<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 10 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended
December 31, 1998
Commission files 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 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 shares of stock held by nonaffiliates
of the registrant was $40,020,868.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of the latest practicable date.
There are 593,236 shares of common stock ($5.00 par value) outstanding as of
December 31, 1998.
The following documents are incorporated into the 10-K by reference:
The Annual Report to Shareholders, December 31, 1998, Part I, Part II.
Proxy statement dated March 25, 1998, Part III.
<PAGE> 2
FORM 10-K
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 stockholders,
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
stockholder 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 through location is located at the corner of Pine St. and Clay
St. across form 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 Machine is located in Lapeer Regional Hospital,
1375 N. Main St., Lapeer. One cash dispensing machine is located the lobby of
Lapeer Cinemas at 1650 Demille Rd., Lapeer, MI. 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 National City Bank of Michigan/Illinois. National City operates
branches throughout the County. Independent Bank Corp. of Ionia, MI operates
three branch locations in the Bank's market area and a loan production office in
a Lapeer shopping center. NBD Bank operates an office north of the city limits
of Lapeer. Citizens Bank of Flint operates a branch in Columbiaville, MI.
Tri-County Bank has offices in Imlay City and Almont. CSB Bank of Capac has an
office in Imlay City and Almont. Oxford Bank operates a branch in Dryden. There
are two offices of Citizen's Federal Savings and Loan in the County. Two credit
unions, Lapeer County School Employees Credit Union and The Lapeer County
Community Credit Union, which operates offices in Lapeer and Imlay City, serve
the County. 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 local telephone book lists ten financial
planners, six investment brokers, and thirty-three mortgage brokers.
The Corporation is regulated 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 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 that 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
County Bank Corp 1998 10-k 2
<PAGE> 3
examine and regulated 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 Federal
Deposit Insurance Corporation insures the Bank's deposits.
The Federal Deposit Insurance Corporation 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 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 under capitalized. 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 operation and management standards, review of
executive compensation, increased accounting principles, and increased
dependence on audit committees.
The number of full time equivalent employees totaled 116 and 120 on December 31,
1998 and 1997, respectively.
County Bank Corp 1998 10-k 3
<PAGE> 4
Guide 3. Statistical disclosures:
I. Distribution of Assets, Liabilities and Stockholders' Equity; Interest
Rates and Interest
<TABLE>
<CAPTION>
Table I. Average Assets (000's) Income (000's) Yield (%)
1998 1997 1996 1998 1997 1996 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Securities:
US Gov't & agencies ............................ 27,786 29,482 31,543 1,792 1,956 1,994 6.4% 6.6% 6.3%
State and political subdivisions* .............. 17,898 15,594 14,167 1,392 1,246 1,159 7.8% 8.0% 8.2%
Corporate securities ........................... -- 22 64 -- 1 4 0.0% 4.5% 6.3%
Other securites ................................ 1,516 1,206 854 47 38 35 3.1% 3.2% 4.1%
Total investment securities .................... 47,200 46,304 46,628 3,231 3,241 3,192 6.8% 7.0% 6.8%
Bank time deposits ............................. -- -- -- -- -- -- 0.0% 0.0% 0.0%
Federal funds sold ............................. 8,160 5,209 4,657 429 286 248 5.3% 5.5% 5.3%
Loans:
Commercial loans* .............................. 55,943 54,210 51,247 5,071 4,937 4,660 9.1% 9.1% 9.1%
Real estate mortgages .......................... 35,845 37,258 30,784 2,972 3,144 2,564 8.3% 8.4% 8.3%
Consumer loans ................................. 29,969 28,192 28,403 2,653 2,428 2,451 8.9% 8.6% 8.6%
Total loans .................................... 121,757 119,660 110,434 10,696 10,509 9,675 8.8% 8.8% 8.8%
Total average earning assets ................... 177,117 171,173 161,719 14,356 14,036 13,115 8.1% 8.2% 8.1%
Total average assets ........................... 189,729 182,077 172,312
Interest bearing liabilities:
Deposits:
NOW account deposits ........................... 46,084 41,132 37,176 1,550 1,397 1,206 3.4% 3.4% 3.2%
Savings deposits ............................... 41,210 42,416 41,595 1,202 1,262 1,223 2.9% 3.0% 2.9%
Time deposits over $100,000 .................... 6,326 4,994 4,507 352 263 239 5.6% 5.3% 5.3%
Other time deposits ............................ 42,249 42,245 41,683 2,251 2,153 2,153 5.3% 5.1% 5.2%
Total deposits ................................. 135,869 130,787 124,961 5,355 5,075 4,821 3.9% 3.9% 3.9%
Federal funds purchased ........................ 35 34 16 2 2 1 5.7% 5.9% 6.3%
Long-term debt ................................. -- -- -- 0.0% 0.0% 0.0%
Total interest bearing liabilities ............. 135,904 130,821 124,977 5,357 5,077 4,822 3.9% 3.9% 3.9%
Demand deposits ................................ 30,238 28,648 27,121
Other liabilities .............................. 1,888 1,465 1,355
Stockholders' equity ........................... 21,699 21,143 18,859
Total liabilities and stockholders' equity ..... 189,729 182,077 172,312
Interest expense as a % of average earning
assets ....................................... 3.0% 3.0% 3.0%
Net interest margin/net interest yield as a % .. 8,999 8,959 8,293 5.1% 5.2% 5.1%
of average earning assets
Net interest yield as a % of average assets .... 4.7% 4.9% 4.8%
</TABLE>
* A tax adjustment of $514, $473, and $449 has been added to 1998, 1997 and 1996
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.
County Bank Corp 1998 10-k 4
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<TABLE>
<CAPTION>
Rate/volume variance analysis 1998 vs 1997 1997 vs 1996
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 -113 -55 4 -164 -130 99 -7 -38
State and political subdivisions* 184 -33 -5 146 117 -27 -3 87
Corporate securities -1 -1 1 -1 -3 -1 1 -3
Other securites 10 -1 0 9 14 -8 -3 3
Total investment securities 80 -90 0 -10 -2 63 -12 49
Bank time deposits 0 0 0 0 0 0 0 0
Federal funds sold 162 -12 -7 143 29 8 1 38
Loans:
Commercial loans* 158 -23 -1 134 269 7 1 277
Real estate mortgages -119 -55 2 -172 539 34 7 580
Consumer loans 153 68 4 225 -18 -5 0 -23
Total loans 192 -10 5 187 790 36 8 834
Total average earning assets 434 -112 -2 320 817 107 -3 921
Interest bearing liabilities:
NOW account deposits 168 -14 -1 153 128 57 6 191
Savings deposits -36 -25 1 -60 24 15 0 39
Time deposits over $100,000 70 15 4 89 26 -2 0 24
Other time deposits 0 98 0 98 29 -29 0 0
Total deposits 202 74 4 280 207 41 6 254
Federal funds purchased 0 0 0 0 1 0 0 1
Long-term debt 0 0 0 0 0 0 0 0
Total interest bearing liabilities 202 74 4 280 208 41 6 255
Net Interest Income 232 -186 -6 40 609 66 -9 666
</TABLE>
II. Investment Portfolio
Refer to Footnote 3 of the accompanying financial statements on page 9 to the
Annual Report to stockholders for the information required by this item, except
for:
Weighted average yield on a tax equivalent basis:
<TABLE>
<CAPTION>
Book Value (000's) Yield (%)
<S> <C> <C>
US Government securities Maturity distribution:
One year or less $ 4,009 5.51
Over one year through five years 1,001 5.31
Over five years through ten years 5,975 7.20
Over ten years -- --
State and political subdivisions Maturity distribution:
One year or less $ 1,824 8.82
Over one year through five years 6,940 7.56
Over five years through ten years 6,343 8.06
Over ten years 4,245 7.31
Mortgage-backed securities 18,489 6.16
Other securities 426 11.03
</TABLE>
County Bank Corp 1998 10-k 5
<PAGE> 6
III. Loan Portfolio
A. Types of loans
Refer to Footnote 4 of the accompanying financial statements on page 10 of
Annual Report to stockholders for the information required by this item.
