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 June 30, 2005
-------------
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 (IRS Employer Identification No.)
of 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 August 12, 2005
----- ------------------------------
Common Stock 3,648,134 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
----- -----
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
PART I
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2005 2004
(Unaudited)
--------- ---------
Assets (In thousands)
Cash and due from banks $8,489 $4,183
Federal funds sold 7,900 3,000
--------- ---------
Cash and Cash Equivalents 16,389 7,183
--------- ---------
Securities available for sale, at fair value 63,489 51,425
Securities held to maturity, at amortized cost 1,126 1,161
FHLB stock 3,647 3,246
Residential mortgage loans held for sale 4,041 6,491
Loans
Commercial loans 218,226 207,300
Residential loans 89,698 83,104
Installment loans 15,563 15,035
--------- ---------
Total Loans 323,487 305,439
Allowance for credit losses (3,874) (3,377)
--------- ---------
Net Loans 319,613 302,062
--------- ---------
Net property and equipment 8,478 6,921
Accrued interest receivable 1,648 1,391
Other real estate owned 677 681
Goodwill 1,381 743
Intangibles, net of amortization 255 134
Cash surrender value of Bank owned life insurance 7,690 7,519
Other assets 2,751 2,581
--------- ---------
Total Assets $431,185 $391,538
========= =========
(continued)
2
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2005 2004
(Unaudited)
--------- ---------
Liabilities (In thousands, except share data)
Deposits
Noninterest bearing demand deposits $39,462 $32,080
NOW and money market accounts 39,853 40,446
Savings deposits 15,731 20,539
Time deposits 208,637 185,791
--------- ---------
Total deposits 303,683 278,856
--------- ---------
Repurchase agreements 8,990 11,492
Federal Home Loan Bank advances 70,560 63,360
Accrued interest payable 1,067 780
Other liabilities 1,550 944
ESOP note payable 180 205
Subordinated debentures 10,310 10,310
--------- ---------
Total Liabilities 396,340 365,947
--------- ---------
Stockholders' Equity
Common stock -- 9,000,000 shares authorized;
3,648,134 shares issued and outstanding at
6-30-2005 and 3,008,152 at 12-31-2004 31,099 20,774
Retained earnings 4,155 5,111
Unearned employee benefit (180) (205)
Accumulated other comprehensive (loss) income (229) (89)
--------- ---------
Total Stockholders' Equity 34,845 25,591
--------- ---------
Total Liabilities and Stockholders' Equity $431,185 $391,538
========= =========
3
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
------- ------- ------- -------
(In thousands, except per share data)
Interest Income
Loans (including fees) $ 5,152 $ 4,361 $ 9,973 $ 8,508
Securities 702 519 1,262 1,018
Federal funds sold 48 19 94 41
------- ------- ------- -------
Total Interest Income 5,902 4,899 11,329 9,567
------- ------- ------- -------
Interest Expense
Deposits 1,842 1,369 3,396 2,670
Short term borrowings 39 21 78 45
Advances from FHLB 647 442 1,210 892
ESOP loan interest expense 3 2 6 5
Interest expense of subordinated debentures 182 129 347 256
------- ------- ------- -------
Total Interest Expense 2,713 1,963 5,037 3,868
------- ------- ------- -------
Net Interest Income 3,189 2,936 6,292 5,699
Provision for credit losses -- 1,475 100 1,600
------- ------- ------- -------
Net Interest Income after Provision 3,189 1,461 6,192 4,099
------- ------- ------- -------
Noninterest Income
Deposit service charges 78 70 148 138
Net realized security gain (loss) 20 (17) 50 120
Mortgage banking income 914 1,476 1,616 2,730
Other income 164 201 308 341
------- ------- ------- -------
Total Noninterest Income 1,176 1,730 2,122 3,329
------- ------- ------- -------
Noninterest Expense
Salaries, benefits, and payroll taxes 1,765 1,952 3,519 3,811
Premises and fixed asset expense 397 377 753 738
Other operating expense 1,039 807 1,818 2,075
------- ------- ------- -------
Total Noninterest Expense 3,201 3,136 6,090 6,624
------- ------- ------- -------
Income Before Taxes 1,164 55 2,224 804
Provision for income taxes 334 (51) 642 150
------- ------- ------- -------
Net Income $ 830 $ 106 $ 1,582 $ 654
======= ======= ======= =======
(continued)
4
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Per share data:
Basic earnings $ 0.24 $ 0.04 $ 0.48 $ 0.22
======== ======== ======== ========
Diluted earnings $ 0.24 $ 0.03 $ 0.47 $ 0.22
======== ======== ======== ========
Cash Dividends $ 0.05 $ 0.05 $ 0.10 $ 0.10
======== ======== ======== ========
* Per share data has been retroactively adjusted for 2005 stock dividend.
5
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
------- ------- ------- -------
(In thousands)
Net Income as Reported $ 830 $ 106 $ 1,582 $ 654
Other Comprehensive Income, Net of Tax
Change in unrealized losses on securities
Available for sale 231 (818) (140) (601)
------- ------- ------- -------
Comprehensive Income $ 1,061 ($ 712) $ 1,442 $ 53
======= ======= ======= =======
6
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
Six Months Ended June 30,
2005 2004
-------- --------
(In thousands)
Operating Activities
Net income $ 1,582 $ 654
Adjustments to reconcile net income to net cash flow
from operating activities:
Net amortization of security premium 146 201
Net gain on sales and call of securities (49) (120)
Provision for credit losses 100 1,600
Depreciation expense 251 233
Deferred income tax expense 130 (206)
ESOP compensation expense 25 41
(Decrease) increase in accrued interest receivable (257) (89)
Increase (decrease) in other assets 1 (483)
Increase in accrued interest payable 287 114
Increase (decrease) in other liabilities 37 (345)
Decrease in loans held for sale 2,405 3,233
-------- --------
Net Cash Provided by Operating Activities 4,658 4,833
Investing Activities
Maturities, calls, sales and prepayments of securities available for sale 15,760 41,541
Purchase of securities available for sale (25,805) (41,024)
Maturities, calls, and prepayments of held to maturity securities 34 62
Purchases of held to maturity securities (401) (199)
(Increase) decrease in loans (16,924) (30,344)
Purchases of property and equipment (1,808) (1,133)
-------- --------
Net Cash Used in Investing Activities (29,144) (31,097)
Financing Activities
Net increase in demand and savings deposits 1,137 11,773
Net increase in time deposits 22,846 43,126
Net decrease in short term borrowings (2,502) (4,560)
Increase (decrease) increase in FHLB advances 7,200 6,000
Rights/Public stock offering 5,275 --
Payment of ESOP debt (25) (41)
Stock option exercise/award 103 52
Cash dividends paid (342) (284)
-------- --------
Net Cash Provided by Financing Activities 33,692 56,066
-------- --------
Increase in Cash and Cash Equivalents 9,206 29,802
Cash and Cash Equivalents at the Beginning of the Year 7,183 6,227
-------- --------
Cash and Cash Equivalents at the End of the Period $ 16,389 $ 36,029
======== ========
Supplemental Disclosure of Cash Flow Information:
Interest Paid $ 5,037 $ 3,754
Federal Taxes Paid $ 450 $ 375
======== ========
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 June 30,
2005 and December 31, 2004, and Consolidated Statements of Income and
Comprehensive Income for the six month periods ended June 30, 2005 and
2004, and Consolidated Statements of Cash Flow for the six months ended
June 30, 2005 and 2004. 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, 2004.
