UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2003
--------------
Commission File No. 000-33373
COMMUNITY CENTRAL BANK CORPORATION
----------------------------------
(Exact name of small business issuer as specified in its charter)
Michigan 38-3291744
-------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
100 North Main Street, PO Box 7, Mount Clemens, MI 48046-0007
---------------------------------------------------------------
(Address of principal executive offices and zip code)
(586) 783-4500
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(Issuer's telephone number)
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Class Outstanding at May 12, 2003
----- ---------------------------
Common Stock, $5 stated value 2,691,419 Shares
Transitional Small Business Disclosure Format:
Yes No X
------- --------
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
PART I
ITEM 1. FINANCIAL STATEMENTS
The financial statements of Community Central Bank Corporation (the
"Corporation") include the consolidation of its direct and indirect
subsidiaries: Community Central Bank (the "Bank"); Community Central Capital
Trust I (the "Trust"); and Community Central Mortgage Company, LLC (the
"Mortgage Company"). The Trust, a business trust subsidiary of the Corporation
was established in June 2002 for the purpose of issuing floating rate cumulative
preferred securities ("Trust Preferred Securities").
Following are the Corporation's Consolidated Balance Sheets as of March 31, 2003
and December 31, 2002, and Consolidated Statements of Income, Comprehensive
Income, and Cash Flow for the three month periods ended March 31, 2003 and 2002.
These unaudited financial statements are for interim periods, and do not include
all disclosures normally provided with annual financial statements. The interim
statements should be read in conjunction with the financial statements and
footnotes contained in the Corporation's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 2002.
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
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
2003 2002
--------- ---------
Assets (In thousands)
Cash and due from banks $ 7,329 $ 6,405
Federal funds sold 5,900 3,000
--------- ---------
Cash and Cash Equivalents 13,229 9,405
--------- ---------
Securities available for sale, at fair value 61,052 57,200
Investment securities, at amortized cost 1,097 1,290
FHLB stock 2,319 2,219
Residential mortgage loans held for sale 13,142 11,245
Loans
Residential mortgage loans 54,507 46,322
Commercial loans 155,948 152,044
Installment loans 6,222 5,683
--------- ---------
Total Loans 216,677 204,049
Allowance for credit losses (3,421) (3,377)
--------- ---------
Net Loans 213,256 200,672
--------- ---------
Net property and equipment 3,510 1,886
Other real estate owned 320 320
Accrued interest receivable 1,259 1,270
Other assets 1,802 2,129
--------- ---------
Total Assets $ 310,986 $ 287,636
========= =========
(continued)
3
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
2003 2002
--------- ---------
Liabilities (In thousands, except share data)
Deposits
Noninterest bearing demand deposits $ 35,751 $ 32,235
NOW and money market accounts 36,662 31,565
Savings deposits 5,482 5,332
Time deposits 143,642 131,587
--------- ---------
Total deposits 221,537 200,719
--------- ---------
Repurchase agreements 9,451 8,006
Federal Home Loan Bank advances 46,388 44,388
Accrued interest payable 481 483
Other liabilities 360 621
Capitalized lease obligation ---- 951
ESOP note payable 308 321
Guaranteed preferred beneficial interest in
the Corporation's subordinated debentures 10,000 10,000
--------- ---------
Total Liabilities 288,525 265,489
--------- ---------
Stockholders' Equity
Common stock -- $5 stated value; 9,000,000 shares
authorized; 2,685,563 shares issued and
outstanding at 3-31-2003, and 2,665,778
at 12-31-2002 13,428 13,329
Additional paid-in capital 5,157 5,035
Accumulated surplus 4,001 3,759
Unearned employee benefit (308) (321)
Accumulated other comprehensive income 183 345
--------- ---------
Total Stockholders' Equity 22,461 22,147
--------- ---------
Total Liabilities and Stockholders' Equity $ 310,986 $ 287,636
========= =========
4
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended March 31,
2003 2002
------ ------
(In thousands, except per share data)
Interest Income
Loans (including fees) $3,294 $2,874
Securities 540 561
Federal funds sold 19 101
------ ------
Total Interest Income 3,853 3,536
------ ------
Interest Expense
Deposits 1,159 1,300
Short term borrowings 30 42
Advances from FHLB 445 187
Capitalized lease obligation ---- 33
ESOP loan interest expense 3 4
Interest expense of guaranteed preferred
beneficial interest in Corporation's
subordinated debentures 128 ----
------ ------
Total Interest Expense 1,765 1,566
------ ------
Net Interest Income 2,088 1,970
Provision for credit losses 50 150
------ ------
Net Interest Income after Provision 2,038 1,820
------ ------
Noninterest Income
Deposit service charges 51 54
Net realized security gain 154 30
Mortgage banking income 1,278 468
Other income 33 69
------ ------
Total Noninterest Income 1,516 621
------ ------
Noninterest Expense
Salaries, benefits, and payroll taxes 1,861 947
Premises and fixed asset expense 288 233
Other operating expense 738 642
------ ------
Total Noninterest Expense 2,887 1,822
------ ------
Income Before Taxes 667 619
