UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 2006
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
incorporation or organization) Identification No.)
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)
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer" and "large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
One):
Large accelerated filer Accelerated filer Non-accelerated filer X
--- --- ---
Indicated by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes No X
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class Outstanding at May 12, 2006
----- ---------------------------
Common Stock 3,661,900 Shares
1
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
PART I
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
March 31,
2006 December 31,
(Unaudited) 2005
----------- ------------
(In thousands)
Assets
Cash and due from banks $ 8,261 $ 8,000
Federal funds sold -- 3,000
-------- ---------
Cash and Cash Equivalents 8,261 11,000
-------- ---------
Securities available for sale, at fair value 92,139 84,177
Securities held to maturity, at amortized cost 1,078 1,094
FHLB stock 4,530 4,331
Residential mortgage loans held for sale 3,479 4,286
Loans
Commercial loans 241,479 228,101
Residential loans 97,752 93,146
Installment loans 13,430 13,704
-------- ---------
Total Loans 352,661 334,951
Allowance for loan losses (3,596) (3,580)
-------- ---------
Net Loans 349,065 331,371
-------- ---------
Net property and equipment 8,777 8,753
Accrued interest receivable 2,349 2,122
Other real estate 16 112
Goodwill 1,381 1,381
Intangible assets, net of amortization 192 210
Cash surrender value of Bank Owned Life insurance 9,948 9,820
Other assets 3,248 3,355
-------- ---------
Total Assets $484,463 $ 462,012
======== =========
(continued)
2
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
CONSOLIDATED BALANCE SHEETS
March 31,
2006 December 31,
(Unaudited) 2005
----------- ------------
(In thousands,
except share data)
Liabilities
Deposits
Noninterest bearing demand deposits $ 34,371 $ 31,979
NOW and money market accounts 39,844 41,167
Savings deposits 11,775 12,832
Time deposits 247,207 228,395
-------- --------
Total deposits 333,197 314,373
-------- --------
Repurchase agreements and fed funds purchased 12,326 13,184
Federal Home Loan Bank advances 90,545 86,545
Accrued interest payable 1,102 938
Other liabilities 896 982
ESOP note payable 135 148
Subordinated debentures 10,310 10,310
-------- --------
Total Liabilities 448,511 426,480
-------- --------
Stockholders' Equity
Common stock -- 9,000,000 shares authorized;
3,653,736 shares issued and outstanding at
3-31-2006 and 3,648,885 at 12-31-2005 31,206 31,154
Retained earnings 5,728 5,245
Unearned employee benefit (135) (148)
Accumulated other comprehensive (loss) income (847) (719)
-------- --------
Total Stockholders' Equity 35,952 35,532
-------- --------
Total Liabilities and Stockholders' Equity $484,463 $462,012
======== ========
3
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
----------------------
2006 2005
------ ------
(In thousands,
except per share data)
Interest Income
Loans (including fees) $6,028 $4,821
Taxable securities 771 472
Tax exempt securities 278 88
Federal funds sold 37 46
------ ------
Total Interest Income 7,114 5,427
------ ------
Interest Expense
Deposits 2,700 1,554
Repurchase agreements and fed funds purchased 93 39
Federal Home Loan Bank advances 959 563
ESOP loan interest expense 3 3
Subordinated debentures 215 165
------ ------
Total Interest Expense 3,970 2,324
------ ------
Net Interest Income 3,144 3,103
Provision for loan losses 50 100
------ ------
Net Interest Income after Provision 3,094 3,003
------ ------
Noninterest Income
Fiduciary income 67 --
Deposit service charges 82 70
Net realized security gain -- 30
Mortgage banking income 854 702
Other income 199 144
------ ------
Total Noninterest Income 1,202 946
------ ------
Noninterest Expense
Salaries, benefits, and payroll taxes 2,105 1,754
Premises and fixed asset expense 466 356
Other operating expense 845 779
------ ------
Total Noninterest Expense 3,416 2,889
------ ------
Income Before Taxes 880 1,060
Provision for income taxes 177 308
------ ------
Net Income $ 703 $ 752
====== ======
(continued)
4
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Per share data*:
Basic earnings $0.18 $0.22
Diluted earnings $0.18 $0.22
Cash Dividends $0.06 $0.05
* Per share data has been retroactively adjusted for stock dividends.