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 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 may constitute up to 25% of tier I capital.
Any amount in excess of this limit may be included as tier 2 capital. At
June 30, 2005, the total allowable trust preferred issuance of $10 million
was included in the Corporation's tier 1 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.
8
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
Amounts previously reported as "Guaranteed preferred beneficial interest in
Corporation's subordinated debentures" in liabilities 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. In December 2004, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 (revised 2004), Share-based
Payment, (SFAS 123R), which requires entities to measure the cost of
employee services received in exchange for an award of equity instruments
based on the grant-date fair value of the award (with limited exceptions).
The cost is recognized as an expense over the period during which the
employee is required to provide service in exchange for the award, which is
usually the vesting period. As required by SFAS 123R, as with SFAS 123, the
Corporation will be required to estimate the fair value of all stock
options on each grant date, using an appropriate valuation approach such as
the Black-Scholes option pricing model. The provisions of this statement
will be effective for the Corporation beginning January 1, 2006.
The Corporation did not issue incentive options during the six months ended
June 30, 2005 or 2004. If the Corporation had used the fair value method of
accounting, using the Black Scholes option pricing model and recognizing
compensation cost for the outstanding options 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 Six Months Ended
June 30, June 30,
2005 2004 2005 2004
------- ------- --------- -------
(in thousands, except per share data)
Net income, as reported $ 830 $ 106 $ 1,582 $ 654
Deduct: Total stock-based employee and director
compensation expense under fair value based
methods of awards, net of related tax effects (31) (22) (62) (40)
------- ------- --------- -------
Pro forma net income $ 799 $ 84 $ 1,520 $ 614
======= ======= ========= =======
Earnings per share
Basic - as reported $ 0.24 $ 0.04 $ 0.48 $ 0.22
Basic - pro forma $ 0.23 $ 0.03 $ 0.46 $ 0.21
Diluted - as reported $ 0.24 $ 0.03 $ 0.47 $ 0.22
Diluted - pro forma $ 0.23 $ 0.03 $ 0.45 $ 0.20
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 2005 and 2004, with no
practical changes during each respective period.
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
------- ------- ------- -------
Dividend yield or expected dividends 1.38% 1.49% 1.41% 1.49%
Risk free interest rate 4.20% 4.00% 4.20% 4.00%
Expected life 10 yrs. 7 - 10 yrs. 10 yrs. 7 - 10 yrs.
Expected volatility 24.65% 9.60% 24.65% 9.60%
9
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion compares the financial condition of the Corporation and
its wholly owned subsidiaries at June 30, 2005 and December 31, 2004 and the
results of operations for the three and six months ended June 30, 2005 and 2004.
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 the Detroit
metropolitan area. 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,
commercial real estate and residential 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, as well as
borrowings. Management strives to match the repricing characteristics of the
interest earning assets and interest bearing liabilities to protect net interest
income from changes in market interest rates and changes in the shape of the
yield curve.
The results of our operations may also be affected by local and general economic
conditions. The largest geographic segment of our customer base 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
of 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 among other
financial institutions and financial service providers and the Bank in Macomb,
Oakland, and St. Clair counties of Michigan may 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.
10
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
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 in October 2003 through the acquisition of its
Rochester Hills, Michigan branch from North Oakland Community Bank. The
Corporation expects to continue growth through internal expansion primarily
through commercial banking practices.
The Corporation continues to see competitive deposit rates offered from local
financial institutions within the geographic proximity of the Bank which could
have the affect of increasing the costs of funds to a level higher than
management projects. The Corporation continues to utilize wholesale forms of
funding earning assets through the FHLB and brokered CDs to balance both
interest rate risk and the overall cost of funds. Brokered and internet CDs are
based on a nationwide interest rate structure, typically at what is considered
to be a premium interest rate. The local competition for CD products has
intensified and the Bank has found this type of wholesale funding to often
effectively compete with the rates offered for similar term retail CD products
of local community and regional banks.
Community Central Mortgage Company, LLC ("the Mortgage Company"), which is a
wholly owned mortgage-banking subsidiary of the Bank and the Corporation, has
felt the effect of the nationwide slowdown in residential mortgage volumes. The
mortgage company has scaled back both variable and fixed costs to better match
the reduced revenue generated because of this origination slowdown.
On February 14, 2005, Community Central Bank Corporation completed a
subscription rights offering. The Corporation received gross proceeds of
approximately $5.4 million from the offering and will use the proceeds to fund
its growth strategy, for working capital and for general corporate purposes.