Provision for income taxes 193 194
------ ------
Net Income $ 474 $ 425
====== ======
(continued)
5
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Per share data:
Basic earnings $ 0.18 $ 0.16
Diluted earnings $ 0.18 $ 0.16
======== ========
Cash Dividends $ 0.05 $ ----
======== ========
6
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited) Three Months Ended March 31,
2003 2002
------ ------
(In thousands)
Net Income as Reported $ 474 $ 425
Other Comprehensive Income, Net of Tax
Change in unrealized gain on securities
available for sale and reclassification adjustment (162) (133)
------ ------
Comprehensive Income $ 312 $ 292
====== ======
7
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited) Three Months Ended March 31,
2003 2002
-------- --------
(In thousands)
Operating Activities
Net income $ 474 $ 425
Adjustments to reconcile net income to net cash flow
from operating activities:
Net premium of security discount 231 91
Net gain on sales and call of securities (154) (30)
Provision for credit losses 50 150
Depreciation expense 93 88
Deferred income tax (benefit) expense (51) 77
ESOP compensation expense 12 12
Decrease in accrued interest receivable 11 49
Decrease (increase) in other assets 463 (297)
(Decrease) increase in accrued interest payable (2) 37
Decrease in other liabilities (261) (75)
(Increase) decrease in loans held for sale (1,897) 4,051
-------- --------
Net Cash (Used in) Provided by Operating Activities (1,031) 4,578
Investing Activities
Maturities, calls, sales and prepayments of securities available
for sale 31,252 10,359
Purchase of securities available for sale (35,427) (14,570)
Maturities, calls, and prepayments of investment securities 193 159
Purchases of investment securities (100) ----
Increase in loans (12,634) (8,346)
Purchases of property and equipment (1,717) (112)
-------- --------
Net Cash Used in Investing Activities (18,433) (12,510)
Financing Activities
Net increase in demand and savings deposits 8,764 4,946
Net increase (decrease) in time deposits 12,055 (7,253)
Net increase (decrease) in short term borrowings 1,445 (130)
Increase in FHLB advances 2,000 3,000
Repayment of capitalized lease obligation (951) (43)
Payment of ESOP debt (13) (12)
Stock option exercise/award 319 ----
Cash dividends paid (134) ----
Repurchase of common stock (196) ----
-------- --------
Net Cash Provided by Financing Activities 23,288 508
-------- --------
Increase (decrease) in Cash and Cash Equivalents 3,824 (7,424)
Cash and Cash Equivalents at the Beginning of the Year 9,405 28,092
-------- --------
Cash and Cash Equivalents at the End of the Period $ 13,229 $ 20,668
======== ========
Supplemental Disclosure of Cash Flow Information:
Interest Paid $ 1,767 $ 1,603
Federal Taxes Paid $ ---- $ 298
======== ========
8
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion compares the financial condition of the Corporation and
its wholly owned subsidiaries at March 31, 2003 and December 31, 2002 and the
results of operations for the three months ended March 31, 2003 and 2002. This
discussion should be read in conjunction with the financial statements and
statistical data presented elsewhere in this report. This report contains
forward-looking statements that are based on management's beliefs, assumptions,
current expectations, estimates and projections about the financial services
industry, the economy, and about the Corporation and the Bank. Words such as
anticipates, believes, estimates, expects, forecasts, intends, is likely, plans,
projects, variations of such words and similar expressions are intended to
identify such forward-looking statements. These forward-looking statements are
intended to be covered by the safe-harbor provisions of the Private Securities
Litigation Reform Act of 1995. These statements are not guarantees of future
performance and involve certain risks, uncertainties and assumptions ("Future
Factors") that are difficult to predict with regard to timing, extent,
likelihood and degree of occurrence. Actual results and outcomes may materially
differ from what may be expressed or forecasted in the forward-looking
statements. The Corporation undertakes no obligation to update, amend, or
clarify forward looking statements, whether as a result of new information,
future events (whether anticipated or unanticipated), or otherwise.
Future Factors include changes in interest rate and interest rate relationships;
demand for products and services; the degree of competition by traditional and
non-traditional competitors; changes in banking regulation; changes in tax laws;
changes in accounting standards; changes in prices, levies, and assessments; the
impact of technological advances; governmental and regulatory policy changes;
the outcomes of contingencies; trends in customer behavior as well as their
ability to repay loans; changes in the national and local economy; and other
factors, including risk factors, referred to from time to time in filings made
by the Corporation with the Securities and Exchange Commission. These are
representative of the Future Factors that could cause a difference between an
ultimate actual outcome and a preceding forward-looking statement.
9
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
ASSETS
The Corporation's total assets have increased by $23.4 million, to $311.0
million at March 31, 2003, compared with $287.6 million at December 31, 2002.
