UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2004
Commission File No. 000-33373
COMMUNITY CENTRAL BANK CORPORATION
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Michigan 38-3291744
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
100 North Main Street, PO Box 7, Mount Clemens, MI 48046-0007
-------------------------------------------------------------
(Address of principal executive offices and zip code)
(586)783-4500
---------------------------
(Issuer's telephone number)
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Class Outstanding at November 12, 2004
----------------------------- --------------------------------
Common Stock, $5 stated value 2,862,182 Shares
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]
Transitional Small Business Disclosure Format:
Yes [ ] No [X]
1
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
PART I
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2004 2003
(Unaudited) (Audited)
----------- -----------
(In thousands)
Assets
Cash and due from banks $ 5,868 $ 5,127
Federal funds sold 8,800 1,100
----------- -----------
Cash and Cash Equivalents 14,668 6,227
----------- -----------
Securities available for sale, at fair value 54,627 57,135
Securities held to maturity, at amortized cost 1,182 895
FHLB stock 3,212 3,103
Residential mortgage loans held for sale 4,768 7,241
Loans
Residential mortgage loans 76,599 71,263
Commercial loans 204,714 189,099
Installment loans 14,310 10,466
----------- -----------
Total Loans 295,623 270,828
Allowance for credit losses (3,376) (3,573)
----------- -----------
Net Loans 292,247 267,255
----------- -----------
Net property and equipment 5,470 3,977
Accrued interest receivable 1,515 1,305
Other real estate owned 681 363
Goodwill 743 743
Core deposit intangible, net of amortization 157 248
Cash surrender value of Bank owned life insurance 7,472 7,222
Other assets 2,824 2,162
----------- -----------
Total Assets $ 389,566 $ 357,876
=========== ===========
(continued)
2
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2004 2003
(Unaudited) (Audited)
----------- -----------
(In thousands, except share data)
Liabilities
Deposits
Noninterest bearing demand deposits $ 34,588 $ 33,814
NOW and money market accounts 40,928 41,484
Savings deposits 19,029 6,389
Time deposits 178,959 173,669
----------- -----------
Total deposits 273,504 255,356
----------- -----------
Repurchase agreements 24,955 12,836
Federal Home Loan Bank advances 54,374 54,374
Accrued interest payable 661 511
Other liabilities 526 752
ESOP note payable 217 271
Subordinated debentures 10,310 10,000
----------- -----------
Total Liabilities 364,547 334,100
----------- -----------
Stockholders' Equity
Common stock -- $5 stated value; 9,000,000 shares
authorized; 2,862,182 shares issued and
outstanding at 9-30-2004 and 2,721,875 at
12-31-2003 14,311 13,609
Additional paid-in capital 6,408 5,308
Retained earnings 4,497 5,225
Unearned employee benefit (217) (271)
Accumulated other comprehensive income 20 (95)
----------- -----------
Total Stockholders' Equity 25,019 23,776
----------- -----------
Total Liabilities and Stockholders' Equity $ 389,566 $ 357,876
=========== ===========
3
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
---------- ---------- ---------- ----------
(In thousands, except per share data)
Interest Income
Loans (including fees) $ 4,409 $ 3,611 $ 12,917 $ 10,425
Securities 537 327 1,555 1,353
Federal funds sold 45 22 86 68
---------- ---------- ---------- ----------
Total Interest Income 4,991 3,960 14,558 11,846
---------- ---------- ---------- ----------
Interest Expense
Deposits 1,364 1,050 4,034 3,380
Short term borrowings 27 24 72 77
Advances from FHLB 471 480 1,363 1,389
ESOP loan interest expense 3 3 8 10
Subordinated debentures 140 124 396 381
---------- ---------- ---------- ----------
Total Interest Expense 2,005 1,681 5,873 5,237
---------- ---------- ---------- ----------
Net Interest Income 2,986 2,279 8,685 6,609
Provision for credit losses 250 50 1,850 125
---------- ---------- ---------- ----------
Net Interest Income after Provision 2,736 2,229 6,835 6,484
---------- ---------- ---------- ----------
Noninterest Income
Deposit service charges 79 56 217 163
Net realized security gain 52 11 172 418
Mortgage banking income 1,314 2,071 4,044 5,679
Other income 352 133 692 249
---------- ---------- ---------- ----------
Total Noninterest Income 1,797 2,271 5,125 6,509
---------- ---------- ---------- ----------
Noninterest Expense
Salaries, benefits, and payroll taxes 2,096 2,507 5,907 7,049
Premises and fixed asset expense 397 292 1,135 882
Other operating expense 932 912 3,006 2,841
---------- ---------- ---------- ----------
Total Noninterest Expense 3,425 3,711 10,048 10,772
---------- ---------- ---------- ----------
Income Before Taxes 1,108 789 1,912 2,221
Provision for income taxes 312 222 462 653
---------- ---------- ---------- ----------
Net Income $ 796 $ 567 $ 1,450 $ 1,568
========== ========== ========== ==========
(continued)
4
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Per share data:
Basic earnings $ 0.28 $ 0.20 $ 0.51 $ 0.56
Diluted earnings $ 0.27 $ 0.20 $ 0.50 $ 0.55
====== ====== ====== ======
Cash Dividends $ 0.05 $ 0.05 $ 0.15 $ 0.15
====== ====== ====== ======
Notes
- Weighted average shares outstanding have been adjusted to reflect the 5%
stock dividend in June of 2004.
5
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
-------- -------- -------- --------
(In thousands)
Net Income as Reported $ 796 $ 567 $ 1,450 $ 1,568
Other Comprehensive Income, Net of Tax
Change in unrealized gain on securities
available for sale 715 (455) 115 (505)
-------- -------- -------- --------
Comprehensive Income $ 1,511 $ 112 $ 1,565 $ 1,063
======== ======== ======== ========
6
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
Nine Months Ended September 30,
2004 2003
--------- ---------
(In thousands)
Operating Activities
Net income $ 1,450 $ 1,568
Adjustments to reconcile net income to net cash flow
from operating activities:
Net amortization of security premium 314 666
Net gain on sales and call of securities (172) (418)
Provision for credit losses 1,850 125
Depreciation expense 351 289
Deferred income tax benefit (188) (177)
ESOP compensation expense 54 38
Increase in accrued interest receivable (210) (48)
Increase in other assets (699) (6,754)
Increase (decrease) increase in accrued interest payable 150 (90)
(Increase) decrease in other liabilities (227) 377
Increase in loans held for sale 2,211 3,993
--------- ---------
Net Cash Provided by Operating Activities 4,884 (431)
Investing Activities
Maturities, calls, sales and prepayments of securities available for sale 62,347 81,791
Purchase of securities available for sale (59,806) (78,625)
Maturities, calls, and prepayments of investment securities
held to maturity 86 349
Purchases of investment securities held to maturity (484) (795)
Increase in loans (26,580) (39,362)
Purchases of property and equipment (1,844) (1,920)
--------- ---------
Net Cash Used in Investing Activities (26,281) (38,562)
Financing Activities
Net increase in demand and savings deposits 12,858 8,535
Net increase in time deposits 5,290 28,755
Net increase in short term borrowings 12,119 14,100
Increase in FHLB advances -- 8,000
Repayment of capitalized lease obligation -- (951)
Payment of ESOP debt (54) (38)
Stock option exercise/award 52 600
Cash dividends paid (427) (406)
Repurchase of common stock -- (196)
--------- ---------
Net Cash Provided by Financing Activities 29,838 58,399
--------- ---------
Increase in Cash and Cash Equivalents 8,441 19,406
Cash and Cash Equivalents at the Beginning of the Year 6,227 9,405
--------- ---------
Cash and Cash Equivalents at the End of the Period $ 14,668 $ 28,811
========= =========
Supplemental Disclosure of Cash Flow Information:
Interest Paid $ 5,873 $ 5,327
Federal Taxes Paid $ 462 $ 776
========= =========
7
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
COMMUNITY CENTRAL BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The financial statements of Community Central Bank Corporation (the
"Corporation") include the consolidation of its direct and indirect
subsidiaries: Community Central Bank (the "Bank"); and Community Central
Mortgage Company, LLC (the "Mortgage Company").