Community Central Bank Corporation (the "Corporation") entered into an Agreement
and Plan of Merger (the "Merger Agreement") by and among the Corporation,
Community Central Bank (the "Bank"), and River Place Financial Corp., a
Michigan-chartered bank ("River Place"), pursuant to which the Corporation
acquired all of the outstanding equity interests of River Plan. River Place was
a private bank wholly owned by the descendants of Julius Stroh, founder of The
Stroh Brewery Company. River Place was established in 1983 to manage the private
banking and trust needs of the Stroh family; and trusts managed by its trust
department owned and controlled Stroh Brewery until its sale in 1999. In
accordance with the Merger Agreement, River Place merged with and into the Bank
with the Bank continuing as the surviving corporation. The consideration paid
for River Place was primarily in restricted shares of common stock of the
Corporation ("Shares"). The Shares delivered in connection with the Merger
Agreement were issued in a transaction exempt from registration under the
Securities Act of 1993, as amended, by reason of Section 4(2) thereof,
Regulation D, or other private offering exemptions, and similar exemptions under
applicable state securities laws. The Shares were issued with restricted
security legends.
On June 30, 205, the acquisition and merger were completed after receiving all
necessary regulatory approvals and the approval of the shareholders of River
Place. The total cash paid to shareholders of River Place Financial Corporation
was $512,000. The total shares of common stock of Community Central Bank
Corporation exchanged for common shares surrendered from River Place Financial
Corporation were 199,999 as prescribed under the merger agreement. Total gross
capital generated from the transaction was $2.7 million. A total of $798,000 was
generated in intangible assets from the transaction representing $638,000 of
goodwill and $160,000 of an intangible asset associated with the customer
relationships, which will be amortized on an accelerated basis for approximately
7 years. The total loans acquired through the transaction represented $682,000
at an estimated fair market value. The remaining asset base of River Place
Financial Corporation recorded at estimated fair market values represented $2.3
million in short term agency debentures and cash on hand and other assets of
$359,000. The total deposits assumed at the close of business on June 30, 2005
were $844,000. The remaining liabilities including accruals and severance
payables were $57,000. A total of $75.0 million in off balance sheet trust
assets under management were also acquired as part of the transaction.
William A. Penner, CEO of River Place, became the President of the Bank's newly
created trust division. After retiring as First Vice President and Business
Manager of Estate Settlement in a 30-year career for Comerica Bank, Mr. Penner
took over as President of River Place in 1984. The trust division of the Bank
has full trust powers and is actively pursuing additional trust customers aside
from those relationships acquired as a result of the merger.
11
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
ASSETS
Total assets increased $39.6 million, or 10.1% for the first six months ended
June 30, 2005. The largest segment of asset growth for the first six months of
2005 occurred in the loan portfolio, which increased $18.0 million and total
securities which increased $12.0 million.
The largest portion of loan growth occurred primarily in the commercial real
estate area consistent with the Corporation's commercial lending focus. During
the first quarter, some categories of loans within the commercial and commercial
real estate portfolio were reviewed to ensure the proper reporting of underlying
collateral and purpose of the loan. It was determined that approximately $12
million of commercial and industrial loans should be classified as commercial
real estate loans based on the underlying collateral. When both the commercial
real estate loans and commercial and industrial loans are combined, the net
increase from December 31, 2004 to the period ended June 30, 2005 is $10.9
million, representing the largest portion of total loan growth. Total
residential real estate loans increased $7.7 million during the first six months
of 2005. Most of the growth in the residential portfolio occurred in the second
quarter of 2005 and was comprised of adjustable rate mortgages. The Corporation
continues to focus on generation of adjustable rate mortgages for its portfolio
of residential mortgage loans, with approximately $49.6 million in total. The
home equity line portfolio decreased $1.1 million during the first six months of
2005. This portfolio product is tied to the Wall Street prime interest rate. As
short-term market rates have increased during 2005, some customers have moved
balances in the home equity lines into other fixed rate products with lower
overall interest rates. The consumer loan portfolio increased $526,000 for the
six months ended June 30, 2005. The increase was primarily due to seasonal boat
loans.
The total security portfolio at June 30, 2005 was $64.6 million, which was
comprised of $63.5 million in available for sale securities and $1.1 million in
held to maturity securities. The security portfolio primarily consisted of
federal agency securities and bank qualified tax-exempt municipal securities.
The total portfolio increased $12.0 million from December 31, 2004. A portion of
the increase in investment securities was attributable to funding from the
rights offering completed in February 2005. These funds were invested into
mortgage-backed securities with principal repayment characteristics that could
be used to fund loan advances at a later date. The net change was driven by
purchases of $28.5 million, with maturities, calls and sales comprising a
reduction of $16.5 million. During the six months ended June 30, 2005, the
federal agency debenture portfolio increased $6.6 million, which are partially
pledged against repurchase agreements. The federal agency mortgage backed
securities increased $2.5 million. The remaining increase in the total security
portfolio comprised bank qualified tax-exempt municipal bonds. At June 30, 2005,
the available for sale portfolio had a net unrealized loss of $345,000, compared
to a $135,000 unrealized loss at December 31, 2004. Unrealized losses on
securities have not been recognized into income because the issuers' bonds are
of high credit quality. We have the intent and ability to hold the securities
for the foreseeable future and the decline in the fair value is primarily due to
increased market interest rates.
Mortgage loans held for sale totaled $4.0 million at June 30, 2005 compared to
$6.5 million at December 31, 2004. The decrease in mortgages held for sale was
due to seasonality and an overall decrease in mortgage loan demand compared to
prior periods. The mortgage loans were originated by the Bank's mortgage
subsidiary. Loans closed generally remain in loans held for sale for less than
30 days. Loans are normally committed for sale before funding takes place. 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 $65.1 million in outstanding loans at June 30, 2005, to borrowers
in the real estate rental and property management industries, representing
approximately 34.7% of the total commercial real estate loan portfolio.