The following table shows the amortized cost and estimated fair value of the
Corporation's security portfolio as of the dates indicated. On the balance
sheet, investment securities (i.e., those which the Corporation has the ability
and intent to hold to maturity) are stated at cost, adjusted for amortization of
premium or accretion of discount. Securities available for sale are shown on the
balance sheet at estimated fair value.
March 31, 2003 December 31, 2002
---------------- ------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ------- --------- -------
(In thousands)
Securities Available for Sale
U.S. Government agency debentures $21,285 $21,400 $15,705 $15,893
Mortgage backed securities 6,469 6,567 9,244 9,392
Fed Agency / Collateralized mortgage
obligations 21,470 21,429 20,846 20,949
Municipal bonds 11,549 11,656 10,881 10,966
------- ------- ------- -------
Total Securities Available for Sale 60,773 61,052 56,676 57,200
------- ------- ------- -------
Investment Securities
Mortgage backed securities 1,097 1,154 1,290 1,351
------- ------- ------- -------
Total Investment Securities 1,097 1,154 1,290 1,351
------- ------- ------- -------
Total Securities $61,870 $62,206 $57,966 $58,551
======= ======= ======= =======
10
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
Mortgage loans held for sale totaled $13.1 million at March 31, 2003 compared to
$11.2 million at December 31, 2002. The mortgage loans were originated by the
Mortgage Company, which started operations July 9, 2001. Loans closed generally
remain in loans held for sale for less than 30 days in duration. Loans are
normally committed for sale before funding takes place.
The Corporation makes loans to customers primarily in Macomb County, Michigan.
Although the Corporation has a diversified loan portfolio, a substantial portion
of the local economy has traditionally been dependent on the automotive
industry. Additionally, the Corporation had approximately $41.1 million in
outstanding loans at March 31, 2003, to commercial borrowers in the real estate
rental and property management industries.
A summary of nonperforming assets is as follows:
March 31, December 31,
2003 2002
--------- ---------
(In thousands)
Impaired loans:
Nonaccrual
Commercial $ 573 $ 427
Residential real estate 101 311
Installment 83 101
--------- ---------
Total nonaccruing loans 757 839
Loans past due 90 days and still accruing interest:
Installment 18 6
--------- ---------
Total loans past due 90 days and
still accruing interest 18 6
--------- ---------
Total nonaccruing and loans past due 90 days
and still accruing interest 775 845
Other real estate owned 320 320
--------- ---------
Total nonperforming assets $ 1,095 $ 1,165
========= =========
Total nonaccruing loans as a percentage of
total loans 0.35% 0.41%
========= =========
Total nonaccruing loans and loans past due
90 days or more and still accruing interest
as a percentage of total loans 0.36% 0.41%
========= =========
Total nonperforming assets as a percentage
of total assets 0.35% 0.41%
========= =========
The following table shows an analysis of the allowance for credit losses:
11
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
March 31, December 31, March 30,
2003 2002 2002
---------- ---------- ----------
(Dollars in thousands)
Allowance for credit losses at
beginning of period $ 3,377 $ 2,930 $ 2,930
Provision charged to expense 50 755 150
Loans charged off (14) (468) (102)
Loans recovered 8 160 36
---------- ---------- ----------
Allowance for credit losses at end of period $ 3,421 $ 3,377 $ 3,014
========== ========== ==========
Allowance for credit losses as a percentage
of portfolio loans at period end 1.58% 1.65% 1.85%
The allowance for credit losses as a percentage of total loans, was 1.58% at
March 31, 2003, versus 1.65% at December 31, 2002 and 1.85% at March 31, 2002.
The relative decrease of the allowance for credit losses as a percentage of
portfolio loans is attributable to several factors, including increases in
residential real estate loans which require a lower relative reserve allocation
compared to commercial type loans. Additional factors include overall credit
quality determinates and loan charge-offs experienced. In each accounting
period, management evaluates the problems and potential losses in the loan
portfolio. Consideration is also given to off-balance sheet items that may
involve credit risk, such as commitments to extend credit and financial
guarantees. Management's evaluation of the allowance is further based on
consideration of actual loss experience, the present and prospective financial
condition of borrowers, adequacy of collateral, industry concentrations within
the portfolio, and general economic conditions. Management believes that the
present allowance is adequate, based on the broad range of considerations listed
above.
The primary risk element considered by management regarding each installment and
residential real estate loan is lack of timely payment. Management has a
reporting system that monitors past due loans and has adopted policies to pursue
its creditor's rights in order to preserve the Bank's position. The primary risk
elements concerning commercial loans are the financial condition of the
borrower, the sufficiency of collateral, and lack of timely payment. Management
has a policy of requesting and reviewing financial statements from its
commercial loan customers, and periodically reviews existence of collateral and
its value.
Although management believes that the allowance for credit losses is adequate to
absorb losses as they arise, there can be no assurance that the Bank will not
sustain losses in any given period that could be substantial in relation to the
size of the allowance for credit losses.