The Corporation's Consolidated Balance Sheets are presented as of
September 30, 2004 and December 31, 2003, and Consolidated Statements of
Income and Comprehensive Income for the three and nine month periods ended
September 30, 2004 and 2003, and Consolidated Statements of Cash Flow for
the nine months ended September 30, 2004 and 2003. These unaudited
financial statements are for interim periods, and do not include all
disclosures normally provided with annual financial statements. The
interim statements should be read in conjunction with the financial
statements and footnotes contained in the Corporation's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 2003.
In the opinion of management, the interim statements referred to above
contain all adjustments (consisting of normal, recurring items) necessary
for a fair presentation of the financial statements. The results of
operations for interim periods are not necessarily indicative of the
results to be expected for the full year.
2. The accounting and reporting policies of the Corporation conform to
accounting principles generally accepted in the United States of America
and general practices within the banking industry. The following describes
the critical accounting policies, which are employed in the preparation of
financial statements.
Allowance for Credit Losses: The allowance for credit losses is maintained
at a level considered by management to be adequate to absorb losses
inherent in existing loans and loan commitments. The adequacy of the
allowance is based on evaluations that take into consideration such
factors as prior loss experience, changes in the nature and volume of the
portfolio, overall portfolio quality, loan concentrations, specific
impaired or problem loans and commitments, current and anticipated
economic conditions that may affect the borrower's ability to pay, and
other subjective factors. The determination of the allowance is also based
on regulatory guidance. This guidance includes, but is not limited to,
generally accepted accounting principles, and guidance issued from other
regulatory bodies such as the joint policy statement issued by the Federal
Financial Institutions Examination Council.
3. Community Central Capital Trust I, a business trust subsidiary of the
Corporation sold 10,000 shares of cumulative preferred securities ("trust
preferred securities") at $1,000.00 per trust preferred security in June
2002. The proceeds from the sale of the trust preferred securities were
used by the trust to purchase an equivalent amount of subordinated
debentures from the Corporation. The trust preferred securities carry a
variable rate of interest at the three month libor plus 365 basis points,
have a stated maturity of 30 years, and, in effect, are guaranteed by the
Corporation. The securities are redeemable at par after 5 years.
Distributions on the trust preferred securities are payable quarterly on
March 30, June 30, September 30 and December 30. The first distribution
was paid on September 30, 2002 and distributions have been made quarterly
ever since. Under certain circumstances, distributions may be deferred for
up to 20 calendar quarters. However, during any such deferrals, interest
accrues on any unpaid distributions at the rate of the three month libor
plus 365 basis points. The trust preferred securities are carried on the
Corporation's consolidated balance sheet as a liability and the interest
expense is recorded on the Corporation's consolidated statement of income.
The trust preferred securities qualify for up to 25% of tier I capital.
Any amount in excess of this limit may be included in tier 2 capital.
Prior to 2004, the trust was consolidated in the Corporation's financial
statements, with the trust preferred securities issued by the trust
reported in liabilities as "Guaranteed Preferred Beneficial Interest in
the Corporation's Subordinated Debentures" and the subordinated debentures
eliminated in consolidation. Under new accounting guidance, FASB
Interpretation No. 46, as revised in December 2003, the trust is no longer
consolidated with the Corporation, accordingly, the Corporation does not
report the securities issued by the trust as liabilities, and instead
reports as liabilities the subordinated debentures issued by the
Corporation and held by the trust, as these are no longer eliminated in
consolidation. Amounts previously reported as "Guaranteed preferred
beneficial interest in Corporation's subordinated debentures" in
liabilities
8
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
have been recaptioned "subordinated debentures" and continue to be
presented in liabilities on the balance sheet. The effect of no longer
consolidating the trust does not significantly change the amounts reported
as the Corporation's assets, liabilities, equity, or interest expense.
4. The Corporation did not issue stock options during the nine months ended
September 30, 2004. The Corporation issued 7,000 option shares during the
nine months ended September 30, 2003. If the Corporation had used the fair
value method of accounting, using the Black Scholes option pricing model
and recognizing compensation cost for the plan based on the fair market
value of the grant date, net income and earnings per share on a pro forma
basis would have been as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
--------- --------- --------- ---------
(in thousands, except per share data)
Net income, as reported $ 796 $ 567 $ 1,450 $ 1,568
Deduct: Total stock-based employee and director
compensation expense under fair value based
methods of awards, net of related tax effects (20) (27) (60) (82)
--------- --------- --------- ---------
Pro forma net income $ 776 $ 540 $ 1,390 $ 1,486
========= ========= ========= =========
Earnings per share
Basic - as reported $ 0.28 $ 0.20 $ 0.51 $ 0.56
Basic - pro forma $ 0.27 $ 0.19 $ 0.49 $ 0.53
Diluted - as reported $ 0.27 $ 0.20 $ 0.50 $ 0.55
Diluted - pro forma $ 0.27 $ 0.19 $ 0.48 $ 0.52
The fair value of each option grant is estimated on the date of grant using the
Black Scholes option pricing model with the following weighted average
assumptions. The assumptions listed below were used in 2004 and 2003, with no
practical changes during each respective period.
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
------- ------- ------- -------
Dividend yield or expected dividends 1.63% 1.92% 1.58% 1.92%
Risk free interest rate 4.00% 4.30% 4.00% 4.30%
Expected life 7-10 yrs. 7-10 yrs. 7-10 yrs. 7-10 yrs.
