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 June 30, 2007
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 August 10, 2007
----- ------------------------------
Common Stock 3,796,293 Shares
1
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
PART I
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2007 2006
(Unaudited)
----------- ------------
(In thousands)
Assets
Cash and due from banks $ 7,303 $ 11,026
Federal funds sold -- 13,700
-------- --------
Cash and Cash Equivalents 7,303 24,726
Trading securities at fair value option 25,819 --
Securities available for sale, at fair value 70,596 80,916
Securities held to maturity, at amortized cost 992 1,017
FHLB stock 4,540 4,540
Residential mortgage loans held for sale 2,550 3,441
Loans
Commercial real estate 247,710 236,399
Commercial and industrial 30,556 28,393
Residential real estate 58,259 72,517
Home equity lines of credit 19,064 17,614
Consumer loans 10,621 11,666
Credit card loans 700 693
-------- --------
Total Loans 366,910 367,282
Allowance for credit losses (3,731) (3,815)
-------- --------
Net Loans 363,179 363,467
-------- --------
Net property and equipment 8,913 9,225
Accrued interest receivable 2,594 2,599
Other real estate 48 108
Goodwill 1,381 1,381
Intangible assets, net of amortization 125 145
Cash surrender value of Bank Owned Life insurance 10,376 10,163
Other assets 4,527 3,300
-------- --------
Total Assets $502,943 $505,028
======== ========
(continued)
2
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2007 2006
(Unaudited)
----------- ------------
(In thousands, except
share data)
Liabilities
Deposits
Noninterest bearing demand deposits $ 36,312 $ 33,331
NOW and money market accounts 66,525 59,339
Savings deposits 11,304 10,569
Time deposits 218,478 252,617
-------- --------
Total deposits 332,619 355,856
-------- --------
Repurchase agreements and fed funds purchased 29,672 15,688
Federal Home Loan Bank advances ($12.9 million
at fair value option at 6-30-2007) 85,396 83,528
Accrued interest payable 999 1,257
Other liabilities 2,427 1,629
ESOP note payable 66 95
Subordinated debentures (at
fair value option at 6-30-2007) 17,767 10,310
-------- --------
Total Liabilities 468,946 468,363
-------- --------
Stockholders' Equity
Common stock -- 9,000,000 shares authorized;
3,796,293 shares issued and outstanding at
6-30-2007 and 3,829,758 at 12-31-2006 32,751 33,220
Retained earnings 2,726 4,303
Unearned employee benefit (66) (95)
Accumulated other comprehensive (loss) income (1,414) (763)
-------- --------
Total Stockholders' Equity 33,997 36,665
-------- --------
Total Liabilities and Stockholders' Equity $502,943 $505,028
======== ========
3
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
---------------- ------------------
2007 2006 2007 2006
------ ------ ------- -------
(In thousands, except per share data)
Interest Income
Loans (including fees) $6,885 $6,710 $13,737 $12,738
Taxable securities 805 809 1,472 1,580
Tax exempt securities 413 321 747 599
Federal funds sold 131 24 386 61
------ ------ ------- -------
Total Interest Income 8,234 7,864 16,342 14,978
------ ------ ------- -------
Interest Expense
Deposits 3,434 3,275 7,154 5,975
Repurchase agreements and fed funds purchased 233 95 393 188
Federal Home Loan Bank advances 975 1,029 1,896 1,988
ESOP loan interest expense 2 2 4 5
Subordinated debentures 559 232 953 447
------ ------ ------- -------
Total Interest Expense 5,203 4,633 10,400 8,603
------ ------ ------- -------
Net Interest Income 3,031 3,231 5,942 6,375
Provision for credit losses 175 125 225 175
------ ------ ------- -------
Net Interest Income after Provision 2,856 3,106 5,717 6,200
------ ------ ------- -------
Noninterest Income
Fiduciary income 111 65 198 132
Deposit service charges 92 88 180 170
Realized gains (losses) on available for sale
securities (13) -- (13) --
Change in fair value of assets/liabilities
carried at fair value under SFAS 159 (72) -- 156 --
Mortgage banking income 594 966 1,348 1,820
Other income 433 183 694 382
------ ------ ------- -------
Total Noninterest Income 1,145 1,302 2,563 2,504
------ ------ ------- -------
Noninterest Expense
Salaries, benefits, and payroll taxes 1,903 2,066 4,046 4,171
Premises and fixed asset expense 465 447 917 913
Other operating expense 1,038 1,128 1,903 1,973
------ ------ ------- -------
Total Noninterest Expense 3,406 3,641 6,866 7,057
------ ------ ------- -------
Income Before Taxes 595 767 1,414 1,647
Provision for income taxes 59 136 220 313
------ ------ ------- -------
Net Income $ 536 $ 631 $ 1,194 $ 1,334
====== ====== ======= =======
(continued)
4
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Per share data*:
Basic earnings $ 0.14 $ 0.16 $ 0.30 $ 0.33
Diluted earnings $ 0.14 $ 0.15 $ 0.30 $ 0.33
====== ====== ======= =======
Cash Dividends $ 0.06 $ 0.06 $ 0.12 $ 0.12
====== ====== ======= =======
* Per share data has been retroactively adjusted for 2007 stock dividend.
5
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
----------------- ---------------
2007 2006 2007 2006
-------- ------ ------ ------
(In thousands)
Net Income as Reported $ 536 $ 631 $1,194 $1,334
Other Comprehensive Income, Net of Tax
Change in unrealized losses on securities
Available for sale (1,003) (777) (695) (905)
-------- ------ ------ ------
Comprehensive Income ($ 467) ($146) $ 499 $ 429
======== ====== ====== ======
6
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
Six Months
Ended June 30,
-------------------
2007 2006
-------- --------
(In thousands)
Operating Activities
Net income $ 1,194 $ 1,334
Adjustments to reconcile net income to net cash flow
from operating activities:
Net amortization of security premium 96 107
Net gain on sales and call of securities 13 --
Net gain on financial instruments at fair value (156) --
Provision for credit losses 225 175
Depreciation expense 356 338
Deferred income tax expense 44 100
SFAS 123R option expense 14 12
ESOP compensation expense 29 27
(Increase) decrease in accrued interest receivable 5 (242)
Increase in other assets (1,128) (58)
Increase (decrease) in accrued interest payable (258) 352
Increase in other liabilities 154 70
Decrease in loans held for sale 891 1,121
-------- --------
Net Cash Provided by Operating Activities 1,479 3,336
Investing Activities
Maturities, calls, sales and prepayments of securities available
for sale 33,906 4,788
Purchase of securities available for sale (25,309) (16,049)
Maturities, calls, sales and prepayment of trading securities 909 --
Transfer to trading securities (26,642) --
Maturities, calls, and prepayments of held to maturity securities 25 83
Purchases of held to maturity securities -- (354)
Increase in loans 63 (33,618)
Purchases of property and equipment (44) (696)
Proceeds from sale of property and equipment 60 --
-------- --------
Net Cash Used in Investing Activities (17,032) (45,846)
Financing Activities
Net (decrease) increase in demand and savings deposits 10,902 (1,980)
Net (decrease) increase in time deposits (34,139) 40,187
Net increase (decrease) in borrowings 13,983 (2,394)
Issuance of subordinated debentures 18,557 --
Redemption of subordinated debentures (10,310) --
Repayment of FHLB advances 2,000 6,000
Payment of ESOP debt (29) (27)
Stock option exercise/award 73 203
Cash dividends paid (473) (454)
Repurchase of common stock (2,434) --
-------- --------
Net Cash Provided (Used) by Financing Activities (1,870) 41,535
-------- --------
(Decrease) increase in Cash and Cash Equivalents (17,423) (975)
Cash and Cash Equivalents at the Beginning of the Year 24,726 11,000
-------- --------
Cash and Cash Equivalents at the End of the Period $ 7,303 $ 10,025
======== ========
Supplemental Disclosure of Cash Flow Information:
Interest Paid $ 10,657 $ 8,251
Federal Taxes Paid $ 175 $ 185
======== ========
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 June 30,
2007 and December 31, 2006, and Consolidated Statements of Income and
Comprehensive Income for the six month periods ended June 30, 2007 and
2006, and Consolidated Statements of Cash Flow for the six months ended
June 30, 2007 and 2006. 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-K for the fiscal year ended December
31, 2006.
