, as
follows:
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Pages 3-4 except for:
<TABLE>
<CAPTION>
Executive Officers Ages Office Service
<S> <C> <C> <C>
Curt Carter 53 Employee 32 Years
Officer President 9 Years
Present Term 9 Years
Patrick F. Brown 50 Employee 11 Years
Officer Vice President 9 Years
Present Term 9 Years
Laird A. Kellie 52 Employee 15 Years
Officer Secretary 9 Years
Present Term 9 Years
Joseph H. Black 48 Employee 8 Years
Officer Treasurer 8 Years
Present Term 8 Years
</TABLE>
11. EXECUTIVE COMPENSATION.
Page 6
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Page 2.
<TABLE>
<CAPTION>
Number of Percentage of
Director Shares Outstanding Stock
<S> <C> <C>
Dr. David H. Bush 22,028 3.71
Micheal H. Blazo 10,006 1.69
Curt Carter 3,404 0.38
Thomas K. Butterfield 14,700 2.48
A. Edward LaClair 6,054 1.03
Tim Oesch 1,416 0.24
Charles G. Scheidegger 4,343 0.74
Patrick A. Cronin 732 0.13
Ernest W. LeFever 200 0.04
</TABLE>
Executive Officers and Directors, as a group, own 63,413 shares or 10.69% of
the 593,236 total outstanding shares of common stock of the Corporation as of
December 31, 1997.
County Bank Corp 1997 10-K Page 12
<PAGE> 16
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Page 6
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) (1) The following financial statements of the Corporation and the Bank are
included in the Annual Report to its shareholders for the year ended 1997 and
are incorporated herein by reference in Item 8:
<TABLE>
<S> <C>
Balance sheets--December 31, 1997 and 1996 Page 3
Statements of income--years ended
December 31, 1997, 1996, and 1995 Page 5
Statements of changes in shareholder's equity
years ended December 31, 1997, 1996 and 1995 Page 4
Statements of cash flows
years ended December 31, 1997, 1996 and 1995 Page 6
Notes to financial statements Pages 7-13
Report of Independent Public Accountants,
dated January 30, 1998 Page 14
</TABLE>
(a)(2) Not applicable.
(a)(3) The following exhibits are required to be filed with this report by item
14(c):
(3) Articles of Incorporation and By-laws (previously filed as Exhibits to
the Corporation's registration statement on form 8-A, filed January 24, 1989
and incorporated herein by reference).
(13) Annual Report to Shareholders for the year ended December 31, 1997
(filed herewith)
(22) Subsidiary of Registrant: Lapeer County Bank & Trust Co., a Michigan
corporation.
(23) Consent of Experts and Counsel: Letter of consent from Plante & Moran,
LLP Dated March 25, 1998
(b) No reports on form 8-K were filed during the last quarter of the year
covered by this report.
(c) See (a)(3)
(d) Not applicable.
County Bank Corp 1997 10-K Page 13
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed by the undersigned
thereunto duly authorized.
<TABLE>
<S> <C>
County Bank Corp
Curt Carter
----------------------------
President
Joseph H. Black
----------------------------
Treasurer
Thomas K. Butterfield Timothy Lee Oesch
--------------------------- ----------------------------
David H. Bush, O.D. Ernest W. Lefever, DPM
--------------------------- ----------------------------
Michael H. Blazo Patrick A. Cronin
--------------------------- ----------------------------
</TABLE>
County Bank Corp 1997 10-K Page 14
<PAGE> 18
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
13 Annual Report to Shareholders
23 Consent of Independent Auditors
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 13
COUNTY BANK CORP
PRESIDENT'S MESSAGE
TO OUR STOCKHOLDERS AND FRIENDS
County Bank Corp had another wonderful year. Net income reached a new high of
$3,161,000 or $5.33 per share, more than a 6% increase over 1996. Return on
average assets was 1.74%, exceeding the record 1.73% of last year. Outstanding
loans grew over $6 million to $123.6 million and continue to lead income growth
with a loan to deposit ratio pushing 76% at year end. Net interest income grew
7% and provided an increase of $551,000 to the bottom line. Overall asset
quality remains strong even though nonaccruing and nonperforming loans have
increased slightly. However, both ratios remain under 1% of total loans. The
reserve for possible loan losses remains strong at 1.58% of total loans. In
addition, recoveries on previously charged off loans exceeded 1997 losses by
more than $32,000.
Due to less nonrecurring revenue, other income declined. That reduction was
offset by increased income generated from the Trust Department. Incidently,
trust assets under investment have reached a new high of $83 million. Fees on
loan and deposit accounts declined somewhat. Occupancy expense was unusually
high due to the one time expense related to the Data Processing conversion and
the accompanying depreciation of the old hardware.
Total assets of the Corporation rose $9 million to $186.8 million, up from
1996's growth of $8 million. With the exception of savings, all deposit products
contributed to the $6.4 million growth in total deposits. The popular
interest-bearing Choice account continues to be the leader.
Stockholder's equity, the strength of the Corporation, grew 12.2% to
$22,281,000. Return on equity was 15%, a fine return when considering the amount
of equity. The stock's book value was $37.56 at year end with a market value of
$53-$54.00. The cash dividend increased to $1.70 from $1.53. Needless to say, it
was a very strong year for earnings and we are pleased with the solid asset
growth. We anticipate 1998 will be another strong year, assisted by a continuing
healthy economy.
In other news, an ATM was installed at the Attica office and two drive-up lanes
and an ATM are being installed at the Elba office. Renovation and remodeling are
underway at the Main Office and remodeling of Elba's interior will occur in the
second quarter. Although we've experienced some turnover and retirements, we did
recognize nine staff members who have contributed 110 years of service to the
Bank. Retirement took Dick June, a long-time, valued officer, to northern
Michigan. Dick's ever ready smile, which can be seen later in the report, will
certainly be missed. Also, Virginia Starking retired from the Check Processing
department after 20 years of service. Cherri Weir joined the Bank as the
Metamora Branch Officer and Sue Hill was promoted to Elba Branch Manager.
The Annual Meeting of Stockholders will be held Friday, April 17, 1998 at 3:00
p.m. at Edward's restaurant. Please plan on attending. If you have any questions
or comments feel free to contact me. Your support is appreciated and I'll look
forward to seeing you at the meeting.