12
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
LIABILITIES
During the three months ended March 31, 2003, total deposits increased by $20.8
million, to $221.5 million. The increase in deposits was attributable to
increases in non-interest bearing demand deposits of $3.5 million, an increase
in money market and NOW accounts of $5.1 million, and certificates of deposit of
$12.1 million. The quarterly growth in demand deposits was tied to initiatives
focused on organizations and businesses for payroll accounts and other related
services. Management attributes the growth experienced in NOW and money market
accounts from customers' preference for this type of deposit account given the
uncertainty of economy. The growth in certificates of deposit was aided by
increases in local municipal deposits. The Corporation has been utilizing
Federal Home Loan Bank ("FHLB") advances to better match against interest rate
risk as described below.
Short term borrowings at March 31 consisted of short term FHLB advances of $16.0
million and securities sold with an agreement to repurchase them the following
day of $9.4 million. Following are details of short term borrowings for the
dates indicated:
March 31, December 31,
2003 2002
----------- ------------
(Dollars in thousands)
Amount outstanding at end of period $25,451 $19,006
Weighted average interest rate on ending balance 2.13% 2.21%
Maximum amount outstanding at any month end
during the period $28,787 $21,932
FHLB ADVANCES
In June 2001, the Corporation started to borrow long-term advances from the FHLB
to fund fixed rate instruments and to minimize the interest rate risk associated
with certain fixed rate commercial mortgage loans and investment securities.
These advances are secured under a blanket security agreement by first mortgage
loans and the pledging of certain securities.
FHLB advances outstanding at March 31, 2003 were as follows:
Ending Average rate
Balance at end of period
------- ----------------
(Dollars in thousands)
Short-term FHLB advances $16,000 2.80%
Long-term FHLB advances 30,388 4.36%
------- ------
$46,388 3.82%
Long-term advances comprised ten advances with maturities ranging from May 2004
to December 2012.
13
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
LIQUIDITY AND CAPITAL RESOURCES
Following are selected capital ratios for the Corporation as of the dates
indicated, along with the minimum regulatory 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.
Minimum Ratio
March 31, December 31, March 31, for Capital
2003 2002 2002 Adequacy Ratio to be
----------------- -------------- ---------------
Capital Ratio Capital Ratio Capital Ratio Purposes "Well Capitalized"
------- ----- ------- ----- ------- ----- -------- ------------------
Tier I capital to risk-weighted assets
Consolidated $29,703 13.58% $29,067 14.06% $20,749 12.13% 4% NA
Bank only 28,804 13.20% 28,313 13.72% 19,664 11.51% 4% 6%
Total capital to risk-weighted assets
Consolidated $35,020 16.01% $34,394 16.64% $22,898 13.39% 8% NA
Bank only 31,541 14.45% 30,903 14.97% 21,811 12.76% 8% 10%
Tier I capital to quarterly average assets
Consolidated $29,703 10.06% $29,067 10.40% $20,749 8.60% 4% NA
Bank only 28,804 9.77% 28,313 10.14% 19,664 8.16% 4% 5%
During the second quarter of 1999, the Corporation established an employee stock
ownership plan ("ESOP"). The ESOP subsequently borrowed $500,000 from an
unrelated bank to finance the purchase of the Corporation's stock. The ESOP loan
has been recorded as if it was long term debt of the Corporation, with a
corresponding reduction in equity. Repayment of the loan will be made solely
from contributions by the Corporation, which has guaranteed the loan.
Community Central Capital Trust I, a business trust subsidiary of the
Corporation sold 10,000 Cumulative Preferred Securities ("trust preferred
securities") at $1,000.00 per trust preferred security in June 2002. The
proceeds from the sale of the trust preferred securities were used by the trust
to purchase an equivalent amount of subordinated debentures from the
Corporation. The trust preferred securities carry a variable rate of interest at
the three month libor plus 365 basis points, have a stated maturity of 30 years,
and, in effect, are guaranteed by the Corporation. The securities are redeemable
at par after 5 years. Distributions on the trust preferred securities are
payable quarterly on March 30, June 30, September 30 and December 30. The first
distribution was paid on September 30, 2002. Under certain circumstances,
distributions may be deferred for up to 20 calendar quarters. However, during
any such deferrals, interest accrues on any unpaid distributions at the rate of
the three month libor plus 365 basis points. The trust preferred securities are
carried on the Corporation's consolidated balance sheet as a liability and the
interest expense is recorded on the Corporation's consolidated statement of
income.
The Trust Preferred Securities qualify for up to 25% of Tier I Capital. Any
amount in excess of this limit may be included in Tier 2 Capital.
