UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2003
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Commission File No. 000-33373
COMMUNITY CENTRAL BANK CORPORATION
----------------------------------
(Exact name of small business issuer as specified in its charter)
Michigan 38-3291744
-------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
100 North Main Street, PO Box 7, Mount Clemens, MI 48046-0007
-------------------------------------------------------------
(Address of principal executive offices and zip code)
(586) 783-4500
--------------
(Issuer's telephone number)
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Class Outstanding at August 11, 2003
----- ------------------------------
Common Stock, $5 stated value 2,717,775 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 June 30, 2003
and December 31, 2002, and Consolidated Statements of Income, Comprehensive
Income, and Cash Flow for the six month periods ended June 30, 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.
CRITICAL ACCOUNTING POLICIES
The accounting and reporting policies of the Corporation conform to accounting
principles generally accepted in the United States of America and general
practices within the banking industry. The following describes the critical
accounting policies, which are employed in the preparation of financial
statements.
Allowance for Credit Losses: The allowance for credit losses is maintained at a
level considered by management to be adequate to absorb losses inherent in
existing loans and loan commitments. The adequacy of the allowance is based on
evaluations that take into consideration such factors as prior loss experience,
changes in the nature and volume of the portfolio, overall portfolio quality,
loan concentrations, specific impaired or problem loans and commitments, current
and anticipated economic conditions that may affect the borrower's ability to
pay, and other subjective factors. The determination of the allowance is also
based on regulatory guidance. This guidance includes, but is not limited to,
generally accepted accounting principles, and guidance issued from other
regulatory bodies such as the joint policy statement issued by the Federal
Financial Institutions Examination Council.
2
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
2003 2002
--------- ------------
Assets (In thousands)
Cash and due from banks $ 1,418 $ 6,405
Federal funds sold 18,200 3,000
--------- ---------
Cash and Cash Equivalents 19,618 9,405
--------- ---------
Securities available for sale, at fair value 48,742 57,200
Investment securities, at amortized cost 978 1,290
FHLB stock 2,664 2,219
Residential mortgage loans held for sale 16,688 11,245
Loans
Residential mortgage loans 57,420 46,322
Commercial loans 158,329 152,044
Installment loans 8,481 5,683
--------- ---------
Total Loans 224,230 204,049
Allowance for credit losses (3,421) (3,377)
--------- ---------
Net Loans 220,809 200,672
--------- ---------
Net property and equipment 3,518 1,886
Other real estate owned 320 320
Accrued interest receivable 1,148 1,270
Other assets 8,829 2,129
--------- ---------
Total Assets $ 323,314 $ 287,636
========= =========
(continued)
3
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
2003 2002
--------- ------------
Liabilities (In thousands, except share data)
Deposits
Noninterest bearing demand deposits $ 37,186 $ 32,235
NOW and money market accounts 40,834 31,565
Savings deposits 5,721 5,332
Time deposits 144,295 131,587
--------- ---------
Total deposits 228,036 200,719
--------- ---------
Repurchase agreements 7,425 8,006
Federal Home Loan Bank advances 53,288 44,388
Accrued interest payable 438 483
Other liabilities 642 621
Capitalized lease obligation -- 951
ESOP note payable 296 321
Guaranteed preferred beneficial interest in
the Corporation's subordinated debentures 10,000 10,000
--------- ---------
Total Liabilities 300,125 265,489
--------- ---------
Stockholders' Equity