B. Maturities and Sensitivities of Loans to Changes in Interest Rates as of
December 31, 1998.
Commercial Loans
Fixed rate loans with a maturity of:
Three months or less $ 2,591
Over three months through twelve months 7,071
One year through five years 19,097
Over five years 402
-------
Total fixed rate loans $29,161
Floating rate loans with a repricing frequency of:
Quarterly or more frequently $21,497
-------
Total Commercial loans $50,658
-------
Real-estate Construction Loans
Fixed rate loans with a maturity of:
Three months or less $ 174
Over three months through twelve months 1,118
One year through five years 411
-------
Total fixed rate loans 1,703
Floating rate loans with a repricing frequency of:
Quarterly or more frequently 4,035
-------
Total Real-estate Construction loans $ 5,738
-------
C. Risk Elements
1. Nonaccrual, Past Due, and Restructured Loans (000's)
12/31/98 12/31/97
Loans 90 days past due and still accruing
Commercial loans $ 174 $111
Real estate loans 0 124
Installment loans 98 31
------ ----
Total loans 90 days pas due 272 266
====== ====
Nonaccruing loans
Commercial loans 910 642
Real estate loans 45 170
Installment loans 197 82
------ ----
Total nonaccruing loans $1,152 $894
====== ====
There were no restructured loans
County Bank Corp 1998 10-k 6
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For the year ended 1998, if the loans reported as nonaccrual had earned at the
contracted interest rate, $51,100 of interest income would have been recorded.
No interest income was recorded on these loans in 1998.
The Corporation places loans on a nonaccruing status when management feels that
a significant rise of non-repayment exists. Criteria for evaluating risk 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, 1998, management identified eight potential problem loans
in the commercial loan portfolio. The seven loans totaled $862,768. Management
allocated $66,000 of the allowance for loan losses for these credits.
3. Foreign Outstandings
Not applicable
4. Loan concentrations
As of December 31, 1998, 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, 1998, there was no other interest bearing asset that would
have been classified 90 days past due and still accruing if it were a loan.
IV. Summary of Loan Loss Experience
A. Analysis of Allowance for Loan Losses (000's)
<TABLE>
<CAPTION>
<S> <C> <C>
Balance at beginning of the period $1,957 $1,805
Charge offs:
Commercial 157 --
Real estate -- --
Installment 69 59
Construction -- --
Total charge offs 226 59
Recoveries:
Commercial 10 63
Real estate -- --
Installment 20 28
Construction -- --
Total recoveries 30 91
Net charge offs 196 (32)
Provision charged to earnings 120 120
Balance at the end of the period $1,881 $1,957
Ratio of net charge offs during the
period to average loans during
the period 0.16% -0.03%
</TABLE>
Net charged off loans totaled $196,000 in 1998. One borrower accounted for
$150,000 of the total charged off loans. Management allocated $120,000 from
earnings to maintain a strong reserve for loan losses to total loans ratio of
1.57%
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 reserve for loan losses to total loans ratio
of 1.58%
B. Allocation of the Allowance for Loan Losses (000's)
<TABLE>
<CAPTION>
1998 1997
Amount % of loans Amount % of loans
Balance at December 31, applicable to: in category in category
<S> <C> <C> <C> <C>
Commercial $ 276 42.1% $ 179 43.7%
Real estate mortgage -- 29.5% -- 31.8%
Installment 73 23.6% 48 22.0%
Construction -- 4.8% -- 2.5%
unallocated 1,532 n/a 1,730 n/a
------ ------
$1,881 100.0% $1,957 100.0%
====== ======
</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)
Three months or less $3,218
Over three through six months 1,107
Over six months through twelve months 1,562
Over twelve months ,959
------
$6,846
======
E. Not applicable
VI. Return on Equity and Assets
1998 1997
Return on assets (%) 1.70 1.74
Return on equity (%) 14.80 15.00
Dividend payout ratio (%) 106.63 31.90
Equity to assets ratio (%) 11.44 11.61
VII. Short-term Borrowings
Not applicable
County Bank Corp 1998 10-k 7
<PAGE> 8
ITEM 2. PROPERTY
The following is a tabulation of facilities owned by the Bank
App. Building Date
Description/location Square footage Occupied
Main office 34,948 9/15/02
83 W. Nepessing St.
Lapeer, MI
Elba Office 3,744 10/22/85
5508 Davison Rd.
Lapeer, MI
Pine-Clay office 528 1/5/68
305 Pine St.
Lapeer, MI
Southgate Office 1,700 11/2/70
637 S. Main St.
Lapeer, MI
Attica Office 4,158 6/27/79
4515 Imlay City Rd.
Attica, MI
Metamora Office 2,668 9/18/89
3414 S Lapeer Rd.
Metamora , MI
ITEM 3. LEGAL PROCEEDINGS
No material legal proceeding is pending to which the Corporation or the Bank is
the party, or of which any of their property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
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>
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Total Assets $197,486 $186,841 $177,786 $169,877 $166,666
Long Term Debt -- -- -- -- --
</TABLE>
County Bank Corp 1998 10-k 8
<PAGE> 9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND THE
RESULTS OF OPERATIONS.
EARNINGS
Major components of the operating result of the Corporation for 1998, 1997 and
1996 are presented in the accompanying table, Summary of Operations. A
discussion of these results is presented in greater detail in subsequent pages.
<TABLE>
<CAPTION>
Summary of Operations
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Interest income $13,826 $13,556 $12,666 $12,114 $ 10,768
Interest expense
5,355 5,162 4,823 4,654 3,858
--------------------------------------------------------------
Net interest income
8,471 8,394 7,843 7,460 6,910
Provision for possible loan losses
120 120 120 240 120
--------------------------------------------------------------
Net interest income after provision for
Possible loan losses
8,351 8,274 7,723 7,220 6,790
Other income
2,283 2,166 2,216 1,971 1,800
Other expense
6,175 6,064 5,739 5,669 5,624
--------------------------------------------------------------
Income before provision for Federal income tax
4,459 4,376 4,200 3,522 2,966
Provision for Federal income tax
1,239 1,215 1,220 948 848
--------------------------------------------------------------
Net income $ 3,220 $ 3,161 $ 2,980 $ 2,574 $ 2,118
==============================================================
Per share:
Net income $ 5.43 $ 5.33 $ 5.02 $ 4.34 $ 3.57
==============================================================
Dividends declared $ 5.79 $ 1.70 $ 1.53 $ 1.27 $ 1.04
==============================================================
</TABLE>
Net interest income
The Bank continued to experience strong loan demand during 1998. However, loans
decreased $3,233,000 during the year as a result of the sale of $9,922,000 of
mortgage loans to the secondary market. These loans were sold due to the low
interest rate environment. In addition, tow large commercial credits paid off
unexpectedly during the year. Deposits increased $10,537,000 during 1998. The
Bank increased the securities portfolio by $3,281.000 and paid $3,434,000 in
dividends. Net interest margin on a Federal tax equivalent (FTE) basis declined
from 4.9% in 1997 to 4.7% in 1998 as a result of these changes in the mix of
assets and liabilities. The FTE adjustment is derived by dividing tax exempt
interest income by .66 to reflect the Corporations 34% tax rate.