Expected volatility 9.60% 9.60% 9.60% 9.60%
9
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion compares the financial condition of the Corporation and
its wholly owned subsidiaries at September 30, 2004 and December 31, 2003 and
the results of operations for the three and nine months ended September 30, 2004
and 2003. This discussion should be read in conjunction with the financial
statements and statistical data presented elsewhere in this report. This report
contains forward-looking statements that are based on management's beliefs,
assumptions, current expectations, estimates and projections about the financial
services industry, the economy, and about the Corporation and the Bank. Words
such as anticipates, believes, estimates, expects, forecasts, intends, is
likely, plans, projects, variations of such words and similar expressions are
intended to identify such forward-looking statements. These forward-looking
statements are intended to be covered by the safe-harbor provisions of the
Private Securities Litigation Reform Act of 1995. These statements are not
guarantees of future performance and involve certain risks, uncertainties and
assumptions ("Future Factors") that are difficult to predict with regard to
timing, extent, likelihood and degree of occurrence. Actual results and outcomes
may materially differ from what may be expressed or forecasted in the
forward-looking statements. The Corporation undertakes no obligation to update,
amend, or clarify forward looking statements, whether as a result of new
information, future events (whether anticipated or unanticipated), or otherwise.
Future Factors include changes in interest rate and interest rate relationships;
demand for products and services; the degree of competition by traditional and
non-traditional competitors; changes in banking regulation; changes in tax laws;
changes in accounting standards; changes in prices, levies, and assessments; the
impact of technological advances; governmental and regulatory policy changes;
the outcomes of contingencies; trends in customer behavior as well as their
ability to repay loans; changes in the national and local economy; our ability
to successfully integrate acquisitions into our existing operations, and the
availability of new acquisition's that build shareholder value; and other
factors, including risk factors, referred to from time to time in filings made
by the Corporation with the Securities and Exchange Commission.
EXECUTIVE SUMMARY
Community Central Bank Corporation is the holding company for Community Central
Bank in Mount Clemens, Michigan. The Corporation opened for business in October
1996 and serves businesses and consumers across Macomb, Oakland and St. Clair
counties with a full range of lending, deposit, and Internet banking services.
The Bank operates two full service facilities, one in Mount Clemens and the
other in Rochester Hills, Michigan. Community Central Mortgage Company, LLC a
subsidiary of the Corporation and Bank, operates locations in Mount Clemens,
Warren, Dearborn, Livonia, and Anchorville. The Corporation's common shares
trade on the Nasdaq National Market under the symbol "CCBD."
The results of operations depend largely on net interest income. Net interest
income is the difference in interest income the Corporation earns on
interest-earning assets, which comprise primarily commercial business and
commercial real estate loans and the interest the Corporation pays on our
interest-bearing liabilities, which are primarily certificates of deposit, money
market and demand deposits. Management strives to match the repricing
characteristics of the earning assets and paying liabilities to protect net
interest income from changes in market interest rates and changes in the shape
of the market yield curve. Management expects, based on current balance sheet
structure and modeling forecasts, that net interest margin will increase
slightly from the expected increase in the overnight federal funds interest rate
controlled by the Federal Open Market Committee of the Federal Reserve Bank.
The results of our operations may also be affected by the local and general
economic conditions. The largest geographic segment of customer base for the
Bank is in Macomb County, Michigan. The economic base of the county continues to
diversify from the automotive service sector. This trend should lessen the
impact on the County to future economic downturns in the automotive sector of
the economy. Macomb County's proximity to major highways and affordable housing
has continued to spur economic growth in the area. Macomb County's outstanding
debt has a current credit rating of AAA from Moody's Investor Service as of
April 2004. Changes in the local economy may affect the demand for commercial
loans and related small to medium business related products. This could have a
significant impact on how the Corporation deploys earning assets. The
competitive environment between other financial institutions and the Bank in
Macomb, Oakland, and St. Clair counties of Michigan may
10
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
affect the pricing levels of various deposit products. The impact of competitive
rates on deposit products may increase the relative cost of funds for the
Corporation and thus negatively impact net interest income.
During the first nine months of 2004, the Corporation continued to grow its
balance sheet consistent with a traditional commercial banking model. The
Corporation expanded its branching base and assets and deposits through the
acquisition of the Rochester Hills, Michigan location of a full service branch,
through the purchase and assumption of North Oakland Community Bank in October
2003. The Corporation expects to continue growth through internal expansion
primarily through commercial banking practices. The primary funding base of
growth is expected to be customer deposits, although wholesale-based funding
sources are and will continue to be used to supplement growth should increases
in loans and investments outpace deposit generation. Additionally, should the
cost of retail funding exceed wholesale alternatives, whole funding sources will
be considered.
Community Central Mortgage Company, LLC ("the Mortgage Company") which is a
wholly owned mortgage-banking subsidiary of the Bank and the Corporation has
also felt the affect of the nationwide slowdown in residential mortgage volumes.
The mortgage company has scaled back both variable and fixed costs to match the
reduced revenue because of this origination slowdown. The mortgage company
continues to contribute to the overall profitability of the Corporation,
although it is performing at relatively lower contribution levels in 2004
compared to when the refinancing volumes were high in 2003.
11
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 2004 AND DECEMBER 31, 2003
The Corporation's total assets increased $31.7 million, to $389.6 million at
September 30, 2004 from $357.9 million at December 31, 2003 primarily as a
result of an increase in the loan portfolio. Total loans, excluding loans held
for sale, increased $24.8 million, or 9.2%, to $295.6 million at September 30,
2004 from December 31, 2003.
Commercial real estate loans, the largest segment of the Corporation's loan
portfolio, increased $13.7 million, or 9.1% from December 31, 2003 to September
30, 2004. The Corporation continues to focus on commercial lending activities
centered on real estate collateral as the largest segment of lending operations.
The residential real estate portfolio, excluding home equity lines of credit
("HELOC"), increased $791,000, or 1.3%, which included the sale of $10.2 million
of residential adjustable rate mortgage loans during the third quarter of 2004.
The total growth in the residential real estate portfolio without the sale would
have been 18.4% during the same time period. Our HELOC portfolio increased $4.5
million, or 40.5% from December 31, 2004 to September 30, 2004. The mortgage
subsidiary of the Corporation continues to supplement the growth of this
portfolio product. The growth in HELOC portfolio was attributable to loans
generated from the Mortgage Company based on incentive programs connected with
first mortgage production. The HELOC loans float with prime rate, are fully
secured by real estate and are generally originated with loan to values of up to
95% of the appraised value of the real estate.
At September 30, 2004, our commercial and industrial loans totaled $41.3
million, an increase of $2.0 million, or 5.0% from December 31, 2003. The
largest collateral segment of the commercial and industrial loan portfolio at
September 30, 2004, represented loans secured by accounts receivable and to a
lesser extent bonded contract receivables totaling approximately $28.0 million.
In most cases, the loans also have additional collateral in the form of real
estate, machinery and equipment and or personal guarantees.
Installment loans increased $3.8 million, or 39.1%, primarily through the direct
boat loans to consumers. The Corporation's general geographic proximity to Lake
St. Clair and the lending experience in this area makes boat lending an
advantageous lending niche.
Mortgage loans held for sale totaled $4.7 million at September 30, 2004 compared
to $7.2 million at December 31, 2003. The mortgage loans were originated by the
Bank's mortgage subsidiary, which started operations July 9, 2001. Loans closed
generally remain in loans held for sale for less than 30 days in duration. Loans
are normally committed for sale before funding takes place.