Curt Carter
Curt Carter
President
- -------------------------------------CBC------------------------------------- 1
<PAGE> 2
COUNTY BANK CORP
FINANCIAL HIGHLIGHTS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
AT YEAR END 1997 1996 1995 1994
(000'S OMITTED)
<S> <C> <C> <C> <C>
Assets $186,841 $177,786 $169,877 $166,666
Deposits 162,920 156,518 150,888 150,511
Loans 123,604 117,474 105,349 97,677
Securities 47,287 47,409 48,164 53,627
Stockholders' equity 22,281 19,862 17,720 15,254
FOR THE YEAR
(000'S OMITTED)
Net income $ 3,161 $ 2,980 $ 2,574 $ 2,118
Cash dividend declared 1,009 908 750 617
Return on average assets (%) 1.74 1.73 1.56 1.33
Return on average stockholders' equity (%) 15.0 15.8 15.5 14.3
PER SHARE
Book value $ 37.56 $ 33.48 $ 29.87 $ 25.71
Net income 5.33 5.02 4.34 3.57
CASH DIVIDEND DECLARED 1.70 1.53 1.27 1.04
</TABLE>
RETURN ON AVERAGE ASSETS NET INCOME PER SHARE
(PERCENT) (IN DOLLARS)
1994 1995 1996 1997 1994 1995 1996 1997
1.33 1.56 1.73 1.74 3.57 4.34 5.02 5.33
2 -------------------------------------CBC--------------------------------------
<PAGE> 3
COUNTY BANK CORP
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(000'S OMITTED) AS OF
DECEMBER 31
ASSETS
1997 1996
<S> <C> <C>
Cash and due from banks (Note 11) $ 9,010 $ 8,626
Federal funds sold 3,550 1,200
- ------------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS 12,560 9,826
Securities held to maturity (Note 3) 29,064 27,776
Securities available for sale (Note 3) 18,223 19,633
Loans (Note 4) 123,604 117,474
Less reserve for possible loan losses 1,957 1,805
- ------------------------------------------------------------------------------------------------------------------------------------
NET LOANS 121,647 115,669
Premises and equipment (Note 5) 3,206 2,715
Interest receivable and other assets 2,141 2,167
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets $186,841 $177,786
====================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (Note 6):
Noninterest-bearing demand deposits $ 29,741 $ 27,434
Interest-bearing demand deposits 44,359 41,180
Savings deposits 40,576 41,292
Time deposits 48,244 46,612
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 162,920 156,518
Interest payable and other liabilities 1,640 1,406
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 164,560 157,924
Stockholders' equity: Common stock, $5 par value (Note 8):
Authorized - 1,200,000
Issued and outstanding - 593,236 shares 2,966 2,966
Surplus 8,634 8,634
Undivided profits (Note 11) 10,034 7,882
Unrealized gain on securities available for sale, net of tax
effect of $333 and $196, respectively (Note 3) 647 380
- ------------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 22,281 19,862
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $186,841 $177,786
====================================================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
- ---------------------------------------CBC------------------------------------ 3
<PAGE> 4
COUNTY BANK CORP
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(000'S OMITTED, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS)
ON SECURITIES TOTAL
COMMON UNDIVIDED AVAILABLE FOR STOCKHOLDERS'
STOCK SURPLUS PROFITS SALE EQUITY
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 $ 1,483 $ 8,634 $ 5,469 $ (332) $ 15,254
Net income - - 2,574 - 2,574
Stock dividend (Note 8) 1,483 - (1,483) - -
Cash dividends ($1.27 per share) (Note 8) - - (750) - (750)
Change in unrealized loss on securities
available for sale, net of tax of $331 - - - 642 642
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 2,966 8,634 5,810 310 17,720
Net income - - 2,980 - 2,980
Cash dividends ($1.53 per share) (Note 8) - - (908) - (908)
Change in unrealized gain on securities
available for sale, net of tax of $37 - - - 70 70
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 2,966 8,634 7,882 380 19,862
Net income - - 3,161 - 3,161
Cash dividends ($1.70 per share) (Note 8) - - (1,009) - (1,009)
Change in unrealized gain on securities
available for sale, net of tax of $137 - - - 267 267
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 $ 2,966 $ 8,634 $ 10,034 $ 647 $ 22,281
====================================================================================================================================
</TABLE>
STOCKHOLDERS' EQUITY RETURN ON AVERAGE STOCKHOLDERS' EQUITY
(IN MILLIONS) (PERCENT)
1994 1995 1996 1997 1994 1995 1996 1997
15.3 17.7 19.9 22.3 14.3 15.5 15.8 15.0
4 -----------------------------------CBC----------------------------------------
<PAGE> 5
COUNTY BANK CORP
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(000'S OMITTED, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31
1997 1996 1995
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $10,454 $ 9,620 $ 8,951
Interest on investment securities:
U.S. Government 413 509 701
U.S. Government Agencies mortgage-backed securities 1,544 1,485 1,408
State and political subdivisions 820 765 834
Other 39 40 41
Interest on Federal funds sold 286 247 179
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 13,556 12,666 12,114
Interest expense:
Interest on demand deposits 1,399 1,206 866
Interest on savings deposits 1,260 1,224 1,309
Interest on time deposits (Note 6) 2,501 2,392 2,471
Interest on borrowed funds 2 1 8
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 5,162 4,823 4,654
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income 8,394 7,843 7,460
Provision for possible loan losses (Note 4) 120 120 240
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for possible loan losses 8,274 7,723 7,220
Other income:
Service fees on loan and deposit accounts 1,076 1,133 1,095
Trust income 418 355 311
Other 672 728 565
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME 2,166 2,216 1,971
Other expenses:
Salaries and employee benefits 3,593 3,448 3,315
Occupancy expense 961 761 726
Other (Note 10) 1,510 1,530 1,628
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER EXPENSES 6,064 5,739 5,669
- ------------------------------------------------------------------------------------------------------------------------------------
Income before Federal income tax 4,376 4,200 3,522
Provision for Federal income tax (Note 7) 1,215 1,220 948
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 3,161 $ 2,980 $ 2,574
====================================================================================================================================
EARNINGS PER SHARE (NOTE 8) $ 5.33 $ 5.02 $ 4.34
</TABLE>
- -------------------------------------CBC------------------------------------- 5
<PAGE> 6
COUNTY BANK CORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(000'S OMITTED)
YEARS ENDED DECEMBER 31
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,161 $ 2,980 $ 2,574
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization 436 389 324
Provision for loan losses 120 120 240
Net amortization and accretion of securities 181 239 306
Deferred income taxes (76) 67 55
(Gain) loss on other real estate owned (69) (13) 84
Increase in accrued interest receivable (147) (31) (72)
Increase (decrease) in accrued interest payable and other 173 70 (17)
- ------------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,779 3,821 3,494
Cash flows from investing activities:
Proceeds from maturities of securities held to maturity 4,089 8,611 4,937
Proceeds from maturities of securities available for sale 4,690 2,077 4,538
Purchase of securities held to maturity (5,316) (2,833) (2,507)
Purchase of securities available for sale (3,118) (7,233) (1,000)
Proceeds from sale of other real estate 242 282 186
Net increase in loans (6,098) (12,299) (8,101)
Premises and equipment expenditures (927) (399) (519)
- ------------------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (6,438) (11,794) (2,466)
Cash flows from financing activities:
Net increase in interest-bearing
and noninterest-bearing demand accounts 5,486 7,083 7,909
Net increase (decrease) in savings and time deposits 916 (1,453) (7,532)
Cash dividends paid (1,009) (908) (750)
- ------------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 5,393 4,722 (373)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and equivalents 2,734 (3,251) 655
Cash and equivalents at beginning of year 9,826 13,077 12,422
- ------------------------------------------------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS AT END OF YEAR $ 12,560 $ 9,826 $ 13,077
====================================================================================================================================
Cash paid for:
Interest $ 5,137 $ 4,823 $ 4,654
Income tax $ 1,224 $ 1,209 $ 908
</TABLE>
6 -------------------------------------CBC--------------------------------------
<PAGE> 7
COUNTY BANK CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of County Bank Corp (the "Corporation") and its wholly owned
subsidiary, Lapeer County Bank & Trust Co. (the "Bank"). The tabular
presentations omit 000's.