<TABLE>
<CAPTION>
Rate sensitivity analysis (000's), December 31, 1998
Repricing period in days 0-30 31-90 91-180 181-365 0-365 0ver 365
<S> <C> <C> <C> <C> <C> <C>
Rate sensitive assets (RSA):
Federal fund sold 13,700 - - - 13,700 0
Investment securities 14,896 627 2,573 3,837 21,933 28683
Loans 27,097 3,153 4,775 8,251 43,276 76899
------------------------------------------------------------------------
Total rate sensitive assets 55,693 3,780 7,348 12,088 78,909 105582
Rate sensitive liabilities (RSL):
Demand deposits 24,522 - 24,522 55463
Savings deposits 21,380 - 21,380 22377
Time deposits 6,636 8,287 6,561 10,923 32,407 17311
------------------------------------------------------------------------
Total rate sensitive liabilities 52,538 8,287 6,561 10,923 78,309 95151
Repricing gap (RSA-RSL) 3,155 (4,507) 787 1,165 600 10431
As a percent of capital 14.1% -20.2% 3.5% 5.2% 2.7% 46.7%
As a percent of total assets 1.6% -2.3% 0.4% 0.6% 0.3% 5.3%
</TABLE>
County Bank Corp 1998 10-k 9
<PAGE> 10
The preceding table represents management's analysis of repricing probabilities
for 1998. The Asset/liability management committee meets monthly to review the
impact of changes in rates and market pricing on the Corporation's interest
earning assets and interest paying liabilities. Customers' responses to interest
rates and deposit products are reviewed. Loan demand is discussed and methods to
answer customers needs are reviewed. The rate sensitivity of current production
of both loans and deposits are reviewed. Management's goal is to achieve a
balance between rate sensitive assets and rate sensitive liabilities in order to
maintain a reasonable interest margin in changing rate environments.
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 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 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 charged
off loans of $196,000 in 1998. Net recoveries of $32,000 were recorded in 1997.
Provisions for possible loan losses were $120,000 and $120,000 for the
respective periods. The ratio of reserve for possible loan losses to gross loans
was 1.6%, 16% and 1.5% on December 31, 1998, 1997 and 1996, 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 3.4%
during 1998. The Bank recorded increases in automated teller machine (ATM) fees
as a result of installing ATM machines at the Elba and Attica branch offices.
Mortgage servicing fees increased $9,600 as a result of the increases in sold
mortgages. Mortgage servicing rights were recorded and amortized, resulting in
an increase in other income of $94,000. Gains on mortgage sales totaled $80,000.
These gains were offset by lower credit insurance income due to a decline in
volume of new direct consumer loans and a decline in other real estate rental
income. Gains on the sale of other real estate of $90,000 recorded in 1997 were
not repeated. Total non-interest income increased 5.4% in 1998.
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 1.9%
in 1998 after a 4.2% increase in 1997. Full time equivalent employees decreased
from 120 on December 31, 1998, to 116 on December 31, 1997. Occupancy expenses
increased 13.5% after a 26.3% increase in 1997. The increase resulted from
depreciation expenses from a full year's depreciation of a new computer system
purchased in 1997 and depreciation of remodeling expenses that continue in older
buildings owned by the Bank. Other expensed declined 5.8%.
FINANCIAL CONDITION
Average assets for the Corporation totaled $189,729,000, $181,270,000 and
$172,312,000 in 1998, 1997 and 1996, respectively. The 4.2% growth in average
assets declines slightly from the 5.1% average growth achieved in 1997. The
growth was supported by 3.8% growth in average deposits for 1998. Average loans
grew 4.7% in 1998 compared 8.3% growth in 1997. The Corporation sold over
$9,000,000 in mortgages in the secondary market during 1998.
County Bank Corp 1998 10-k 10
<PAGE> 11
Liquidity
The anticipated requirements of the Corporation can be met by upstreaming
dividends from the subsidiary Bank. Refer to footnote 10 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 annual dividends to current stockholders. Dividends upstreamed to the
Corporation were $3,434,000 in 1998 and $1,009,000 in 1997.
The estimated market value of U.S. Government securities and U.S. Agency
securities totaled 19.0% of total deposits on December 31, 1998. The percentage
for 1997 17.7%. The Corporation is able to meet normal demands for liquidity
through loan repayments, securities payments and deposit growth.
CAPITAL
The Corporation's return on average equity totaled 14.8% in 1998 and 15.0% in
1997. Increases in the market value of securities available for sale were higher
than the net reduction in capital due to the payment of dividends that exceeded
net income for 1998. Consequently, the return on average equity declined during
the year. Effective December 31, 1992, the Corporation is required to maintain
capital in excess of 8% of risk-weighted assets as defined by the Federal
Reserve Board. The Corporation's capital to risk-weighted asset ratio was 20.7%
on December 31, 1998 and was 21.3% on December 31, 1997. Refer to footnote 12 of
the accompanying financial statements for a tabular presentation of the
Corporation's capital adequacy. At its March 17, 1999 meeting, the Board of
Directors declared a 100% stock dividend to stockholders of record March 28,
1999, payable April 20, 1999.
RISK FACTORS
The Corporation is evaluated by the Federal Reserve Bank on its management of
risk factors effecting the organization. These risks include credit,
liquidity, market, operational, fiduciary, legal and reputational. Credit,
liquidity, and market risk were discussed in earlier sections of this
narrative. Legal matters are discussed in ITEM 13. The Board of Directors
discusses matters relating to its reputation and performance in
the community at its regular meetings and two planning meetings held during the
year. The primary risk facing the Corporation's operations relate to the
problem associated with a failure of computer systems to recognize the year
2000 in its calculations. The Bank recently invested in new technology for the
future and is currently completing its testing and remediation of the various
data processing systems it has identified that may be subject to this problem.