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. On February 13, 2007, Community Central Capital Trust II (Trust II), a
statutory trust formed by the Corporation for the purpose of issuing trust
preferred securities, issued $18,000,000 aggregate liquidation amount of
cumulative trust preferred securities. The Trust II securities bear a fixed
distribution rate of 6.71% per annum through March 6, 2017, and thereafter
will bear a floating distribution rate equal to 90-day LIBOR plus 1.65%.
The Trust II securities are redeemable at the Corporation's option, in
whole or in part, at par beginning March 6, 2017, and if not sooner
redeemed, mature on March 6, 2037. The Trust II securities were sold in a
private transaction exempt from registration under the Securities Act of
1933, as amended. The gross proceeds of the offering were used to purchase
junior subordinated debentures from the Corporation totaling $18,557,000.
On June 29, 2007, the Corporation redeemed $10.0 million of the
subordinated debentures issued to Community Central Capital Trust I (and as
a result the Trust I preferred securities).
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, 2007, $11.3 million of the the trust preferred issuance was
included in the Corporation's tier 1 capital, with the remaining $6.7
million included in tier 2 capital.
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 is required to estimate the fair value of all stock
8
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
options on each grant date, using an appropriate valuation approach such as
the Black-Scholes option pricing model. The provisions of this statement
were effective for the Corporation beginning January 1, 2006.
The Corporation did not issue options during the six months ended June 30,
2007 or 2006. The total amount of options outstanding at June 30, 2007 was
322,620 shares at a weighted average exercise price of $8.94 per share.
During the six months ended June 30, 2007, 6,744 options were exercised at
an exercise price of $6.87 per share. The Corporation recognized
compensation expense, using the Black Scholes option-pricing model, of
$7,000 and $14,000 for the second quarter and six months ended June 30,
2007, respectively for the options vesting in 2007 based on the fair market
value of the grant date. The net income and earnings per share for the
second quarter and six months ended June 30, 2006, on a pro forma basis,
are disclosed for comparison below.
Three Six
Months Ended Months Ended
June 30, June 30,
------------- ---------------
2007 2006 2007 2006
----- ----- ------ ------
(in thousands,
except per share data)
Net income, as reported $ 536 $ 631 $1,194 $1,334
Add: Stock-based employee compensation expense,
net of related tax effects, included in reported
net income (7) (6) (14) (12)
Deduct: Total stock-based employee and director
compensation expense under fair value based
methods of awards, net of related tax effects 7 6 14 12
----- ----- ------ ------
Pro forma net income $ 536 $ 631 $1,194 $1,334
===== ===== ====== ======
Earnings per share
Basic $0.14 $0.16 $ 0.30 $ 0.33
Diluted $0.14 $0.15 $ 0.30 $ 0.33
The fair value of each option grant is estimated on the date of grant using the
Black Scholes option pricing model.
5. In February 2007, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 159 "The Fair Value Option for
Financial Assets and Financial Liabilities" (SFAS 159).
The statement provides for an entity to adopt early and elect the fair
value option for existing eligible items as of the beginning of a fiscal
year that begins on or before November 15, 2007. The entity must also adopt
all the requirements under SFAS 157, the Fair Value Measurement. As a
result of the Corporation's adoptions, certain financial instruments were
valued at a fair value classification. The adoption of the fair value
standards had a net positive after tax impact of approximately $150,000 on
first quarter earnings. The cumulative reduction to opening retained
earnings from adopting these standards was approximately $420,000.
Partially offsetting the total net charge to retained earnings was the
increase in capital from the reversal of other comprehensive income from
the transfer of the unrealized losses on available for sale securities
which had an affect of an increase in capital of $295,000. Therefore, the
total net after tax decrease in stockholder's equity was $125,000 from the
early adoption of SFAS 159 and concurrent adoption of SFAS 157 as of
January 1, 2007.
6. New Accounting Pronouncements: We adopted the provisions of FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN
48"), on January 1, 2007. The adoption of FIN 48 had no affect on the
financial statements. Should the accrual of any interest or penalties
relative to unrecognized tax benefits be necessary, or the impact of the
new Michigan Business Tax, we will record such accruals in our income tax
accounts; no such accruals exist as of June 30, 2007, nor were deemed
necessary.
9
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
The following table shows the balance sheet effect of the early adoption of SFAS
159.
Balance Sheet Net Balance Sheet
1/1/07 prior adjustment 1/1/07 after
Description to adoption upon adoption after adoption of FVO
----------- ------------- ------------- ---------------------
(in thousands of dollars)
Securities 27,024 (447) 26,577
Federal Home Loan Bank Advances (16,000) 247 (15,753)
Subordinated Debentures (a) (10,055) (437) (10,492)
Pretax cumulative effect of SFAS 159 (637)
Increase in deferred tax asset 217
----
Cumulative effect of adoption of SFAS 159
(charged to retained earnings) 420
====
(a) The carrying amount includes $255,000 in unamortized deferred issuance
costs on the subordinated debenture from the issuance of the Community
Central Capital Trust I. As a result of the early adoption of SFAS 159 the
difference between the carrying amount and the fair value was removed and
included in the cumulative effect adjustment above.
Management has elected the fair value option based on the following reasons for
each of the eligible items or group of similar eligible items.
Investment Securities and FHLB Advances:
The election of SFAS 159 and SFAS 157 treatment for existing eligible investment
securities was based on multiple factors which included the desire to utilize
the Federal Home Loan Bank advance portfolio to offset volatility with the
investment portfolio. Approximately $27.0 million of investment securities were
selected for early adoption of SFAS 159 based primarily on the relatively short
overall duration in the selected instruments. The overall effective duration of
the instruments was 1.8 years based on current market interest rates. Many of
the instruments have early call provisions, which based on current interest rate
expectations have a high degree of probability to be called. Some instruments
have been pre-refunded with certainty of maturity expected. The investments
selected are primarily comprised of agency debentures and short callable bank
qualified tax exempt municipal bonds. The selected securities will be
categorized under trading portfolio status. Management believes that it has more
options of balance sheet management under the fair value option, including the
management of volatility caused by the embedded options within these
instruments. The short overall duration of the selected instruments, coupled
with the utilization of FHLB advances as an attempt to hedge the risk, should
mitigate large swings in fair values that will be recorded in the income
statement as part of adoption of SFAS 159 and SFAS 157. Management cannot
predict future interest rates and is reliant on forecasts and models to make
decisions regarding interest rate and fair value risk.
The election of SFAS 159 treatment for the selected FHLB advances was based on
management"s choice to provide a natural hedge against the securities selected
under SFAS 159. The FHLB advances were selected for the fair value option based
on the maturity ranges within the FHLB portfolio of advances. All maturities
within 18 months from the early adoption date of January 1, 2007 were selected
regardless of the instruments interest rates. The selected FHLB advances had a
net unrealized gain position as of January 1, 2007 and March 31, 2007 and were
selected solely as a natural balance sheet hedge for the investment portfolio
elected under SFAS 159. The decrease in the unrealized loss position of the
selected investments and the income recognized under SFAS 159 for the first
three months of 2007 was completely offset by a corresponding decrease in
unrealized gains within the selected FHLB advances. Management will review the
selected instruments and should changes with overall market interest rates,
10
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
the treasury yield curve, or the structure of the investments including the
embedded call options change. In May 2007, the Corporation acquired an interest
rate swap to better hedge the fair value of the portfolio. The notional value of
the interest rate swap was $18 million for a duration of three years, which
approximated the overall duration of the trading portfolio under SFAS 159. Under
the interest rate swap the bank receives the three month libor rate and pays a
fixed rate of 5.275%, which is the average weighted yield of the hedged
portfolio at the inception of the interest rate swap. Additionally, should
management and the ALCO committee, believe other balance sheet strategies will
better position the Bank and Corporation, other transactions could be considered
including the sale of investments classified under trading status. Management
has no intent to extinguish any FHLB advances as they represent interest rates
which are lower than current equivalent market rates. It is the intent of
management for the foreseeable future to utilize fair value option on selected
investment securities, or like kind dollars on disposal.