NATURE OF OPERATIONS - The Corporation's subsidiary, Lapeer County Bank & Trust
Co., operates in rural and suburban communities in the county of Lapeer in the
state of Michigan. The Bank's primary source of revenue results from providing
real estate, commercial loans and consumer loans to small and medium sized
businesses and, to a lesser extent, individuals.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL
STATEMENTS - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
SECURITIES - Securities for which the Corporation has both the positive intent
and ability to hold to maturity are classified as held to maturity. Those
securities are recorded at cost, adjusted for accumulated amortization of
premium and accretion of discount. Realized gains and losses on sales of held to
maturity securities, while rare, will be included in net securities gains based
on the adjusted cost of the specific item sold.
When securities are purchased and the Corporation intends to hold the securities
for an indefinite period of time but not necessarily to maturity, they are
classified as available for sale and recorded at market value. Any decision to
sell a security available for sale will be based on various factors, including
significant movements in interest rates, changes in the maturity mix of the
Corporation's assets and liabilities, liquidity demands, regulatory capital
considerations and other similar factors. Cost is adjusted for amortization of
premiums and accretion of discounts to maturity or, for mortgage-backed
securities, over the estimated life of the security. Unrealized gains and losses
for available for sale securities will be excluded from earnings and recorded as
an amount, net of tax, in a separate component of stockholders' equity.
INTEREST INCOME ON LOANS - Interest on loans is accrued and credited to income
based on the principal amount outstanding. The accrual of interest on loans is
discontinued when, in the opinion of management, there is an indication that the
borrower may be unable to meet payments as they become due. Upon such
discontinuance, all unpaid interest accrued during the current year is reversed.
Interest accruals are generally resumed when all delinquent principal and/or
interest has been brought current and, in the opinion of management, the
borrower has demonstrated the ability to meet the terms and conditions of the
agreement.
MORTGAGE SERVICING RIGHTS - The Corporation recognizes separate assets for the
rights to service mortgage loans for others, however those rights are acquired.
The fair value of mortgage servicing rights (MSRs) is determined using the
present value of estimated expected future cash flows assuming a market discount
rate and certain forecasted prepayment rates based on industry experience. The
MSRs are amortized in proportion to and over the estimated net servicing income.
Any subsequent impairments in value will be recognized through a valuation
allowance.
LOANS AND RESERVE FOR POSSIBLE LOAN LOSSES - The reserve for possible loan
losses is established through a provision for possible loan losses charged to
expense. Loans are charged against the reserve for possible loan losses when
management believes collection of the principal is unlikely. The reserve for
possible loan losses is an amount management believes will be adequate to absorb
losses inherent in existing loans based on evaluations of the anticipated
repayment and prior loss experience. The evaluations take into consideration
such factors as changes in the nature, volume and quality of the portfolio, loan
concentrations, specific problem loans and current and anticipated economic
conditions that may affect the borrowers' ability to pay.
PREMISES AND EQUIPMENT - Premises and equipment are stated at cost, less
accumulated depreciation. The provision for depreciation is computed using
primarily the straight-line method. Building improvements and furniture and
equipment are amortized over their estimated useful lives.
OTHER ASSETS - Other assets include other real estate owned in the amount of
$326,000 and $430,000 at December 31, 1997 and 1996, respectively, carried at
the lower of cost or estimated net realizable value.
EARNINGS PER SHARE - Earnings per share is based on the weighted average number
of common shares outstanding, retroactively adjusted for the impact of stock
splits. Statement of Financial Accounting Standards No. 128, Earnings per Share,
was effective for 1997, but had no impact on the Corporation.
- --------------------------------------CBC------------------------------------ 7
<PAGE> 8
COUNTY BANK CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INCOME TAXES - The Corporation files a consolidated Federal income tax return.
The Corporation uses the asset and liability method of accounting for income
taxes. Current taxes are measured by applying the provisions of enacted tax laws
to taxable income to determine the amount of taxes receivable or payable.
Deferred tax assets and liabilities are recorded based on the difference between
the tax bases of assets and liabilities and their carrying amounts for financial
reporting purposes.
RECLASSIFICATION - Certain items in the prior year amounts have been
reclassified to conform with the current year presentation.
2. COUNTY BANK CORP
(PARENT CORPORATION ONLY)
The condensed financial information that follows presents the financial
condition of the Parent Corporation only, along with the results of its
operations and its cash flows. The Parent Corporation has recorded its
investment in the subsidiary at cost plus its share of the undistributed
earnings of the subsidiary since it was acquired. The Parent Corporation
recognizes dividends from the subsidiary as revenue and undistributed earnings
of the subsidiary as other income. The Parent Corporation financial information
should be read in conjunction with the Corporation's consolidated financial
statements.