12
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
The major components of the loan portfolio for loans held for sale and loans in
the portfolio are as follows:
June 30, Percentage December 31, Percentage Net Net
2005 of total loans 2004 of total loans Change Change %
---- -------------- ---- -------------- ------ --------
(in thousands, except percentages)
Loans held for sale:
Residential real estate $ 4,041 100.0% $ 6,491 100.0% ($ 2,450) (37.7%)
======== ===== ======== ===== ======== =====
Loans held in the portfolio:
Commercial real estate* $187,795 58.1% $166,686 54.6% $ 21,109 12.7%
Commercial and industrial* 30,431 9.4 40,614 13.3 (10,183) (25.1)
Residential real estate 71,907 22.2 64,240 21.0 7,667 11.9
Home equity lines 17,791 5.5 18,864 6.2 (1,073) (5.7)
Consumer loans 14,903 4.6 14,377 4.7 526 3.7
Credit cards 660 0.2 658 0.2 2 0.3
-------- ----- -------- ----- -------- -----
$323,487 100.0% $305,439 100.0% $ 18,048 5.9%
======== ===== ======== ===== ======== =====
*Approximately $12 million of the commercial and industrial loan portfolio was
reclassified during the 1st quarter of 2005 as commercial real estate loans as
discussed above.
13
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
A summary of nonperforming assets is as follows:
June 30, December 31,
2005 2004
------ ------
Nonaccrual loans: (Dollars in thousands)
Commercial real estate $ -- $ 220
Commercial and industrial 794 305
Residential real estate 48 16
Home equity lines -- --
Consumer loans -- --
Credit cards -- --
------ ------
Total nonaccrual loans 842 541
Accruing loans delinquent more than 90 days:
Commercial real estate $ -- $ --
Commercial and industrial -- --
Residential real estate 410 100
Home equity lines -- --
Consumer loans 31 124
Credit cards 26 10
------ ------
Total accruing loans delinquent more than 90 days 467 234
------ ------
Total nonperforming loans 1,309 775
Other real estate owned
Commercial real estate 661 681
Residential real estate 16 --
------ ------
Total other real estate owned 677 681
------ ------
Total nonperforming assets $1,986 $1,456
====== ======
Total nonperforming loans as a
percentage of total loans 0.40% 0.25%
====== ======
Total nonperforming assets as a percentage
of total assets 0.46% 0.37%
====== ======
At June 30, 2005, nonperforming loans totaled $1,309,000 compared to $775,000 at
December 31, 2004, an increase of $534,000. The largest portion of the increase
was attributable to an increase in nonaccrual loans of $301,000. The increase in
nonaccrual loans was primarily due to the purchase of a mortgage position of a
financial institution with a common interest in a loan to strengthen the
position of the Bank in the subsequent disposition of the collateral on the
loan. Total nonperforming loans represented 0.40% of the total portfolio loans
as of June 30, 2005 which is an increase from December 31, 2004 of 0.25%. The
balance of other real estate owned at June 30, 2005 was $677,000, relatively
unchanged from December 31, 2004.
14
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
The following table shows an analysis of the allowance for credit losses:
June 30, December 31,
2005 2004
------- -------
(Dollars in thousands)
Balance as beginning of the period $ 3,377 $ 3,573
Charge-offs:
Commercial real estate -- --
Commercial and industrial 57 2,040
Residential real estate 18 61
Home equity lines -- --
Consumer loans 141 71
Credit cards 1 44
------- -------
Total charge-offs $ 217 $ 2,216
------- -------
Recoveries:
Commercial real estate -- --
Commercial and industrial 600 1
Residential real estate -- --
Home equity lines -- --
Consumer loans 13 18
Credit cards 1 1
------- -------
Total recoveries $ 614 $ 20
------- -------
Net charge-offs (recoveries) (397) 2,196
------- -------
Provision charged to earnings 100 2,000
------- -------
Balance at end of the period $ 3,874 $ 3,377
======= =======
As a percentage of total portfolio loans 1.20% 1.11%
The allowance for credit losses as a percentage of total loans remaining
relatively unchanged at June 30, 2005, compared to December 31, 2004. The
allowance for credit losses as a percentage of nonperforming loans was 295.9% at
June 30, 2005. The allowance for loan losses increased $437,000 in the second
quarter of 2005 from loan recoveries, which were primarily attributable to
partial collection of loan charge offs recorded in June 2004. Year to date net
recoveries were $397,000, or 0.26% of average loans on an annualized basis. No
provision for credit losses was made in the second quarter of 2005, based on
credit quality, coupled with the size of the aforementioned loan recoveries. The
second quarter 2005 recoveries were in contrast to the large loan loss provision
of $1.5 million and net loan charge offs of $1.9 million necessary in the second
quarter of 2004. The loan portfolio has been reviewed and analyzed for the
purpose of estimating probable credit losses inherent in the loan portfolio. The
Corporation performs a detailed quarterly review of the allowance for credit
losses. The Corporation evaluates those loans classified as substandard, under
its internal risk rating system, on an individual basis for impairment under
SFAS 114. The level and allocation of the allowance is determined primarily on
management's evaluation of collateral value, less the cost of disposal, for
loans reviewed in this category. The remainder of the total loan portfolio is
segmented into homogeneous loan pools with similar risk characteristics for
evaluation under SFAS 5. The allowance for credit losses in 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
economic conditions that may affect the borrower's ability to pay, and other
subjective factors. The determination of the
15
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
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. The Corporation's policy
dictates that specifically identified credit losses be recognized immediately by
a charge to the allowance for credit losses. Management believes that the
present allowance is adequate, based on the broad range of considerations
utilized.
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.
16
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
LIABILITIES
During the six months ended June 30, 2005, total deposits increased $24.8
million to $303.7 million. The increase in deposits was attributable to
increases in time deposits $100,000 and over, which increased $23.5 million.
Noninterest bearing demand deposits and NOW accounts increased $7.4 million and
$7.6 million, respectively. This was offset by decreases in money market and
savings accounts of $13.0 million. The decrease in money market balances was
attributable to seasonal factors, the current competitive rate environment and
movement of funds between deposit products within the Bank.
The largest segment of deposit growth occurred in jumbo certificates of deposit.
Brokered certificates of deposits increased $12.2 million during the first six
months of 2005 to $62.3 million at June 30, 2005. Internet certificates of
deposit decreased $6.6 million to end at $21.0 million at June 30, 2005. Local
municipal time deposits totaled $51.0 million at June 30, 2005, which is an
increase of $4.7 million from December 31, 2004. The Corporation continues to
see competitive deposit rates offered from local financial institutions within
the geographic proximity of the Bank which could have the affect of increasing
the cost of funds to a level higher than management projects. The Corporation
continues to utilize wholesale forms of funding earning assets through the FHLB
and brokered CDs to balance both interest rate risk and the overall cost of
funds. Brokered and internet CDs are based on a nationwide interest rate
structure, typically at what is considered to be a premium interest rate. The
local competition for CD products has intensified and the Bank has found this
type of wholesale funding to often effectively compete with the rates offered
for similar term retail CD products of local community and regional banks.