Contingency planning is also under way relative to the possibility that
failures in systems over which the Corporation has no control will effect the
Corporation's operations. The Corporation's effort is scheduled to be completed
by June 30, 1999.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Pages 3-13
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
The information called for the items within this part is included in County Bank
Corp's 1998 Proxy Statement and is incorporated herein by reference, as follows:
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
PAGES 3-4 EXCEPT FOR:
Executive Officers Ages Office Service
Curt Carter 54 Employee 32 years
Officer President 10 years
Present term 10 years
Patrick F. Brown 51 Employee 12 years
Officer Vice President 10 years
Present term 10 years
Laird A. Kellie 53 Employee 16 years
Officer Secretary 10 years
Present term 10 years
Joseph H. Black 49 Employee 9 years
Officer Treasurer 9 years
Present term 9 years
ITEM 11. EXECUTIVE COMPENSATION
Page 6
County Bank Corp 1998 10-k 11
<PAGE> 12
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Page 2
Director Number Percentage of
of shares outstanding
stock
Dr. David H. Bush 22,028 3.71
Michael H. Blazo 10,006 1.69
Curt Carter 3,554 0.60
Patrick A. Cronin 1,039 0.18
Thomas K. Butterfield 14,700 2.48
James A. Harrington 3,038 0.51
A. Edward LaClair 5,714 0.96
Ernest W. Lefever 200 0.04
Tim Oesch 1,516 0.26
Charles Scheidegger 4,468 0.75
Executive Officers and Directors, as a group, own 66,593 shares or 11.23% of
593,236 total outstanding shares of common stock of Corporation as of December
31, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Page 6
County Bank Corp 1998 10-k 12
<PAGE> 13
PART IV
Item 14. EXHIBITS FINANCIAL STATEMENT SCHEDULES, AND REPORTS OF FORM 8-K.
(a)(1) The following financial statement schedules of the Corporation and Bank
are included in the Annual Report to its stockholders for the year ended 1998
and are incorporated herein by reference in Item 8:
<TABLE>
<S> <C>
Balance Sheets--December 31, 1998 and 1997 Page 3
Statements of Income--years ended December 31, 1998, 1997 and 1996 Page 5
Statements of Changes in Stockholders Equity--years ended
December 31, 1998, 1997 and 1996 Page 4
Statements of Cash Flows--years ended December 31, 1998, 1997 and 1996 Page 6
Notes to Financial Statements Pages 7-13
Report of Independent Public Accountants dated January 22, 1999 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 Stockholders for the year ended December 31, 1998 (filed
herewith)
(21) Subsidiary of the Registrant:
(23) Consent of Experts and Counsel: Letter of consent form Plante & Moran, LLP
dated March 29, 1999
(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 1998 10-k 13
<PAGE> 14
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.
County Bank Corp
/s/ Curt Carter
-----------------------------
Curt Carter
President
/s/ Joseph II. Black
-----------------------------
Joseph II. Black
Treasurer
/s/ Thomas K. Butterfield /s/ Timothy Lee Oesch
- -------------------------------- -----------------------------
Thomas K. Butterfield Timothy Lee Oesch
/s/ David H. Bush, O.D /s/ Michael H. Blazo
- -------------------------------- -----------------------------
David H. Bush, O.D Michael H. Blazo
/s/ Patrick A. Cronin /s/ James F. Harrington
- -------------------------------- -----------------------------
Patrick A. Cronin James F. Harrington
15
<PAGE> 15
EXHIBIT INDEX
Exhibit 13 Annual Report
Exhibit 21 Subsidiaries of the Registrant
Exhibit 23 Consent of Experts and Counsel
Exhibit 27 Financial Data Schedule
<PAGE> 1
EXHIBIT 13
COUNTY BANK CORP
- --------------------------------------------------------------------------------
PRESIDENT'S MESSAGE AND FINANCIAL HIGLIGHTS
================================================================================
TO OUR STOCKHOLDERS AND FRIENDS
County Bank Corp had another outstanding year. Net income was a record
$3,220,000, up slightly over the prior year. Although outstanding loans
decreased over $3 million, our net interest income increased. The drop in loans
was caused by the sale of $9.9 million of low-interest rate, residential
mortgages in the secondary market and the unexpected, early payoff of two large
loans totaling nearly $4 million. Aside from that, we experienced loan growth of
$10.3 million. Return on average assets was again higher than peer at 1.70% and
return on average stockholders' equity was 14.8%. Assets grew almost $10 million
to a new high of $197 million while deposits had a similar increase to $173
million.
The competition for loans remains extremely challenging for both collateral and
rates. We have remained diligent relative to credit quality of new loans,
however we did have net loan chargeoffs of $196,000, including one large loan.
Due to the sale of loans and the growth of deposits, the loan to deposit ratio
dropped to just under 70%. Our loan loss reserve is strong at 1.57% of total
loans and delinquencies and non-accrual loans remain manageable.
Our capital position continues to be strong, notwithstanding our stellar
dividend payment of $5.79 per share or $3,434,000. The normal dividend was $1.79
versus $1.70 in the previous year. We again exceeded all regulatory requirements
for capital ratios. Earnings per share was $5.43, up from $5.33 in 1997. The
book value of your stock was $37.63 at year end with a current market price of
$71.
During 1998, a number of good things happened. Bill O'Connor joined the Bank in
April as a Commercial Loan Officer, bringing banking experience from Kentucky,
Indiana and Michigan to the Bank. With several years of trust experience at a
major regional bank, Terri Cranick became Assistant Trust Officer in June. She
expects to develop an increasing amount of trust business. During the summer
Beth Henderson was promoted to Mortgage Loan Officer to assist with the growing
demand for residential mortgages. Beth was previously a Consumer Loan Officer.
Also, Debra Coe was named Elba Branch Manager during the fourth quarter. The new
trust, mortgage and collection offices were completed in the Main Office. Two
driveup lanes and an ATM were added to the Elba Office and a second ATM was
installed at the Southgate Office. Remodeling of the Elba Office was planned for
completion in early 1999 and work was started on the new Imlay City Office on
M-53. That facility will have three driveup lanes and a driveup ATM. In
December, 14 of our staff were honored with service awards representing 150
years of service. They are pictured elsewhere in this report and are typical of
the fine group of officers and employees we currently have on board. Pat Murray
retired at year end following 39 years of service. She worked much of those
years in Bookkeeping and later was promoted to Trust Clerk where she spent the
past 23 years. We'll miss her!
The addition of Jim Harrington to the Board of Directors during 1998 brought
even more expertise to the Corporation. Jim is the President of H & H Tool,
Inc., a long time manufacturing company located in Lapeer. He and his wife, Mary
Ann, have resided in the area for more than 30 years. While we welcome Jim, we
are truly saddened to see Ed LaClair reach our mandatory retirement age. Ed
served the Bank and the Corporation as a director for 18 years, helping to guide
it through some of the more difficult times and leading it through its most
successful times during the '90s. His enthusiasm, drive and dedication to Lapeer
County Bank & Trust Co. has always been appreciated and will certainly be
missed.
As we look forward with our own enthusiasm to 1999, we anticipate another strong
year. On the way to that end, during the first quarter we will be completing our
testing relative to the Year 2000 on our major software systems.
-----------------------------------CBC-------------------------------------1
<PAGE> 2
Our Year 2000 Steering Committee has been meeting bi-weekly since early 1998.
Under the leadership of Data Processing Officer, Shelly Childers, the committee
has completed several phases of Year 2000 preparedness as required by the
Federal Financial Institutions Examination Council. On two separate occasions
the Federal Reserve Bank has reviewed our program against these requirements.
Clearly we, and the banking industry as a whole, will be prepared for the
arrival of 2000.