BALANCE SHEETS
DECEMBER 31
1997 1996
ASSETS
Cash and due from banks $ 2 $ 2
Investment in subsidiary 21,931 19,779
Refundable income tax 81 81
- --------------------------------------------------------------------------------
Total assets $ 22,014 $ 19,862
================================================================================
LIABILITIES $ - $ -
STOCKHOLDERS' EQUITY
Common stock, $5 par value (Note 8) 2,966 2,966
Surplus 8,634 8,634
Undivided profits 10,414 8,262
- --------------------------------------------------------------------------------
Total stockholders' equity 22,014 19,862
- --------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 22,014 $ 19,862
================================================================================
STATEMENTS OF INCOME
FOR THE YEARS ENDED
DECEMBER 31
1997 1996 1995
Dividends from
subsidiary Bank $ 1,009 $ 908 $ 750
- --------------------------------------------------------------------------------
Income before equity in
undistributed earnings of
subsidiary Bank and Federal
income tax 1,009 908 750
- --------------------------------------------------------------------------------
Income before equity in
undistributed earnings of
subsidiary Bank 1,009 908 750
- --------------------------------------------------------------------------------
Equity in undistributed
- --------------------------------------------------------------------------------
earnings of subsidiary Bank 2,152 2,072 1,824
- --------------------------------------------------------------------------------
Net income $ 3,161 $ 2,980 $ 2,574
================================================================================
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
DECEMBER 31
1997 1996 1995
Cash flows from operating activities:
Net income $ 3,161 $ 2,980 $ 2,574
Adjustments to reconcile
net income to net cash
from operating
activities:
Undistributed
earnings of
subsidiary (2,152) (2,072) (1,824)
- --------------------------------------------------------------------------------
Net cash provided by
operating activities 1,009 908 750
Cash flows from financing
activities:
Dividends paid (1,009) (908) (750)
- --------------------------------------------------------------------------------
Net increase in cash and
cash equivalents - - -
Cash and cash equivalents
at beginning of year 2 2 2
- --------------------------------------------------------------------------------
Cash and cash equivalents
at end of year $ 2 $ 2 $ 2
================================================================================
8 ------------------------------------CBC---------------------------------------
<PAGE> 9
COUNTY BANK CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. SECURITIES
The carrying amount and approximate market value of securities held to maturity
were as follows:
DECEMBER 31, 1997
Gross Estimated
Amortized Unrealized Market
Cost Gains Losses Value
U.S. Government securities
and obligations of U.S.
Government corporations
and agencies $ 2,009 $ 14 $ - $ 2,023
Obligations of states and
political subdivisions 15,944 497 6 16,435
Corporate securities - - - -
Mortgage-backed securities 11,111 66 51 11,126
- --------------------------------------------------------------------------------
Total $29,064 $ 577 $ 57 $29,584
================================================================================
DECEMBER 31, 1996
Gross Estimated
Amortized Unrealized Market
Cost Gains Losses Value
U.S. Government securities
and obligations of U.S.
Government corporations
and agencies $ 1,021 $ 1 $ - $ 1,022
Obligations of states and
political subdivisions 13,277 329 30 13,576
Corporate securities 40 - - 40
Mortgage-backed securities 13,438 126 102 13,462
- --------------------------------------------------------------------------------
Total $27,776 $ 456 $ 132 $28,100
================================================================================
The amortized cost and estimated market value of securities held to maturity at
December 31, 1997, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because issuers may have the right to
call or prepay obligations with or without call or prepayment penalties.
Estimated
Amortized Market
Cost Value
Due in one year or less $ 1,459 $ 1,461
Due after one year through five years 5,272 5,380
Due after five years through ten years 4,589 4,827
Due after ten years 6,633 6,790
- --------------------------------------------------------------------------------
17,953 18,458
Mortgage-backed securities 11,111 11,126
- --------------------------------------------------------------------------------
Total $ 29,064 $ 29,584
================================================================================
The amortized cost and estimated market value of securities available for sale
are as follows:
DECEMBER 31, 1997
Gross Estimated
Amortized Unrealized Market
Cost Gains Losses Value
U.S. Government securities
and obligations of U.S.
Government corporations
and agencies $ 11,012 $ 93 $ 4 $11,101
Obligations of states and
political subdivisions 991 29 - 1,020
Corporate securities 607 875 - 1,482
Mortgage-backed securities 4,633 24 37 4,620
- --------------------------------------------------------------------------------
Total $17,243 $ 1,021 $ 41 $18,223
================================================================================
DECEMBER 31, 1996
Gross Estimated
Amortized Unrealized Market
Cost Gains Losses Value
U.S. Government securities
and obligations of U.S.
Government corporations
and agencies $12,042 $ 107 $ 57 $12,092
Obligations of states and
political subdivisions 1,081 23 1 1,103
Corporate securities 485 740 179 1,046
Mortgage-backed securities 5,448 21 77 5,392
- --------------------------------------------------------------------------------
Total $19,056 $ 891 $ 314 $19,633
================================================================================
The amortized cost and estimated market value of securities available for sale
at December 31, 1997, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because issuers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
Estimated
Amortized Market
Cost Value
Due in one year or less $ 2,007 $ 2,021
Due after one year through five years 3,912 3,933
Due after five years through ten years 6,084 6,167
Due after ten years 607 1,482
12,610 13,603
Mortgage-backed securities 4,633 4,620
- --------------------------------------------------------------------------------
Total $ 17,243 $ 18,223
================================================================================
- --------------------------------------CBC------------------------------------ 9
<PAGE> 10
COUNTY BANK CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 1997 and 1996, U.S. Government securities and securities of
state and political subdivisions carried at $4,538,000 and $3,556,000,
respectively, with a market value of $4,573,000 and $3,594,000, respectively,
were pledged to secure public deposits and for other purposes required by law.
Other than securities of the U.S. Government and its agencies and corporations,
there were no securities of any one issuer aggregating ten percent of
consolidated stockholders' equity at December 31, 1997.
4. LOANS
Major classifications of loans are summarized as follows:
1997 1996
Commercial $ 54,069 $ 50,975
Real estate mortgage 39,332 32,696
Installment 27,141 30,968
Construction 3,062 2,835
- --------------------------------------------------------------------------------
Total loans 123,604 117,474
Less reserve for possible loan losses 1,957 1,805
- --------------------------------------------------------------------------------
Net loans $ 121,647 $ 115,669
================================================================================
At December 31, 1997 and 1996, approximately $3,297,000 and $2,905,000,
respectively, of loans were outstanding to officers, directors, principal
stockholders and their associated companies. In 1997, additions and reductions,
including loan renewals, were $3,145,000 and $2,753,000, respectively. 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 than the normal risk of
collectibility.