The major components of deposits are as follows:
June 30, Percentage December 31, Percentage Net Net
2005 of total deposits 2004 of total deposits Change Change %
---- ----------------- ---- ----------------- ------ --------
(Dollars in Thousands)
Noninterest bearing demand $ 39,462 13.0% $ 32,080 11.5% $ 7,382 23.0%
NOW accounts-interest
bearing checking 20,210 6.7 12,575 4.5 7,635 60.7
Money market 19,643 6.5 27,871 10.0 (8,228) (29.5)
Savings 15,731 5.2 20,539 7.4 (4,808) (23.4)
Time deposits under $100,000 59,723 19.6 60,375 21.6 (652) (1.1)
Time deposits $100,000 and
over 148,914 49.0 125,416 45.0 23,498 18.7
-------- ------- -------- ------ -------- ------
Total deposits 303,683 100.00% 278,856 100.0% 24,827 8.9%
======== ======= ======== ====== ======== ======
17
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
Short term borrowings at June 30, 2005 consisted of short term FHLB advances of
$16.7 million and securities sold with an agreement to repurchase them the
following day of $8.9 million. Following are details of our short term
borrowings for the dates indicated:
June 30, December 31,
2005 2004
-------- ---------
(Dollars in thousands)
Amount outstanding at end of period
Repurchase agreements $ 8,900 $11,492
Short-term FHLB advances $16,700 $17,000
Weighted average interest rate on ending balance
Repurchase agreements 2.00% 1.00%
Short-term FHLB advances 3.15% 2.23%
Maximum amount outstanding at any month end
during the period
Repurchase agreements $ 8,950 $24,995
Short-term FHLB advances $24,000 $17,000
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 mortgage instruments and investment securities. These
advances are secured under a blanket security agreement by first mortgage loans
and the pledging of certain securities. Long-term advances comprised thirty
advances with maturities from July 2006 to June 2015.
FHLB advances outstanding at June 30, 2005 were as follows:
Ending Average rate
Balance at end of period
------- ----------------
(Dollars in thousands)
Short-term FHLB advances $16,700 3.15%
Long-term FHLB advances 53,860 4.15%
------- ----
$70,560 3.91%
18
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 risk 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 June 30, 2005, unused
commitments comprised $81.8 million. The Bank has $142.0 million in time
deposits coming due within the next twelve months from June 30, 2005. At June
30, 2005, the Bank had $62.2 million in brokered certificates of deposit, of
which $31.0 million is due within one year or less. Additionally, at June 30,
2005, municipal time deposits and internet time deposits were $51.0 million and
$21.0 million, respectively. Municipal time deposits typically have maturities
less than three months. $15.7 million of internet certificates of deposit mature
in one year or less. On May 17, 2005, the Corporation's Board of Directors
declared the Corporation's thirteenth consecutive quarterly cash dividend of
$0.05 per common share, payable July 1, 2005, to shareholders of record June 1,
2005.
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.
June 30, December 31, Minimum Ratio
2005 2004 for Capital
-------------- -------------- Adequacy Ratio to be
Capital Ratio Capital Ratio Purposes "Well Capitalized"
------- ----- ------- ----- -------- ------------------
Total capital to risk-weighted assets
Consolidated $47,312 14.68% $38,177 12.58% 8% 10%
Bank only 40,961 12.75% 36,349 12.00% 8% 10%
Tier I capital to risk-weighted assets
Consolidated $43,438 13.48% $33,068 10.90% 4% 6%
Bank only 37,087 11.54% 32,972 10.89% 4% 6%
Tier I capital to average assets
Consolidated $43,438 10.64% $33,068 8.47% 4% NA
Bank only 37,087 9.13% 32,972 8.47% 4% 5%
Management believes that the current capital position as well as net income from
operations, loan repayments and other sources of funds will be adequate to meet
our short and long term liquidity needs.
19
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
The following table shows the changes in stockholders' equity for the six months
ended June 30, 2005:
Unearned Accumulated Other
Common Retained Employee Comprehensive Total
Stock Earnings Benefits Income/(Loss) Equity
-------- -------- -------- ----------------- ---------
Beginning balance, January 1 $20,774 $5,111 $(205) $(89) $25,591
Cash dividend -- (341) -- -- (341)
Stock option exercise/stock awards 103 -- -- -- 103
Rights offering 5,275 -- -- -- 5,275
Stock dividend 2,197 (2,197) -- -- --
Net income -- 1,582 -- -- 1,582
Release of ESOP shares -- -- 25 -- 25
RPFC merger 2,750 -- -- -- 2,750
Change in unrealized gain/loss -- -- -- (140) (140)
-------- -------- -------- -------- --------
Balance June 30, 2005 $31,099 $4,155 $(180) $(229) $34,845
======== ======== ======== ======== ========
NET INTEREST INCOME
For the quarter ended June 30, 2005, net interest income increased by 8.6%, or
$253,000, over the second quarter of 2004. This increase was primarily
attributable to an expanded interest earning asset base, which was aided by an
increased net interest margin. The increase in interest income over the
respective periods was primarily related to a rate variance because of increases
in short-term market interest rates and corresponding sensitivity of earning
assets. The increase in interest expense was also related to an increase in
short-term market interest rates and caused a rate variance that almost matched
the rate variance of interest income. The net interest margin increased
primarily from the increase in short term market interest rates and the
corresponding increase in the yield on prime sensitive loans contained in the
commercial real estate and commercial and industrial portfolios, when comparing
the quarterly period of June 30, 2005 to the quarterly period June 30, 2004. The
Corporation had approximately $145.8 million in loans that could reprice within
three months as of June 30, 2005. The net interest margin on a fully taxable
equivalent basis increased for the second quarter of 2005 to 3.32% compared to
the second quarter of 2004 at 3.25%.