Subordinated Debentures:
Management elected the fair value option for both its subordinated debentures.
Management considers the subordinated debentures a critical component for future
growth and wishes to utilize interest rate swaps to hedge the risk of this
longer term liability and critical form of regulatory capital. Under SFAS 159,
hedge accounting has become less complex and therefore available to a community
bank with limited resources. The subordinated debenture for $10.3 million that
was issued in June 2002 and maturing June 2032, callable June 30, 2007, was an
eligible instrument for the early adoption of the fair value option as of
January 1, 2007. The pretax accumulated adjustment from the recognition of fair
value on this instrument was $447,000. The carrying amount of the instrument
included $255,000 in unamortized deferred issuance costs on the subordinated
debenture which is included in the aforementioned pretax adjustment. Management
has elected the fair value option on the subordinated debenture which was issued
on February 13, 2007 for $18.6 million. Additionally, an interest rate swap for
a like kind notional value was secured to reduce any volatility associated with
the recognition of the fair value option under SFAS 159. Under the interest rate
swap the Corporation has agreed to receive a fixed rate of 6.71% and pay Libor
plus 170 basis points. The debenture carries an interest rate fixed for 10 years
at 6.71%, and was originally based on a ten year treasury interest rate swap of
5.06%, plus 165 basis points and was prior to the settlement of the interest
rate swap hedging market fluctuations.
Any reductions in overall carrying costs, aside from changes in fair value,
occurring on any financial asset or liability measured under SFAS 157 and SFAS
159 during the first six months of 2007 was the result of normal pay downs,
maturities and calls of the various financial instruments. No instruments
recorded under SFAS 159 were sold during the first and second quarter of 2007.
Management has the intent to utilize the fair value option on selected financial
assets and liability on a go forward basis.
The valuations of the instruments measured under Fair Value Measurement SFAS 157
for the first six months of 2007 were measured under a market approach using
matrix pricing investment for investment securities and the income approach
using observable data for the liabilities reported under the Fair Value Option
SFAS 159. The inputs were observable for the assets and liabilities interest
rate on commonly quoted intervals based on similar assets and liabilities.
11
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
The table below contains the fair value measurement at June 30, 2007 using the
identified valuations. Additionally, the changes in fair value for the six month
period ended June 30, 2007 for items measured at fair value pursuant to election
of the fair value option.
Changes in Fair value
for six months ended
June 30, 2007 measured
At fair value pursuant
Fair Value Measurement at to Election of the
June 30, 2007 fair value Option
-------------------------------- ----------------------
Fair Value Significant Other Other Gains or Losses
Measurements Observable Inputs in noninterest income
Description 06/30/2007 (Level 2) pretax income
----------- ------------ ----------------- ----------------------
(in thousands of dollars)
Trading Securities 25,819 25,819 (86)
Interest rate swap hedging securities 92 92 92
Federal Home Loan Bank Advances 12,869 12,869 (131)
Subordinated Debentures 17,767 17,797 790
Interest rate swap hedging subordinated debentures (692) (692) (692)
Redeemed subordinated debentures -- -- 183
------- ------ ------
156
====
Interest income and interest expense of the respective financial instruments
have been recorded in the consolidated statement of income based on the category
of financial instrument.
The Corporation is not aware of any discernable change in instrument specific
credit risk with no change reflected in earnings related to such risk.
12
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 June 30, 2007 and December 31, 2006 and the
results of operations for the three and six months ended June 30, 2007 and 2006.
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 Bank 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, trust, wealth
management, and Internet banking services. The Bank operates three full service
facilities, in Mount Clemens, Rochester Hills and Grosse Pointe, Michigan.
Community Central Mortgage Company, LLC, a subsidiary of the Corporation and
Bank, operates locations servicing the Detroit metropolitan area, northwest
Indiana, northern Illinois, and Raleigh, North Carolina. River Place Trust and
Community Central Wealth Management are divisions of Community Central Bank.
Community Central Insurance Agency, LLC is a wholly owned subsidiary of
Community Central Bank. The Corporation's common shares trade on The NASDAQ
Global 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 although the impact of the restructuring of the
American automobile companies has a direct impact on southeastern Michigan. A
slowdown in the local and statewide economy has
13
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
produced increased financial strain on segments of the Bank's customer base. The
Bank has experienced increased delinquency levels in its loan portfolio which
has been more pronounced in the residential real estate portfolio and home
equity loans. Further downturns 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 for the second quarter of 2007 was also minimally affected by
expansion and operational costs related to the new wealth and trust management
divisions. The trust division of the Bank was formed on June 30, 2005, when the
Corporation completed its acquisition and merger with River Place Financial
Corp. William A. Penner, CEO of River Place, became the President of the Bank's
newly created trust division at the time of the acquisition. In early 2006, two
executives were recruited to head the trust and newly created wealth management
divisions. Mr. Penner retired from the Bank effective December 31, 2006. The
Corporation continues to focus on expanding this area of its banking operations
and expects the trust and wealth management divisions to provide increased fee
income from future operations.
In early June of 2006, the Bank opened on full service branch located in Grosse
Pointe Farms, Michigan. Grosse Pointe Farms, Michigan is an upscale, suburban
community on the shores of Lake St. Clair in southeastern Michigan. The Bank has
appointed a regional President for the Grosse Pointe region who is a veteran
banker who has ties to the local community. The branch facility is staffed with
a branch manager and customer service representatives, as well as a commercial
loan officer. The upscale demographics of the surrounding area appear to be well
suited for establishing new relationships for trust and wealth management.
14
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
ASSETS
At June 30, 2007, the Corporation's total assets were $502.9 million, relatively
unchanged from $505.0 million at December 31, 2006. Total loans of $366.9
million, while remaining relatively unchanged in total for the first six months
of 2007, changed within loan categories during that period. Increases in
commercial loans and home equity loans of $13.5 million and $1.4 million,
respectively, were offset by decreases in loans in the residential mortgage
portfolio of $14.3 million and the consumer portfolio of $1.0 million. The
changes coincide with the Corporation's strategic plan to change the relative
loan mix by reducing the portion of lower yielding residential mortgages and
increasing the relative mix of higher yielding commercial loans. At June 30,
2007, the largest component of the total loan portfolio was commercial real
estate which was $247.7 million, or 67.5% of the total loan portfolio. At June
30, 2007, commercial and industrial loans were $30.6 million, or 8.3% of the
total loan portfolio. During the second quarter of 2007, the Corporation
securitized $8.2 million of residential mortgage loans with FNMA. The
Corporation holds the securitized mortgages in the form of securities which are
carried in the available for sale security portfolio. The Corporation recognized
mortgage servicing rights connected with the securitization of the portfolio.