The total security portfolio at September 30, 2004 was $55.8 million, which was
comprised of $54.6 million in available for sale securities and $1.2 million in
held to maturity securities. The security portfolio consisted of government
agency and bank qualified tax-exempt municipal securities. The total security
portfolio decreased $2.2 million from December 31, 2003. The net change occurred
because of maturities, security calls, and sales from restructuring programs.
During the first nine months ended September 30, 2004, the tax-exempt municipal
securities increased $2.0 million and the mortgage backed securities decreased
$3.6 million. Federal Agency debentures, which are primarily pledged against
repurchase agreements decreased $4.2 million. The remaining decrease in the
portfolio was from paydown and sales of collateralized mortgage obligations. At
September 30, 2004, the available for sale portfolio had net unrealized gains of
$30,000, compared to a $144,000 unrealized loss at December 31, 2003. The
increase was due to changes in market interest rates and relative duration
compared to those at December 31, 2003. On the balance sheet, securities are
classified as held to maturity, when the Corporation has the ability and intent
to hold to maturity. Held to maturity securities are recorded at cost, adjusted
for amortization of premium or accretion of discount. Securities available for
sale are shown on the balance sheet at estimated fair market value.
12
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
The Corporation makes loans to customers primarily in Macomb County, Michigan.
Although the Corporation has a diversified loan portfolio, a substantial portion
of the local economy has traditionally been dependent on the automotive
industry. Accordingly, a downturn in the automotive industry could adversely
affect a borrower's ability to repay its loan. Additionally, the Corporation had
approximately $59.0 million in outstanding loans at September 30, 2004, to
borrowers in the real estate rental and property management industries,
representing approximately 36.1% of the total commercial real estate loan
portfolio.
The major components of the loan portfolio for loans held for sale and loans in
the portfolio are as follows:
September 30, Percentage December 31, Percentage Net Net
2004 of total loans 2003 of total loans Change Change %
------------- -------------- ------------ -------------- -------- --------
(in thousands, except percentages)
Loans held for sale:
Residential real estate $ 4,768 100.0% $ 7,241 100.0% ($ 2,473) (34.2%)
======== ======== ======== ======== ======== ========
Loans held in the portfolio:
Commercial real estate $163,425 55.3% $149,769 55.3% $ 13,656 9.1%
Commercial and industrial 41,289 14.0 39,330 14.5 1,959 5.0
Residential real estate 60,837 20.6 60,046 22.2 791 1.3
Home equity lines 15,762 5.3 11,217 4.1 4,545 40.5
Consumer loans 13,692 4.6 9,844 3.7 3,848 39.1
Credit cards 618 0.2 622 0.2 (4) (0.6)
-------- -------- -------- -------- -------- --------
$295,623 100.0% $270,828 100.0% $ 24,795 9.2%
======== ======== ======== ======== ======== ========
13
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
A summary of nonperforming assets is as follows:
September 30, December 31,
2004 2003
------------- ------------
(In thousands)
Impaired loans:
Nonaccrual
Commercial and industrial loans $ 264 $ 88
Commercial real estate 1,111 277
Residential real estate 61 -
------- -------
Total nonaccrual loans 1,436 365
Loans past due 90 days and still accruing interest:
Residential real estate 346 116
Installment 66 3
------- -------
Total loans past due 90 days and
still accruing interest 412 119
------- -------
Total nonperforming loans 1,848 484
Other real estate owned (net) 681 363
------- -------
Total nonperforming assets $ 2,529 $ 847
======= =======
Total nonperforming loans as a
percentage of total loans 0.63% 0.18%
======= =======
Total nonperforming assets as a percentage
of total assets 0.65% 0.24%
======= =======
At September 30, 2004, nonperforming loans totaled $1.8 million compared to
$484,000 at December 31, 2003, an increase of $1.4 million. The largest portion
of this increase was attributable to a loan acquired at a discount from the
purchase and assumption of North Oakland Community Bank. This loan had a net
book value of $801,000 as of September 30, 2004, and is secured by residential
real estate properties. Management expects to fully collect the net book balance
in the fourth quarter of 2004, as the property is under a contract for sale for
which the Bank will provide financing.
In the third quarter of 2004, nonaccrual loans were reduced $1.1 million from
the sale of a commercial real estate loan and the charge off of a $104,000
commercial and industrial loan for which management expects a recovery in an
indeterminable timeframe.
14
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
The following table shows an analysis of the allowance for credit losses:
September 30, December 31,
2004 2003
------------- ------------
(Dollars in thousands)
Allowance for credit losses at
beginning of period $ 3,573 $ 3,377
Provision charged to expense 1,850 275
Loans charged off (2,064) (123)
Loans recovered 17 44
-------- --------
Allowance for credit losses at end of period $ 3,376 $ 3,573
======== ========
Allowance for credit losses as a percentage
of total loans 1.14% 1.32%
The allowance for credit losses as a percentage of total loans was 1.14% at
September 30, 2004, versus 1.32% at December 31, 2003. In each accounting
period, management evaluates the problems and potential losses in the loan
portfolio. Consideration is also given to off-balance sheet items that may
involve credit risk, such as commitments to extend credit and financial
guarantees. Management's evaluation of the allowance is further based on
consideration of actual loss experience, the present and prospective financial
condition of borrowers, adequacy of collateral, industry concentrations within
the portfolio, and general economic conditions. Management believes that the
present allowance is adequate, based on the broad range of considerations listed
above.
The primary risk element considered by management regarding each installment and
residential real estate loan is lack of timely payment. Management has a
reporting system that monitors past due loans and has adopted policies to pursue
its creditor's rights in order to preserve the Bank's position. The primary risk
elements concerning commercial loans are the financial condition of the
borrower, the sufficiency of collateral, and lack of timely payment. Management
has a policy of requesting and reviewing financial statements from its
commercial loan customers, and periodically reviews the condition and value of
the collateral securing the loans.
Although management believes that the allowance for credit losses is adequate to
absorb losses as they arise, there can be no assurance that the Corporation will
not sustain losses in any given period that could be substantial in relation to
the size of the allowance for credit losses.
15
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
During the nine months ended September 30, 2004, total deposits increased $18.1
million to $273.5 million. The increase in deposits was attributable to
increases in certificates of deposit and savings accounts of $5.3 million and
$12.6 million, respectively. Savings accounts increased due to the introduction
of a premium statement savings product paying competitive money market rates.
The increase in certificates of deposit were aided by premium rate offerings
primarily at the Rochester Hills branch location. The product offerings
attracted new customers for additional cross selling opportunities. Growth in
demand, money market and NOW accounts was minimal, accounting for $218,000 in
growth. Local municipal certificates of deposit decreased $9.3 million for the
first nine months of 2004 as seasonal needs of municipalities and competitive
rates can cause fluctuations in balances. At September 30, 2004 the Corporation
had $51.4 million in local municipal deposits, $42.9 million in brokered
certificates of deposit and $26.0 million in internet certificates of deposit.
See "Liquidity and Capital Resources" below. The Corporation has been utilizing
Federal Home Loan Bank ("FHLB") advances to better match against interest rate
risk as described below.