Transactions in the reserve for possible loan losses were as follows:
1997 1996 1995
Balance at beginning of year $ 1,805 $ 1,687 $ 1,624
Provision charged to operations 120 120 240
Loans charged off (59) (110) (205)
Recoveries 91 108 28
- --------------------------------------------------------------------------------
Balance at end of year $ 1,957 $ 1,805 $ 1,687
Reserve as a percent of
- --------------------------------------------------------------------------------
total loans 1.58% 1.53% 1.60%
================================================================================
Mortgage loans serviced for others are not included in the accompanying
consolidated statements of financial condition. The unpaid principal balances of
mortgage loans serviced for others was $1,618,000 and $847,000 at December 31,
1997 and 1996, respectively. The Corporation has not purchased mortgage
servicing rights from others.
Custodial escrow balances maintained in connection with the foregoing loan
servicing, and included in demand deposits, were approximately $30,300 and
$5,500 at December 31, 1997 and 1996, respectively.
5. PREMISES AND EQUIPMENT
1997 1996
Land and improvements $ 661 $ 661
Buildings and improvements 2,370 2,259
Furniture and equipment 3,947 3,705
- --------------------------------------------------------------------------------
Total premises and equipment 6,978 6,625
Less accumulated depreciation 3,772 3,910
- --------------------------------------------------------------------------------
Net carrying amount $ 3,206 $ 2,715
================================================================================
Depreciation expense for the years ended December 31, 1997, 1996 and 1995 was
$436,000, $389,000 and $324,000, respectively.
6. CERTIFICATES OF DEPOSIT
The aggregate amount of certificates of deposit in denominations in excess of
$100,000 totaled approximately $5,869,000, $4,930,000 and $4,926,000 at December
31, 1997, 1996 and 1995, respectively. The interest expense related to such
deposits throughout the year was approximately $263,000 in 1997, $239,000 in
1996 and $306,000 in 1995, which is included in interest on time deposits in the
accompanying consolidated statements of income.
7. INCOME TAXES
The items comprising the provision for Federal income taxes are as follows:
1997 1996 1995
Taxes currently payable $ 1,291 $ 1,153 $ 893
Provision (credit) for
deferred taxes on:
Discount accretion (2) (5) (3)
Reserve for loan losses 51 40 22
Other (125) 32 36
- --------------------------------------------------------------------------------
Provision for Federal
income tax $ 1,215 $ 1,220 $ 948
================================================================================
10 ----------------------------------CBC----------------------------------------
<PAGE> 11
COUNTY BANK CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Corporation uses the accrual method of accounting for both financial
reporting and income tax purposes. The provision for income taxes differs from
the amount computed by applying the Federal income tax rate of 34 percent due
principally to the following:
1997 1996 1995
Income tax at statutory rates $ 1,488 $ 1,428 $ 1,197
Tax exempt interest (309) (268) (277)
Other 36 60 28
- --------------------------------------------------------------------------------
Provision for Federal
income tax $ 1,215 $ 1,220 $ 948
================================================================================
The details of the net deferred tax asset (liability) at December 31, are as
follows:
1997 1996
Deferred tax assets:
Reserve for loan loss $ 455 $ 403
Other real estate 23 21
Other 67 -
Total deferred tax assets 545 424
Deferred tax liabilities:
Accelerated depreciation 8 42
Deferred loan fees 66 65
Accrued liabilities 57 88
Other - 48
- --------------------------------------------------------------------------------
Unrealized gain on securities
available for sale 333 196
Total deferred tax liabilities 464 439
Valuation allowance - -
- --------------------------------------------------------------------------------
Net deferred tax asset (liability) $ 81 $ (15)
================================================================================
8. STOCK DIVIDEND
On November 13, 1995, the Corporation declared a 100 percent stock dividend to
stockholders of record as of November 30, 1995, payable December 14, 1995, which
was accounted for as if it were a stock split.
9. EMPLOYEE BENEFITS
The Corporation maintains a profit sharing plan in which all qualified employees
participate. Contributions to the plan are at the discretion of the Board of
Directors and amounted to $316,000, $298,000 and $257,000 for 1997, 1996 and
1995, respectively.
10. OTHER EXPENSES
Included in other expenses for the years ended December 31, 1997, 1996 and 1995
are the following amounts:
1997 1996 1995
FDIC insurance $ 19 $ 2 $ 169
Michigan single business tax 189 181 162
11. RESTRICTIONS ON CASH BALANCES AND
UNDIVIDED PROFITS
The Bank is required to maintain legal reserve requirements based on the level
of balances in deposit categories. Cash balances restricted from usage due to
these requirements were $3,505,000 and $2,629,000 at December 31, 1997 and 1996,
respectively.
Unless prior regulatory approval is obtained, banking
regulations limit the amount of dividends that the Bank could declare to the
current year's net profit and retained new profits for the previous two years,
less any required transfers to surplus. The amount available for the payment of
dividends at December 31, 1997, was $5,977,000.
12. FAIR VALUES OF FINANCIAL INSTRUMENTS
1997 1996
ESTIMATED Estimated
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
Assets:
Cash and cash
equivalents $ 12,560 $ 12,560 $ 9,826 $ 9,826
Securities 47,287 47,807 47,409 47,734
Loans:
Commercial 55,284 55,666 52,115 51,593
Real estate mortgage 39,322 41,109 32,686 31,517
Installment 27,141 26,987 30,868 33,703
Accrued interest
receivable 1,373 1,373 1,326 1,326
Liabilities:
Deposits:
Interest-bearing 133,179 133,104 129,084 127,138
Noninterest-
bearing 29,741 29,741 27,434 27,434
Accrued interest
payable 449 449 427 427
- ---------------------------------------CBC----------------------------------- 11
<PAGE> 12
COUNTY BANK CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following methods and assumptions were used in estimating the fair value of
financial instruments:
Cash and cash equivalents: The carrying amounts reported in the balance sheet
for cash and short-term instruments approximate those assets' fair values.
Securities (including mortgage-backed securities): Fair values for investment
securities are based on quoted market prices, where available. If quoted market
prices are not available, fair values are based on quoted market prices of
comparable instruments.
Loans: For variable-rate loans that reprice frequently and with no significant
change in credit risk, fair values are based on carrying values. The fair values
for other loans are estimated using discounted cash flow analysis, using
interest rates currently being offered for loans with similar terms to borrowers
of similar credit quality. The carrying amount of accrued interest receivable
approximates its fair value.
Off-balance-sheet instruments: The fair value of loan commitments and standby
letters of credit, valued on the basis of fees currently charged for commitments
for similar loan terms to new borrowers with similar credit profiles, is not
considered material.
Deposit liabilities: The fair values disclosed for demand deposits are, by
definition, equal to the amount payable on demand at the reporting date. The
carrying amounts for variable rate, fixed-term money market accounts and
certificates of deposit approximate their fair values at the reporting date.