Most of the residential mortgage portfolio comprises adjustable rate mortgages,
which represented $42.9 million, or 73.6%, 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. Home equity lines of credit ("HELOC") totaled $19.1 million at June 30,
2007, an increase of $1.5 million from December 31, 2006. This portfolio product
is tied to the Wall Street Journal prime interest rate. These loans are fully
secured by real estate and are generally originated with loan to value ratios
(including prior liens) up to 95% of the appraised value of the real estate. The
consumer portfolio ended June 30, 2007 at $10.6 million, a decrease of $1.0
million, 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 June 30, 2007, loans for marine craft
comprised approximately $9.1 million, or 85.6% of the installment portfolio and
2.5% of total loans. Credit card loans totaled $700,000 at June 30, 2007, which
increased $7,000 from December 31, 2006. The Corporation continues to book
credit card loans as a customer accommodation and does not actively market this
product.
Additionally, the Corporation had approximately $84.0 million in outstanding
loans at June 30, 2007, to borrowers in the real estate rental and properties
management industries, representing approximately 33.9% of the total commercial
real estate portfolio. At June 30, 2007, this particular concentration of loans
had no individual loans classified in nonaccrual status.
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
2007 of total loans 2006 of total loans Change Change %
-------- -------------- ------------ -------------- -------- --------
(in thousands, except
percentages)
Loans held for sale:
Residential real estate $ 2,550 $ 3,441 ($891) (25.9)%
======== ======== ======== ======== ======== =====
Loans held in the portfolio:
Commercial real estate $247,710 67.5% $236,399 64.4% $ 11,311 4.8%
Commercial and industrial 30,556 8.3 28,393 7.7 2,163 7.6
Residential real estate 58,259 15.9 72,517 19.7 (14,258) (19.7)
Home equity lines 19,064 5.2 17,614 4.8 1,450 8.2
Consumer loans 10,621 2.9 11,666 3.2 (1,045) (9.0)
Credit cards 700 0.2 693 0.2 7 1.0
-------- ----- -------- ----- -------- -----
$366,910 100.0% $367,282 100.0% ($372) (0.1%)
======== ===== ======== ===== ======== =====
15
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
Total securities available for sale decreased $10.3 million from December 31,
2006 to $70.6 million at June 30, 2007. The decrease was partially attributable
to the adoption of Financial Accounting Standards Fair Value Option SFAS 159.
The Corporation reclassified a total of $27.0 million of available for sale
securities as trading securities under SFAS 159 and the classification of
trading portfolio which represented $25.8 million as of June 30, 2007. This was
partially offset by the securitization of $8.2 million in mortgages comprising
15 year fixed rate loans, held in the form of mortgage backed securities and
classified as available for sale. The average effective duration of the trading
portfolio as of June 30, 2007 was approximately 1.95 years and an average life
of 3.3 years, with a weighted average coupon rate of 5.68%. Management decided
to classify the securities under SFAS 159 because of the characteristics of the
instruments, which included the optionality and the ability of the Corporation
to hedge the instruments utilizing above market value Federal Home Loan Bank
advances. Furthermore, in adopting SFAS 159, the Corporation will be able to, in
the future, utilize the fair value option on off balance sheet hedges and
account for the hedges in a manner which is less complex than was previously
available under GAAP. Other reasons influencing management's decision to
classify the selected instruments under SFAS 159 include overall ALCO strategies
and the shape of the treasury yield curve and management expectations on short
term interest rates. The trading portfolio is primarily comprised of $16.1
million of U.S. Agency debentures with an effective duration of 1.7 years. Other
segments of the portfolio comprise $4.9 million in callable municipal bonds with
an effective duration of 2.7 years, $4.8 million in collateralized mortgage
obligations (CMOs) and mortgage backed securities (MBS) with an effective
duration of 1.9 years. All of the CMOs held in the trading portfolio pass the
FFIEC stress test with relatively short average lives under differing rate
scenarios.
In May 2007, the Corporation acquired an interest rate swap to better hedge the
fair value of the portfolio. The notional value of the interest rate swap was
$18 million for a duration of three years, which approximated the overall
duration of the trading portfolio under SFAS 159. Under the interest rate swap
the bank receives the three month libor rate and pays a fixed rate of 5.275%,
which is the average weighted yield of the hedged portfolio at the inception of
the interest rate swap. The interes rate swap is accounted for under the Fair
Value Option for Finanical Assets and Liabilities (SFAS 159) and therefore no
formal hedge accounting under SFAS 133 is applicable.
At June 30, 2007, the available for sale portfolio had net unrealized losses of
$2.1 million or approximately 2.9% of the aggregate portfolio. At December 31,
2006, the net unrealized losses in the available for sale portfolio was $1.2
million. As of June 30, 2007, the available for sale portfolio comprised $4.0
million in US agency debentures, $32.2 million in bank qualified tax exempt
municipal bonds, $32.6 million in US agency mortgage backed securities, $1.3
million in private mortgage backed securities and $478,000 in a CRA fund
invested in mortgage backed obligations. The Corporation has the intent and
ability to hold the securities classified under available for sale for the
foreseeable future and declines in the fair value is primarily due to increased
market interest rates.
16
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
A summary of nonperforming assets is as follows:
June 30, December 31,
2007 2006
-------- ------------
(Dollars in thousands)
Nonaccrual loans:
Commercial real estate $2,463 $2,711
Commercial and industrial 616 646
Residential real estate 1,078 --
Home equity lines 333 --
Consumer loans 86 --
Credit cards -- --
------ ------
Total nonaccrual loans 4,576 3,357
Accruing loans delinquent more than 90 days:
Commercial real estate $ -- $ --
Commercial and industrial -- --
Residential real estate 658 876
Home equity lines 21 336
Consumer loans 4 160
Credit cards -- 1
------ ------
Total accruing loans delinquent more than 90 days 683 1,373
------ ------
Total nonperforming loans 5,259 4,730
Other real estate owned
Commercial real estate -- --
Residential real estate 48 108
------ ------
Total other real estate owned 48 108
------ ------
Total nonperforming assets $5,307 $4,838
====== ======
Total nonperforming loans as a
percentage of total loans 1.43% 1.29%
====== ======
Total nonperforming assets as a percentage
of total assets 1.06% 0.96%
====== ======
At June 30, 2007, nonperforming loans, which represents nonaccruing loans and
those loans past due 90 days or more and still accruing interest, totaled $5.3
million compared to $4.7 million at December 31, 2006, an increase of $529,000.
Nonaccruing loans of $4.6 million increased $1.2 million from December 31, 2006.
The increase in nonaccrual loans was partially attributable to the movement of
loans previously classified as accruing loans delinquent more than 90 days to
nonaccrual loans in the loan categories of residential mortgages comprising
$876,000, home equity lines of credit totaling $336,000 and other consumer loans
of $160,000. These consumer based loans were placed into nonaccrual status based
on regular evaluations of delinquent loans. A determination was made of the
collectability of the accrued interest based on the borrower's ability to repay
and real estate values, which have been declining in the Bank's geographic
lending area as well as other collateral determinations.
17
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
The following table shows an analysis of the allowance for loans losses:
Six Months Ended Year Ended
June 30, December 31,
2007 2006
---------------- ------------
(Dollars in thousands)
Balance as beginning of the period $3,815 $3,580
Charge-offs:
Commercial real estate 4 --
Commercial and industrial 40 248
Residential real estate -- 21
Home equity lines 44 21
Consumer loans 227 40
Credit cards 11 13
------ ------
Total charge-offs $ 326 $ 343
------ ------
Recoveries:
Commercial real estate -- --
Commercial and industrial 4 14
Residential real estate -- 8
Home equity lines -- --
Consumer loans 10 5
Credit cards 3 1
------ ------
Total recoveries $ 17 $ 28
------ ------
Net charge-offs (recoveries) 309 315
------ ------
Provision charged to earnings 225 550
------ ------
Balance at end of the period $3,731 $3,815
====== ======
Net charge-offs during the period to
to average loans outstanding during the period on
an annualized basis 0.18% 0.09%
Allowance as a percentage of total portfolio loans 1.02% 1.04%
The allowance for loan losses as a percentage of total loans remained relatively
unchanged at June 30, 2007, compared to December 31, 2006. 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.