Common stock -- $5 stated value;
9,000,000 shares authorized;
2,708,275 shares issued and
outstanding at 6-30-2003, and
2,665,778 at 12-31-2002 13,541 13,329
Additional paid-in capital 5,255 5,035
Retained earnings 4,392 3,759
Unearned employee benefit (295) (321)
Accumulated other comprehensive income 296 345
--------- ---------
Total Stockholders' Equity 23,189 22,147
--------- ---------
Total Liabilities and Stockholders' Equity $ 323,314 $ 287,636
========= =========
4
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
---- ---- ---- ----
(In thousands, except per share data)
Interest Income
Loans (including fees) $3,520 $2,976 $6,814 $5,850
Securities 486 576 1,026 1,137
Federal funds sold 27 61 46 162
------ ------ ------ ------
Total Interest Income 4,033 3,613 7,886 7,149
------ ------ ------ ------
Interest Expense
Deposits 1,171 1,234 2,330 2,534
Short term borrowings 23 32 53 74
Advances from FHLB 464 202 909 389
Capitalized lease obligation -- 33 -- 66
ESOP loan interest expense 4 4 7 8
Interest expense of guaranteed preferred
beneficial interest in Corporation's
subordinated debentures 129 6 257 6
------ ------ ------ ------
Total Interest Expense 1,791 1,511 3,556 3,077
------ ------ ------ ------
Net Interest Income 2,242 2,102 4,330 4,072
Provision for credit losses 25 165 75 315
------ ------ ------ ------
Net Interest Income after Provision 2,217 1,937 4,255 3,757
------ ------ ------ ------
Noninterest Income
Deposit service charges 56 52 107 106
Net realized security gain 253 4 407 34
Mortgage banking income 2,330 983 3,608 1,451
Other income 83 43 116 112
------ ------ ------ ------
Total Noninterest Income 2,722 1,082 4,238 1,703
------ ------ ------ ------
Noninterest Expense
Salaries, benefits, and payroll taxes 2,681 1,370 4,542 2,317
Premises and fixed asset expense 302 270 590 503
Other operating expense 1,191 764 1,929 1,406
------ ------ ------ ------
Total Noninterest Expense 4,174 2,404 7,061 4,226
------ ------ ------ ------
Income Before Taxes 765 615 1,432 1,234
Provision for income taxes 238 196 431 390
------ ------ ------ ------
Net Income $ 527 $ 419 $1,001 $ 844
====== ====== ====== ======
Per share data:
Basic earnings $ 0.20 $ 0.16 $ 0.38 $ 0.32
Diluted earnings $ 0.20 $ 0.16 $ 0.37 $ 0.32
====== ====== ====== ======
Cash Dividends $ 0.05 $ 0.05 $ 0.10 $ 0.05
====== ====== ====== ======
5
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
---- ---- ---- ----
(In thousands)
Net Income as Reported $ 527 $ 419 $ 1,001 $ 844
Other Comprehensive Income, Net of Tax
Change in unrealized gain on securities
Available for sale and reclassification adjustment 113 230 (49) 96
------- ------- ------- -------
Comprehensive Income $ 640 $ 649 $ 952 $ 940
======= ======= ======= =======
6
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
Six Months Ended June 30,
2003 2002
-------- --------
(In thousands)
Operating Activities
Net income $ 1,001 $ 844
Adjustments to reconcile net income to net cash flow
from operating activities:
Net premium of security discount 423 152
Net gain on sales and call of securities (407) (34)
Provision for credit losses 75 315
Depreciation expense 192 190
Deferred income tax expense (78) (202)
ESOP compensation expense 25 25
Decrease in accrued interest receivable 122 82
(Increase) in other assets (6,594) (995)
(Decrease) in accrued interest payable (45) (11)
(Decrease) in other liabilities 21 114
(Increase) in loans held for sale (5,443) (2,526)
-------- --------
Net Cash (Used in) Operating Activities (10,708) (2,046)
Investing Activities
Maturities, calls, sales and prepayments of
securities available for sale 61,802 26,438
Purchase of securities available for sale (53,435) (28,973)
Maturities, calls, and prepayments of investment securities 312 335
Purchases of investment securities (445) --
Increase in loans (20,212) (16,656)
Purchases of property and equipment (1,824) (285)
-------- --------
Net Cash Used in Investing Activities (13,802) (19,141)