For the six months ended June 30, 2005, net interest income increased 10.4%, or
$593,000, over the first six months of 2004. Again, the increase was due to an
increase in earning assets and an increase in net interest margin. Net interest
margin on a fully taxable equivalent basis was 3.33% for the six months ended
June 30, 2005 compared to 3.22% for the same period last year, or an increase of
11 basis points. Although net interest margin expanded during the comparative
six-month periods of 2005 over 2004, the anticipated favorable effect of short
term market interest rates was somewhat subdued, compared to previous economic
time periods when short term interest rates rose due in part to highly
competitive rates for deposit products and the reaction to short term interest
rates amongst the local competition. In some cases, the Corporation found it
more advantageous from a pricing and term matching standpoint to utilize
brokered certificates of deposit and Federal Home Loan Bank advances for funding
sources over local deposits. The flattening of the treasury yield curve has also
made comparative spreads between new earning assets and corresponding interest
bearing liabilities much smaller than in previous years.
20
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 Six Months Ended
June 30, 2005 vs. 2004 June 30, 2005 vs. 2004
----------------------------------- -----------------------------------
Increase (Decrease) Increase (Decrease)
Due to Changes In Due to Changes In
---------------------- ----------------------
Total Volume Rate Total Volume Rate
and Both and Both
------ -------- ------ ------ -------- ------
(In thousands)
Earning Assets - Interest Income
Loans $791 $234 $557 $1,465 $539 $926
Securities 183 139 44 244 178 66
Federal funds sold 29 (28) 57 53 (22) 75
------ ------ ------ ------ ------ ------
Total 1,003 345 658 1,762 695 1,067
------ ------ ------ ------ ------ ------
Deposits and Borrowed Funds - Interest Expense
NOW and money market accounts 30 (17) 47 30 (30) 60
Savings deposits 54 40 14 135 103 32
Time deposits 389 28 361 561 81 480
FHLB and repo sweeps 223 104 119 351 148 203
ESOP 1 (1) 2 1 (2) 3
Subordinated debentures 53 -- 53 91 -- 91
------ ------ ------ ------ ------ ------
Total 750 154 596 1,169 300 869
------ ------ ------ ------ ------ ------
Net Interest Income $253 $191 $62 $593 $395 $198
====== ====== ====== ====== ====== ======
21
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 six month periods ended June 30, 2005 and 2004.
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 June 30,
----------------------------------- -----------------------------------
2005 2004
--------- --------- --------- --------- --------- ---------
Average Average
Interest Rate Interest Rate
Average Income/ Earned/ Average Income/ Earned/
Balance Expense Paid Balance Expense Paid
--------- --------- --------- --------- --------- ---------
(In thousands)
Assets
Loans $320,204 $5,152 6.44% $305,680 $4,361 5.71%
Securities 67,880 702 4.14 54,421 519 3.81
Federal funds sold 5,658 48 3.39 8,945 19 0.85
---------- --------- --------- --------- --------- ---------
Total Earning Assets/
Total Interest Income 393,742 5,902 6.00 369,046 4,899 5.31
---------- --------- --------- --------- --------- ---------
Cash and due from banks 7,835 7,566
All other assets 17,435 12,978
---------- ---------
Total Assets $419,012 $389,590
========== =========
Liabilities and Equity
NOW and money market accounts $38,464 138 1.44 $43,340 108 1.00
Savings deposits 20,227 98 1.94 11,905 44 1.48
Time deposits 202,920 1,606 3.17 199,433 1,217 2.44
FHLB advances and repurchase agreements 76,567 686 3.58 64,950 463 2.85
ESOP loan 187 3 6.42 247 2 3.24
Subordinated debentures 10,310 182 7.06 10,310 129 5.00
---------- --------- --------- --------- --------- ---------
Total Interest Bearing Liabilities/
Total Interest Expense / Interest Rate Spread 348,675 2,713 3.11 330,185 1,963 2.38
---------- --------- --------- --------- --------- ---------
Noninterest bearing demand deposits 36,774 34,320
All other liabilities 1,873 754
Stockholders' equity 31,690 24,331
---------- ---------
Total Liabilities and Stockholder's Equity $419,012 $389,590
========== =========
Net Interest Income $3,189 $2,936
======= =========
Net Interest Margin (Net Interest
Income/Total Earning Assets) 3.24% 3.18%
========= =========
Net Interest Margin
(fully taxable equivalent) 3.32% 3.25%
========= =========
22
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
Six Months Ended June 30,
------------------------------------ -----------------------------------
2005 2004
---------- ---------- --------- --------- --------- ---------
Average Average
Interest Rate Interest Rate
Average Income/ Earned/ Average Income/ Earned/
Balance Expense Paid Balance Expense Paid
---------- ---------- --------- --------- --------- ---------
(In thousands)
Assets
Loans $315,777 $9,973 6.32% $298,715 $8,508 5.70%
Securities 63,119 1,262 4.00 54,236 1,018 3.75
Federal funds sold 6,665 94 2.82 8,217 41 1.00
---------- ---------- --------- --------- --------- ---------
Total Earning Assets/
Total Interest Income 385,561 11,329 5.88 361,168 9,567 5.30
---------- ---------- --------- --------- --------- ---------
Cash and due from banks 7,299 7,161
All other assets 17,031 12,722
---------- ---------
Total Assets $409,891 $381,051
========== =========
Liabilities and Equity
NOW and money market accounts $38,191 245 1.28 $42,934 215 1.00
Savings deposits 21,115 204 1.93 10,405 69 1.33
Time deposits 196,966 2,947 2.99 191,846 2,386 2.49
FHLB advances and repurchase agreements 75,448 1,288 3.41 66,757 937 2.81
ESOP loan 193 6 6.22 256 5 3.91
Subordinated debentures 10,310 347 6.73 10,310 256 4.97
---------- ---------- -------- --------- --------- ---------
Total Interest Bearing Liabilities/
Total Interest Expense / Interest Rate Spread 342,223 5,037 2.94 322,508 3,868 2.40
---------- ---------- -------- --------- --------- ---------
Noninterest bearing demand deposits 35,811 33,422
All other liabilities 1,746 914
Stockholders' equity 30,111 24,207
---------- ---------
Total Liabilities and Stockholder's Equity $409,891 $381,051
========== =========
Net Interest Income $6,292 $5,699
========== =========
Net Interest Margin (Net Interest
Income/Total Earning Assets) 3.26% 3.16%
======== =========
Net Interest Margin
(fully taxable equivalent) 3.33% 3.22%
======== =========
23
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
PROVISION FOR CREDIT LOSSES
The allowance for loan losses increased $437,000 in the second quarter of 2005
from loan recoveries, which were primarily attributable to partial collection of
loan charge offs recorded in June of 2004. Year to date net recoveries were
$397,000, or 0.26% of average loans on an annualized basis. No provision for
credit losses was made in the second quarter of 2005, based on credit quality,
coupled with the size of the aforementioned loan recoveries. The second quarter
2005 recoveries were in contrast to the large loan loss provision of $1.5
million necessary in the second quarter 2004.