Total short-term borrowing increased $6.1 million to $38.0 million at September
30, 2004 from December 31, 2003, due to an increase in short term repurchase
agreements of $12.1 million. The Corporation utilized short term funding sources
from the FHLB to a lesser extent at September 30, 2004 than at December 31,
2003. The increase in short term repurchase agreement is based on the seasonal
needs of funds to the commercial and municipal customers who utilize the
program. The weighted average interest rate on the ending balance of the
short-term borrowings for September 30, 2004 and December 31, 2003, was 1.37%
and 1.39%, respectively.
In June 2001, the Corporation started to borrow long-term advances from the FHLB
to fund fixed rate instruments and to minimize the interest rate risk associated
with certain fixed rate commercial mortgage loans and investment securities.
These advances are secured under a blanket security agreement by first mortgage
loans and the pledging of certain securities. The total FHLB advances at
September 30, 2004 of $54.4 million, comprised $13.0 million in short term
advances with a weighted average rate of 2.07% and long term advances of $14.4
million with a weighted average rate of 3.92%. The aggregate weighted rate of
the entire FHLB advance portfolio was 3.48% with a weighted average remaining
maturity of 3.1 years as of September 30, 2004. Long-term advances comprised
twenty-three advances maturing from February 2006 to December 2012.
16
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
LIQUIDITY AND CAPITAL RESOURCES
The liquidity of a bank allows it to provide funds to meet loan requests, to
accommodate possible outflows in deposits, and to take advantage of other
investment opportunities. Funding of loan requests, providing for liability
outflows, and managing interest rate margins require continuous analysis to
match the maturities of specific categories of loans and investments with
specific types of deposits and borrowings. Bank liquidity depends upon the mix
of the banking institution's potential sources and uses of funds. The major
sources of liquidity for the Bank have been deposit growth, federal funds sold,
loans and securities which mature within one year, and sales of residential
mortgage loans. Additional liquidity is provided by $22.5 million in available
unsecured federal funds borrowing facilities, and a $75.0 million secured line
of credit with the FHLB. Large deposit balances which might fluctuate in
response to interest rate changes are closely monitored. These deposits consist
mainly of jumbo time certificates of deposit. We anticipate that we will have
sufficient funds available to meet our future commitments. As of September 30,
2004, unused commitments comprised $71.2 million. The Bank has $122.9 million in
time deposits coming due within the next twelve months from September 30, 2004.
At September 30, 2004, the Bank had $42.9 million in brokered certificates of
deposit, of which $30.5 million is due within one year or less. The Bank will
continue to use brokered certificates and other wholesale funding sources for
replacement sources of matured funds. Additionally, at September 30, 2004,
municipal time deposits and internet time deposits were $77.9 million and $30.4
million, respectively. Municipal time deposits typically have maturities less
than three months. $9.9 million of internet certificates of deposit mature in
one year or less. On August 17, 2004, the Corporation's Board of Directors
declared the Corporation's eleventh consecutive quarterly cash dividend of $0.05
per common share, payable October 1, 2004, to shareholders of record September
1, 2004.
In January of 2003, the Bank purchased property adjacent to its main office
known as 120 North Main Street. In March of 2004, the Bank started construction
of a new building at this location to be used as the headquarters for
administration, commercial banking, and mortgage operations. The construction
and development costs are expected to be offset, on an annualized per square
foot basis, by the corresponding reduction in lease expense currently paid to an
outside landlord. At September 30, 2004, $1.7 million had been spent on a
project expected to cost a total of $4 million, including land costs.
Following are selected capital ratios for the Corporation and the Bank as of the
dates indicated, along with the minimum regulatory capital requirement for each
item. Capital requirements for bank holding companies are set by the Federal
Reserve Board. In many cases, bank holding companies are expected to operate at
capital levels higher than the minimum requirement. As of September 30, 2004,
the Corporation and the Bank exceeded the capital ratios to be considered "well
capitalized."
September 30, December 31, Minimum Ratio
2004 2003 for Capital
------------------ --------------- Adequacy Ratio to be
Capital Ratio Capital Ratio Purposes "Well Capitalized"
------- ----- ------- ----- ------------- ------------------
Total capital to risk-weighted assets
Consolidated $37,474 12.56% $36,266 13.39% 8% 10%
Bank only 35,320 11.86% 32,808 12.14% 8% 10%
Tier I capital to risk-weighted assets
Consolidated $32,131 10.77% $30,505 11.27% 4% 6%
Bank only 31,944 10.73% 29,427 10.89% 4% 6%
Tier I capital to average assets
Consolidated $32,131 8.14% $30,505 8.56% 4% NA
Bank only 31,944 8.11% 29,427 8.27% 4% 5%
17
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
Stockholders' equity was $25.0 million as of September 30, 2004. This was an
increase of $1.2 million for the nine months ended September 30, 2004. The
change in total stockholders' equity was largely related to the increase in net
income for the nine months ended September 30, 2004 of $1,450,000, partially
offset by dividends declared in 2004 of $428,000. Stock options exercised in
2004, the release of ESOP shares and the unrealized net gain in available for
sale securities contributed to growth in stockholders' equity for the same
period.
The following table shows the changes in stockholders' equity for the nine
months ended September 30, 2004:
Additional Unearned Accumulated Other
Common Paid-In Retained Employee Comprehensive Total
Stock Capital Earnings Benefits Income/(Loss) Equity
-------- -------- -------- -------- ----------------- --------
Beginning balance, January 1 $13,609 $ 5,308 $ 5,225 ($ 271) ($ 95) $ 23,776
Cash dividend -- -- (428) -- -- (428)
Stock option exercise/stock awards 22 30 -- -- -- 52
Stock dividend 680 1,070 (1,750) -- -- --
Net income -- -- 1,450 -- -- 1,450
Release of ESOP shares -- -- -- 54 -- 54
Change in unrealized gain/loss -- -- -- -- 115 115
-------- -------- -------- -------- -------- --------
Balance September 30, 2004 $ 14,311 $ 6,408 $ 4,497 ($ 217) $ 20 $ 25,019
======== ======== ======== ======== ======== ========
NET INTEREST INCOME
For the quarter ended September 30, 2004, net interest income increased by
31.0%, or $707,000, over the third quarter of 2003. This increase was primarily
attributable to an expanded interest earning asset base, which was aided by an
increased net interest margin. The net interest margin was positively impacted
by the growth in the loan portfolio versus a stable cost of liability funding.
During most of 2002 and 2003, the margin was negatively affected by refinancing
and the removal of interest rate floors on loans from competitive pressures. The
Corporation continues to utilize advances from the Federal Home Loan Bank and
longer term certificates of deposit to control interest rate risk when funding
longer term fixed rate loans and investments. The net interest margin measured
on a fully taxable basis increased for the third quarter 2004 to 3.28% compared
with 3.00% for the third quarter of 2003.