Fair values for fixed-rate certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered on similar certificates. The carrying amount of accrued interest payable
approximates its fair value.
Short-term borrowings: The carrying amounts of Federal funds purchased,
borrowings under repurchase agreements and other short-term borrowings
approximate their fair values.
Limitations: Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time entire holdings of a particular financial
instrument. Because no market exists for a significant portion of the financial
instruments, fair value estimates are based on judgments regarding future
expected loss experience, current economic conditions, risk characteristics and
other factors. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. Changes in assumptions could significantly affect the
estimates.
Off-balance-sheet risk: The Corporation is party to financial instruments with
off-balance-sheet risk in the normal course of business to meet the financing
needs of its customers and to reduce its own exposure to fluctuations in
interest rates. These financial instruments include commitments to extend credit
and financial guarantees. These instruments involve, to varying degrees,
elements of credit and interest rate risk that are not recognized in the
statement of financial condition.
Commitments to extend credit are agreements to lend to a customer as long as
there are no violations of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Fees from issuing these commitments to extend
credit are recognized over the period to maturity. Since a portion of the
commitments is expected to expire without being drawn upon, the total
commitments do not necessarily represent future cash requirements. The
Corporation evaluates each customer's credit worthiness on a case-by-case basis.
The amount of collateral obtained upon extension of credit is based on
management's credit evaluation of the customer.
Exposure to credit loss in the event of nonperformance by the other party to the
financial instrument for commitments to extend credit and financial guarantees
written is represented by the notional contract amount of those items. The
Corporation generally requires collateral to support such financial instruments
in excess of the notional contract amount of those instruments.
The Corporation had outstanding loan origination commitments aggregating
$28,793,000 and $24,959,000 at December 31, 1997 and 1996, respectively, of
which $17,209,000 and $14,827,000 of loans was outstanding at year end and
included in the Corporation's balance sheet.
13. REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by
Federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and discretionary actions by regulators that could
have a direct material effect on the Bank's financial statements. As of December
31, 1997, the most recent notification from the Financial Institutions Bureau
categorized the Bank as well capitalized. There are no conditions or events
since that
12 ------------------------------------CBC--------------------------------------
<PAGE> 13
COUNTY BANK CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
notification that management believes have changed the institution's capital
category.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios, which are shown in the
table below:
DECEMBER 31, 1997
CURRENT TO BE TO BE WELL
CAPITAL ADEQUATELY CAPITALIZED
CAPITALIZED
Total capital (to risk-
weighted assets):
Amount $ 23,682 $ 8,916 $ 11,145
Ratio 21.25% 8.0% 10.0%
Tier I capital (to risk-
weighted assets):
Amount 22,282 4,458 6,687
Ratio 19.99% 4.0% 6.0%
Tier I capital (to
average assets):
Amount 22,282 7,283 9,104
Ratio 12.24% 4.0% 5.0%
DECEMBER 31, 1996
Current To Be To Be Well
Capital Adequately Capitalized
Capitalized
Total capital (to risk-
weighted assets):
Amount $ 20,836 $ 8,581 $ 10,726
Ratio 19.42% 8.0% 10.0%
Tier I capital (to risk-
weighted assets):
Amount 19,482 4,290 6,436
Ratio 18.16% 4.0% 6.0%
Tier I capital (to
average assets):
Amount 19,482 6,863 8,579
Ratio 11.35% 4.0% 5.0%
- ---------------------------------CBC---------------------------------------- 13
<PAGE> 14
COUNTY BANK CORP
INDEPENDENT AUDITOR'S REPORT
[PLANET & MORAN, LLP LETTERHEAD]
The Board of Directors
County Bank Corp
We have audited the consolidated balance sheet of County Bank Corp and
subsidiary at December 31, 1997 and 1996, and the related consolidated
statements of changes in stockholders' equity, income and cash flows for each
year in the three-year period ended December 31, 1997. These consolidated
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of County
Bank Corp at December 31, 1997 and 1996, and the consolidated results of its
operations and cash flows for each year in the three-year period ended December
31, 1997, in conformity with generally accepted accounting principles.
Plante & Moran, LLP
January 30, 1998
14 --------------------------------CBC------------------------------------------
<PAGE> 15
COUNTY BANK CORP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
County Bank Corp (the Corporation), a one bank holding company, was formed on
January 3, 1989, and is the sole owner and parent of Lapeer County Bank & Trust
Co. (the Bank). Through the Bank, the Corporation offers a full line of banking
and trust services. The Bank serves Lapeer County through three offices in the
City of Lapeer and offices in Attica, Deerfield, Elba and Metamora Townships.
The Corporation is obligated to comply with the regulations of the Federal
Reserve Board and the Securities and Exchange Commission. As a state chartered
member institution, the Bank is obligated to comply with the regulations of the
Financial Institutions Bureau of the State of Michigan in addition to the
regulations of the Federal Reserve Board. The Corporation's and the Bank's
business is directly affected by the monetary policies of the Board of Governors
of the Federal Reserve System. The Bank's deposits are insured by the Federal
Deposit Insurance Corporation.
EARNINGS
Major components of the operating results of the Corporation for 1997, 1996 and
1995 are presented in the accompanying table, Summary of Operations. A
discussion of these results is presented in greater detail in subsequent pages.
SUMMARY OF OPERATIONS
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Interest income $ 13,556 $ 12,666 $ 12,114 $ 10,768 $ 10,492
Interest expense 5,162 4,823 4,654 3,858 4,023
Net interest income 8,394 7,843 7,460 6,910 6,469
Provision for possible loan losses 120 120 240 120 275
Net interest income after provision
for possible loan losses 8,274 7,723 7,220 6,790 6,194
Other income 2,166 2,216 1,971 1,800 1,666
Other expenses 6,064 5,739 5,669 5,624 5,507
Income before provision for
Federal income tax 4,376 4,200 3,522 2,966 2,353
Provision for Federal income tax 1,215 1,220 948 848 596
Net income $ 3,161 $ 2,980 $ 2,574 $ 2,118 $ 1,757
PER SHARE
Net income $ 5.33 $ 5.02 $ 4.34 $ 3.57 $ 2.96
Dividends declared $ 1.70 $ 1.53 $ 1.27 $ 1.04 $ .87
</TABLE>
NET INTEREST INCOME
The Bank experienced strong loan demand during 1997. Total growth in loans was
5.2%. This is less than the 11.7% growth the Bank experienced in 1996. The Bank
sold $1,671,000 of mortgages and $1,729,000 of student loans to the secondary
markets. Total loan growth adjusted for these sales was 8.1%. Deposit growth was
4.1%. Most growth took place in demand deposit and interest-bearing demand
deposit categories. Both categories increased 8% over 1996 year end balances.