18
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
LIABILITIES
Total deposits of $332.6 million decreased $23.2 million during the first six
months of 2007. The decrease was entirely due to a $34.1 million decrease in
time deposits. The decrease in time deposits was due to maturities of higher
cost brokered time deposits. Partially offsetting the decrease in time deposits
was an increase of $10.9 million from December 31, 2006, in core deposits,
representing checking, NOW, money market and savings accounts. Noninterest
bearing demand deposits increased $3.0 million for the first six months of 2007
primarily due to increased growth from the Grosse Pointe branch. NOW accounts
increased $534,000 during the same time period. Money market savings deposits
totaled $51.8 million and increased $6.6 million. The growth in money market
accounts was attributable to a new indexed money market product with a
competitive interest rate tied to the six month Treasury bill. Total savings
accounts increased $735,000 from seasonal fluctuations. Total time deposits
under $100,000 decreased $1.7 million. 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
June 30, of total December of total Net Net
2007 deposits 31, 2006 deposits Change Change %
-------- ---------- -------- ---------- -------- --------
(Dollars in Thousands)
Noninterest bearing demand $ 36,290 10.9% $ 33,331 9.4% $ 2,959 8.9%
NOW accounts 14,679 4.4 14,084 4.0 595 4.2
Money market accounts 51,846 15.6 45,255 12.7 6,591 14.6
Savings deposits 11,304 3.4 10,569 3.0 735 7.0
Time deposits under $100,000 43,936 13.2 45,608 12.8 (1,672) (3.7)
Time deposits $100,000 and
over 174,564 52.5 207,009 58.1 (32,445) (15.7)
-------- ------ -------- ----- -------- -----
Total deposits 332,619 100.00% 355,856 100.0% (23,237) (6.5%)
======== ====== ======== ===== ======== =====
19
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
Short term borrowings at June 30, 2007 consisted of short term FHLB advances of
$20.9 million and securities sold with an agreement to repurchase them the
following day of $10.7 million. Following are details of our short term
borrowings for the dates indicated:
June 30, December
2007 31, 2006
-------- --------
(Dollars in
thousands)
Amount outstanding at end of period
Short-term repurchase agreements $10,672 $15,688
Short-term FHLB advances $21,000 $14,000
Weighted average interest rate on
ending balance
Short-term repurchase agreements 3.15% 3.15%
Short-term FHLB advances 4.46% 3.92%
Maximum amount outstanding at any
month end during the period
Short-term repurchase agreements $13,660 $21,832
Short-term FHLB advances $21,000 $26,700
During the first quarter of 2007, the Corporation borrowed $ 19 million in a
wholesale structured repurchase agreement with an interest rate tied to the
three month Libor rate, less 250 basis points adjusted quarterly, until March 3,
2008 when the borrowing changes to a fixed interest rate of 4.95% until March 2,
2017. The repurchase agreement is callable quarterly after March 2, 2008.
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 29 advances
with maturities from July 2008 to June 2016.
FHLB advances outstanding at June 30, 2007 were as follows:
Fair Value Face Value Average rate
at end of period of obligation at end of period
---------------- ------------- ----------------
(Dollars in thousands)
Short-term FHLB advances $20,868 $21,000 4.46%
Long-term FHLB advances 64,528 64,528 4.82%
------- ------- ----
$85,396 $85,528 4.73%
The Corporation has elected early adoption of SFAS 159 for all FHLB advances
maturing in 18 months from January 1, 2007, which represented $13 million in
total. At June 30, 2007, the fair value adjustment of the selected advances was
$12.9 million. The overall weighted yield of the FHLB advance was 3.90% at June
30, 2007. Management believes that the selected instruments will serve as a
hedge for those securities recorded as trading from the transfer from available
for sale under SFAS 159.
20
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 $47.6 million in available
unsecured federal funds borrowing facilities, and a $150.0 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, 2007,
unused commitments comprised $96.6 million. The Bank has $125.4 million in time
deposits coming due within the next twelve months from June 30, 2007, which
includes brokered, internet and municipal time deposits. At June 30, 2007, the
Bank had $96.9 million in brokered certificates of deposit, of which $47.1
million is due within one year or less. Additionally, at June 30, 2007,
municipal time deposits and internet time deposits were $28.6 million and $3.1
million, respectively. Municipal time deposits typically have maturities less
than three months. $1.3 million of internet certificates of deposit mature in
one year or less.
The largest uses and sources of cash and cash equivalents for the Corporation
for the six months ended June 30, 2007, as noted in the Consolidated Statement
of Cash Flow, were centered primarily on the uses of cash in investing
activities. The uses of cash in investing activities of $17.0 million were
largely due to the increase in available for sale securities, with the largest
portion comprised of securitized mortgage loans. The largest segments of the net
change in cash used in investing activities, were comprised of increases in
demand and savings accounts of $10.9 million, other borrowing from wholesale
repurchase agreements of $14.0 million, and the issuance of subordinated
debentures of $18.6 million. Offsetting these increases in financing activities
were decreases in time deposits of $34.1 million, and a decrease of $10.3
million from the redemption of the subordinated debenture due June 30, 2007. The
net cash provided in operating activities was $1.5 million, which was largely
attributable to net income of $1.2 million. An increase in other assets of $1.1
million was offset by a decrease in loans held for sale of $891,000. Total cash
and cash equivalents at the end of June 30, 2007 was $7.3 million, which was a
decrease of $17.4 million from December 31, 2006.
On May 15, 2007, the Corporation's Board of Directors declared the Corporation's
twenty-first consecutive quarterly cash dividend of $0.06 per common share,
payable July 1, 2007, to shareholders of record June 1, 2007.
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
2007 2006 for Capital Ratio to
--------------- --------------- Adequacy be "Well
Capital Ratio Capital Ratio Purposes Capitalized"
------- ----- ------- ----- ------------- ------------
Total capital to risk-weighted assets
Consolidated $55,580 13.78% $49,693 12.65% 4% NA
Bank only 48,234 11.99% 47,486 12.11% 4% 6%
Tier I capital to risk-weighted assets
Consolidated $45,132 11.19% $45,878 11.68% 8% NA
Bank only 44,503 11.07% 43,677 11.14% 8% 10%
Tier I capital to average assets
Consolidated $45,132 8.91% $45,878 9.01% 4% NA
Bank only 44,503 8.83% 43,671 8.60% 4% 5%
21
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
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. Management currently has no plans to
raise additional capital.
The following table shows the changes in stockholders' equity for the three
months ended June 30, 2007:
Accumulated
Unearned Other
Common Retained Employee Comprehensive Total
Stock Earnings Benefits Income/(Loss) Equity
------- -------- -------- ------------- -------
Beginning balance, January 1, 2007 $33,220 $ 4,303 ($95) ($763) $36,665
Cumulative effective of adoption of
SFAS 159 -- (420) -- -- (420)
Cash dividend -- (472) -- -- (472)
Stock dividend 1,879 (1,879) -- -- --
Stock option exercise 73 -- -- -- 73
SFAS 123R expensing of options 14 -- -- -- 14
Net income -- 1,194 -- -- 1,194
Release of ESOP shares -- -- 29 -- 29
Repurchase of common stock (2,435) -- -- -- (2,435)
Change in unrealized gain/loss -- -- -- (651) (651)
------- ------- ---- ------- -------
Balance June 30, 2007 $32,751 $ 2,726 ($66) ($1,414) $33,997
======= ======= ==== ======= =======
Stockholder's equity was $34.0 million as of June 30, 2007. This was a decrease
of $2.7 million from December 31, 2006. The change in stockholder's equity was
primarily attributable to the repurchase of common stock totaling $2.4 million
for the six months ended June 30, 2007. Also decreasing retained earnings was a
cash dividend of $472,000. Additional decreases in stockholder's equity occurred
from the $420,000 charge to retained earnings from the adoption of Financial
Accounting Standards "Fair Value Option" SFAS 159. The change in other
comprehensive losses of $651,000 was due to the net change in after tax
decreases in the available for sale security portfolio. Unrealized losses have
not been recoginized into income because the issuers' bonds are 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
six months of 2007 was primarily due to increased market rates. Net income of
$1,194,000 for the six months of 2007 partially offset the decrease in retained
earnings from the cash and stock dividend.