Net interest income for nine months ended September 30, 2004 increased by 31.4%,
or $2.1 million, over the first nine months of 2003. Again, this increase was
attributable to an expanded interest earning asset base and an increased net
interest margin. The net interest margin, measured on a fully taxable equivalent
basis, for the nine months ended September 30, 2004 was 3.24%, compared with
3.01% for the nine months ended September 30, 2003. Net interest margin for the
nine months ended September 30, 2004 was favorably impacted by the same reasons
as mentioned above for the third quarter of 2004.
18
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
The following table shows the dollar amount of changes in net interest income
for each major category of interest earning asset and interest bearing
liability, and the amount of change attributable to changes in average balances
(volume) or average rates for the periods shown. Variances that are jointly
attributable to both volume and rate changes have been allocated to the volume
component.
Three Months Ended Nine Months Ended
September 30, 2004 vs. 2003 September 30, 2004 vs. 2003
--------------------------------- ---------------------------------
Increase (Decrease) Increase (Decrease)
Due to Changes In Due to Changes In
--------------------- ---------------------
Volume Volume
Total and Both Rate Total and Both Rate
------- -------- ------- -------- -------- -------
(in thousands)
Earning Assets - Interest Income
Loans $ 798 $ 798 $ -- $ 2,492 $ 2,825 ($ 333)
Securities 210 40 170 202 (54) 256
Federal funds sold 23 13 10 18 15 3
------- ------- ------- ------- ------- -------
Total 1,031 851 180 2,712 2,786 (74)
------- ------- ------- ------- ------- -------
Deposits and Borrowed Funds - Interest Expense
NOW and money market accounts 9 10 (1) (8) 46 (54)
Savings deposits 67 51 16 117 80 37
Time deposits 238 321 (83) 545 987 (442)
FHLB and repo sweeps (6) (13) 7 (31) 115 (146)
Lease and ESOP -- (1) 1 (2) (2) --
Subordinated debentures 16 4 12 15 12 3
------- ------- ------- ------- ------- -------
Total 324 372 (48) 636 1,238 (602)
------- ------- ------- ------- ------- -------
Net Interest Income $ 707 $ 479 $ 228 $ 2,076 $ 1,548 $ 528
======= ======= ======= ======= ======= =======
19
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
AVERAGE BALANCE SHEET
The following tables show the Corporation's consolidated average balances of
assets, liabilities, and stockholders' equity; the amount of interest income or
interest expense and the average yield or rate for each major category of
interest earning asset and interest bearing liability, and the net interest
margin, for the three and nine month periods ended September 30, 2004 and 2003.
Average loans are presented net of unearned income, gross of the allowance for
credit losses. Interest on loans includes loan fees. Average securities are
based on amortized cost.
Three Months Ended September 30,
---------------------------------- --------------------------------
2004 2003
-------- --------
Average Average
Interest Rate Interest Rate
Average Income/ Earned/ Average Income/ Earned/
Balance Expense Paid Balance Expense Paid
-------- -------- -------- -------- -------- --------
(In thousands)
Assets
Loans $301,537 $ 4,409 5.85% $246,776 $ 3,611 5.85%
Securities 58,583 537 3.67 54,267 327 2.41
Federal funds sold 12,874 45 1.40 9,015 22 0.98
-------- -------- -------- -------- -------- --------
Total Earning Assets/
Total Interest Income 372,994 4,991 5.35 310,058 3,960 5.11
-------- -------- -------- -------- -------- --------
Cash and due from banks 7,626 6,116
All other assets 15,134 10,682
-------- --------
Total Assets $395,754 $326,856
======== ========
Liabilities and Equity
NOW and money market accounts $ 42,673 105 0.98 $ 38,785 96 0.99
Savings deposits 17,210 75 1.74 5,591 8 0.57
Time deposits 197,099 1,184 2.40 143,682 946 2.63
FHLB and repurchase agreements 67,487 498 2.95 69,194 504 2.91
Capitalized lease and ESOP 225 3 5.33 291 3 4.12
Subordinated debentures 10,310 140 5.43 10,000 124 4.96
-------- -------- -------- -------- -------- --------
Total Interest Bearing Liabilities/
Total Interest Expense / Interest Rate Spread 335,004 2,005 2.39 267,543 1,681 2.51
-------- -------- -------- -------- -------- --------
Noninterest bearing demand deposits 35,024 34,855
All other liabilities 1,272 1,254
Stockholders' equity 24,454 23,204
-------- --------
Total Liabilities and Stockholder's Equity $395,754 $326,856
======== ========
Net Interest Income $ 2,986 $ 2,279
======== ========
Net Interest Margin (Net Interest
Income/Total Earning Assets) 3.20% 2.94%
======== ========
Net Interest Margin
(fully taxable equivalent) 3.28% 3.00%
======== ========
20
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
Nine Months Ended September 30,
---------------------------------- --------------------------------
2004 2003
-------- --------
Average Average
Interest Rate Interest Rate
Average Income/ Earned/ Average Income/ Earned/
Balance Expense Paid Balance Expense Paid
-------- -------- -------- -------- -------- --------
(In thousands)
Assets
Loans $299,663 $ 12,917 5.75% $233,970 $ 10,425 5.94%
Securities 55,695 1,555 3.72 57,637 1,353 3.13
Federal funds sold 9,781 86 1.17 8,109 68 1.12
-------- -------- -------- -------- -------- --------
Total Earning Assets/
Total Interest Income 365,139 14,558 5.32 299,716 11,846 5.27
-------- -------- -------- -------- -------- --------
Cash and due from banks 7,317 5,871
All other assets 13,533 7,247
-------- --------
Total Assets $385,989 $312,834
======== ========
Liabilities and Equity
NOW and money market accounts $ 42,846 319 0.99 $ 36,704 327 1.19
Savings deposits 12,690 144 1.51 5,613 27 0.64
Time deposits 193,610 3,571 2.46 140,085 3,026 2.88
FHLB and repurchase agreements 67,002 1,435 2.86 61,631 1,466 3.17
Capitalized lease and ESOP 245 8 4.35 310 10 4.30
Subordinated debentures 10,310 396 5.12 10,000 381 5.08
-------- -------- -------- -------- -------- --------
Total Interest Bearing Liabilities/
Total Interest Expense / Interest Rate Spread 326,703 5,873 2.40 254,343 5,237 2.75
-------- -------- -------- -------- -------- --------
Noninterest bearing demand deposits 33,961 34,778
All other liabilities 1,035 1,028
Stockholders' equity 24,290 22,685
-------- --------
Total Liabilities and Equity $385,989 $312,834
======== ========
Net Interest Income $ 8,685 $ 6,609
======== ========
Net Interest Margin (Net Interest
Income/Total Earning Assets) 3.17% 2.94%
======== ========
Net Interest Margin
(fully taxable equivalent) 3.24% 3.01%
======== ========
21
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
PROVISION FOR CREDIT LOSSES
The provision for credit losses for the three months ended September 30, 2004
was $250,000, an increase of $200,000 from the three months ended September 30,
2003. The larger provision was made in part, to adequately cover the net charges
offs for the third quarter 2004 of $137,000, $104,000 of which management
expects to recover in the future. Management however cannot predict the timing
of this recovery.