5
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months
Ended March 31,
---------------
2006 2005
------ ------
(In thousands)
Net Income as Reported $ 703 $ 752
Other Comprehensive Income, Net of Tax
Change in unrealized (loss) gain on securities
available for sale (128) (371)
----- -----
Comprehensive Income $ 575 $ 381
===== =====
6
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
Three Months Ended
March 31,
-------------------
2006 2005
-------- --------
(In thousands)
Operating Activities
Net income $ 703 $ 752
Adjustments to reconcile net income to net cash flow
from operating activities:
Net amortization of security premium 52 86
Net gain on sales and call of securities -- (30)
Provision for loan losses 50 100
Depreciation expense 166 107
Deferred income tax expense 169 308
ESOP compensation expense 13 13
SFAS 123R option expense 6 --
Increase in accrued interest receivable (227) (261)
Increase in other assets (22) (227)
Increase in accrued interest payable 164 --
Decrease in other liabilities (86) (243)
Decrease in loans held for sale 807 3,802
-------- --------
Net Cash Provided by Operating Activities 1,795 4,407
Investing Activities
Maturities, calls, sales and prepayments of
securities available for sale 2,572 6,208
Purchase of securities available for sale (10,767) (17,629)
Maturities, calls, and prepayments of
held to maturity securities 17 11
Purchases of held to maturity securities (200) (35)
Increase in loans (17,744) (4,672)
Purchases of property and equipment (190) (609)
-------- --------
Net Cash Used in Investing Activities (26,312) (16,726)
Financing Activities
Net increase (decrease) in demand and savings deposits 12 (258)
Net increase in time deposits 18,812 15,039
Net decrease in short term borrowings (859) (1,962)
FHLB advances 4,001 2,000
Rights/Public stock offering -- 5,275
Payment of ESOP debt (13) (13)
Stock option exercise/award 46 7
Cash dividends paid (221) (162)
-------- --------
Net Cash Provided by Financing Activities 21,778 19,926
-------- --------
(Decrease) Increase in Cash and Cash Equivalents (2,739) 7,607
Cash and Cash Equivalents at the Beginning of the Year 11,000 7,183
-------- --------
Cash and Cash Equivalents at the End of the Period $ 8,261 $ 14,790
======== ========
Supplemental Disclosure of Cash Flow Information:
Interest Paid $ 3,806 $ 2,324
Federal Taxes Paid $ -- $ --
7
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (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 March 31,
2006 and December 31, 2005, and Consolidated Statements of Income and
Comprehensive Income for the three month periods ended March 31, 2006 and
2005, and Consolidated Statements of Cash Flow for the three months ended
March 31, 2006 and 2005. 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, 2005.
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 Loan Losses: The allowance for loan 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
March 31, 2006, the total allowable trust preferred issuance of $10 million
was included in the Corporation's tier 1 capital.
4. In December 2004, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 (revised 2004), Sharebased
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
8
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
required by SFAS 123R, as with SFAS 123, the Corporation is 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 are effective for the Corporation
beginning January 1, 2006.
The Corporation did not issue options during the first quarter of 2006 and
2005. The total amount of options outstanding at March 31, 2006 was 281,983
shares at a weighted average exercise price of $9.47 per share. During the
first quarter of 2006, 4,851 options were exercised at an exercise price of
$7.83 per share. During the first quarter of 2006, using the Black Scholes
option-pricing model, the Corporation recognized compensation cost of
$6,000 for the options vesting in 2006 based on the fair market value of
the grant date. The net income and earnings per share for the first quarter
of 2005, on a pro forma basis, are disclosed for comparison below.
Three Months Ended
March 31,
----------------------
2006 2005
----- -----
(In thousands,
except per share data)
Net income, as reported $ 703 $ 752
Add: Stock-based employee compensation expense,
net of related tax effects, included in reported net
income 6 --
Deduct: Total stock-based employee and director
compensation expense under fair value based
methods of awards, net of related tax effects (6) (31)
----- -----
Pro forma net income $ 703 $ 721
===== =====
Earnings per share
Basic - as reported $0.18 $0.22
Basic - pro forma $0.18 $0.21
Diluted - as reported $0.18 $0.22
Diluted - pro forma $0.18 $0.21
9
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
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 2006 and 2005.
Three Months Ended
March 31,
------------------
2006 2005
------- -------
Dividend yield or expected dividends 1.96% 1.36%
Risk free interest rate 5.00% 4.20%
Expected life 10 yrs. 10 yrs.
Expected volatility 22.66% 24.65%
10
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (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 March 31, 2006 and December 31, 2005 and the
results of operations for the three months ended March 31, 2006 and 2005. 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 that could cause actual results to differ materially from the
results anticipated or projected include, but are not limited to, the following:
expected cost savings and synergies from our acquisition activities might not be
realized within the expected time frames, and costs or difficulties related to
integration matters might be greater than expected; expenses associated with the
implementation of our trust and wealth management services might be greater than
expected, whether due to a possible need to hire more employees than anticipated
or other costs incurred in excess of budgeted amounts; the credit risks of
lending activities, including changes in the level and direction of loan
delinquencies and write-offs and changes in estimates of the adequacy of the
allowance for loan losses; competitive pressures among depository institutions;
interest rate movements and their impact on customer behavior and net interest
margin; the impact of repricing and competitor's pricing initiatives on loan and
deposit products; the ability to adapt successfully to technological changes to
meet customers' needs and development in the market place; our ability to access
cost-effective funding; changes in financial markets; changes in economic
conditions in general and particularly as related to the automotive and related
industries in the Detroit metropolitan area; new legislation or regulatory
changes, including but not limited to changes in federal and/or state tax laws
or interpretations thereof by taxing authorities; changes in accounting
principles, policies or guidelines; and our future acquisitions of other
depository institutions or lines of business.