Please plan to attend the Annual Meeting of Stockholders at 3:00 p.m. on Friday,
April 23, 1999. The meeting will be held at Edward's Restaurant on M-21. In the
meantime, if you have any comments, questions or concerns feel free to contact
me. Your thoughts are appreciated and I'll look forward to seeing you at the
Annual Meeting.
CURT CARTER
Curt Carter
President
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
AT YEAR END 1998 1977 1996 1995
(000'S OMITTED)
<S> <C> <C> <C> <C>
Assets $ 197,486 $186,841 $177,786 $169,877
Deposits 173,457 162,920 156,518 150,888
Loans 120,175 123,604 117,474 105,349
Securities 50,616 47,287 47,409 48,164
Stockholders' equity 22,321 22,281 19,862 17,720
FOR THE YEAR
(000'S OMITTED)
Net income $ 3,220 $3,161 $2,980 $2,574
Cash dividend declared 3,434 1,009 908 750
Return on average assets (%) 1.70 1.74 1.73 1.56
Return on average stockholders' equity (%) 14.8 15.0 15.8 15.5
PER SHARE
Book value $ 37.63 $37.56 $33.48 $29.87
Net income 5.43 5.33 5.02 4.34
Cash dividend declared 5.79 1.70 1.53 1.27
</TABLE>
<TABLE>
<CAPTION>
RETURN ON AVERAGE ASSETS
(PERCENT)
<S> <C>
1995 1.56
1996 1.73
1997 1.74
1998 1.70
<CAPTION>
NET INCOME PER SHARE
(IN DOLLARS)
<S> <C>
1995 4.34
1996 5.02
1997 5.33
1998 5.43
</TABLE>
2 -------------------------------------- CBC ---------------------------------
<PAGE> 3
COUNTY BANK CORP
- --------------------------------------------------------------------------------
PRESIDENT'S MESSAGE AND FINANCIAL HIGHLIGHTS
================================================================================
<TABLE>
<CAPTION>
(000'S OMITTED) AS OF
DECEMBER 31
ASSETS
1998 1997
<S> <C> <C>
Cash and due from banks (Note 10) $ 9,372 $ 9,010
Federal funds sold 13,700 3,550
- ------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS 23,072 12,560
Securities held to maturity (Note 3) 28,137 29,064
Securities available for sale (Note 3) 22,479 18,223
Loans (Note 4) 120,175 123,604
Less reserve for possible loan losses 1,881 1,957
- ------------------------------------------------------------------------------------------------------------------------
NET LOANS 118,294 121,647
Premises and equipment (Note 5) 3,201 3,206
Interest receivable and other assets 2,303 2,141
- ------------------------------------------------------------------------------------------------------------------------
Total Assets $ 197,486 $ 186,841
========================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (Note 6):
Noninterest-bearing demand deposits $ 32,324 $ 29,741
Interest-bearing demand deposits 47,684 4,359
Savings deposits 43,731 40,576
Time deposits 49,718 48,244
- ------------------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 173,457 162,920
Interest payable and other liabilities 1,708 1,640
- ------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 175,165 164,560
Stockholders' equity:
Common stock, $5 par value:
Authorized - 1,200,000 shares
Issued and outstanding - 593,236 shares 2,966 2,966
Surplus 8,634 8,634
Undivided profits (Note 10) 9,820
10,034
Accumulated other comprehensive income (Note 1) 901 647
Total stockholders' equity 22,321 22,281
- ------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 197,486 $ 186,841
========================================================================================================================
SEE ACCOMPANYING NOTES.
</TABLE>
-------------------------------------- CBC ---------------------------------- 3
<PAGE> 4
COUNTY BANK CORP
- --------------------------------------------------------------------------------
PRESIDENT'S MESSAGE AND FINANCIAL HIGHLIGHTS
================================================================================
(000'S OMITTED, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMMON UNDIVIDED COMPREHENSIVE STOCKHOLDERS'
STOCK SURPLUS PROFITS INCOME EQUITY
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 $ 2,966 $ 8,634 $ 5,810 $ 310 $ 17,720
Comprehensive income:
Net income - - 2,980 - 2,980
Change in unrealized gain on securities
available for sale, net of tax of $37 - - - 70 70
- ------------------------------------------------------------------------------------------------------------------------
Total comprehensive income 3,050
Cash dividends ($1.53 per share) - - (908) - (908)
- ------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 2,966 8,634 7,882 380 19,862
Comprehensive income:
Net income - - 3,161 - 3,161
Change in unrealized gain on securities
available for sale, net of tax of $137 - - - 267 267
- ------------------------------------------------------------------------------------------------------------------------
Total comprehensive income 3,428
Cash dividends ($1.70 per share) - - (1,009) - (1,009)
- ------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 2,966 8,634 10,034 647 22,281
Comprehensive income:
Net income - - 3,220 - 3,220
Change in unrealized gain on securities
available for sale, net of tax of $130 - - - 254 254
- ------------------------------------------------------------------------------------------------------------------------
Total comprehensive income 3,474
Cash dividends ($5.79 per share) - - (3,434) - (3,434)
- ------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 $ 2,966 $ 8,634 $ 9,820 $ 901 $ 22,321
========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY
(IN MILLIONS)
<S> <C>
1995 17.7
1996 19.9
1997 22.3
1998 22.3
<CAPTION>
RETURN ON AVERAGE STOCKHOLDERS' EQUITY
(PERCENT)
<S> <C>
1995 15.5
1996 15.8
1997 15.0
1998 14.8
</TABLE>
SEE ACCOMPANYING NOTES.
4 ------------------------------------- CBC ----------------------------------
<PAGE> 5
COUNTY BANK CORP
- --------------------------------------------------------------------------------
PRESIDENT'S MESSAGE AND FINANCIAL HIGHLIGHTS
================================================================================
(000'S OMITTED, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
Interest income:
<S> <C> <C> <C>
Interest and fees on loans $ 10,630 $ 10,454 $ 9,620
Interest on investment securities:
U.S. Government 340 413 509
U.S. Government Agencies mortgage-backed securities 1,452 1,544 1,485
State and political subdivisions 928 820 765
Other 47 39 40
Interest on Federal funds sold 429 286 247
- ----------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 13,826 13,556 12,666
Interest expense:
Interest on demand deposits 1,547 1,399 1,206
Interest on savings deposits 1,204 1,260 1,224
Interest on time deposits (Note 6) 2,602 2,501 2,392
Interest on borrowed funds 2 2 1
- ----------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 5,355 5,162 4,823
- ----------------------------------------------------------------------------------------------------------------------
Net interest income 8,471 8,394 7,843
Provision for possible loan losses (Note 4) 120 120 120
- ----------------------------------------------------------------------------------------------------------------------
Net interest income after provision for possible loan losses 8,351 8,274 7,723
Other income:
Service fees on loan and deposit accounts 1,135 1,076 1,133
Trust income 472 418 355
Other 676 672 728
- ----------------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME 2,283 2,166 2,216
Other expenses:
Salaries and employee benefits 3,662 3,593 3,448
Occupancy expense 1,091 961 761
Other (Note 9) 1,422 1,510 1,530
- ----------------------------------------------------------------------------------------------------------------------
TOTAL OTHER EXPENSES 6,175 6,064 5,739
- ----------------------------------------------------------------------------------------------------------------------
Income before Federal income tax 4,459 4,376 4,200
Provision for Federal income tax (Note 7) 1,239 1,215 1,220
NET INCOME $ 3,220 $ 3,161 $ 2,980
======================================================================================================================
EARNINGS PER SHARE $ 5.43 $ 5.33 $ 5.02
</TABLE>
SEE ACCOMPANYING NOTES.