Financing Activities
Net increase in demand and savings deposits 9,416 12,569
Net increase (decrease) in time deposits 17,901 (2,881)
Net (decrease) increase in short term borrowings (581) 348
Guaranteed preferred beneficial interest in Corporation's
Subordinated debentures -- 10,000
Increase in FHLB advances 8,900 4,000
Repayment of capitalized lease obligation (951) (87)
Payment of ESOP debt (26) (25)
Stock option exercise/award 530 --
Cash dividends paid (270) --
Repurchase of common stock (196) --
-------- --------
Net Cash Provided by Financing Activities 34,723 23,924
-------- --------
Increase in Cash and Cash Equivalents 10,213 2,737
Cash and Cash Equivalents at the Beginning of the Year 9,405 28,092
-------- --------
Cash and Cash Equivalents at the End of the Period $ 19,618 $ 30,829
======== ========
Supplemental Disclosure of Cash Flow Information:
Interest Paid $ 3,660 $ 3,088
Federal Taxes Paid $ 455 $ 589
======== ========
7
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion compares the financial condition of the Corporation and
its wholly owned subsidiaries at June 30, 2003 and December 31, 2002 and the
results of operations for the three and six months ended June 30, 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; our ability
to successfully integrate acquisitions into our existing operations, and the
availability of new acquisition's that build shareholder value; and other
factors, including risk factors, referred to from time to time in filings made
by the Corporation with the Securities and Exchange Commission. These are
representative of the Future Factors that could cause a difference between an
ultimate actual outcome and a preceding forward-looking statement.
8
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
ASSETS
The Corporation's total assets have increased by $35.7 million, to $323.3
million at June 30, 2003, compared with $287.6 million at December 31, 2002.
The largest segment of asset growth occurred in the loan portfolio and
residential mortgages held for sale, which had a combined increase of $25.6
million from December 31, 2002. Other changes in assets during the same time
period included repositioning of the investment portfolio to reduce its overall
duration and the purchase of $7.0 million in bank owned life insurance. The bank
owned life insurance was purchased in connection with the supplemental executive
retirement plan entered into between the Corporation and key corporate officers.
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.
June 30, 2003 December 31, 2002
-------------------- ----------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ----- --------- -----
(In thousands)
Securities Available for Sale
U.S. Government agency debentures $13,767 $13,842 $15,705 $15,893
Mortgage backed securities 7,342 7,441 9,244 9,392
Fed Agency / Collateralized mortgage
obligations 18,879 18,975 20,846 20,949
Municipal bonds 8,305 8,484 10,881 10,966
------- ------- ------- -------
Total Securities Available for Sale 48,293 48,742 56,676 57,200
------- ------- ------- -------
Investment Securities
Mortgage backed securities 978 1,053 1,290 1,351
------- ------- ------- -------
Total Investment Securities 978 1,053 1,290 1,351
------- ------- ------- -------
Total Securities $49,271 $49,795 $57,966 $58,551
======= ======= ======= =======
9
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
Mortgage loans held for sale totaled $16.7 million at June 30, 2003 compared to
$11.2 million at December 31, 2002. The mortgage loans were originated by the
Bank's mortgage subsidiary, which started operations July 9, 2001. Loans closed
generally remain in loans held for sale for less than 30 days in duration. Loans
are normally committed for sale before funding takes place.
The 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 $43 million in
outstanding loans at June 30, 2003, to commercial borrowers in the real estate
rental and property management industries.