EXECUTIVE SUMMARY
Community Central Bank Corporation is the holding company for Community Central
Bank (the "Bank") in Mount Clemens, Michigan. The Corporation opened for
business in October 1996 and serves businesses and consumers across Macomb,
Oakland, St. Clair and Wayne 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 the Bank, operates
locations servicing the Detroit metropolitan area, central and northwest
Indiana, northern Illinois, Raleigh, North Carolina and Tampa, Florida. River
Place Trust and Community Central Wealth Management are divisions of the Bank.
Community Central Insurance Agency, LLC is a wholly owned subsidiary of the
Bank. The Corporation's common shares trade on The NASDAQ National Market under
the symbol "CCBD."
Our 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 and residential
real estate loans, and to a lesser extent commercial business and consumer
loans, and the interest the Corporation pays on our interest-bearing
liabilities, which are primarily deposits and 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
11
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
housing has continued to spur economic growth in the area. 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 the
Macomb, Oakland, Wayne 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.
The Corporation continues to see competitive deposit rates offered from local
financial institutions within the geographic proximity of the Bank which could
have the effect 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 certificates of deposit to
balance both interest rate risk and the overall cost of funds. Brokered and
internet certificates of deposit are based on a nationwide interest rate
structure, typically at what is considered to be a premium interest rate. The
local competition for certificates of deposit 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 certificates of deposit products of
local community and regional banks.
Net income in the first quarter was affected by startup, expansion and
operational costs including those related to the new Trust and Wealth Management
divisions as well as the new banking hub in Grosse Pointe, Michigan, which is
expected to open in June 2006. Additionally, first quarter net income was
affected by startup costs related to expansion into new mortgage loan production
offices in Ohio, North Carolina and Florida. Net interest income was $3.1
million during the first quarter of 2006, an increase of $41,000 from the first
quarter of 2005. The net interest income when measured on a taxable equivalent
basis increased $140,000, or 4.4%, over the same period. The increase was
attributable to growth in earning assets and offset somewhat by net interest
margin compression. Net interest margin for the first quarter of 2006 was 2.87%,
or 3.00% on a tax equivalent basis, compared with 3.33%, or 3.38% on a tax
equivalent basis for the first quarter of 2005. The decrease in net interest
margin was primarily the result of higher deposit funding costs in a highly
competitive deposit-pricing environment. Additionally, the flat treasury yield
curve produced an interest rate environment that results in lower incremental
interest rate spreads on new loan and investment growth.
12
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
ASSETS
At March 31, 2006, the Corporation's total assets were $484.5 million, an
increase of $22.5 million, or 4.9%, from December 31, 2005. The largest segment
of asset growth for the first three months ended March 31, 2006, occurred in our
loan portfolio, which increased $17.7 million. Total investment securities
available for sale increased $8.0 million for the first three months of 2006.
The largest portion of loan growth occurred in the commercial real estate
portfolio, which increased $11.2 million. This growth is consistent with the
Corporation's commercial lending focus. Commercial and industrial loans
increased $2.2 million for the first three months of 2006. Loan growth during
the first quarter of 2006 was largely due to a pipeline of loans developed
during prior quarterly periods. The Corporation added two new commercial loan
officers in 2005 and one new commercial loan officer in 2006 to increase the
commercial lending program and service the expected growth in the portfolio. The
residential mortgage portfolio was $78.5 million at March 31, 2006, an increase
of $3.9 million from December 31, 2005. Most of the residential mortgage
portfolio comprises adjustable rate mortgages, which represented $54.7 million,
or 70%, of the total residential portfolio. Those residential mortgage loans the
Corporation considered to be held for investment in the residential portfolio
comprise both banking relationships and other attributes deemed to match with
the Corporation's interest rate risk profile. The home equity lines of credit
("HELOC") comprised $19.2 million at March 31, 2006, which was an increase of
$659,000 from December 31, 2005. This portfolio product is tied to Wall Street
Journal prime interest rate. These loans are fully secured by real estate and
are generally originated with loan to values (including prior liens) up to 95%
of the appraised value of the real estate. The consumer portfolio ended March
31, 2006 at $12.8 million, which was a decrease of $278,000, primarily from pay
downs in the portfolio. The largest portion of the installment loan portfolio
comprises loans for marine craft. The Corporation's geographic proximity to Lake
St. Clair and the lending experience in this area have been contributors to this
segment of the portfolio. In 2005, the Corporation offered less competitive
interest rates on marine craft loans to reduce exposure in the area. This change
contributed to the decline in the overall installment portfolio. At March 31,
2006, loans for marine craft comprised approximately $10.7 million, or 83.6% of
the installment portfolio and 3.0% of total loans. Credit card loans totaled
$654,000 at March 31, 2006, which was almost unchanged from $650,000 at December
31, 2005. The Corporation continues to book credit card loans as a customer
accommodation and does not actively market this product.
Additionally, the Corporation had approximately $80.2 million in outstanding
loans at March 31, 2006, to borrowers in the real estate rental and properties
management industries, representing approximately 38% of the total commercial
real estate portfolio.