NET INTEREST INCOME
Net interest income for the second quarter of 2007 was $3.0 million, a decrease
of 6.2% from the second quarter of 2006. Net interest margin for the second
quarter of 2007 was 2.72% compared to 2.59% for the first quarter of 2007 and
2.91% for the second quarter of 2006. Net interest margin increased 13 basis
points over the first quarter of 2007, from the realignment of earning assets
and the de-emphasis of time deposit funding. The increase in interest income for
the second quarter of 2007 compared to the second quarter of 2006 was primarily
due to the increased interest rates on loans from the repricing of fixed rate
commercial mortgage loans up for renewal and secondarily from an increase in
volume and rate on the investment portfolio. Increases in various categories of
interest expense were primarily driven by increases in interest rates paid on
deposits and other borrowings as the specific instrument was set to reprice or
mature. The largest contributor to the growth in interest expense during the
second quarter was due to the Corporation's issuance of $18 million of
subordinated debentures. The Corporation also redeemed $10 million of previously
issued subordinated debentures bearing a higher interest rate than the newly
issued debentures, which will help reduce the cost of funds moving forward
starting in the third quarter of 2007. The increase in interest expense from the
second quarter of 2007 compared to the second quarter of 2006 was $159,000, or
27.9% of the total increase in interest expense for the period. The increase in
interest expense associated with the subordinated debentures totaled $327,000
and was primarily related to volume. Additionally, this represented 57.3% of the
total increase in interest cost.
22
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
Net interest income for the first six months of 2007 was $5.9 million compared
to $6.4 million for the first six months of 2006. Net interest margin was 2.66%
for the first six months of 2007 compared to 2.96% for the six months ended
2006. The changes in net interest income for the first six months of 2007 was
primarily due to the same factors detailed above for the first quarter of 2007.
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, 2007 vs. 2006 June 30, 2007 vs. 2006
--------------------------- ----------------------------
Increase (Decrease) Increase (Decrease)
Due to Changes In Due to Changes In
------------------- -------------------
Volume Volume
Total and Both Rate Total and Both Rate
------ -------- ----- ------ -------- ------
(In thousands)
Earning Assets - Interest Income
Loans $ 175 ($16) $ 191 $ 999 $ 523 $ 476
Securities 88 43 45 40 (76) 116
Federal funds sold 107 104 3 325 317 8
------ ---- ------ ------ ----- ------
Total 370 131 239 1,364 764 600
------ ---- ------ ------ ----- ------
Deposits and Borrowed Funds -
Interest Expense
NOW and money market accounts 369 233 136 774 451 323
Savings deposits 14 3 11 35 11 24
Time deposits (224) (537) 313 370 (468) 838
FHLB and repo sweeps 84 115 (31) 113 128 (15)
ESOP -- -- -- (1) (2) 1
Subordinated debentures 327 356 (29) 506 546 (40)
------ ---- ------ ------ ----- ------
Total 570 170 400 1,797 666 1,131
------ ---- ------ ------ ----- ------
Net Interest Income ($200) ($39) ($161) ($433) $ 98 ($531)
====== ==== ====== ====== ===== ======
The average yield earned on interest earning assets for the second quarter of
2007 was 6.92% compared to 6.75% for the second quarter of 2006. The average
yield earned on the total loan portfolio, which contains both loans held for
sale and investment for 2007 was 7.56% compared to 7.35% during the second
quarter of 2006. The overall increase in the loan portfolio yield was due in
part to the repricing of commercial real estate loans up for renewal. The
Corporation typically originates commercial real estate loans for terms of 3 to
5 years with amortizations ranging from 10 to 25 years. The Corporation's
security portfolio had an average non-tax adjusted yield of 4.76% during the
second quarter of 2007, compared to 4.58% for the second quarter of 2006.
The average yield on earning assets for the first six months of 2007 was 6.87%
compared to 6.63% for the first six months of 2006. The average yield on the
total loan portfolio, which contains both loans held for sale and investment for
2007 was 7.50% compared to 7.23% during the same period of 2006. The overall
increase in the loan portfolio yield was due to the repricing of fixed rate
commercial real estate loans up for renewal, coupled with an increase from prime
sensitive loans, as prime sensitive loans reflected a full year to date effect
of a prime rate of 8.25% during 2007 versus a partial year in 2006, when prime
was increasing from 7.25% at the beginning of the year. The Corporation's
security portfolio had an average non-tax adjusted yield of 4.67% during the
first six months of 2007,
23
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
compared to 4.51% for the same period in 2006, as new securities added to the
portfolio reflected the increase in market rates over that same relative period,
coupled with and secondarily, the increase in the variable rate mortgage backed
securities.
The average rate paid on interest bearing liabilities for the second quarter of
2007 was 4.80% compared to 4.39% in the second quarter of 2006. 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 5.10% for the second
quarter of 2007, from 4.62% for the same time period in 2006 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 2007 was
primarily attributable to the introduction of a premium rate based NOW account,
with the average rate moving to 3.78% during the second quarter of 2007 versus
2.37% in the second quarter of 2006. The average rate paid on savings also
increased, moving to 2.45% for the second quarter of 2007 from 2.06% in the
second quarter of 2006. The rate paid on FHLB advances and repurchase agreements
increased to 4.24% in the second quarter of 2007 from 4.36% in the second
quarter of 2006. The relative portion of this category contained higher levels
of lower yielding repurchase agreements in 2007 compared to 2006. At June 30,
2007, the FHLB portfolio had a weighted average maturity of 4.1 years and an
overall weighted average interest rate of 4.73%, which was 52 basis points below
the current overnight federal funds rate. The average rate paid on the
subordinated debenture decreased in the second quarter of 2007 to 8.13% from
9.33%. The overall rate paid on the subordinated debentures decreased due to the
new $18.6 million issuance which bears interest at a rate of 6.71% compared to
the rate payable on the the previously issued subordinated debentures which
carried until redemption a rate equal to three month Libor plus 365 basis
points, or an average rate equal to 9.01% for the second quarter..
The average rate paid interest bearing liabilities for the first six months of
2007 was 4.81% compared to 4.21% in the first six months of 2006. The increase
in average rate was due to the overall rate paid on interest bearing liabilities
and was due to the increase in overall market interest rates. The overall
increase in interest bearing deposits and liabilities for the first six months
ended June 30, 2007 over the same time period in 2006 was due to the same
factors as mentioned above for the first quarter of 2007.
24
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 and six month periods ended June 30, 2007 and 2006.
Average loans are presented net of unearned income, gross of the allowance for
loan losses. Interest on loans includes loan fees.