A summary of nonperforming assets is as follows:
June 30, December 31,
2003 2002
--------- ------------
(In thousands)
Impaired loans:
Nonaccrual
Commercial $ 487 $ 427
Residential real estate 102 311
Installment -- 101
------ ------
Total nonaccruing loans 589 839
Loans past due 90 days and still accruing interest:
Mortgage 116 --
Installment 4 6
------ ------
Total loans past due 90 days and
still accruing interest 120 6
------ ------
Total nonaccruing loans and loans past due
90 days and still accruing interest 709 845
Other real estate owned 320 320
------ ------
Total nonperforming assets $1,029 $1,165
====== ======
Total nonaccruing loans as a percentage of
total loans 0.26% 0.41%
====== ======
Total nonaccruing loans and loans past due
90 days or more and still accruing interest
as a percentage of total loans 0.32% 0.41%
====== ======
Total nonperforming assets as a percentage
of total assets 0.32% 0.41%
====== ======
10
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
The following table shows an analysis of the allowance for credit losses:
June 30, December 31,
2003 2002
------- ------------
(Dollars in thousands)
Allowance for credit losses at
beginning of period $ 3,377 $ 2,930
Provision charged to expense 75 755
Loans charged off (49) (468)
Loans recovered 18 160
------- -------
Allowance for credit losses at end of period $ 3,421 $ 3,377
======= =======
Allowance for credit losses as a percentage
of portfolio loans at period end 1.53% 1.65%
The allowance for credit losses as a percentage of total loans, was 1.53% at
June 30, 2003, versus 1.65% at December 31, 2002. The relative decrease of the
allowance for credit losses as a percentage of portfolio loans is attributable
to several factors, a relatively low level of loan net charge offs, comprising 3
basis points of average year to date loans on an annualized basis, increases in
residential real estate loans which require a lower relative reserve allocation
compared to commercial type loans, and overall credit quality. 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 Corporation will
not sustain losses in any given period that could be substantial in relation to
the size of the allowance for credit losses.
11
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
LIABILITIES
During the six months ended June 30, 2003, total deposits increased by $27.3
million, to $228.0 million. The increase in deposits was attributable to
increases in non-interest bearing demand deposits of $5.0 million, an increase
in money market and NOW accounts of $9.3 million, and certificates of deposit
and savings of $13.0 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 June 30 consisted of short term FHLB advances of $14.9
million and securities sold with an agreement to repurchase them the following
day of $7.4 million. Following are details of short term borrowings for the
dates indicated:
June 30, December 31,
2003 2002
-------- -----------
(Dollars in thousands)
Amount outstanding at end of period $22,325 $19,006
Weighted average interest rate on ending balance 1.74% 2.21%
Maximum amount outstanding at any month end
during the period $22,325 $21,932
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 June 30, 2003 were as follows:
Ending Average rate
Balance at end of period
------- ----------------
(Dollars in thousands)
Short-term FHLB advances $14,900 2.24%
Long-term FHLB advances 38,388 4.03%
------- ----
$53,288 3.53%
Long-term advances comprised twenty-five advances with maturities ranging from
July 2004 to December 2012.
12
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
LIQUIDITY AND CAPITAL RESOURCES
Following are selected capital ratios for the Corporation and the Bank 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.
June 30, December 31, Minimum Ratio
2003 2002 for Capital
---------------- ---------------- Adequacy Ratio to be
Capital Ratio Capital Ratio Purposes "Well Capitalized"
------- ----- ------- ----- -------------- ------------------
Tier I capital to risk-weighted assets
Consolidated $30,524 13.09% $29,067 14.06% 4% NA
Bank only 29,340 12.62% 28,313 13.72% 4% 6%
Total capital to risk-weighted assets
Consolidated $35,814 15.36% $34,394 16.64% 8% NA
Bank only 32,253 13.87% 30,903 14.97% 8% 10%
Tier I capital to quarterly average assets
Consolidated $30,524 9.65% $29,067 10.40% 4% NA
Bank only 29,340 9.30% 28,313 10.14% 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 third party 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 and distributions have been made
quarterly ever since. Under certain circumstances, distributions may be deferred
for up to 20 calendar quarters. However, during any such deferrals, interest
accrues on any unpaid distributions at the rate of the three month libor plus
365 basis points. The trust preferred securities are carried on the
Corporation's consolidated balance sheet as a liability and the interest expense
is recorded on the Corporation's consolidated statement of income.
The Trust Preferred Securities qualify for up to 25% of Tier I Capital. Any
amount in excess of this limit may be included in Tier 2 Capital.