14
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
The following table shows the changes in stockholders' equity for the three
months ended March 31, 2003:
Additional Unearned Accumulated Other
Common Paid-In Retained Employee Comprehensive Total
Stock Capital Earnings Benefits Income Equity
--------- ----------- -------- --------- ---------------- ---------
Beginning balance, January 1 $ 13,329 $ 5,035 $ 3,759 ($321) $ 345 $ 22,147
Cash dividend ---- ---- (134) ---- ---- (134)
Stock option exercise/award 197 122 ---- ---- ---- 319
Repurchase of common stock (98) ---- (98) ---- ---- (196)
Net income ---- ---- 474 ---- ---- 474
Release of ESOP shares ---- ---- ---- 13 ---- 13
Other comprehensive income ---- ---- ---- ---- (162) (162)
--------- --------- --------- --------- --------------- ---------
Balance March 31, 2003 $ 13,428 $ 5,157 $ 4,001 ($308) $ 183 $ 22,461
========= ========= ========= ========= =============== =========
During the first quarter of 2003, a total of 39,385 shares were exercised under
the 1996 Stock Option Plan for Nonemployee Directors with an average exercise
price of $7.21 per share.
NET INTEREST INCOME
For the quarter ended March 31, 2003, net interest income increased by 6%, or
$118,000 over the first quarter of 2002. This was primarily attributable to an
expanded earning asset base, which was somewhat offset by a decrease in the net
interest margin. The net interest margin was effected by primarily lower loan
yields and the result of refinancing and removal of interest rate floors versus
interest rates on many time deposits, which could not be lowered
correspondingly. Net interest income for the three months ended March 31, 2003,
decreased $83,000 or 4%, as compared to the prior three month period. This was
due to significant refinancing of the commercial portfolio, affecting the yield
downward at a higher proportion than the overall cost of funds. The Corporation
continues to utilize advances from the Federal Home Loan Bank to insulate
interest rate risk when funding longer term fixed rate loans and investments.
The net interest margin decreased for the first quarter 2003 to 2.92% compared
with 3.37% for the first quarter of 2002. The net interest margin for the first
quarter 2003 on a fully taxable equivalent basis was 2.99% compared to the first
quarter of 2002 at 3.42%.
15
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
The following table shows the dollar amount of changes in net interest income
for each major category of interest earning asset and interest bearing
liability, and the amount of change attributable to changes in average balances
(volume) or average rates for the periods shown. Variances that are jointly
attributable to both volume and rate changes have been allocated to the volume
component.
Three Months Ended
March 31, 2003 vs. 2002
------------------------------------
Increase (Decrease)
Due to Changes In
----------------------
Total Volume Rate
and Both
-------- -------- --------
(In thousands)
Earning Assets - Interest Income
Federal funds sold $ (82) $ (52) $ (30)
Securities (21) 116 (137)
Loans 420 855 (435)
-------- -------- --------
Total 317 919 (602)
-------- -------- --------
Deposits and Borrowed Funds - Interest Expense
NOW and money market accounts 64 46 18
Savings deposits (10) (3) (7)
Time deposits (195) (26) (169)
FHLB and repo sweeps 246 261 (15)
Lease and ESOP (34) (9) (25)
Guaranteed preferred beneficial interest in
Corporation's subordinated debentures 128 128 ----
-------- -------- --------
Total 199 397 (198)
-------- -------- --------
Net Interest Income $ 118 $ 522 $ (404)
======== ======== ========
16
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
AVERAGE BALANCE SHEET
The following table shows the Corporation's consolidated average balances of
assets, liabilities, and stockholders' equity; the amount of interest income or
interest expense and the average yield or rate for each major category of
interest earning asset and interest bearing liability, and the net interest
margin, for the three month periods ended March 31, 2003 and 2002. Average loans
are presented net of unearned income, gross of the allowance for credit losses.
Interest on loans includes loan fees. Average securities are based on amortized
cost.
Three Months Ended March 31,
----------------------------------- -----------------------------------
2003 2002
---------- --------- --------- --------- --------- ---------
Average Average
Interest Rate Interest Rate
Average Income/ Earned/ Average Income/ Earned/
Balance Expense Paid Balance Expense Paid
---------- --------- --------- --------- --------- ---------
(In thousands)
Assets
Federal funds sold $ 6,316 $ 19 1.20% $ 23,689 $ 101 1.71%
Securities 61,302 540 3.52 48,092 561 4.67
Loans 218,598 3,294 6.03 161,832 2,874 7.10
---------- --------- --------- --------- --------- ---------
Total Earning Assets/
Total Interest Income 286,216 3,853 5.38 233,613 3,536 6.05
---------- --------- --------- --------- --------- ---------
Cash and due from banks 5,533 6,542
All other assets 3,378 1,025
---------- ---------
Total Assets $ 295,127 $ 241,180
========== =========
Liabilities and Equity
NOW and money market accounts $ 32,706 119 1.46 $ 20,094 55 1.09
Savings deposits 5,612 10 0.71 7,307 20 1.09
Time deposits 134,100 1,030 3.07 137,497 1,225 3.56
FHLB and repo sweeps 56,158 475 3.38 25,271 229 3.62
Capitalized lease and ESOP 337 3 3.56 1,343 37 11.02
Guaranteed preferred beneficial interest
in Corporation's subordinated debentures 10,000 128 5.12 ---- ---- ----
---------- --------- --------- --------- --------- ---------
Total Interest Bearing Liabilities/
Total Interest Expense 238,913 1,765 2.96 191,512 1,566 3.27
---------- --------- --------- --------- --------- ---------
Noninterest bearing demand deposits 33,276 28,217
All other liabilities 926 630
Stockholders' equity 22,012 20,821
---------- ---------
Total Liabilities and Equity $ 295,127 $ 241,180
========== =========
Net Interest Income $ 2,088 $ 1,970
========= =========
Net Interest Margin (Net Interest
Income/Total Earning Assets) 2.92% 3.37%
========= =========
Net Interest Margin
(fully taxable equivalent) 2.99% 3.42%
========= =========
17
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
NONINTEREST INCOME
Noninterest income increased by $895,000, or 144.1%, for the first quarter of
2003 versus the first quarter of 2002. Mortgage banking income of $1.3 million
provided the largest sector of growth in noninterest income. The largest
components of noninterest income are mortgage banking income and service charge
fee income. The mortgage banking income consisted of origination fee income
received by the Mortgage Company upon the sale of residential mortgages.