The Bank's loan to deposit ratio increased to 75.9%. Net interest yield on a
Federal tax equivalent (FTE) basis as a percent of average assets was 4.9%, 4.8%
and 4.8% for 1997, 1996 and 1995, respectively. The FTE adjustment is derived by
dividing tax exempt interest income by .66 to reflect the Corporation's 34% tax
rate. The Corporation continues to match rate sensitive assets and rate
sensitive liabilities to maintain margins in differing rate environments.
PROVISION FOR POSSIBLE LOAN LOSSES
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
- -------------------------------------CBC------------------------------------ 15
<PAGE> 16
COUNTY BANK CORP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
against the listings that result from the review procedure, historical net loan
loss experience, current and projected loan volumes, the level and composition
of nonaccrual, 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 possible loan losses resulted in net
recoveries of $32,000 in 1997. Net charged off loans were $2,000 in 1996 and
$177,000 in 1995. Provisions for possible loan losses were $120,000, $120,000
and $240,000 for the respective periods. The ratio of reserve for possible loan
losses to gross loans was 1.6%, 1.5% and 1.6% on December 31, 1997, 1996 and
1995, respectively.
NON-INTEREST INCOME
Non-interest income is composed of trust department income, service charges on
deposit accounts, fees for providing other services to customers, gains on
securities sales and other income. Service charges on deposit accounts declined
5.1% in 1997 following an increase of 3.5% in 1996. Nonsufficient funds and
overdraft fee income declined although demand accounts and balances increased.
Service charges on demand accounts decreased as customers chose accounts where
fees are offset by deposit balances. Other income declined 7.5% in 1997
primarily due to the high volume of other income posted in 1996. The Bank posted
a recovery of previously accrued expenses of $70,000 provided to cover
environmental costs of a property in other real estate owned that carried no
book value. The property was sold in 1997 for $20,000 with limited environmental
costs. Other income in 1996 increased 28.1% as a result of the repayment of two
loans that were previously carried as nonaccrual loans. The customers were on
the way to working out their problems and the loans were renewed on an accrual
basis. Interest that was earned but not reported as income during the period of
nonaccrual was capitalized in the renewed loan but carried in the general ledger
as deferred credits until the customers fully established their improved
repayment capability. The deferred credits were recorded as income on an
interest basis as the new loans were repaid. Both properties were sold, and the
Bank recovered all of its investment. The deferred credits were booked directly
to other income rather than interest income so that comparative yield
calculations would not be distorted. The total amount of the deferred credits
posted to other income totaled $242,000.
NON-INTEREST EXPENSE
Major components of non-interest expense are salaries and employee benefits,
occupancy and equipment expenses and other operating expenses. Salaries and
employee benefits, the largest component of non-interest expense, increased 4.2%
in 1997 after a 4.0% increase in 1996. Full time equivalent employees increased
from 117 at year end 1996 to 120 at year end 1997. Occupancy expenses increased
26.3% after a 4.8% increase in 1996. This was primarily the result of increased
depreciation expenses as a result of remodeling older areas of the Bank building
and expenses of conversion to a new computer system in late 1997. Other expenses
decreased by 1.3%.
FINANCIAL CONDITION
Average assets for the Corporation totaled $181,270,000, $172,312,000, and
$165,081,000 in 1997, 1996 and 1995, respectively. This 5.1% growth in average
assets improved from 4.4% in 1996. The increase was supported by a 4.8% growth
in average deposits. Average loans grew 8.3% in 1997. The Corporation continues
to increase the loan to deposit ratio resulting in increased interest margins
and net income.
CAPITAL
The Corporation currently has 438 stockholders representing 593,236 shares of
common capital stock with a par value of $5.00 per share. The stock is not
listed on any exchange. Sales are handled by local brokerage firms. The
following schedule compares bid and asked prices for the stock of the
Corporation, as known to management, by calendar quarter for 1997 to bid and
asked prices for 1996.
1997
BID ASKED
First Quarter $ 43.00 $ 44.00
Second Quarter 48.00 49.00
Third Quarter 52.00 53.00
Fourth Quarter 53.00 54.00
1996
BID ASKED
First Quarter $ 34.00 $ 35.00
Second Quarter 38.00 39.00
Third Quarter 39.00 40.00
Fourth Quarter 41.00 42.00
16 ---------------------------------CBC-----------------------------------------
<PAGE> 17
COUNTY BANK CORP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Corporation paid quarterly dividends and paid a special dividend in
December in 1997 and 1996. Total cash paid in dividends totaled $1,009,000 and
$908,000 in 1997 and 1996, respectively. The Corporation paid a 100% stock
dividend on December 14, 1995, increasing the number of outstanding shares to
593,236 from 296,618. All per share disclosures in this narrative have been
restated to reflect the new number of shares. The dividends per share totaled
$1.70 and $1.53 in 1997 and 1996, respectively. At the Annual Meeting of
Stockholders on April 18, 1996, the stockholders approved an increase in the
authorized number of shares from 600,000 to 1,200,000. The Corporation did not
issue any of the newly authorized shares.
The Corporation's return on equity reached 15.0% in 1997, a slight decline from
the 15.8% return achieved in 1996 and the 15.5% return earned in 1995.
Effective December 31, 1992, the Bank is required to maintain capital in excess
of 8% of risk-weighted assets as defined by the Federal Reserve Board. The
Bank's capital to risk-weighted assets ratio was 21.7% on December 31, 1997 and
19.5% on December 31, 1996.
LIQUIDITY
The anticipated liquidity requirements of the Corporation can be met by
upstreaming dividends from the Bank. Refer to Note 11 of the accompanying
financial statements for a discussion of the restrictions on undivided profits
of the Bank. The anticipated cash needs of the Corporation are for the payment
of dividends to current stockholders. Dividends upstreamed to the Corporation
were $1,009,000 in 1997 and $908,000 in 1996.
The estimated market value of U.S. Government and U.S. Government Agency
securities totaled 17.7% of total deposits on December 31, 1997. This
percentage for 1996 was 20.4%. The Corporation is able to meet normal demands
for liquidity through loan repayments, securities payments and deposit growth.