Three Months Ended June 30,
-------------------------------------------------------------
2007 2006
----------------------------- -----------------------------
Average Average
Interest Rate Interest Rate
Average Income/ Earned/ Average Income/ Earned/
Balance Expense Paid Balance Expense Paid
-------- -------- ------- -------- -------- -------
(In thousands)
Assets
Loans $365,327 $6,885 7.56% $366,402 $6,710 7.35%
Securities 102,308 1,218 4.76 98,756 1,130 4.58
Federal funds sold 9,603 131 5.47 1,982 24 4.86
-------- ------ ---- -------- ------ ----
Total Earning Assets/
Total Interest Income 477,238 8,234 6.92 467,140 7,864 6.75
-------- ------ ---- -------- ------ ----
Cash and due from banks 7,203 6,698
All other assets 23,453 22,587
-------- --------
Total Assets $507,894 $496,425
======== ========
Liabilities and Equity
NOW and money market accounts $63,292 597 3.78 $38,552 228 2.37
Savings deposits 11,785 72 2.45 11,269 58 2.06
Time deposits 217,328 2,765 5.10 259,664 2,989 4.62
FHLB advances and repurchase
agreements 114,285 1,208 4.24 103,271 1,123 4.36
ESOP loan 74 2 8.13 129 3 9.33
Subordinated debentures 28,378 559 7.90 10,310 232 9.03
-------- ------ ---- -------- ------ ----
Total Interest Bearing Liabilities/
Total Interest Expense / Interest
Rate Spread 435,142 5,203 4.80 423,195 4,633 4.39
-------- ------ ---- -------- ------ ----
Noninterest bearing demand deposits 33,938 35,081
All other liabilities 3,235 2,451
Stockholders' equity 35,579 35,698
-------- --------
Total Liabilities and Stockholder's
Equity $507,894 $496,425
======== ========
Net Interest Income $3,031 $3,231
====== ======
Net Interest Spread 2.12% 2.36%
==== ====
Net Interest Margin (Net Interest
Income/Total Earning Assets) 2.55% 2.77%
==== ====
Net Interest Margin
(fully taxable equivalent) 2.72% 2.91%
==== ====
25
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
Six Months Ended June 30,
-------------------------------------------------------------
2007 2006
----------------------------- -----------------------------
Average Average
Interest Rate Interest Rate
Average Income/ Earned/ Average Income/ Earned/
Balance Expense Paid Balance Expense Paid
-------- -------- ------- -------- -------- -------
(In thousands)
Assets
Loans $369,354 $13,737 7.50% $355,497 $12,738 7.23%
Securities 94,932 2,219 4.67 96,614 2,179 4.51
Federal funds sold 14,810 386 5.26 2,659 61 4.63
-------- ------- ---- -------- ------- ----
Total Earning Assets/
Total Interest Income 479,096 16,342 6.87 454,770 14,978 6.63
-------- ------- ---- -------- ------- ----
Cash and due from banks 7,226 6,325
All other assets 23,210 22,383
-------- --------
Total Assets $509,532 $483,478
======== ========
Liabilities and Equity
NOW and money market accounts $ 62,331 1,193 3.86 $ 38,784 419 2.18
Savings deposits 12,818 162 2.55 11,929 127 2.15
Time deposits 229,621 5,799 5.09 248,394 5,429 4.41
FHLB advances and repurchase
agreements 108,032 2,289 4.27 102,101 2,176 4.30
ESOP loan 82 4 9.84 136 5 7.41
Subordinated debentures 24,129 953 7.96 10,310 447 8.74
-------- ------- ---- -------- ------- ----
Total Interest Bearing Liabilities/
Total Interest Expense/Interest
Rate Spread 437,013 10,400 4.80 411,654 8,603 4.21
-------- ------- ---- -------- ------- ----
Noninterest bearing demand deposits 33,474 33,876
All other liabilities 3,011 2,266
Stockholders' equity 36,034 35,682
-------- --------
Total Liabilities and Stockholder's
Equity $509,532 $483,478
======== ========
Net Interest Income $ 5,942 $ 6,375
======= =======
Net Interest Spread 2.07% 2.42%
==== ====
Net Interest Margin (Net Interest
Income/Total Earning Assets) 2.49% 2.82%
==== ====
Net Interest Margin
(fully taxable equivalent) 2.66% 2.96%
==== ====
26
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
PROVISION FOR LOAN LOSSES
A $175,000 provision for loan losses was taken in the second quarter of 2007.
This was an increase of $125,000 from the first quarter of 2007 and a $50,000
increase from the second quarter of 2006. The increased provision was due in
part to estimated declines in real estate collateral values and is 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 six months of
2007 totaled 18 basis points on an annualized basis. The allowance for loan
losses was $3.7 million at June 30, 2007, or 1.02% of total loans versus $3.8
million or 1.04% at December 31, 2006.
NONINTEREST INCOME
Noninterest income in the second quarter of 2007 was $1.1 million, a decrease of
$157,000 or 12.1%, compared to the second quarter of 2006. The decrease was
largely due to a decrease in income from gains on the sale of residential
mortgages which decreased $372,000, or 38.5%. Fiduciary income from trust
services was $111,000 for the second quarter 2007, which was an increase of
$46,000, or 70.8% from the second quarter of 2006 due to increases in assets
under management of the Trust division of the Bank. Deposit service charge
income of $92,000 increased 4.5% from small increases in service charge income
over the same respective quarterly period. Net realized securities losses of
$13,000 in the second quarter were related to sales of available for sale
investments for restructuring purposes. The net change in fair values of those
applicable financial instruments under the Fair Value Pronouncement SFAS 159
decreased $72,000 for the second quarter. The change in fair value was primarily
attributable to a decrease in current relative market credit spreads versus the
Corporation's subordinated debenture issuance in February 2007. The valuations
of the instruments measured under fair value measurement SFAS 157 were measured
under a market approach using matrix pricing for investment securities and the
income approach on observable data for liabilities reported under the fair value
option SFAS 159. Noninterest income from Wealth Management services, recorded in
the category of other income, was $50,000 for the second quarter of 2007,
compared to no fee income for the second quarter of 2006, as the division was
being organized during this period. Net servicing fee income recorded from the
recognition of mortgage servicing rights, net of amortization and servicing
income was $209,000 for the second quarter of 2007 compared to no servicing
related fee income as the Corporation started selling mortgages servicing
retained in the third and forth quarter of 2006.
Noninterest income for the first six months of 2007 was $2.6 million, an
increase of $59,000 or 2.4%, compared to the first six months of 2006. Fiduciary
income of $198,000 increased $66,000, or 50.0% for the first six months of 2007
compared to the first six months of 2006. The increase in fiduciary income was
related to increases in assets under management over the same respective time
period. Deposit service charge income of $180,000 increased $10,000, or 5.9%
from increased fees assessed to customers. The net change in fair value option
for the first six months of 2007 was $156,000, reflecting the total of all net
fair value changes of all financial instruments measured including interest rate
swaps used as hedges. Mortgage banking income of $1.3 million for the first six
months of 2007 decreased $472,000 from the first six months of 2006 due to lower
gains on the sale of residential mortgages as a result of lower origination of
residential mortgages sold on the secondary market. The slow down in new home
purchases contributed to this decline. Other income of $694,000 increased
$312,000, or 44.9% primarily from gains recorded on retention of mortgage
servicing rights as outlined above.
NONINTEREST EXPENSE
Noninterest expense was $3.4 million for the second quarter of 2007, a decrease
of 6.5% or $235,000 from the first quarter of 2006. Salaries, benefits and
payroll taxes of $1.9 million, decreased $163,000, or 7.9%, primarily from a
reduction in mortgage company origination commissions and continued emphasis on
efficiency in staffing levels. Premises and fixed asset expense of $465,000 for
the second quarter of 2007 remained relatively unchanged compared to $447,000
during the second quarter of 2006. While property taxes and other premises
related costs increased $87,000 these increases were offset by a $69,000
reduction in mortgage loan production office expenses over the same time period.
Other operating expense of $1.0 million decreased $90,000, or 8.0%, primarily
attributable to a decrease in promotional, advertising and business development
expense.
Noninterest expense was $6.9 million for the first six months of 2007, a
decrease of 2.7%, or $191,000, largely for the reasons outlined in the second
quarter.
27
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
PROVISION FOR INCOME TAXES
The provision for federal income taxes of $59,000 for the second quarter of 2006
decreased $77,000 from the federal income tax provision for the second quarter
of 2006. 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 statutory tax
rate of the Corporation is 34%.