-------------------------------------- CBC ---------------------------------- 5
<PAGE> 6
COUNTY BANK CORP
- --------------------------------------------------------------------------------
PRESIDENT'S MESSAGE AND FINANCIAL HIGHLIGHTS
================================================================================
(000'S OMITTED)
YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,220 $ 3,161 $ 2,980
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization 520 436 389
Provision for loan losses 120 120 120
Net amortization and accretion of securities 160 181 239
Deferred income taxes 29 (76) 67
Gain on other real estate owned - (69) (13)
Increase in accrued interest receivable (191) (147) (31)
Increase in accrued interest payable and other 114 173 70
- ----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,972 3,779 3,821
Cash flows from investing activities:
Proceeds from maturities of securities held to maturity 4,687 4,089 8,611
Proceeds from maturities of securities available for sale 6,539 4,690 2,077
Purchase of securities held to maturity (3,840) (5,316) (2,833)
Purchase of securities available for sale (10,667) (3,118) (7,233)
Proceeds from sale of other real estate - 242 282
Net (increase) decrease in loans 3,233 (6,098) (12,299)
Premises and equipment expenditures (515) (927) (399)
- ----------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (563) (6,438) (11,794)
Cash flows from financing activities:
Net increase in interest-bearing and noninterest-
bearing demand accounts 5,908 5,486 7,083
Net increase (decrease) in savings and time deposits 4,629 916 (1,453)
Cash dividends paid (3,434) (1,009) (908)
- ----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 7,103 5,393 4,722
- ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and equivalents 10,512 2,734 (3,251)
Cash and equivalents at beginning of year 12,560 9,826 13,077
- ----------------------------------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS AT END OF YEAR $ 23,072 $ 12,560 $ 9,826
======================================================================================================================
Supplemental information:
Cash paid for:
Interest $ 5,351 $ 5,137 $ 4,823
Income tax $ 1,154 $ 1,224 $ 1,209
</TABLE>
SEE ACCOMPANYING NOTES.
6 -------------------------------------- CBC ----------------------------------
<PAGE> 7
COUNTY BANK CORP
- --------------------------------------------------------------------------------
PRESIDENT'S MESSAGE AND FINANCIAL HIGHLIGHTS
================================================================================
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 - 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, as a component of comprehensive income in 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 amounts of
$326,000 at December 31, 1998 and 1997, 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 1998, but had no impact on the Corporation.
-------------------------------------- CBC ---------------------------------- 7
<PAGE> 8
COUNTY BANK CORP
- --------------------------------------------------------------------------------
PRESIDENT'S MESSAGE AND FINANCIAL HIGHLIGHTS
================================================================================
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.
OTHER COMPREHENSIVE INCOME - The Corporation adopted Standard Financial
Accounting Standards No. 130, Reporting Comprehensive Income, as of January 1,
1998. Accounting principles generally require that recognized revenue, expenses,
gains and losses be included in net income. Certain changes in assets and
liabilities, however, such as unrealized gains and losses on available for sale
securities, are reported as a direct adjustment of the equity section of the
balance sheet. Such items, along with net income, are components of
comprehensive income under the new standard. The only item included in
accumulated other comprehensive income at December 31, 1998 and 1997 is the net
unrealized gains and losses on available for sale securities. The adoption of
Standard Financial Accounting Standards No. 130 had no effect on the
Corporations' net income or stockholders' equity.
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.
<TABLE>
<CAPTION>
BALANCE SHEETS
DECEMBER 31
1998 1997
<S> <C> <C>
ASSETS
Cash and due from banks $ 2 $ 2
Investment in subsidiary 21,418 21,604
Other assets - 28
- ---------------------------------------------------------------------------
Total assets $ 21,420 $ 21,634
===========================================================================
<CAPTION>
LIABILITIES $ - $ -
STOCKHOLDERS' EQUITY
<S> <C> <C>
Common stock, $5 par value 2,966 2,966
Surplus 8,634 8,634
Undivided profits 9,820 10,034
- ---------------------------------------------------------------------------
Total stockholders' equity 21,420 21,634
- ---------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 21,420 $ 21,634
===========================================================================
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
FOR THE YEARS ENDED
DECEMBER 31
1998 1997 1996
<S> <C> <C> <C>
Dividends from subsidiary Bank $ 3,434 $ 1,009 $ 908
Other expense (29) - -
- ---------------------------------------------------------------------------
Income before equity in undistributed
earnings of subsidiary Bank and
Federal income tax 3,405 1,009 908
- ---------------------------------------------------------------------------
Income before equity in undistributed
earnings of subsidiary Bank 3,405 1,009 908
Equity in undistributed earnings of
subsidiary Bank (185) 2,152 2,072
- ---------------------------------------------------------------------------
Net income $ 3,220 $ 3,161 $ 2,980
===========================================================================
<CAPTION>
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
DECEMBER 31
1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,220 $ 3,161 $2,980
Adjustments to reconcile net
income to net cash from
operating activities:
Undistributed earnings
of subsidiary 185 (2,152) (2,072)
Other 29 - -
Net cash provided by operating
activities 3,434 1,009 908
Cash flows from financing activities:
Dividends paid (3,434) (1,009) (908)
Net change 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
</TABLE>
8 -------------------------------------- CBC ----------------------------------
<PAGE> 9
COUNTY BANK CORP
- --------------------------------------------------------------------------------
PRESIDENT'S MESSAGE AND FINANCIAL HIGHLIGHTS
================================================================================
3. SECURITIES
The carrying amount and approximate market value of securities held to maturity
were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
Gross Estimated
Amortized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Government securities
and obligations of U.S.
Government corporations
and agencies $ 1,000 $ 23 $ - $ 1,023
Obligations of states and
political subdivisions 18,381 729 1 19,109
Mortgage-backed securities 8,756 35 1 8,790
- ---------------------------------------------------------------------------------
Total $ 28,137 $ 787 $ 2 $ 28,922
=================================================================================
<CAPTION> DECEMBER 31, 1997
Gross Estimated
Amortized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
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
Mortgage-backed securities 11,111 66 51 11,126
- ---------------------------------------------------------------------------------
Total $ 29,064 $ 577 $57 $ 29,584
=================================================================================
The amortized cost and estimated market value of securities held to maturity at
December 31, 1998, 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.
<CAPTION>
Estimated
Amortized Market
Cost Value
<S> <C> <C>
Due in one year or less $ 1,825 $ 1,847
Due after one year through five years 5,886 6,103
Due after five years through ten years 7,428 7,758
Due after ten years 4,242 4,424
19,381 20,132
- ---------------------------------------------------------------------
Mortgage-backed securities 8,756 8,790
Total $ 28,137 $ 28,922
=====================================================================
</TABLE>
The amortized cost and estimated market value of securities available for sale
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
Gross Estimated
Amortized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Government securities
and obligations of U.S.