The provision for credit losses for the nine months ended September 30, 2004 was
$1.9 million, an increase of $1.7 million from the comparable period of 2003.
The increase in provision for the first nine months was attributable to net loan
charge offs of $1.9 million in the second quarter of 2004. The largest single
loan charge off was $1.0 million on a commercial and industrial loan. The Bank
is pursuing the borrower for fraud and other claims related to this
relationship. The remaining charge offs of substance totaled $778,000 and
represented loans that had deteriorated from the purchase and assumption of
North Oakland Community Bank.
NONINTEREST INCOME
Noninterest income decreased by $474,000, or 20.9%, for the third quarter of
2004 compared to the third quarter of 2003. The largest component of noninterest
income is mortgage banking income. Mortgage banking income decreased $751,000,
or 36.6%, to $1.8 million for the quarter ended September 30, 2004 compared to
the same period in 2003. The decrease in mortgage originations and the
corresponding level of gains on the sales of mortgages has been affected by the
nationwide decrease in mortgage refinancing. Service charge income during the
third quarter of 2004 was $79,000, an increase of $23,000 or a 41.1% increase
over the third quarter of 2003. The increase in service charge income was due to
the addition of the Rochester branch in the fourth quarter of 2003, coupled with
selected increases in the fees assessed to customers on checking and other
applicable deposit accounts. Net security gains of $52,000 were the result of
security restructuring activity to shorten security duration. Other non-interest
income for the quarter ended September 30, 2004, increased $219,000, or 164.7%
compared to the third quarter of 2003. The increase was attributable to the gain
on sale of $12.1 million in residential real estate mortgage loans and
government guaranteed loans held in the Bank's portfolio.
Noninterest income for the nine months ended September 30, 2004 decreased $1.3
million, or 21.3% compared to the first nine months of 2003. The decrease was
due primarily to decreases in mortgage banking income of $1.6 million, or 28.8%
for these same reasons detailed above.
NONINTEREST EXPENSE
Noninterest expense in the third quarter of 2004 was $3.4 million, a decrease of
$286,000 from the third quarter of 2003, or 7.7%. Salaries, benefits, and
payroll taxes for the third quarter of 2004 were $2.1 million, which was a
decrease of $411,000 compared to the third quarter of 2003. Salaries, benefits
and payroll taxes related to the Mortgage Company decreased $648,000 when
comparing the third quarter of 2004 compared to 2003. The decrease in expense
was directly related to the decrease in mortgage banking income noted above in
noninterest income. This decrease was the largest factor attributable to the
overall decrease in noninterest expense. Salaries and benefits from the
operations of the Rochester Branch, coupled with general merit increases for the
overall organization comprised the remainder of the net change in overall
salaries and benefit expense. Total premises and fixed asset expense of $397,000
for the third quarter of 2004, increased $105,000, or 36.8% due to the Rochester
Hill branch operations representing $51,000, or 48.5% of the relative increase,
with the remainder of increase in overall premises expense attributable to
property taxes and other premises related to cost of operations. Other operating
expenses of $932,000 for the third quarter of 2004, increased slightly by
$20,000, or 2.2% from overall growth of the organization.
22
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
Noninterest expense for the nine months ended September 30, 2004 decreased
$724,000, or 6.7%. This was due to decreases in salaries, benefits and payroll
taxes of $1.2 million, or 16.2%. The decreases in salaries, benefits and payroll
taxes were primarily due to the Mortgage Company operations and an offset to the
corresponding decrease in mortgage banking income. Premises and fixed asset
expense and other operating expense increased for the comparable nine month
period $253,000 and $165,000, respectively. This was due primarily to the
Rochester Hills branch operations.
INCOME TAXES
The provision for federal income taxes of $312,000 for the quarter ended
September 30, 2004, increased $90,000, or 40.5%, over the third quarter of 2003,
and paralleled the growth of income before taxes of 40.4%. The provision for
federal income taxes of $462,000 for the nine months ended September 30, 2004,
decreased $191,000, or 29.2%. The decrease in the federal income tax provision
was attributed to both reduced pretax income and a lower effective tax rate in
2004 over 2003. The effective tax rate for nine months ended September 30, 2004
and 2003 was 24.2% and 29.4%, respectively. The lower effective tax rate during
2004 was attributable to investments in bank qualified tax-exempt securities and
bank owned life insurance (BOLI). The increase in cash surrender value of BOLI
is exempt from federal income tax.
23
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
ASSET/LIABILITY MANAGEMENT
The Corporation's Asset Liability Management Committee ("ALCO"), which meets at
least quarterly, is responsible for reviewing the interest rate sensitivity
position of the Corporation and establishing policies to monitor and limit
exposure to interest rate risk.
The Corporation currently utilizes two quantitative tools to measure and monitor
interest rate risk: static gap analysis and net interest income simulation
modeling. Each of these interest rate risk measurements has limitations, but
management believes when these tools are evaluated together, they provide a
balanced view of the exposure the Corporation has to interest rate risk.
Static gap analysis measures the difference between the assets and liabilities
repricing or maturing within specific time periods. An asset-sensitive position
indicates that there are more rate-sensitive assets than rate-sensitive
liabilities repricing or maturing within specific time periods, which would
generally imply a favorable impact on net interest income in periods of rising
interest rates and a negative impact in periods of falling rates. A
liability-sensitive position would generally imply a negative impact on net
interest income in periods of rising rates and a positive impact in periods of
falling rates.
Static gap analysis has limitations because it cannot measure precisely the
effect of interest rate movements and competitive pressures on the repricing and
maturity characteristics of interest-earning assets and interest-bearing
liabilities. In addition, a significant portion of our adjustable-rate assets
have limits on their maximum yield, whereas most of our interest-bearing
liabilities are not subject to these limitations. As a result, certain assets
and liabilities indicated as repricing within a stated period may in fact
reprice at different times and at different volumes, and certain adjustable-rate
assets may reach their yield limits and not reprice.
24
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
The following table presents an analysis of our interest-sensitivity static gap
position at September 30, 2004. All interest-earning assets and interest-bearing
liabilities are shown based on the earlier of their contractual maturity or
repricing dated adjusted by forecasted repayment and decay rates. Asset
prepayment and liability decay rates are selected after considering the current
rate environment, industry prepayment and decay rates and our historical
experience. At September 30, 2004, the Corporation is considered asset sensitive
in the time interval of the first three months. The Corporation is also
considered to be slightly liability sensitive at the one year accumulated gap
position.