RETIREMENT
__________________________
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|________________________|
RICHARD L. JUNE
Dick June joined the Bank in 1954 in the bookkeeping department and was made an
officer in 1960. Four years later, he became the bank manager of the Bank's
first branch office, in Elba Township. And, four years after that, in 1968, he
returned to the main office where he subsequently held a variety of assignments
in the lending department including student loans. Over the years, he furthered
his knowledge of banking by taking American Institute of Banking courses and by
completing studies at the University of Michigan Banking School and the
University of Wisconsin Graduate School of Banking. Dick gave freely of his
time and talents to numerous civic causes. He served as chairman of the local
United Way's Red Feather campaign, was a member of the Jaycees, and for nearly a
quarter of century has belonged to the Rotary Club, having also served that
organization as president. Dick and his wife, Jeaneen, who have lived in
Lapeer all their lives, recently built a very comfortable and unique log home
at Lakes of the North, where they will enjoy their retirement years.
- --------------------------------CBC----------------------------------------- 17
<PAGE> 18
COUNTY BANK CORP
SPECIAL RECOGNITION
CHERRI WEIR
Cherri was appointed to the position of Metamora Branch Officer in April. She
has several years of banking education and experience. She earned a bachelor of
arts degree from Western Michigan University, majoring in Marketing with minors
in Communication and Business Administration. Cherri is a member of the St. Paul
Luthern Church Bell Choir and an Ambassador for the Lapeer Area Chamber of
Commerce.
___________________________
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SPECIAL RECOGNITION AND AWARDS WERE PRESENTED
TO THESE EMPLOYEES IN HONOR OF THEIR DEDICATED SERVICE
_________________________________________________________________________
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|_________________________________________________________________________|
Back Row, from left: 20 YEARS: Alan Curtis, Ken Ewing and Sue Dickey;
15 YEARS: Laird Kellie; Front Row, from left: 10 YEARS: Jan Heiser and
Carolyn Robinson; 5 YEARS: Betty Johnson, Debbie Coe and Loretta Powell
18 --------------------------------------CBC------------------------------------
<PAGE> 19
COUNTY BANK CORP
BOARD OF DIRECTORS
COUNTY BANK CORP
BOARD OF DIRECTORS
________________________________________________________________________
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STANDING: Curt Carter, Dr. Dave Bush, Chuck Schiedegger, Pat Cronin and
Mike Blazo
SEATED: Dr. Ernie Lefever, Tom Butterfield, Ed LaClair and Tim Oesch
<TABLE>
<S> <C>
MICHAEL H. BLAZO A. EDWARD LACLAIR
Vice President, Kirk Construction Co. President, Ross Automotive Supply, Inc.
DAVID H. BUSH, O.D. ERNEST W. LEFEVER, DPM
Doctor of Optometry Doctor of Podiatry
THOMAS K. BUTTERFIELD TIM OESCH
Attorney at Law, Taylor, Butterfield, President, Nolin, Oesch, Sieting &
Riseman, Clark, Howell and Churchill, P.C. Macksoud, P.C.
CURT CARTER CHARLES SCHIEDEGGER
President, County Bank Corp President & COO, Metamora Products Corp.
PATRICK A. CRONIN
Agent, State Farm Insurance
</TABLE>
- --------------------------------------CBC-----------------------------------19
<PAGE> 20
COUNTY BANK CORP
LAPEER COUNTY BANK & TRUST CO.
OFFICERS
WHOLLY OWNED SUBSIDIARY
LAPEER COUNTY BANK & TRUST CO.
CURT CARTER RICHARD L. JUNE
President Consumer Loan Officer
PATRICK F. BROWN BETH A. HENDERSON
Senior Vice President Consumer Loan Officer
LAIRD A. KELLIE NANCY F. SOMMERVILLE
Vice President Consumer Loan Officer
V. KENNETH EWING SHELLY M. CHILDERS
Vice President & Trust Officer Data Processing Officer
JOSEPH BLACK SUSANNE R. DICKEY
Financial Officer Assistant Financial Officer
AMY L. BURWELL DEAN A. GOODRICH
Human Resources Director Auditor
CAROL-LYNN VANNORMAN CAROL J. WANGLER
Marketing Director Operations Officer
JIM COPPINS BERNADETTE F. TALASKI
Business Development Officer Branch Administrator & Branch Officer
ALAN J. CURTIS DOROTHY A. FLEMING
Senior Commercial Loan Officer Attica Branch Officer
DAVID M. HENDRY CHERRI A. WEIR
Commercial Loan Officer Metamora Branch Officer
KATHLEEN M. SUTHERLAND MARSHA A. KALAKAY
Director of Mortgage Lending Southgate Branch Officer
BARBARA L. SMALLIDGE
Director of Consumer Lending
A COPY OF THE CORPORATION'S 10K ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION IS AVAILABLE UPON WRITTEN REQUEST TO: JOSEPH BLACK, TREASURER, COUNTY
BANK CORP, PO BOX 250, LAPEER, MI 48446-0250.
LAPEER COUNTY BANK & TRUST CO., MAIN OFFICE
83 WEST NEPESSING STREET, LAPEER, MICHIGAN
PHONE: 810-664-2977 FAX: 810-667-1742
20 ------------------------------------CBC--------------------------------------
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report on Form
10-K of County Bank Corp. for the year ended December 31, 1997, of our
report dated January 30, 1998 included in the 1997 Annual Report to the
Shareholders of County Bank Corp.
/s/ PLANTE & MORAN, LLP
PLANTE & MORAN, LLP
Bloomfield Hills, Michigan
March 25, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 9,010
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,550
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 47,287
<INVESTMENTS-MARKET> 47,807
<LOANS> 123,604
<ALLOWANCE> 1,957
<TOTAL-ASSETS> 186,841
<DEPOSITS> 162,920
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,640
<LONG-TERM> 0
0
0
<COMMON> 2,966
<OTHER-SE> 19,315
<TOTAL-LIABILITIES-AND-EQUITY> 186,841
<INTEREST-LOAN> 10,454
<INTEREST-INVEST> 3,102
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 13,556
<INTEREST-DEPOSIT> 5,160
<INTEREST-EXPENSE> 5,162
<INTEREST-INCOME-NET> 8,394
<LOAN-LOSSES> 120
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 6,064
<INCOME-PRETAX> 4,376
<INCOME-PRE-EXTRAORDINARY> 4,376
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,161
<EPS-PRIMARY> 5.33
<EPS-DILUTED> 5.33
<YIELD-ACTUAL> 4.9
<LOANS-NON> 894
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 655
<ALLOWANCE-OPEN> 1,805
<CHARGE-OFFS> 59
<RECOVERIES> 91
<ALLOWANCE-CLOSE> 1,957
<ALLOWANCE-DOMESTIC> 1,957
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,730
</TABLE>