The provision for credit losses for the six months of 2005 was $100,000, and in
contrast, the provision recorded for the first six months of 2004, was $1.6
million. The net recoveries of $397,000 coupled with the provision of $100,000
added $497,000 to the allowance for the period ended June 30, 2005.
NONINTEREST INCOME
Noninterest income in the second quarter of 2005 was $1.2 million, a decrease of
$554,000 compared to the second quarter of 2004. This was primarily due to a
decrease in gains from the sale of residential mortgages, which was $914,000 for
the second quarter of 2005 compared to $1.5 million during the second quarter of
2004. The decrease in the gains on the sales of mortgage loans was due to lower
origination loan volumes than in the second quarter of 2004. A decrease in
mortgage loan origination from prior years because of a slow down in refinance
activity has been experienced industry wide. Service charge income of $78,000
increased $8,000, or 11.4% from increased efforts to manage discretionary
reversals. Net security gains of $20,000 for the second quarter were the result
of restructuring activities. Other income of $164,000 for the second quarter of
2005 compared to $201,000 during the second quarter of 2004 was due primarily to
a loan sale recorded in the second quarter of 2004.
Noninterest income for the first six months of 2005 of $2.1 million was also
down from the first six months of 2004, again primarily from decreases in gains
on the sale of residential mortgages. Service charge income for the first six
months of 2005 was $148,000, an increase of $10,000 over the first six months of
2004. The increase in service charge income was primarily due to a lower
percentage of service charge reversals and overall increases in service charge
fees assessed. Total net security gains of $50,000 were attributable to
restructuring in the security portfolio and down from $120,000 recorded in net
gains from the first six months of 2004. Mortgage banking income comprising
primarily gains on the sale of residential mortgages was $1.6 million, down $1.1
million from the first six months of 2004 due to the lower volume of mortgage
originations and subsequent sales in the secondary market. Other income for the
first six months of 2005 was $308,000, decreasing $33,000 from the same period
last year due to a portfolio loan gain recorded during the first six months of
2004.
NONINTEREST EXPENSE
Noninterest expense was relatively flat at $3.2 million for the second quarter
of 2005 compared to $3.1 million in the second quarter of 2004. Decreases in
salary and benefit costs attributable to commissions paid on a lower volume of
mortgage originations were offset by increases in costs associated with the
River Place Financial merger and general start up costs associated with the new
trust division of the Bank. Total salary, benefits and payroll taxes were $1.8
million, down $187,000 from the second quarter of 2004, again due to lower
commission expense from mortgage originations. Net occupancy expense for the
second quarter increased $20,000, or 5.3%. The increase in occupancy expense was
related to overall increases in the general costs including property taxes and
maintenance. Other operating expense was $1.0 million, increasing from $807,000
from the second quarter of 2004 as the result of the aforementioned River Place
Financial merger, coupled with general increases in the cost of an expanding
operation.
Noninterest expense for the first six months of 2005 of $6.1 million was down
$534,000, or 8.1% primarily due to lower commission expense paid on a
corresponding lower volume of mortgage loan origination activity. Total
salaries, benefits and payroll taxes of $3.5 million for the first six months of
2005 decreased $292,000 from the same period in 2004 due to a decrease in
commission expense. Net occupancy expense was relatively unchanged for the
respective six month periods, increasing $15,000, or 2.0%. Other operating
expense of $2.1 million decreased $257,000, or 12.4% due to lower costs related
to lower mortgage origination volumes and related costs from the mortgage
company subsidiary.
24
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
PROVISION FOR INCOME TAXES
The provision for federal income taxes of $334,000 for the quarter ended June
30, 2005 increased $385,000 over the second quarter of 2004. The increase in the
federal income tax provision was related to increased pretax income, as well as
a higher effective tax rate over the respective periods. The higher effective
tax rate was attributable to comparative levels of investments in bank qualified
tax-exempt securities and bank owned life insurance over the same respective
periods.
The provision for federal income taxes of $642,000 for the six months ended June
30, 2005 increased $492,000 over the first six months of 2004. Again, the pretax
income level was higher over the respective periods and the effective tax rate
was also higher. The effective tax rate for the first six months of 2005 was
28.9% compared to 18.7% for the first six months of 2004. The difference in the
effective rates is due to the relative percentage of tax-exempt income to the
total pretax income, which would include both taxable and tax exempt income. The
tax-exempt income as a percentage of total pretax income was 18%, compared to
52% for the six month periods ended June 30, 2005 and 2004, respectively.
25
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
ASSET/LIABILITY MANAGEMENT
The Asset Liability Management Committee ("ALCO"), which meets at least
quarterly, is responsible for reviewing interest rate sensitivity position and
establishing policies to monitor and limit exposure to interest rate risk.
Currently two quantitative tools are used 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 our
exposure 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.