After Three After One
Within Months But Year But After
Three Within One Within Five
Months Year Five Years Years Total
----------- ---------- ---------- --------- ---------
(in thousands)
Interest earning assets:
Federal funds sold $ 8,800 $ -- $ -- $ -- $ 8,800
Securities 10,211 1,631 33,605 10,332 55,779
FHLB stock -- -- -- 3,212 3,212
Portfolio loans and
held for resale 160,267 6,009 97,920 36,195 300,391
--------- --------- --------- --------- ---------
Total 179,278 7,640 131,525 49,739 $ 368,182
--------- --------- --------- --------- =========
Interest bearing liabilities:
NOW and money market
accounts 3,396 9,612 27,920 -- $ 40,928
Savings deposits 1,713 5,138 12,179 -- 19,029
Jumbo time deposits 52,873 46,464 23,942 123,279
Time deposits < $100,000 4,122 21,473 30,085 -- 55,680
Repurchase agreements 24,955 -- -- -- 24,955
FHLB and repo sweeps 7,000 6,000 29,874 11,500 54,374
ESOP payable 217 -- -- -- 217
Subordinated debentures 10,310 -- -- -- 10,310
--------- --------- --------- --------- ---------
Total 104,585 88,687 124,000 11,500 $ 328,772
--------- --------- --------- --------- =========
Interest rate sensitivity gap $ 74,693 ($ 81,047) $ 7,526 $ 38,239
Cumulative interest rate
sensitivity gap ($ 6,354) $ 1,172 $ 39,410
Interest rate sensitivity gap
ratio 1.71 0.09 1.06 4.33
Cumulative interest rate
sensitivity gap ratio 0.97 1.00 1.12
The Bank also evaluates interest rate risk using a simulation model. The use of
simulation models to assess interest rate risk is an accepted industry practice,
and the results of the analysis are useful in assessing the vulnerability of the
Bank's net interest income to changes in interest rates. However, the
assumptions used in the model are oversimplifications and not necessarily
representative of the actual impact of interest rate changes. The simulation
model assesses the direction and magnitude of variations in net interest income
resulting from potential changes in market interest rates. Key assumptions in
the model include prepayment speeds of various loan and investment assets; cash
flows and maturities of interest-sensitive assets and liabilities, and changes
in market conditions impacting loan and deposit volumes and pricing. These
assumptions are inherently uncertain, and subject to fluctuation and revision in
a dynamic environment. Therefore, the model cannot precisely estimate future net
interest income or exactly predict the impact of higher or lower interest rates.
Actual results may differ from simulated results due to the timing, magnitude,
and frequency of interest rate changes, changes in market conditions,
management's pricing decisions, and customer reactions to those decisions, among
other factors.
On a quarterly basis, the net interest income simulation model is used to
quantify the effects of hypothetical changes in interest rates on the Bank's net
interest income over a projected twelve-month period. The model permits
25
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
management to evaluate the effects of shifts in the Treasury Yield curve, upward
and downward, on net interest income expected in a stable interest rate
environment.
As of June 30, 2004, the most recent and available analysis, the simulation
model projects net interest income would increase 0.25% of the base net interest
income, assuming an instantaneous parallel shift upward in the yield curve by
200 basis points. If the yield curve were to decrease by 200 basis points, the
model projects net interest income would increase by 0.43%.
ITEM 3. CONTROLS AND PROCEDURES
An evaluation of the Corporation's disclosure controls and procedures (as
defined in Rule 13a-15(e) of the Securities and Exchange Act of 1934 ("Act")) as
of September 30, 2004, was carried out under the supervision and with the
participation of the Corporation's Chief Executive Officer, Chief Financial
Officer and several other members of the Corporation's senior management. The
Corporation's Chief Executive Officer and Chief Financial Officer concluded that
the Corporation's disclosure controls and procedures as currently in effect are
effective in ensuring that the information required to be disclosed by the
Corporation in the report it files or submits under the Act is (i) accumulated
and communicated to the Corporation's management (including the Chief Executive
Officer and Chief Financial Officer) in a timely manner, and (ii) recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms.
There have been no changes in our internal control over financial reporting (as
defined in Rule 13a -- 15(f) of the Act) that occurred during the quarter ended
September 30, 2004, that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
The Corporation intends to continually review and evaluate the design and
effectiveness of its disclosure controls and procedures and to improve its
controls and procedures over time and to correct any deficiencies that it may
discover in the future. The goal is to ensure that senior management has timely
access to all material non-financial information concerning the Corporation's
business. While the Corporation believes the present design of its disclosure
controls and procedures is effective to achieve its goal, future events
affecting its business may cause the Corporation to modify its disclosures and
procedures.
26
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
PART II
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY
SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Cash Dividend - On August 17, 2004, the Corporation's Board of Directors
declared the Corporation's tenth quarterly cash dividend of $0.05 per common
share, payable October 1, 2004, to shareholders of record September 1, 2004.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits: See Exhibit Index attached.
(b) Reports on Form 8-K during the quarter ended September 30, 2004:
None
27
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized, on November 12, 2004.
COMMUNITY CENTRAL BANK CORPORATION
By: /S/ DAVID A. WIDLAK
---------------------
David A. Widlak;
President and CEO
(Principal Executive Officer)
By: /S/ RAY T. COLONIUS
---------------------
Ray T. Colonius;
Treasurer
(Principal Financial and Accounting Officer)
28
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
3.1 Articles of Incorporation are incorporated by reference to exhibit
3.1 of the Corporation's Registration Statement on Form SB-2
(Commission File Number 333-04113) which became effective on
September 23, 1996
3.2 Bylaws of the Corporation, as amended and currently in effect.
4.1 Specimen of Stock Certificate of Community Central Bank Corporation
is incorporated by reference to Exhibit 4.2 of the Corporation's
Registration Statement on Form SB-2 (Commission File No. 333-4113)
which became effective on September 23, 1996
10.1 1996 Employee Stock Option Plan is incorporated by reference to
exhibit 10.1 of the Corporation's Registration Statement on Form
SB-2 (Commission File No. 333-04113) which became effective
September 23, 1996
10.2 1996 Stock Option Plan for Nonemployee Directors is incorporated by
reference to exhibit 10.2 of the Corporation's Registration
Statement on Form SB-2 (Commission File No. 333-04113) which became
effective September 23, 1996
10.3 1999 Stock Option Plan for Directors in incorporated by reference to
exhibit 10.5 of the Corporation's Annual Report filed with the SEC
on Form 10-KSB for the year ended December 31, 1999 (Commission File
No. 000-33373)
10.4 2000 Employee Stock Option Plan is incorporated by reference to
exhibit 10.6 of the Corporation's Annual Report filed with the SEC
on Form 10-KSB for the year ended December 31, 2000 (Commission File
No. 000-33373)
10.5 2002 Incentive Plan is incorporated by reference to exhibit 10.7 of
the Corporation's Annual Report filed with the SEC on Form 10-KSB
for the year ended December 31, 2001 (Commission File No. 000-33373)
10.6 Community Central Bank Supplemental Executive Retirement Plan is
incorporated by reference to exhibit 10.6 of the Corporation's Form
10-QSB filed with the SEC for the quarter ended June 30, 2003
(Commission File No. 000-33373)
10.7 Community Central Bank Death Benefit Plan is incorporated by
reference to exhibit 10.7 of the Corporation's Form 10-QSB filed
with the SEC for the quarter ended June 30, 2003 (Commission File
No. 000-33373)
11 Computation of Per Share Earnings
31.1 Rule 13a - 14(a) Certification (Chief Executive Officer)
31.2 Rule 13a - 14(a) Certification (Chief Financial Officer)
32 Rule 1350 Certifications
29