The Mortgage Company commenced operations on July 9, 2001. The Bank contributed
its residential real estate portfolio and home equity lines of credit to the
Mortgage Company. The Mortgage Company originates mortgage loans primarily for
sale to the secondary market. The Mortgage Company has the Bank service the
mortgages that it does not sell in the secondary market.
Net security gains of $154,000 for the first quarter of 2003 were comprised of
$155,000 in gross gains and $1,000 in security losses on securities classified
as "available for sale." Gains and losses were the result of portfolio
restructuring.
NONINTEREST EXPENSE
Noninterest expense increased over the first quarter of 2002 by $1.0 million, or
58.4%, to $2.9 million in 2003. The increase in salary benefits and payroll
taxes relates primarily to the employees of the Mortgage Company and represents
the commissions paid to its mortgage loan originators. The offsetting
origination income is shown under mortgage banking income. Total consolidated
noninterest expense without the mortgage subsidiary, decreased $26,000, or 2%
over the first quarter 2002.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2002, Statement of Financial Accounting Standards No. 148,
Accounting for Stock-Based Compensation -- Transition and Disclosure, (SFAS
148), an amendment of Statement of Financial Accounting Standards No. 123 (SFAS
123) was issued. SFAS 148 amends the disclosure requirements of SFAS 123 to
require more prominent and more frequent disclosures in both annual and interim
financial statements about the accounting for stock-based employee compensation
and the effect of the method used on reported results. SFAS 148 was adopted by
the Corporation in 2002 and did not have a material effect on the consolidated
financial position or results of operations.
18
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
The corporation did not issue options during the first quarter of 2003 and had
not during the first quarter of 2002. If the Corporation had used the fair value
method of accounting, using the Black Scholes option pricing model and
recognizing compensation cost for the plan based on the fair value of awards at
the grant date, net income and earnings per share on a pro forma basis would
have been as follows:
Three Months Ended March 31,
2003 2002
--------- ---------
(In thousands, except per share data)
Net income, as reported $ 474 $ 425
Deduct: Total stock-based employee and director
compensation expense under fair value based
methods of awards, net of related tax effects (28) (13)
--------- ---------
Pro forma net income $ 446 $ 412
========= =========
Earnings per share
Basic -- as reported $ 0.18 $ 0.16
Basic -- pro forma $ 0.17 $ 0.16
Diluted -- as reported $ 0.18 $ 0.16
Diluted -- pro forma $ 0.18 $ 0.16
The fair value of each option grant is estimated on the date of grant using the
Black Scholes option pricing model with the following weighted average
assumptions. No options were issued during the respective quarterly reporting
periods. The assumptions listed below were used in 2002 for valuation with no
practical change in the first quarter.
Three Months Ended March 31,
2003 2002
------- -------
Dividend yield or expected dividends 2.03% 2.03%
Risk free interest rate 4.00% 4.00%
Expected life 10 yrs. 10 yrs.
Expected volatility 21.92% 21.92%
19
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
LIQUIDITY AND CAPITAL RESOURCES
The liquidity of a bank allows it to provide funds to meet loan requests, to
accommodate possible outflows in deposits, and to take advantage of other
investment opportunities. Funding of loan requests, providing for liability
outflows, and managing interest rate margins require continuous analysis to
match the maturities of specific categories of loans and investments with
specific types of deposits and borrowings. Bank liquidity depends upon the mix
of the banking institution's potential sources and uses of funds. The major
sources of liquidity for the Bank have been deposit growth, federal funds sold,
loans and securities which mature within one year, and sales of residential
mortgage loans. Additional liquidity is provided by a $5.0 million unsecured
federal funds borrowing facility, and a $75.0 million secured line of credit
with the FHLB. Large deposit balances which might fluctuate in response to
interest rate changes are closely monitored. These deposits consist mainly of
jumbo time certificates of deposit. We anticipate that we will have sufficient
funds available to meet our future commitments. As of March 31, 2003 unused
commitments comprised $60.7 million. On February 18, 2003, the Corporation's
Board of Directors declared the Corporation's fourth quarterly cash dividend of
$0.05 per common share, payable April 1, 2003, to shareholders of record March
3, 2003.