The major components of the loan portfolio for loans held for sale and loans in
the portfolio are as follows:
March 31, Percentage December 31, Percentage Net Net
2006 of total loans 2005 of total loans Change Change %
--------- --------------- ------------ -------------- ------- --------
(in thousands, except percentages)
Loans held for sale:
Residential real estate $ 3,479 $ 4,286 ($807) (18.8%)
======== ===== ======== ===== ======= =====
Loans held in the portfolio:
Commercial real estate $212,531 60.3% $201,348 60.1% $11,183 5.6%
Commercial and industrial 28,948 8.2 26,753 8.0 2,195 8.2
Residential real estate 78,548 22.3 74,601 22.3 3,947 5.3
Home equity lines 19,204 5.4 18,545 5.5 659 3.6
Consumer loans 12,776 3.6 13,054 3.9 (278) (2.1)
Credit cards 654 0.2 650 0.2 4 0.6
-------- ----- -------- ----- ------- -----
$352,661 100.0% $334,951 100.0% $17,710 5.3%
======== ===== ======== ===== ======= =====
Total securities available for sale increased $8.0 million from December 31,
2005 to $92.1 million at March 31, 2006. The increase was comprised of the
purchases of $5.8 million in bank qualified tax-exempt municipal bonds and $2.2
million in mortgage backed securities. All other categories of the available for
sale portfolio remained
13
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
relatively unchanged. The bank qualified tax-exempt municipal bonds comprise
primarily AAA ratings through an underlying or insured basis. Total mortgage
backed securities are comprised of both fixed rate and variable rate
instruments. Variable rate mortgage backed securities represented 40% of the
mortgage backed security portfolio. At March 31, 2006, the available for sale
portfolio had net unrealized losses of $1.3 million or approximately 1.29% of
the aggregate portfolio. At December 31, 2005, the net unrealized losses in the
available for sale portfolio ended at $1.2 million. Unrealized losses have not
been recognized into income because of the issuer's bonds are of high credit
quality. The Corporation has 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.
14
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
A summary of nonperforming assets is as follows:
March 31, December 31,
2006 2005
--------- ------------
(Dollars in thousands)
Nonaccrual loans:
Commercial real estate $1,808 $1,637
Commercial and industrial 824 985
Residential real estate -- 67
Home equity lines -- --
Consumer loans -- --
Credit cards -- --
------ ------
Total nonaccrual loans 2,632 2,689
Accruing loans delinquent more than 90 days:
Commercial real estate $ -- $ --
Commercial and industrial -- --
Residential real estate 453 621
Home equity lines -- --
Consumer loans 4 1
Credit cards 1 1
------ ------
Total accruing loans delinquent more than 90 days 458 623
------ ------
Total nonperforming loans 3,090 3,312
Other real estate owned
Commercial real estate -- 112
Residential real estate 16 --
------ ------
Total other real estate owned 16 112
------ ------
Total nonperforming assets $3,106 $3,424
====== ======
Total nonperforming loans as a
percentage of total loans 0.88% 0.99%
====== ======
Total nonperforming assets as a percentage
of total assets 0.64% 0.74%
====== ======
At March 31, 2006, nonperforming loans, which represents nonaccruing loans and
those loans past due 90 days or more and still accruing interest, totaled $3.1
million compared to $3.3 million at December 31, 2005, a decrease of $222,000.
Nonaccruing loans of $2.6 million remains relatively unchanged from December 31,
2005 and is primarily comprised of two commercial relationships, a marina with
collateral comprising commercial real estate and marine craft, and a tool and
die manufacturer, being partially guaranteed by the Small Business
Administration and secured by commercial real estate.
15
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
The following table shows an analysis of the allowance for loans losses:
Three Months
Ended Year Ended
March 31, December 31,
2006 2005
------------ ------------
(Dollars in thousands)
Balance as beginning of the period $3,580 $3,377
Charge-offs:
Commercial real estate -- 181
Commercial and industrial 14 57
Residential real estate 21 103
Home equity lines -- --
Consumer loans 2 171
Credit cards 1 12
------ ------
Total charge-offs $ 38 $ 524
------ ------
Recoveries:
Commercial real estate -- 1
Commercial and industrial 1 606
Residential real estate -- --
Home equity lines -- --
Consumer loans 3 18
Credit cards -- 2
------ ------
Total recoveries $ 4 $ 627
------ ------
Net charge-offs (recoveries) 34 (103)
------ ------
Provision charged to earnings 50 100
------ ------
Balance at end of the period $3,596 $3,580
====== ======
Net charge-offs (net recoveries) during the period to
to average loans outstanding during the period 0.04% (0.03%)
Allowance as a percentage of total portfolio loans 1.02% 1.07%
The allowance for loan losses as a percentage of total loans remained relatively
unchanged at March 31, 2006, compared to December 31, 2005. The Corporation
performs a detailed quarterly review of the allowance for loan 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 primary risk element considered by management regarding each
consumer 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 and industrial loans and commercial
real estate 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 annual financial statements from its commercial loan customers and
periodically reviews existence of collateral and its value.