Government corporations
and agencies $ 9,985 $ 57 $ - $ 10,042
Obligations of states and
political subdivisions 971 40 - 1,011
Corporate securities 426 1,269 - 1,695
Mortgage-backed securities 9,733 13 15 9,731
- -----------------------------------------------------------------------------------
Total $ 21,115 $ 1,379 $ 15 $ 22,479
===================================================================================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
Gross Estimated
Amortized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
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
===================================================================================
</TABLE>
The amortized cost and estimated market value of securities available for sale
at December 31, 1998, 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.
<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Value
<S> <C> <C>
Due in one year or less $ 4,009 $ 4,023
Due after one year through five years 1,972 2,019
Due after five years through ten years 4,975 5,011
Due after ten years 426 1,695
19,381 20,132
- ---------------------------------------------------------------------
11,382 12,748
Mortgage-backed securities 9,733 9,731
Total $ 21,115 $ 22,479
=====================================================================
</TABLE>
-------------------------------------- CBC ---------------------------------- 9
<PAGE> 10
COUNTY BANK CORP
- --------------------------------------------------------------------------------
PRESIDENT'S MESSAGE AND FINANCIAL HIGHLIGHTS
================================================================================
At December 31, 1998 and 1997, U.S. Government securities and securities of
state and political subdivisions carried at $3,518,000 and $4,538,000,
respectively, with a market value of $3,549,000 and $4,573,000, 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, 1998.
4. LOANS
Major classifications of loans are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Commercial $ 50,658 $ 54,069
Real estate mortgage 35,457 39,332
Installment 28,322 27,141
Construction 5,738 3,062
- ---------------------------------------------------------------------
Total loans 120,175 123,604
Less reserve for possible loan losses 1,881 1,957
- ---------------------------------------------------------------------
Net loans 118,294 $ 121,647
</TABLE>
At December 31, 1998 and 1997, approximately $4,075,000 and $3,297,000,
respectively, of loans were outstanding to officers, directors, principal
stockholders and their associated companies. In 1998, additions and reductions,
including loan renewals, were $778,000 and $3,145,000, 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:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Balance at beginning of year $ 1,957 $ 1,805 $ 1,687
Provision charged to operations 120 120 120
Loans charged off (226) (59) (110)
Recoveries 30 91 108
- ----------------------------------------------------------------------------
Balance at end of year 1,881 $ 1,957 $ 1,805
============================================================================
Reserve as a percent of
total loans 1.57% 1.58% 1.53%
- ----------------------------------------------------------------------------
</TABLE>
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 $11,030,000 and $1,618,000 at December
31, 1998 and 1997, 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 $9,900 and
$30,300 at December 31, 1998 and 1997, respectively.
During 1998, the Corporation has capitalized $102,000
in mortgage service rights. Amortization of those
rights of $7,000 was charged to expense during 1998. The net carrying amount of
$95,000 included in other assets approximates market value.
5. PREMISES AND EQUIPMENT
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Land and improvements $ 661 $ 661
Buildings and improvements 3,629 3,193
Furniture and equipment 3,879 3,824
- -----------------------------------------------------------
Total premises and equipment 8,169 7,678
Less accumulated depreciation 4,968 4,472
- -----------------------------------------------------------
Net carrying amount $ 3,201 $ 3,206
===========================================================
</TABLE>
Depreciation expense for the years ended December 31, 1998, 1997 and 1996 was
$520,000, $436,000 and $389,000, respectively.
6. CERTIFICATES OF DEPOSIT
The aggregate amount of certificates of deposit in denominations
in excess of $100,000 totaled approximately $6,846,000, 5,869,000 and $4,930,000
at December 31, 1998, 1997 and 1996, respectively. The interest expense related
to such deposits throughout the year was approximately $330,000 in 1998,
$263,000 in 1997 and $239,000 in 1996, 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:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Taxes currently payable $ 1,205 $ 1,291 $ 1,153
Provision (credit) for
deferred taxes on:
Discount accretion 3 (2) (5)
Reserve for loan losses (26) 51 40
- ---------------------------------------------------------------------------
Other 57 (125) 32
Total deferred expense
(recovery) 34 (76) 67
- ---------------------------------------------------------------------------
Provision for Federal
income tax $ 1,239 $ 1,215 $ 1,220
- ---------------------------------------------------------------------------
</TABLE>
10 ------------------------------------- CBC ----------------------------------
<PAGE> 11
COUNTY BANK CORP
- --------------------------------------------------------------------------------
PRESIDENT'S MESSAGE AND FINANCIAL HIGHLIGHTS
================================================================================
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
$31,012,000 and $28,793,000 at December 31, 1998 and 1997, respectively, of
which $16,856,000 and $17,209,000 of loans was outstanding at year end and
included in the Corporation's balance sheet.
12. 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, 1998, the most recent notification from the Financial Institutions Bureau
categorized the Bank as well capitalized. There are no conditions or events
since that notification that management believes have changed the institution's
capital category.
12 ------------------------------------- CBC ----------------------------------
<PAGE> 12
COUNTY BANK CORP
- --------------------------------------------------------------------------------
PRESIDENT'S MESSAGE AND FINANCIAL HIGHLIGHTS
================================================================================
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:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
CURRENT TO BE TO BE WELL
CAPITAL ADEQUATELY CAPITALIZED
CAPITALIZED
<S> <C> <C> <C>
Total capital (to risk-
weighted assets):
Amount $ 22,686 $ 8,750 $ 10,938
Ratio 20.7% 8.0% 10.0%
Tier I capital (to risk-
weighted assets):
Amount 21,326 4,375 6,563
Ratio 19.5% 4.0% 6.0%
Tier I capital (to
average assets):
Amount 21,326 7,568 9,460
Ratio 11.3% 4.0% 5.0%
<CAPTION>
DECEMBER 31, 1997
CURRENT TO BE TO BE WELL
CAPITAL ADEQUATELY CAPITALIZED
CAPITALIZED
<S> <C> <C> <C>
Total capital (to risk-
weighted assets):
Amount $ 23,682 $ 8,916 $ 11,145
Ratio 21.3% 8.0% 10.0%
Tier I capital (to risk-
weighted assets):
Amount 22,282 4,458 6,687
Ratio 20.0% 4.0% 6.0%
Tier I capital (to
average assets):
Amount 22,282 7,283 9,104
Ratio 12.2% 4.0% 5.0%
</TABLE>
-------------------------------------- CBC --------------------------------- 13
<PAGE> 13
COUNTY BANK CORP
- --------------------------------------------------------------------------------
PRESIDENT'S MESSAGE AND FINANCIAL HIGHLIGHTS
================================================================================
[PLANT & MORAN, LLP LETTERHEAD]
The Board of Directors
County Bank Corp
We have audited the consolidated balance sheet of County Bank Corp and
subsidiary as of December 31, 1998 and 1997 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, 1998. 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 and subsidiary at December 31, 1998 and 1997, and the consolidated
results of its operations and cash flows for each year in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
PLANT & MORAN, LLP
January 22, 1999
14 ------------------------------------- CBC ----------------------------------
<PAGE> 14
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). The Corporation offers a full line of banking and trust services
through the subsidiary Bank. The Bank serves Lapeer County through three offices
in the City of Lapeer with branch 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 Federal Deposit Insurance Corporation insures
the Bank's deposits.