ASSET/LIABILITY MANAGEMENT
The Corporation's Asset Liability Management Committee ("ALCO"), which meets at
least quarterly, is responsible for reviewing the interest rate sensitivity
position of the Corporation and establishing policies to monitor and limit
exposure to interest rate risk.
The Corporation currently utilizes two quantitative tools to measure and monitor
interest rate risk: static gap analysis and net interest income simulation
modeling. Each of these interest rate risk measurements has limitations, but
management believes when these tools are evaluated together, they provide a
balanced view of the exposure the Corporation has to interest rate risk.
20
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
The following table shows the maturity and repricing distribution of the
Corporation's interest-earning assets and interest-bearing liabilities as of
March 31, 2003. This table displays the interest rate sensitivity gap (interest
rate sensitive assets less interest rate sensitive liabilities), cumulative
interest rate sensitivity gap, the interest rate sensitivity gap ratio (interest
rate sensitive assets divided by interest rate sensitive liabilities), and the
cumulative interest rate sensitivity gap ratio. Loans are presented net of
unearned income, gross of allowance, while securities are shown at amortized
cost. Assumptions incorporated into the time table include estimates of partial
redemptions on Now, Money Market and savings accounts. Prepayment of loans and
securities are also included at current levels as of March 31, 2003.
Additionally, many variable rate loans have interest rate floors which are
incorporated in this table.
After Three After One
Within Months But Year But After
Three Within One Within Five
Months Year Five Years Years Total
---------- ------------ ---------- ---------- ----------
(in thousands)
Interest earning assets:
Federal funds sold $ 5,900 $ ---- $ ---- $ ---- $ 5,900
Securities 14,993 15,624 17,565 13,688 61,870
FHLB stock ---- ---- ---- 2,319 2,319
Portfolio loans and
held for resale 71,378 29,016 83,879 45,546 229,819
---------- ---------- ---------- ---------- ----------
Total 92,271 44,640 101,444 61,553 $ 299,908
---------- ---------- ---------- ---------- ==========
Interest bearing liabilities:
NOW and money market
accounts 5,315 15,782 15,565 ---- $ 36,662
Savings deposits 439 1,371 3,672 ---- 5,482
Jumbo time deposits 44,909 21,506 21,293 2,594 90,302
Time deposits < $100,000 17,497 9,918 24,655 1,270 53,340
Repurchase agreements 9,451 ---- ---- ---- 9,451
FHLB and repo sweeps 5,000 11,000 15,000 15,388 46,388
Capitalized lease obligation
and ESOP payable 308 ---- ---- ---- 308
Guaranteed preferred beneficial
interest in Corporation's
subordinated debentures 10,000 ---- ---- ---- 10,000
---------- ---------- ---------- ---------- ----------
Total 92,919 59,577 80,185 19,252 $ 251,933
---------- ---------- ---------- ---------- ==========
Interest rate sensitivity gap ($648) ($14,937) $21,259 $ 42,301
Cumulative interest rate
sensitivity gap ($15,585) $ 5,674 $ 47,975
Interest rate sensitivity gap
ratio 0.99 0.75 1.27 3.20
Cumulative interest rate
sensitivity gap ratio 0.90 1.02 1.19
The table above indicates the time periods in which interest earning assets and
interest bearing liabilities will mature or may be repriced, generally according
to their contractual terms. However, this table does not necessarily indicate
the impact that general interest rate movements would have on the Corporation's
net interest margin, because the repricing of certain assets and liabilities is
discretionary, and is subject to competitive and other pressures. As a result,
various assets and liabilities indicated as repricing within the same period
may, in fact, reprice at different times and at different rate levels.
21
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
At March 31, 2003, the Corporation is considered evenly matched in the time
interval of the first three months, according to the preceding table. The
Corporation is considered to be somewhat liability sensitive at the one year
accumulated gap position.
On a quarterly basis, the net interest income simulation model is used to
quantify the effects of hypothetical changes in interest rates on the
Corporation's net interest income over a projected twelve-month period. The
model permits management to evaluate the effects of shifts in the Treasury Yield
curve, upward and downward, on net interest income expected in a stable interest
rate environment.
As of December 31, 2002, the most recent and available analysis, the simulation
model projects net interest income would increase by 3.0% of the base net
interest income, assuming an instantaneous parallel shift upward in the yield
curve by 200 basis points. Conversely, if the yield curve were to decrease by
200 basis points, the model projects net interest income would decrease by 2.3%.
ITEM 3. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures: An evaluation of the
Corporation's disclosure controls and procedures (as defined in Section
13(a)-14(c) of the Securities and Exchange Act of 1934 ("Act")) 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 within the 90-day period preceding the filing
date of this quarterly report. The Corporation's Chief Executive Officer and
Chief Financial Officer concluded that the Corporation's disclosure controls and
procedures are currently in effect are effective in ensuring that the
information required to be disclosed by the Corporation in the report it files
or submits under the Act is (i) accumulated and communicated to the
Corporation's management (including the Chief Executive Officer and Chief
Financial Officer) in a timely manner, and (ii) recorded, processed, summarized
and reported within the time periods specified in the SEC's rules and forms.