16
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
LIABILITIES
During the three months ended March 31, 2006, total deposits increased $18.8
million to $333.2 million. The increase in deposits was attributable to
increases in time deposits $100,000 and over, with local municipal certificates
of deposit increasing $10.8 million and brokered time deposits increasing $10.0
million. Noninterest bearing demand deposits increased $2.4 million for the
first three months of 2006. NOW accounts decreased $1.4 million during the same
time period. Money market savings deposits totaled $19.4 million and remained
relatively unchanged. To stem the loss of these money market savings accounts
the Corporation increased the interest rate paid on this deposit product in
response to higher competitive interest rates. Total savings accounts decreased
$1.1 million as customers moved to higher rate deposit products during the
quarter. Total time deposits under $100,000 increased $317,000. The competitive
rate environment amongst local financial institutions has made the Corporation
decide in some cases not to raise the interest rate on the deposit product at
the same frequency or level to match or exceed interest rates given by local
financial institutions. The Corporation continues to see competitive deposit
rates offered by 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 Federal Home Loan Bank and brokered
CDs to balance both interest rate risk and the overall cost of funds. Brokered
and internet CDs are based on 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 whole 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:
Percentage Percentage
March 31, of total December 31, of total Net Net
2006 deposits 2005 deposits Change Change %
--------- ---------- ------------ ---------- ------- --------
(Dollars in Thousands)
Noninterest bearing demand $ 34,371 10.3% $ 31,979 10.2% $ 2,392 7.5%
NOW accounts-interest
bearing checking 20,341 6.1 21,767 6.9 (1,426) (6.6)
Money market 19,503 5.9 19,400 6.2 103 0.5
Savings 11,775 3.5 12,832 4.1 (1,057) (8.2)
Time deposits under $100,000 55,170 16.6 54,853 17.4 317 0.6
Time deposits $100,000 and
over 192,037 57.6 173,542 55.2 18,495 10.7
-------- ------ -------- ----- ------- ----
Total deposits 333,197 100.00% 314,373 100.0% 18,824 6.0%
======== ====== ======== ===== ======= ====
17
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
Short term borrowings at March 31, 2006 consisted of short term FHLB advances of
$12.0 million and securities sold with an agreement to repurchase them the
following day of $12.3 million. Following are details of our short term
borrowings for the dates indicated:
March 31, December 31,
2006 2005
--------- ------------
(Dollars in thousands)
Amount outstanding at end of period
Repurchase agreements $12,326 $13,184
Short-term FHLB advances $12,000 $26,700
Weighted average interest rate on ending balance
Repurchase agreements 2.50% 2.50%
Short-term FHLB advances 3.94% 3.60%
Maximum amount outstanding at any month end
during the period
Repurchase agreements $13,217 $21,711
Short-term FHLB advances $26,700 $26,700
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 34 advances
with maturities from July 2007 to February 2016.
FHLB advances outstanding at March 31, 2006 were as follows:
Ending Average rate
Balance at end of period
------- ----------------
(Dollars in thousands)
Short-term FHLB advances $12,000 3.94%
Long-term FHLB advances 78,545 4.57%
------- ----
$90,545 4.46%
18
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (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 possible
deposit 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 $27.0 million in available
unsecured federal funds borrowing facilities, and a $100.0 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 March 31, 2006,
unused commitments comprised $86.6 million. The Bank has $169.1 million in time
deposits coming due within the next twelve months from March 31, 2006, which
includes brokered, internet and municipal time deposits. At March 31, 2006, the
Bank had $108.9 million in brokered certificates of deposit, of which $51.0
million is due within one year or less. Additionally, at March 31, 2006,
municipal time deposits and internet time deposits were $40.8 million and $12.6
million, respectively. Municipal time deposits typically have maturities less
than three months. $3.7 million of internet certificates of deposit mature in
one year or less.
On February 13, 2006, the Corporation's Board of Directors declared the
Corporation's sixteenth consecutive quarterly cash dividend of $0.06 per common
share, payable April 3, 2006, to shareholders of record March 1, 2006.
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.
March 31, December 31, Minimum Ratio
2006 2005 for Capital
--------------- --------------- Adequacy Ratio to be
Capital Ratio Capital Ratio Purposes "Well Capitalized"
------- ----- ------- ----- ------------- ------------------
Total capital to risk-weighted assets
Consolidated $48,802 13.24% $48,229 13.79% 8% NA
Bank only 45,941 12.49% 46,271 12.98% 8% 10%
Tier I capital to risk-weighted assets
Consolidated $45,206 12.27% $44,649 12.77% 4% NA
Bank only 42,345 11.52% 41,691 11.95% 4% 6%
Tier I capital to average assets
Consolidated $45,206 9.64% $44,649 9.94% 4% NA
Bank only 42,345 9.05% 41,691 9.30% 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-Q (continued)
The following table shows the changes in stockholders' equity for the three
months ended March 31, 2006:
Unearned Accumulated Other
Common Retained Employee Comprehensive Total
Stock Earnings Benefits Income/(Loss) Equity
------- -------- -------- ----------------- -------
Beginning balance, January 1, 2006 $31,154 $5,245 ($148) ($ 719) $35,532
Cash dividend -- (220) -- -- (220)
Stock option exercise 46 -- -- -- 46
SFAS 123R expensing of options 6 -- -- -- 6
Net income -- 703 -- -- 703
Release of ESOP shares -- -- 13 -- 13
Change in unrealized gain/loss -- -- -- (128) (128)
------- ------ ----- ------ -------
Balance March 31, 2006 $31,206 $5,728 ($135) ($ 847) $35,952
======= ====== ===== ====== =======
Stockholder's equity was $36.0 million as of March 31, 2006. This was an
increase of $420,000 from December 31, 2005. The change in stockholder's equity
was primarily attributable to net income for the first quarter of 2006 of
$703,000, offset by cash dividends of $220,000. The proceeds from stock options
exercised added $46,000 to equity. Additionally, the release of ESOP shares, at
fair market value, contributed $13,000 to total equity. The change in other
comprehensive income of $128,000 was due to the net change in after tax
decreases in the available for sale security portfolio. Unrealized losses have
not been recognized into income because of the issuer's bonds are of high credit
quality. The Corporation has the intent and the ability to hold the securities
for the foreseeable future and the decline in the fair value during the first
quarter of 2006 was primarily due to increased market interest rates.