EARNINGS
Major components of the operating results of the Corporation for 1998, 1997 and
1996 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>
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Interest income $ 13,826 $ 13,556 $ 12,666 $ 12,114 $ 10,768
Interest expense 5,355 5,162 4,823 4,654 3,858
- ----------------------------------------------------------------------------------------------------------------
Net interest income 8,471 8,394 7,843 7,460 6,910
Provision for possible loan losses 120 120 120 240 120
- ----------------------------------------------------------------------------------------------------------------
Net interest income after provision
for possible loan losses 8,351 8,274 7,723 7,220 6,790
Other income 2,283 2,166 2,216 1,971 1,800
Other expenses 6,175 6,064 5,739 5,669 5,624
- ----------------------------------------------------------------------------------------------------------------
Income before provision for
Federal income tax 4,459 4,376 4,200 3,522 2,966
Provision for Federal income tax $ 1,239 $ 1,215 1,220 948 848
- ----------------------------------------------------------------------------------------------------------------
Net income 3,220 3,161 $ 2,980 $ 2,574 $ 2,118
================================================================================================================
PER SHARE
Net income $ 5.43 $ 5.33 $ 5.02 $ 4.34 3.57
DIVIDENDS DECLARED $ 5.79 $ 1.70 $ 1.53 $ 1.27 $ 1.04
</TABLE>
NET INTEREST INCOME
The Bank continued to experience strong loan demand during 1998. However, loans
decreased $3,233,000 during the year as a result of the sale of $9,922,000 of
mortgage loans to the secondary market. These loans were sold due to the low
interest rate environment. In addition, two large commercial credits paid off
unexpectedly during the year. Deposits increased $10,537,000 during 1998. The
Bank increased the securities portfolio by $3,281,000 and paid $3,434,000 in
dividends. Net interest margin on a federal tax equivalent (FTE) basis declined
from 4.9% in 1997 to 4.7% in 1998 as a result of these changes in the mix of
assets and liabilities. 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 different 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> 15
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 charged
off loans of $196,000 in 1998. Net recoveries of $32,000 were recorded in 1997.
Provisions for possible loan losses were $120,000 and $120,000 for the
respective periods. The ratio of reserve for possible loan losses to gross loans
was 1.6%, 1.6% and 1.5% on
December 31, 1998, 1997 and 1996, 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. Other income increased 3.4% during 1998. The
Bank recorded increases in ATM fees as a result of ATM machines installed at the
Elba and Attica branch offices. Mortgage servicing fees increased $9,600 as a
result of the increases in sold mortgages. Mortgage servicing rights were
recorded and amortized, resulting in an increase in other income of $94,000.
Gains on mortgage sales totaled $80,000. These gains were offset by lower credit
insurance income due to a decline in volume of new direct consumer loans and a
decline in other real estate rental income. Gains on the sale of other real
estate of $90,000 recorded in 1997 were not repeated in 1998.
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 1.7%
in 1998 after.a 4.2% increase in 1997. Full time equivalent employees decreased
from 120 on December 31, 1997, to 116 on December 31, 1998. Occupancy expenses
increased 10.8% after a 26.3% increase in 1997. The increase resulted from
depreciation expenses from a full year's depreciation of a new computer system
purchased in 1997 and depreciation of remodeling expenses that continue in older
buildings owned by the Bank.
other expenses declined 3.5%.
FINANCIAL CONDITION
Average assets for the Corporation totaled $189,729,000, $181,270,000, and
$172,312,000 in 1998, 1997 and 1996, respectively. The 4.7% growth in average
assets declined slightly from the 5.1% average growth achieved in 1997. The
growth was supported by 3.8% growth in average deposits for 1998. Average loans
grew.4.7% in 1998 compared to 8.3% growth in 1997. The Corporation sold over
$9,000,000 in mortgages in the secondary market during 1998.
CAPITAL
The Corporation currently has 460 stockholders representing 593,236 shares of
common stock. The stock is not listed on any exchange. Local brokerage firms
handle sales. The following schedule compares bid and asked prices for the stock
of the Corporation, as known to management, by calendar quarter for 1998 to bid
and asked prices for 1997.
<TABLE>
<CAPTION>
..... 1998
BID ASKED
<S> <C> <C>
First Quarter $ 60.00 $ 61.00
Second Quarter 66.50 68.00
Third Quarter 75.00 77.00
Fourth Quarter 75.00 76.00
<CAPTION>
1997
BID ASKED
<S> <C> <C>
First Quarter $ 43.00 $ 44.00
Second Quarter 48.00 49.00
Third Quarter 52.00 53.00
Fourth Quarter 53.00 54.00
</TABLE>
The Corporation paid quarterly dividends and paid a special dividend in April
and December in 1998. During 1997, the Corporation paid quarterly dividends and
paid a special dividend in December. Cash paid in dividends totaled $3,434,000
in 1998 and $1,009,000 in 1997. On April 24, 1998, the Corporation paid $4.00
per share to stockholders of record on April 10, 1998. This one-time only
dividend recognized the high level of capital, acknowledged support of the
stockholders, yet maintained adequate protection for the Bank's depositors. The
dividends per share totaled $5.79 and $1.70 in 1998 and 1997, respectively.
there are currently 1,200,000 authorized shares. The Corporation did not issue
any authorized shares in 1998 or 1997.
16 -------------------------------------- CBC ---------------------------------
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THIS REGISTRANT
LAPEER COUNTY BANK & TRUST CO. A MICHIGAN CORPORATION
<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, 1998, of our report dated
January 22, 1999 included in the 1998 Annual Report to the Shareholders of
County Bank Corp.
PLANTE & MORAN, LLP
Bloomfield Hills, Michigan
March 29, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 9,372
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 13,700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 50,616
<INVESTMENTS-MARKET> 51,401
<LOANS> 120,175
<ALLOWANCE> 1,881
<TOTAL-ASSETS> 197,486
<DEPOSITS> 173,457
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,708
<LONG-TERM> 0
0
0
<COMMON> 2,966
<OTHER-SE> 19,355
<TOTAL-LIABILITIES-AND-EQUITY> 197,486
<INTEREST-LOAN> 10,630
<INTEREST-INVEST> 3,196
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 13,826
<INTEREST-DEPOSIT> 5,353
<INTEREST-EXPENSE> 5,355
<INTEREST-INCOME-NET> 8,471
<LOAN-LOSSES> 120
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 6,175
<INCOME-PRETAX> 4,459
<INCOME-PRE-EXTRAORDINARY> 4,459
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,220
<EPS-PRIMARY> 5.43
<EPS-DILUTED> 5.43
<YIELD-ACTUAL> 4.7
<LOANS-NON> 1,152
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 862
<ALLOWANCE-OPEN> 1,957
<CHARGE-OFFS> 226
<RECOVERIES> 30
<ALLOWANCE-CLOSE> 1,881
<ALLOWANCE-DOMESTIC> 1,881
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,532
</TABLE>