The provision for federal income taxes of $220,000 for the six months ended June
30, 2006 decreased $93,000 over the first six months of 2006. The effective tax
rate for the first six months of 2006 was 19.0% compared to 19.0% for the first
six months of 2006. 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 68.1%, compared to 50.8% for the six month periods ended
June 30, 2007 and 2006, respectively.
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.
28
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
The following table presents an analysis of our interest-sensitivity static gap
position at June 30, 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 June 30, 2006, we are considered slightly asset sensitive in the
time interval of the first three months. We are also considered to be somewhat
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 $ 54 $ -- $ -- $ -- $ 54
Securities, including Trading 27,244 9,372 20,720 42,213 99,549
FHLB stock -- 4,540 -- -- 4,540
Portfolio loans and
held for resale 131,725 65,659 149,769 22,307 369,460
-------- --------- -------- ------- --------
Total 159,023 79,571 170,489 64,520 $473,603
-------- --------- -------- ------- ========
Interest bearing liabilities:
NOW and money market
accounts 2,702 6,284 23,901 -- $ 32,887
Indexed money market 33,638 -- -- -- 33,638
Savings deposits 1,130 2,261 7,913 -- 11,304
Jumbo time deposits 46,742 72,191 39,242 16,387 174,562
Time deposits < $100,000 13,771 20,876 8,179 1,090 43,916
Repurchase agreements 29,672 -- -- -- 29,672
FHLB advances 9,999 10,870 31,327 33,200 85,396
ESOP payable 66 -- -- -- 66
Subordinated debentures 17,767 -- -- -- 17,767
-------- --------- -------- ------- --------
Total 155,487 112,482 110,562 50,677 $429,208
-------- --------- -------- ------- ========
Interest rate sensitivity gap $ 3,536 ($32,911) $ 59,927 $13,843
Cumulative interest rate
sensitivity gap ($29,375) $ 30,552 $44,395
Interest rate sensitivity gap
ratio 1.02 0.71 1.54 1.27
Cumulative interest rate
sensitivity gap ratio 0.89 1.08 1.10
The Bank also evaluates interest rate risk using a simulation model. The use of
simulation models to assess interest rate risk is an accepted industry practice,
and the results of the analysis are useful in assessing the vulnerability of the
Bank's net interest income to changes in interest rates. However, the
assumptions used in the model are oversimplifications and not necessarily
representative of the actual impact of interest rate changes. The simulation
model assesses the direction and magnitude of variations in net interest income
resulting from potential changes in market interest rates. Key assumptions in
the model include prepayment speeds of various loan and investment assets; cash
flows and maturities of interest-sensitive assets and liabilities, and changes
in market conditions impacting loan and deposit volumes and pricing. These
assumptions are inherently uncertain, and subject to fluctuation and revision in
a dynamic environment. Therefore, the model cannot precisely estimate future net
interest income or exactly predict the impact of higher or lower interest rates.
Actual results may differ from simulated results due to, among other factors,
the timing, magnitude, and frequency of interest rate changes, changes in market
conditions and management's pricing decisions, and customer reactions to those
decisions.
29
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.
The table below, as of March 31, 2007, 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. Interest rate risk is a potential loss of income and/or
potential loss of economic value of equity. Rate sensitivity is the measure of
the effect of changing interest rates on the Bank's net interest income or the
net interest spread. The policy of the Bank shall be to risk no more than 10% of
its net interest income in a changing interest rate scenario of +/- 200 basis
points over a one-year simulation period. Furthermore, no more than 15% of net
interest income can be projected at risk in a scenario of +/- 300 basis points
over a one-year simulation period.
Percentage Change
Interest Rate Scenario In Net Interest Income
---------------------- ----------------------
Interest rates up 300 basis points (1.24)%
Interest rates up 200 basis points .02%
Interest rates up 100 basis points .38%
Base case --
Interest rates down 100 basis points .96%
Interest rates down 200 basis points 2.41%
Interest rates down 300 basis points 4.01%
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, 2007, 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, 2007, 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.
30
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.
Stock Repurchases - The following table sets forth information about the
Corporation's purchases of its outstanding Common Stock during the quarter ended
June 30, 2007.
MAXIMUM NUMBER
(OR APPROXIMATE
TOTAL NUMBER OF DOLLAR VALUE) OF
SHARES (OR UNITS) SHARES (OR UNITS)
PURCHASED AS PART THAT MAY YET BE
TOTAL NUMBER OF AVERAGE PRICE OF PUBLICLY PURCHASED UNDER
SHARES (OR UNITS) PAID PER SHARE ANNOUNCED PLANS OR THE PLANS OR
PERIOD PURCHASED (1) (OR UNIT) PROGRAMS(2)&(3) PROGRAMS(2) (3)
------ ----------------- -------------- ------------------ -----------------
April 1, 2007 - April 30, 2007 11,800 11.15 11,800 61,550
May 1, 2007 - May 31, 2007 43,500 10.47 43,500 18,050
June 1, 2007 - June 30, 2007 84,500 9.89 84,500 126,839
(1) All shares reported in the above table were purchased through publicly
announced share repurchase programs.
(2) On September 20, 2006, the Corporation a share repurchase program to
repurchase up to 5% (192,887 shares) of its outstanding common stock in the
open market or privately negotiated transactions over the next twelve month
period. In June 2007, the Corporation completed this repurchase program.
(3) On June 7, 2007, the Corporation announced a new share repurchase program
to repurchase up to 5% (193,289 shares) of its outstanding common stock in
the open market or privately negotiated transactions over the next twelve
month period.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On April 17, 2007, 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 2010:
NOMINEE VOTES FOR VOTES WITHHELD TOTAL
------- --------- -------------- ---------
Salvatore Cottone 3,107,040 204,475 3,829,758
Dean S. Petitpren 3,110,636 200,879 3,829,758
Ronald R. Reed 3,110,663 200,852 3,829,758
The following are the names of the directors (and remaining term) whose term in
office continued after the Meeting: Gebran S. Anton (2008); Joseph Catenacci
(2009); Celestina Giles (2009); Joseph F. Jeannette (2008); John W. Stroh, III
(2008) and David A. Widlak (2009).
31
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
ITEM 5. OTHER INFORMATION.
Cash Dividend - On May 15, 2007, the Corporation's Board of Directors declared
the Corporation's twenty-first quarterly cash dividend of $0.06 per common
share, payable July 1, 2007, to shareholders of record June 1, 2007.
On July 18, 2007, Community Central Bank Corporation announced the departure of
Ronald R. Reed, the President and CEO of the Corporation's subsidiary, Community
Central Bank, to pursue other opportunities. As part of the full and final
release and separation agreement, Mr. Reed will receive a lump sum distribution
of $145,000 less applicable withholding taxes. Additionally, Mr. Reed will
receive a lump sum distribution for unused vacation benefits of $11,087. The
health care coverage in the form of COBRA will be paid for 18 months commencing
upon the date of the agreement. Mr. Reed will also receive under a separate
agreement $15,000 compensation for the reassignment of ownership of the company
paid automobile lease. The total severance package is approximately $190,000
pretax and will be expensed in the third quarter of 2007. Additionally, the full
and final release and separation agreement contains a covenant not to compete.
The Corporation is in the process of determining the value of this asset, which
will be amortized over the 19 month life of covenant.
ITEM 6. EXHIBITS.
See Exhibit Index attached.
32
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 August 14, 2007
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)
33
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 Annual
Report on Form 10-K filed with the SEC for the year ended December 31,
2006 (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 Annual Report on Form 10-K filed
with the SEC for the year ended December 31, 2006 (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 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)
34
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
10.11 The foregoing description of the Separation Agreement is qualified in
its entirety by reference to the complete terms and conditions of the
Separation Agreement, which is attached as Exhibit 10.11 to this
Quarterly Report on Form 10-Q and is incorporated herein by reference
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
35