NET INTEREST INCOME
Net interest income was $3.1 million during the first quarter of 2006, an
increase of $41,000 over the first quarter of 2005. The net interest income when
measured on a taxable equivalent basis increased $140,000, or 4.4%, over the
same time period. The increase was attributable to growth in earning assets,
primarily loans, and offset somewhat by net interest margin compression. Net
interest margin for the first quarter of 2006 was 2.87%, or 3.00% on a tax
equivalent basis, compared with 3.33%, or 3.38% on a tax equivalent basis for
the first quarter of 2005. The decrease in net interest margin was primarily the
result of higher deposit funding costs in a highly competitive deposit pricing
environment. Additionally, the flat treasury yield curve produced an interest
rate environment that results in lower incremental interest rate spreads on new
loan and investment growth. The increase in interest income for the first
quarter of 2006 compared to the first quarter of 2005 was primarily due to
higher average outstanding balances in the loan and securities portfolio, as
well as higher yields on loans.. Increased yields on the investment portfolio
were not as much a factor as the majority of the investment portfolio is fixed
rate in nature. Increases in various categories of interest expense were
primarily driven by increases in interest rates paid on deposits and other
borrowings. The largest increase in interest expense was associated with time
deposits. Increases in interest expense on time deposits contributed 66.8% of
the overall increase in interest expense due to an increase in rate. Conversely,
the increase in interest expense due to other borrowings was primarily due to
increases in volume and secondarily due to increases in rates, as the duration
of the FHLB advances is much longer than other categories of deposits and
borrowed funds. The overall increase in net interest income was completely due
to increases in short term interest rates in deposit funding.
20
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (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
March 31, 2006 vs. 2005
-------------------------------
Increase (Decrease)
Due to Changes In
----------------------
Volume
Total and Both Rate
------ -------------- -----
(In thousands)
Earning Assets - Interest Income
Loans $1,207 $578 $629
Securities 489 402 87
Federal funds sold (9) (48) 39
------ ---- -----
Total 1,687 932 755
------ ---- -----
Deposits and Borrowed Funds - Interest Expense
NOW and money market accounts 85 5 80
Savings deposits (38) (51) 13
Time deposits 1,100 474 626
FHLB advances and repurchase agreements 449 277 172
ESOP loan interest expense -- (1) 1
Subordinated debentures 50 -- 50
------ ---- -----
Total 1,646 704 942
------ ---- -----
Net Interest Income $ 41 $228 ($187)
====== ==== =====
The average yield earned on interest earning assets for the first quarter of
2006 was 6.51% compared to 5.83% for the first quarter of 2005. The average
yield earned on the total loan portfolio, which contains both loans held for
sale and investment for 2006 was 7.10% compared to 6.28% during the first
quarter of 2005. The overall increase in the loan portfolio yield was partially
tied to the increase in the prime interest rate during that time period. The
commercial, commercial real estate and home equity line loans that repriced with
prime interest rate changes totaled approximately $152 million at March 31,
2006. The Corporation's security portfolio had an average non-tax adjusted yield
of 4.44% during the first quarter of 2006, with the weighted average taxable
equivalent yield to maturity at March 31, 2006 totaling 5.13%.
The average rate paid on interest bearing liabilities for the first quarter of
2006 was 4.03% compared to 2.81% in the first quarter of 2005. The increase in
average rate was due to the overall rate paid on interest bearing liabilities,
primarily as a result of the increase in overall market interest rates. The rate
paid on the total time deposit portfolio increased to 4.18% for the first
quarter of 2006, from 2.85% for the same time period in 2005 and was driven by
highly competitive interest rates paid among local financial institutions. The
increase in the average rate for NOW and money market accounts for 2006 was
primarily attributable to the introduction of a premium rate based NOW account,
with the average rate moving to 1.99% during the first quarter of 2006 versus
1.13% in the first quarter of 2005. The average rate paid on savings also
increased, moving to 2.19% for the first quarter of 2006 from 1.95% in the first
quarter of 2005. The rae paid on FHLB advances and repurchase agreements
increased to 4.23% in the first quarter of 2006 from 3.29% in the first quarter
of 2005. New advances, repricing of variable advances and the increase in the
interest rate paid on repurchase agreements were the primary reasons for the
increase. At March 31, 2006, the FHLB portfolio had a weighted average maturity
of 4.8 years and an overall weighted average interest rate
21
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
of 4.46%, which was 29 basis points below the current overnight federal funds
rate. The average rate paid on the subordinated debenture increased in the first
quarter of 2006 to 8.46% from 6.49%, closely tracking the overall increase in
short-term market interest rates during the comparable period. This instrument
is priced quarterly based on the three-month libor interest rate.