Changes in Internal Controls: In the quarter ended March 31, 2003, the
Corporation did not make any significant changes in, nor take any corrective
actions regarding, its internal controls or other factors that could
significantly affect these controls.
22
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
PART II
ITEM 1. LEGAL PROCEEDINGS
As a depository of funds, the Bank is occasionally named as a defendant in
lawsuits (such as garnishment proceedings) involving claims to the ownership of
funds in particular accounts. Such litigation is incidental to the Bank's
business. Management is not aware of any threatened or pending litigation in
which the Corporation or the Bank is likely to experience loss or exposure which
would materially affect the Corporation's capital resources, results of
operations, or liquidity.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Cash Dividend -- On February 18, 2003, the Corporation's Board of Directors
declared the Corporation's fourth quarterly cash dividend of $0.05 per common
share, payable April 1, 2003, to shareholders of record March 3, 2003.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits: See Exhibit Index attached.
(b) Reports on Form 8-K: None
23
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized, on May 14, 2003.
COMMUNITY CENTRAL BANK CORPORATION
By: /S/ DAVID A. WIDLAK
-------------------
David A. Widlak;
Chairman of the Board and CEO
(Principal Executive Officer)
By: /S/ RAY T. COLONIUS
-------------------
Ray T. Colonius;
Treasurer
(Principal Financial and Accounting Officer)
24
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
CERTIFICATION
I, David A. Widlak, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Community
Central Bank Corporation.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report.
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report.
4. The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during
the period in which this quarterly report is being
prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report (the
"Evaluation Date"); and
c. presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b. any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 14, 2003
By: /s/ David A. Widlak
----------------------------------------
David A. Widlak
Chairman of the Board and CEO
(Principal Executive Officer)
25
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
CERTIFICATION
I, Ray T. Colonius, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Community
Central Bank Corporation.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report.
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report.
4. The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during
the period in which this quarterly report is being
prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report (the
"Evaluation Date"); and
c. presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
d. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
e. any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 14, 2003
By: /s/ Ray T. Colonius
----------------------------------------
Ray T. Colonius
Treasurer
(Principal Financial and Accounting Officer)
26
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------ -------------------
3.1 Articles of Incorporation are incorporated by reference to exhibit 3.1 of the
Corporation's Registration Statement on Form SB-2 (Commission File Number
333-04113) which became effective on September 23, 1996
3.2 Bylaws of the Corporation, as amended and currently in effect
4.1 Specimen of Stock Certificate of Community Central Bank Corporation is
incorporated by reference to Exhibit 4.2 of the Corporation's Registration
Statement on Form SB-2 (Commission File No. 333-4113) which became effective
on September 23, 1996
10.1 1996 Employee Stock Option Plan is incorporated by reference to exhibit 10.1
of the Corporation's Registration Statement on Form SB-2 (Commission File No.
333-04113) which became effective September 23, 1996 (management contract or
compensatory plan)
10.2 1996 Stock Option Plan for Nonemployee Directors is incorporated by reference to
exhibit 10.2 of the Corporation's Registration Statement on Form SB-2
(Commission File No. 333-04113) which became effective September 23, 1996
(management contract or compensatory plan)
10.3 Lease Agreement between the Corporation and T.A.P. Properties, LLC, dated
May 16, 1996, in incorporated by reference to exhibit 10.3 of the
Corporation's Registration Statement on Form SB-2 (Commission File No. 333-04113)
which became effective September 23, 1996.
10.4 Vicant Office Building Lease Agreement dated April 1, 1997, between Gebran S.
Anton, Jr. and the Bank is incorporated by reference to exhibit 10.5 of the
Corporation's Registration Statement on Form SB-2 (Commission File No.
333-58475) which became effective August 25, 1998.
10.5 1999 Stock Option Plan for Directors in incorporated by reference to exhibit
10.5 of the Corporation's Annual Report to the SEC on Form 10-KSB for the year
ending December 31, 1999 (Commission File No. 000-33373) (management contract
or compensatory plan)
10.6 2000 Employee Stock Option Plan is incorporated by reference to exhibit 10.6
of the Corporation's Annual Report to the SEC on Form 10-KSB for the year
ending December 31, 2000 (Commission File No. 000-33373) (management contract
or compensatory plan)
10.7 2002 Incentive Plan (management contract or compensatory plan) is incorporated
by reference to exhibit 10.7 of the Corporation's Annual Report to the SEC on
Form 10-KSB for the year ending December 31, 2001 (Commission File No.
000-33373) (management contract or compensatory plan)
11 Computation of Per Share Earnings
99.1 Certification pursuant to 906 of the Sarbanes-Oxley Act of 2002
27