13
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
The following table shows the changes in stockholders' equity for the six months
ended June 30, 2003:
Additional Unearned Accumulated Other
Common Paid-In Retained Employee Comprehensive Total
Stock Capital Earnings Benefits Income/(Loss) Equity
-------- ---------- -------- -------- ----------------- --------
Beginning balance, January 1 $ 13,329 $ 5,035 $ 3,759 ($ 321) $ 345 $ 22,147
Cash dividend -- -- (270) -- -- (270)
Stock option exercise/award 310 220 -- -- -- 530
Repurchase of common stock (98) -- (98) -- -- (196)
Net income -- -- 1,001 -- -- 1,001
Release of ESOP shares -- -- -- 26 -- 26
Dividend paid from subsidiary -- -- (460) -- -- (460)
Dividend received from Holding Co -- -- 460 -- -- 460
Change in unrealized gain/loss -- -- -- -- (49) (49)
-------- -------- -------- -------- -------- --------
Balance June 30, 2003 $ 13,541 $ 5,255 $ 4,392 ($ 295) $ 296 $ 23,189
======== ======== ======== ======== ======== ========
During the second quarter of 2003, a total of 19,412 shares were exercised under
the 1996 Stock Option Plan for Nonemployee Directors with an average exercise
price of $7.10 per share.
NET INTEREST INCOME
For the quarter ended June 30, 2003, net interest income increased by 6.7%, or
$140,000 over the second 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 affected by primarily lower loan
yields and the result of refinancing and removal of interest rate floors on many
loans due to competitive pressures versus interest rates on many time deposits,
which could not be lowered correspondingly. Net interest income for the second
quarter of 2003 increased $154,000, or 7.4% from 1st quarter. This was due in
part to the repricing of deposit liabilities from maturities at significantly
lower rates, coupled with lowering other deposit product interest rates, as
compared to the prior three month period. The Corporation continues to utilize
advances from the Federal Home Loan Bank to control interest rate risk when
funding longer term fixed rate loans and investments. The net interest margin
decreased for the second quarter 2003 to 2.96% compared with 3.48% for the
second quarter of 2002. The net interest margin for the second quarter 2003 on a
fully taxable equivalent basis was 3.03% compared to the second quarter of 2002
at 3.65%.
14
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
The following table shows the dollar amount of changes in net interest income
for each major category of interest earning asset and interest bearing
liability, and the amount of change attributable to changes in average balances
(volume) or average rates for the periods shown. Variances that are jointly
attributable to both volume and rate changes have been allocated to the volume
component.
Three Months Ended Six Months Ended
June 30, 2003 vs. 2002 June 30, 2003 vs. 2002
---------------------------------- -----------------------------------
Increase (Decrease) Increase (Decrease)
Due to Changes In Due to Changes In
---------------------- ----------------------
Total Volume Rate Total Volume Rate
and Both and Both
------- --------- ------- ------- -------- -------
(in thousands)
Earning Assets - Interest Income
Federal funds sold ($ 34) ($ 16) ($ 18) ($ 116) ($ 68) ($ 48)
Securities (90) 102 (192) (111) 219 (330)
Loans 544 924 (380) 964 1,780 (816)
------- ------- ------- ------- ------- -------
Total 420 1,010 (590) 737 1,931 (1,194)
------- ------- ------- ------- ------- -------
Deposits and Borrowed Funds -
Interest Expense
NOW and money market accounts 39 44 (5) 103 90 13
Savings deposits (8) (3) (5) (18) (6) (12)
Time deposits (94) 80 (174) (289) 56 (345)
FHLB and repo sweeps 253 287 (35) 499 548 (49)
Lease and ESOP (33) (13) (19) (67) (22) (45)
Guaranteed preferred beneficial
interest in Corporation's
subordinated debentures 123 123 -- 251 251 --
------- ------- ------- ------- ------- -------
Total 280 518 (238) 479 917 (438)
------- ------- ------- ------- ------- -------
Net Interest Income $ 140 $ 492 ($ 352) $ 258 $ 1,014 ($ 756)
======= ======= ======= ======= ======= =======
15
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 and six month periods ended June 30, 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 June 30,