26
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
The following table presents an analysis of our interest-sensitivity static gap
position at June 30, 2005. All interest-earning assets and interest-bearing
liabilities are shown based on the earlier of their contractual maturity or
repricing date 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 June 30, 2005, we are considered asset sensitive in the time
interval of the first three months. We are 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
--------- ------------ ------------ ---------- ---------
(Dollars in thousands)
Interest earning assets:
Federal funds sold $ 7,900 $ -- $ -- $ -- $ 7,900
Securities 19,485 4,446 23,609 17,420 64,960
FHLB stock -- -- -- 3,647 3,647
Portfolio loans and
held for resale 145,813 17,929 126,634 37,152 327,528
-------- --------- --------- -------- ---------
Total 173,198 22,375 150,243 58,219 $ 404,035
-------- --------- --------- -------- =========
Interest bearing liabilities:
NOW and money market
accounts 3,396 14,897 21,560 -- $39,853
Savings deposits 1,573 4,562 9,596 -- 15,731
Jumbo time deposits 53,572 49,546 45,796 -- 148,914
Time deposits < $100,000 12,144 27,553 20,026 -- 59,723
Repurchase agreements 8,990 -- -- -- 8,990
FHLB 11,700 5,000 44,860 9,000 70,560
ESOP payable 180 -- -- -- 180
Subordinated debentures 10,310 -- -- -- 10,310
-------- --------- --------- -------- ---------
Total 101,865 101,558 141,838 9,000 $ 354,261
-------- --------- --------- -------- =========
Interest rate sensitivity gap $ 71,333 ($79,183) $ 8,405 $ 49,219
Cumulative interest rate
sensitivity gap ($7,850) $555 $ 49,774
Interest rate sensitivity gap
ratio 1.70 0.22 1.06 6.47
Cumulative interest rate
sensitivity gap ratio 0.96 1.00 1.14
We also evaluate 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 our
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.
27
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
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
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 March 31, 2005 the table below, based on the most recent available
analysis, reflects the impact the various instantaneous parallel shifts in the
yield curve would have on net interest income over a twelve month period of time
from the base forecast.
Percentage Change
Interest Rate Scenario In Net Interest Income
---------------------- ----------------------
Interest rates up 300 basis points 2.3%
Interest rates up 200 basis points 2.2%
Interest rates up 100 basis points 1.6%
Base case
Interest rates down 100 basis points (2.0%)
Interest rates down 200 basis points (2.0%)
Interest rates down 300 basis points (2.4%)
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 June 30, 2005, 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 reports 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
June 30, 2005, 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.
The Corporation does not expect that its disclosure controls and procedures and
internal control over financial reporting will prevent all error and all fraud.
A control procedure, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control procedure
are met. Because of the inherent limitations in all control procedure, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the Corporation have been detected. These
inherent limitations include the realities that judgments in decision-making can
be faulty, and that breakdowns can occur because of simple error or mistake.
Additionally, controls may be circumvented by the individual acts of some
persons, by collusion of two or more people, or by override of the control. The
design of any control procedure also is based in part upon certain assumptions
about the likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all potential future
conditions, over time, controls may become inadequate because of changes in
conditions, or the degree of compliance with the policies or procedures may
deteriorate. Because of
28
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
the inherent limitations in a cost-effective control procedure, misstatements
due to error or fraud may occur and not be detected.
Section 404 of the Sarbanes-Oxley Act of 2002 requires that companies evaluate
and annually report on their systems of internal control over financial
reporting. In addition, our independent accountants must report on management's
evaluation. We are in the process of evaluating, documenting and testing our
system of internal control over financial reporting to provide the basis for our
report that will, for the first time, be a required part of our annual report on
Form 10-KSB for the fiscal year ending December 31, 2006. Due to the ongoing
evaluation and testing of our internal controls, there can be no assurance that
if any control deficiencies are identified they will be remediated before the
end of the 2006 fiscal year, or that there will not be significant deficiencies
or material weaknesses that would be required to be reported.
29
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q5B (continued)
PART II
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On April 19, 2005, Community Central Bank Corporation held its Annual Meeting of
Stockholders ("Meeting"). The following matters were voted on at the Meeting.
Election of the following persons as directors of the Corporation for terms to
expire in 2008:
NOMINEE VOTES FOR VOTES WITHHELD TOTAL
------- --------- -------------- -----
Gebran S. Anton 2,842,924 94,380 2,937,304
David E. Bonior 2,877,403 59,901 2,937,304
Joseph F. Jeannette 2,897,463 39,841 2,937,304
The following are the names of the directors (and remaining term) whose term in
office continued after the Meeting: Joseph Catenacci (2006); Salvatore Cottone
(2007), Dean S. Petitpren (2007), Ronald R. Reed (2007) and David A. Widlak
(2006).
ITEM 5. OTHER INFORMATION.
Cash Dividend - On May 17, 2005, the Corporation's Board of Directors declared
the Corporation's thirteenth quarterly cash dividend of $0.05 per common share,
payable July 1, 2005, to shareholders of record June 1, 2005.
ITEM 6. EXHIBITS.
See Exhibit Index attached.
30
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 August 12, 2005.
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)
31
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 (SEC File No.
333-04113) which became effective on September 23,
1996
3.2 Bylaws of the Corporation are incorporated by
reference to Exhibit 3.2 of the Corporation's
Quarterly Report on Form 10-QSB filed with the SEC
for the quarter ended June 30, 2004 (SEC File No.
000-33373)
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 (SEC File No. 333-04113)
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 (SEC 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 (SEC 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
(SEC 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 (SEC 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 (SEC 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 Quarterly Report
on Form 10-QSB filed with the SEC for the quarter
ended June 20, 3003 (SEC File No. 000-33373)
10.7 Community Central Bank Death Benefit Plan is
incorporated by reference to Exhibit 10.7 of the
Corporation's Quarterly Report on Form 10-QSB
filed with the SEC for the quarter ended June 20,
3003 (SEC File No. 000-33373)
10.8 Form of Incentive Stock Option Agreement
incorporated by reference to Exhibit 99.1 of the
Corporation's Current Report on Form 8-K filed
with the SEC on March 25, 2005. (SEC File No.
000-33373)
10.9 Summary of Named Executive Officer Salary and
Bonus Arrangements is incorporated by reference to
Exhibit 10.9 of the Corporation's Annual Report
filed with the SEC on Form 10-KSB for the year
ended December 31, 2004. (SEC File No. 000-33373)
32
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
10.10 Summary of Current Director Fee Arrangements is
incorporated by reference to Exhibit 10.10 of the
Corporation's Annual Report filed with the SEC on
Form 10-KSB for the year ended December 31, 2004.
(SEC 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
33