22
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (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 month periods ended March 31, 2006 and 2005. Average loans
are presented net of unearned income, gross of the allowance for loan losses.
Interest on loans includes loan fees. Effective January 1, 2006, the Corporation
began calculating yields earned on interest earning assets and rates paid on
interest bearing liabilities based on the actual number of days in the quarter.
Previously, the Corporation calculated these yields using four equal quarterly
periods. While these different methods of calculating yields and rates may have
a slight effect on yields, rates, net interest margins and net interest rate
spreads reported during the quarterly or year to date periods, it has no effect
on yields, rates, net interest margins and net interest rate spreads reported on
an annual basis. This change in methodology does not have a material impact on
the yields, rates, net interest margin or net interest rate spreads in reported
in prior periods; accordingly, this change was implemented prospectively and as
such, prior periods have not been restated.
Three Months Ended March 31,
-------------------------------------------------------------
2006 2005
----------------------------- -----------------------------
Average Average
Interest Rate Interest Rate
Average Income/ Earned/ Average Income/ Earned/
Balance Expense Paid Balance Expense Paid
-------- -------- ------- -------- -------- -------
(In thousands)
Assets
Loans $344,471 6,028 7.10% $311,301 $4,821 6.28%
Securities 94,448 1,049 4.44 58,305 560 3.84
Federal funds sold 3,342 37 4.49 7,682 46 2.43
-------- ------ ---- -------- ------ ----
Total Interest Earning Assets/
Total Interest Income/Average Yield Earned 442,261 7,114 6.51 377,288 5,427 5.83
-------- ------ ---- -------- ------ ----
Cash and due from banks 7,639 6,758
All other assets 20,487 16,623
-------- --------
Total Assets $470,387 $400,669
======== ========
Liabilities and Equity
NOW and money market accounts $ 39,018 191 1.99 $ 37,915 106 1.13
Savings deposits 12,597 68 2.19 22,012 106 1.95
Time deposits 237,000 2,441 4.18 190,946 1,342 2.85
FHLB advances, repurchase agreements
and fed funds purchased 100,919 1,052 4.23 74,317 602 3.29
ESOP note payable 143 3 8.51 200 3 6.08
Subordinated debentures 10,310 215 8.46 10,310 165 6.49
-------- ------ ---- -------- ------ ----
Total Interest Bearing Liabilities/
Total Interest Expense / Average Rate Paid 399,987 3,970 4.03 335,700 2,324 2.81
-------- ------ ---- -------- ------ ----
Noninterest bearing demand deposits 32,657 34,838
All other liabilities 2,078 1,617
Stockholders' equity 35,665 28,514
-------- --------
Total Liabilities and Stockholder's Equity $470,387 $400,669
======== ========
Net Interest Income $3,144 $3,103
====== ======
Net Interest Spread 2.49% 3.02%
==== ====
Net Interest Margin (Net Interest
Income/Total Earning Assets) 2.87% 3.33%
==== ====
Net Interest Margin
(fully taxable equivalent) 3.00% 3.38%
==== ====
23
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
PROVISION FOR LOAN LOSSES
A $50,000 provision was made to the allowance for loan losses in the first
quarter of 2006, based upon management's review of the risks inherent in the
loan portfolio and the level of our allowance for loan losses. Net loan
charge-offs for the first quarter of 2006 totaled $34,000, or four basis points
on an annualized basis. Total nonperforming assets as a percentage of total
assets was 0.64% at March 31, 2006, compared to 0.74% at December 31, 2005. The
allowance for loan losses was $3.6 million at March 31, 2006, or 1.02% of total
loans and 116.38% of nonperforming loans, versus $3.6 million, or 1.07% and
108.10% at December 31, 2005, respectively.
NONINTEREST INCOME
Noninterest income in the first quarter of 2006 was $1.2 million, an increase of
$256,000, or 27.1%, compared to the first quarter of 2005. The increase was
primarily due to a $152,000 increase in gains on the sale of residential
mortgage loans due to higher origination loan volumes compared to the first
quarter of 2005 resulting from our Mortgage Company's addition of added loan
production offices during this time period. The Mortage Company has expanded
into new mortgage loan production offices in Ohio, North Carolina and Florida.
Total deposit service charges of $82,000 in the first quarter of 2006 increased
17.1% from $70,000 recorded in the first quarter of 2005. The Corporation
instituted an overdraft privilege program late in the fourth quarter of 2005
which has largely contributed to the increase. Other income was $199,000 in the
first quarter of 2006, which was an increase of $55,000 from the first quarter
of 2005. The increase was primarily attributable to an increase in noninterest
income from additional bank owned life insurance purchase in August of 2005.