------------------------------------ -----------------------------------
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 $ 8,967 $ 27 1.20% $ 14,376 $ 61 1.70%
Securities 57,418 486 3.39 45,316 576 5.08
Loans 236,226 3,520 5.96 174,204 2,976 6.83
-------- -------- ---- -------- -------- -----
Total Earning Assets/
Total Interest Income 302,611 4,033 5.33 233,896 3,613 6.18
-------- -------- ---- -------- -------- -----
Cash and due from banks 5,956 6,196
All other assets 7,602 1,392
-------- --------
Total Assets $316,169 $241,484
======== ========
Liabilities and Equity
NOW and money market accounts $ 38,555 113 1.17 $ 23,581 74 1.26
Savings deposits 5,637 9 0.64 7,428 17 0.92
Time deposits 142,367 1,049 2.95 131,496 1,143 3.48
FHLB and repurchase agreements 59,396 487 3.28 24,434 235 3.85
Capitalized lease and ESOP 304 4 5.26 1,320 36 10.91
Guaranteed preferred
beneficial interest
in Corporation's subordinated
debentures 10,000 129 5.16 440 6 5.45
-------- -------- ---- -------- -------- -----
Total Interest Bearing Liabilities/
Total Interest Expense 256,259 1,791 2.80 188,699 1,511 3.20
-------- -------- ---- -------- -------- -----
Noninterest bearing demand deposits 36,185 30,910
All other liabilities 900 728
Stockholders' equity 22,825 21,147
-------- --------
Total Liabilities and Equity $316,169 $241,484
======== ========
Net Interest Income $ 2,242 $ 2,102
======== ========
Net Interest Margin (Net Interest
Income/Total Earning Assets) 2.96% 3.60%
==== =====
Net Interest Margin
(fully taxable equivalent) 3.03% 3.65%
==== =====
16
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
Six Months Ended June 30,
---------------------------------- -----------------------------------
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 $ 7,649 $ 46 1.20% $ 19,006 $ 162 1.70%
Securities 59,349 1,026 3.46 46,697 1,137 4.87
Loans 227,460 6,814 5.99 168,052 5,850 6.96
-------- -------- ---- -------- -------- -----
Total Earning Assets/
Total Interest Income 294,458 7,886 5.36 233,755 7,149 6.12
-------- -------- ---- -------- -------- -----
Cash and due from banks 5,746 6,369
All other assets 5,502 1,209
-------- --------
Total Assets $305,706 $241,333
======== ========
Liabilities and Equity
NOW and money market accounts $ 35,647 232 1.30 $ 21,847 129 1.18
Savings deposits 5,625 19 0.68 7,367 37 1.00
Time deposits 138,256 2,079 3.01 134,544 2,368 3.52
FHLB and repurchase agreements 57,786 962 3.33 24,850 463 3.73
Capitalized lease and ESOP 320 7 4.38 1,331 74 11.12
Guaranteed preferred
beneficial interest
in Corporation's
subordinated debentures 10,000 257 5.14 220 6 5.45
-------- -------- ---- -------- -------- -----
Total Interest Bearing Liabilities/
Total Interest Expense 247,634 3,556 2.87 190,159 3,077 3.24
-------- -------- ---- -------- -------- -----
Noninterest bearing demand deposits 34,738 29,548
All other liabilities 913 641
Stockholders' equity 22,421 20,985
-------- --------
Total Liabilities and Equity $305,706 $241,333
======== ========
Net Interest Income $ 4,330 $4,072
======== ======
Net Interest Margin (Net Interest
Income/Total Earning Assets) 2.94% 3.48%
==== =====
Net Interest Margin
(fully taxable equivalent) 3.01% 3.54%
==== ====
17
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
NONINTEREST INCOME
Noninterest income increased by $1.6 million, or 151.6%, for the second quarter
of 2003 versus the second quarter of 2002. The largest components of noninterest
income are mortgage banking income and net realized gains of securities sold.
Mortgage banking income increased $1.3 million, or 137.0%, to $2.3 million at
June 30, 2003 compared to the same period in 2002 due to the high volume of loan
originations and refinancings resulting from the continuing low interest rate
environment and expanded origination offices.
Noninterest income of $4.2 million increased $2.5 million, or 148.9% for the
first six months of 2003 compared to the first six months of 2002. The largest
portion of the increase was attributable to the increase in mortgage banking
income, which increased $2.2 million over the same time period, again due to the
factors listed above.
Net security gains of $253,000 for the second quarter of 2003 were comprised of
$253,000 in gross gains and no security losses on securities classified as
"available for sale." Gains and losses were the result of portfolio
restructuring to shorten the overall duration of the portfolio.
NONINTEREST EXPENSE
Noninterest expense increased over the second quarter of 2002 by $1.8 million,
or 73.6% to $4.2 million in 2003. The increase in salary benefits and payroll
taxes, the largest component of noninterest expense, 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 expense associated with salaries,
benefits and payroll taxes without the mortgage subsidiary for the first six
months of 2003, increased $158,000, or 12% over the first six months of 2002, as
the corporation expanded staffing levels.
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 six months of 2003.
During the second quarter of 2002 the Corporation issued incentive options for
52,500 shares. 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 Six Months Ended
June 30, June 30,
2003 2002 2003 2002
----- ---- ---- ----
(in thousands, except per share data)
Net income, as reported $ 527 $ 419 $ 1,001 $ 844
Deduct: Total stock-based employee and director
compensation expense under fair value based
methods of awards, net of related tax effects (27) (61) (55) (74)
--------- --------- --------- ---------
Pro forma net income $ 500 $ 358 $ 946 $ 770
========= ========= ========= =========
Earnings per share
Basic - as reported $ 0.20 $ 0.16 $ 0.38 $ 0.32
Basic - pro forma $ 0.19 $ 0.14 $ 0.36 $ 0.29
Diluted - as reported $ 0.20 $ 0.16 $ 0.37 $ 0.32
Diluted - pro forma $ 0.19 $ 0.14 $ 0.35 $ 0.29
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 and 2003, with no
practical changes during the first six months of each respective period.
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
---- ---- ---- ----
Dividend yield or expected dividends 2.03% 2.03% 2.03% 2.03%
Risk free interest rate 4.00% 4.00% 4.00% 4.00%
Expected life 10 yrs. 10 yrs. 10 yrs. 10 yrs.
Expected volatility 21.92% 21.92% 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 June 30, 2003 unused
commitments comprised $81.6 million. The Bank has $99.7 million in time deposits
coming due within the next twelve months from June 30, 2003. On May 20, 2003,
the Corporation's Board of Directors declared the Corporation's fifth quarterly
cash dividend of $0.05 per common share, payable July 1, 2003, to shareholders
of record June 2, 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
June 30, 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 June 30, 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 $ 18,200 $ -- $ -- $ -- $ 18,200
Securities 13,840 17,401 11,236 6,794 49,270
FHLB stock -- -- -- 2,664 2,664
Portfolio loans and
held for resale 74,131 25,922 93,402 47,463 240,918
--------- --------- --------- --------- ---------
Total 106,171 43,323 104,638 56,921 $ 311,053
--------- --------- --------- --------- =========
Interest bearing
liabilities:
NOW and money market
accounts 6,002 17,807 17,025 -- $ 40,834
Savings deposits 458 1,430 3,833 -- 5,721
Jumbo time deposits 61,590 11,306 20,758 -- 93,654
Time deposits < $100,000 21,413 10,213 17,007 2,008 50,641
Repurchase agreements 7,425 -- -- -- 7,425
FHLB and repo sweeps 10,900 4,000 23,000 15,388 53,288
Capitalized lease
obligation
and ESOP payable 296 -- -- -- 296
Guaranteed preferred
beneficial
interest in
Corporation's
subordinated
debentures 10,000 -- -- -- 10,000
--------- --------- --------- --------- ---------
Total 118,084 44,756 81,623 17,396 $ 261,859
--------- --------- --------- --------- =========
Interest rate
sensitivity gap ($ 11,913) ($ 1,433) $ 23,015 $ 39,525
Cumulative interest rate
sensitivity gap ($ 13,346) $ 9,669 $ 49,194
Interest rate
sensitivity gap
ratio 0.90 0.97 1.28 3.27
Cumulative interest rate
sensitivity gap ratio 0.92 1.04 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 June 30, 2003, the Corporation is considered liability sensitive in the time
interval of the first three months, according to the preceding table. The
Corporation is also 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 March 31, 2003, the most recent and available analysis, the simulation
model projects net interest income would increase by 2.8% 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 1.6%.