Fiduciary income from our Trust and Wealth Management division represented
$67,000 for the first quarter representing an increase of $3,000 from fee income
generated from the these operations in the fourth quarter of 2005 which was
$64,000. The Bank acquired the Trust and Wealth Management division operations
in July 2005 and has approximately $74.0 million under management at March 31,
2006.
NONINTEREST EXPENSE
Noninterest expense was $3.4 million for the first quarter of 2006 compared to
$2.9 million for the first quarter of 2005, an increase of $527,000, or 18.2%.
The increase in noninterest expense was largely due to an increase of $351,000
in salary, benefits and payroll taxes from the new Trust and Wealth Management
divisions, coupled with startup and operational costs related to the new Grosse
Pointe branch hub and expansion into new out of state mortgage loan production
offices. Premises and fixed asset expense totaled $466,000 for the quarter ended
March 31, 2006, an increase of $110,000 or 30.9%. The expansion of the Mortgage
Company's loan production offices accounted for $67,000 of this increase, with
the remaining increase attributable to utility costs, increased depreciation
expense of the new headquarters, and general costs of expanded operations of the
Corporation and its subsidiaries. Other operating expense of $845,000 increased
$66,000, or 8.5%, from the first quarter of 2006 compared to the first quarter
of 2005. The increase in other operating expense was also primarily attributable
to the costs related to the new mortgage loan production offices, the expenses
of the trust operations and other costs related to the Grosse Pointe branch
office in the process of construction.
24
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
PROVISION FOR INCOME TAXES
The provision for federal income taxes of $177,000 for the first quarter of 2006
decreased $131,000, or 42.5%, from the federal income tax provision for the
first quarter of 2005. The decrease was primarily attributable to a higher level
of tax exempt municipal bonds and bank owned life insurance (BOLI) over the same
respective time period, coupled with a lower level of pretax income. The
increase in cash surrender value of BOLI is exempt from federal income tax. The
effective tax rate for the first quarter of 2006 and 2005 was 20.1% and 29.1%,
respectively. The statutory tax rate of the Corporation is 34%.
25
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (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-Q (continued)
The following table presents an analysis of our interest-sensitivity static gap
position at March 31, 2006. 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 March 31, 2006, 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 and
interest bearing cash $ 529 $ -- $ -- $ -- $ 529
Securities 8,084 13,030 27,564 45,822 94,500
FHLB stock -- -- -- 4,530 4,530
Portfolio loans and
held for resale 151,720 39,807 121,181 43,432 356,140
-------- --------- --------- ------- --------
Total 160,333 52,837 148,745 93,784 $455,699
-------- --------- --------- ------- ========
Interest bearing liabilities:
NOW and money market
accounts 3,399 14,870 21,575 -- $ 39,844
Savings deposits 1,178 3,415 7,182 -- 11,775
Jumbo time deposits 56,668 75,203 60,166 -- 192,037
Time deposits < $100,000 7,680 29,592 17,898 -- 55,170
Repurchase agreements 12,326 -- -- -- 12,326
FHLB advances -- 12,000 41,845 36,700 90,545
ESOP payable 135 -- -- -- 135
Subordinated debentures 10,310 -- -- -- 10,310
-------- --------- --------- ------- --------
Total 91,696 135,080 148,666 36,700 $412,142
-------- --------- --------- ------- ========
Interest rate sensitivity gap $ 68,637 ($82,243) $ 79 $57,084
Cumulative interest rate
sensitivity gap ($13,606) ($13,527) $43,557
Interest rate sensitivity gap
Ratio 1.75 0.39 1.00 2.56
Cumulative interest rate
sensitivity gap ratio 0.94 0.96 1.11
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-Q (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, 2006, the table below 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 4.2%
Interest rates up 200 basis points 3.6%
Interest rates up 100 basis points 2.2%
Base case --
Interest rates down 100 basis points (2.4%)
Interest rates down 200 basis points (4.3%)
Interest rates down 300 basis points (5.2%)
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 March 31, 2006, 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
March 31, 2006, 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.
28
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
PART II
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 1A. RISK FACTORS
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.
Not applicable.
ITEM 5. OTHER INFORMATION.
Cash Dividend - On February 13, 2006, the Corporation's Board of Directors
declared the Corporation's sixteenth quarterly cash dividend of $0.06 per common
share, payable April 1, 2006, to shareholders of record March 1, 2006.
Stock Dividend - On April 18, 2006, the Corporation's Board of Directors
declared a 5% stock dividend payable June 1, 2006, to shareholder of record May
1, 2006.
ITEM 6. EXHIBITS.
See Exhibit Index attached.
29
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (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 May 12, 2006.
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)
30
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (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 Form of Non-qualified Stock Option Agreement is incorporated by
reference to the Corporation's Current Report on Form 8-K filed on
January 17, 2006. (SEC File No. 000-33373)
10.10 Summary of Named Executive Officer Salary and Bonus Arrangements is
incorporated by reference to Exhibit 99.1 of the Corporation's Current
Report on Form 8-K filed on January 17, 2006. (SEC File No. 000-33373)
31
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
10.11 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
32