ITEM 3. CONTROLS AND PROCEDURES
Evaluation of Disclosure 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, 2003, 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 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: There have been no changes in our internal control
over financial reporting (as defined in Rule 13a-15(b) of the Act) that occurred
during the quarter ended June 30, 2003, that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
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.
On April 15, 2003, 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 2006:
NOMINEE VOTES FOR NON VOTES VOTES WITHHELD TOTAL
- ------- --------- --------- -------------- -----
Joseph Catenacci 2,360,508 225,950 99,332 2,685,790
Celestina Giles 2,310,407 225,950 149,433 2,685,790
David A. Widlak 2,310,737 225,950 149,103 2,685,790
The following are the names of the directors (and remaining term) whose term in
office continued after the Meeting: Gebran S. Anton (2005); David E. Bonior
(2006); Salvatore Cottone (2004); Bobby L. Hill (2004); Joseph F. Jeannette
(2005) Dean S. Petitpren (2004); Ronald R. Reed (2004); Michael D. Schwartz
(2005).
ITEM 5. OTHER INFORMATION.
On July 9, 2003, Community Central Bank signed a definitive agreement to
purchase substantially all of the assets and liabilities of North Oakland
Community Bank. North Oakland Community Bank is one of two wholly owned
subsidiaries of Michigan Community Bancorp, LTD. North Oakland Community Bank is
one branch located in Rochester Hills, Michigan. Upon consummation of the
transaction, the branch location will operate under the name of Community
Central Bank. Community Central Bank agreed to pay North Oakland Community Bank
$1.3 million in premium for substantially all of its assets and liabilities. As
of June 30, 2003, North Oakland Community Bank has $31.1 million in total assets
and $28.8 million in deposits. The consummation of the transaction is subject to
regulatory approval.
Cash Dividend - On May 20, 2003, the Corporation's Board of Directors declared
the Corporation's fifth quarterly cash dividend of $0.05 per common share,
payable July 1, 2003, to shareholders of record June 2, 2003.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits: See Exhibit Index attached.
(b) Reports on Form 8-K during the quarter ended June 30, 2003:
On May 1, 2003, the Registrant issued its earning release
for the quarterly period ended March 31, 2003.
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 August 12, 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)
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,
are incorporated by reference to exhibit 3.2 of the
Corporation's Quarterly Report filed with the SEC on Form
10-QSB for the quarter ended March 31, 2003 (Commission File
Number 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 (Commission
File No. 333-4113) which became effective on September 23,
1996
10.1 1996 Employee Stock Option Plan is incorporated by reference
to exhibit 10.1 of the Corporation's Registration Statement on
Form SB-2 (Commission File No. 333-04113) which became
effective September 23, 1996
10.2 1996 Stock Option Plan for Nonemployee Directors is
incorporated by reference to exhibit 10.2 of the Corporation's
Registration Statement on Form SB-2 (Commission File No.
333-04113) which became effective September 23, 1996
10.3 1999 Stock Option Plan for Directors in incorporated by
reference to exhibit 10.5 of the Corporation's Annual Report
filed with the SEC on Form 10-KSB for the year ended December
31, 1999 (Commission File No. 000-33373)
10.4 2000 Employee Stock Option Plan is incorporated by reference
to exhibit 10.6 of the Corporation's Annual Report filed with
the SEC on Form 10-KSB for the year ended December 31, 2000
(Commission File No. 000-33373)
10.5 2002 Incentive Plan is incorporated by reference to exhibit
10.7 of the Corporation's Annual Report filed with the SEC on
Form 10-KSB for the year ended December 31, 2001 (Commission
File No. 000-33373)
10.6 Community Central Bank Supplemental Executive Retirement Plan
10.7 Community Central Bank Death Benefit Plan
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
25