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 September 30, 2003
Commission File No. 000-33373
COMMUNITY CENTRAL BANK CORPORATION
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(Exact name of small business issuer as specified in its charter)
Michigan 38-3291744
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
100 North Main Street, PO Box 7, Mount Clemens, MI 48046-0007
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(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 November 12, 2003
----- --------------------------------
Common Stock, $5 stated value 2,717,775 Shares
Transitional Small Business Disclosure Format:
Yes [ ] No [X]
1
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 September 30,
2003 and December 31, 2002, and Consolidated Statements of Income and
Comprehensive Income for the three and nine month periods ended September 30,
2003 and 2002, and Consolidated Statements of Cash Flow for the nine months
ended September 30, 2003. 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)
September 30, December 31,
2003 2002
------------- ------------
(In thousands)
Assets
Cash and due from banks $ 8,211 $ 6,405
Federal funds sold 20,600 3,000
--------- ---------
Cash and Cash Equivalents 28,811 9,405
--------- ---------
Securities available for sale, at fair value 53,022 57,200
Securities held to maturity, at amortized cost 941 1,290
FHLB stock 3,014 2,219
Residential mortgage loans held for sale 7,252 11,245
Loans
Residential mortgage loans 64,417 46,322
Commercial loans 168,426 152,044
Installment loans 10,519 5,683
--------- ---------
Total Loans 243,362 204,049
Allowance for credit losses (3,453) (3,377)
--------- ---------
Net Loans 239,909 200,672
--------- ---------
Net property and equipment 3,517 1,886
Other real estate owned 320 320
Accrued interest receivable 1,318 1,270
Other assets 9,319 2,129
--------- ---------
Total Assets $ 347,423 $ 287,636
========= =========
(continued)
3
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB(continued)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
2003 2002
------------- ------------
Liabilities (In thousands, except share data)
Deposits
Noninterest bearing demand deposits $ 34,916 $ 32,235
NOW and money market accounts 37,138 31,565
Savings deposits 5,613 5,332
Time deposits 160,342 131,587
--------- ---------
Total deposits 238,009 200,719
--------- ---------
Repurchase agreements 22,106 8,006
Federal Home Loan Bank advances 52,388 44,388
Accrued interest payable 393 483
Other liabilities 998 621
Capitalized lease obligation -- 951
ESOP note payable 283 321
Guaranteed preferred beneficial interest in
the Corporation's subordinated debentures 10,000 10,000
--------- ---------
Total Liabilities 324,177 265,489
--------- ---------
Stockholders' Equity
Common stock -- $5 stated value; 9,000,000 shares
authorized; 2,717,775 shares issued and
outstanding at 9-30-2003, and 2,665,778 at
12-31-2002 13,589 13,329
Additional paid-in capital 5,277 5,035
Retained earnings 4,823 3,759
Unearned employee benefit (283) (321)
Accumulated other comprehensive income (160) 345
--------- ---------
Total Stockholders' Equity 23,246 22,147
--------- ---------
Total Liabilities and Stockholders' Equity $ 347,423 $ 287,636
========= =========
4
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB(continued)
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
---- ---- ---- ----
(In thousands, except per share data)
Interest Income
Loans (including fees) $ 3,611 $ 3,174 $10,425 $ 9,024
Securities 327 632 1,353 1,769
Federal funds sold 22 91 68 253
------- ------- ------- -------
Total Interest Income 3,960 3,897 11,846 11,046
------- ------- ------- -------
Interest Expense
Deposits 1,050 1,237 3,380 3,771
Short term borrowings 24 37 77 111
Advances from FHLB 480 250 1,389 640
Capitalized lease obligation -- 33 -- 98
ESOP loan interest expense 3 4 10 13
Interest expense of guaranteed preferred
beneficial interest in Corporation's
subordinated debentures 124 156 381 161
------- ------- ------- -------
Total Interest Expense 1,681 1,717 5,237 4,794
------- ------- ------- -------
Net Interest Income 2,279 2,180 6,609 6,252
Provision for credit losses 50 260 125 575
------- ------- ------- -------
Net Interest Income after Provision 2,229 1,920 6,484 5,677
------- ------- ------- -------
Noninterest Income
Deposit service charges 56 57 163 163
Net realized security gain 11 142 418 176
Mortgage banking income 2,071 1,657 5,679 3,108
Other income 133 35 249 147
------- ------- ------- -------
Total Noninterest Income 2,271 1,891 6,509 3,594
------- ------- ------- -------
Noninterest Expense
Salaries, benefits, and payroll taxes 2,507 1,998 7,049 4,315
Premises and fixed asset expense 292 320 882 823
Other operating expense 912 756 2,841 2,162
------- ------- ------- -------
Total Noninterest Expense 3,711 3,074 10,772 7,300
------- ------- ------- -------
Income Before Taxes 789 737 2,221 1,971
Provision for income taxes 222 241 653 631
------- ------- ------- -------
Net Income $ 567 $ 496 $ 1,568 $ 1,340
======= ======= ======= =======
(continued)
5
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB(continued)
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Per share data:
Basic earnings $ 0.21 $ 0.19 $ 0.59 $ 0.51
Diluted earnings $ 0.21 $ 0.19 $ 0.58 $ 0.51
======= ======= ======= =======
Cash Dividends $ 0.05 $ 0.05 $ 0.15 $ 0.10
======= ======= ======= =======
6
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB(continued)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
---- ---- ---- ----
(In thousands)
Net Income as Reported $ 567 $ 496 $ 1,568 $ 1,340
Other Comprehensive Income, Net of Tax
Change in unrealized gain on securities
available for sale (455) 302 (505) 399
------- ------- ------- -------
Comprehensive Income $ 112 $ 798 $ 1,063 $ 1,739
======= ======= ======= =======
7
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB(continued)
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
Nine Months Ended September 30,
2003 2002
--------- ---------
(In thousands)
Operating Activities
Net income $ 1,568 $ 1,340
Adjustments to reconcile net income to net cash flow
from operating activities:
Net premium of security discount 666 249
Net gain on sales and call of securities (418) (176)
Provision for credit losses 125 575
Depreciation expense 289 305
Deferred income tax expense (177) (237)
ESOP compensation expense 38 37
(Decrease) increase in accrued interest receivable (48) 77
(Increase) in other assets (6,754) (1,033)
(Decrease) increase in accrued interest payable (90) 50
Increase in other liabilities 377 533
Decrease (increase) in loans held for sale 3,993 (4,635)
-------- --------
Net Cash Used in Operating Activities (431) (2,915)
Investing Activities
Maturities, calls, sales and prepayments of securities available for sale 81,791 41,868
Purchase of securities available for sale (78,625) (58,171)
Maturities, calls, and prepayments of investment securities 349 474
Purchases of investment securities (795) (674)
(Increase) in loans (39,362) (28,945)
Purchases of property and equipment (1,920) (417)
-------- --------
Net Cash Used in Investing Activities (38,562) (45,865)
Financing Activities
Net increase in demand and savings deposits 8,535 12,110
Net increase in time deposits 28,755 94
Net increase in short term borrowings 14,100 2,942
Guaranteed preferred beneficial interest in Corporation's
Subordinated debentures -- 10,000
Increase in FHLB advances 8,000 18,000
Repayment of capitalized lease obligation (951) (130)
Payment of ESOP debt (38) (37)
Stock option exercise/award 600 68
Cash dividends paid (406) (267)
Repurchase of common stock (196) --
-------- --------
Net Cash Provided by Financing Activities 58,399 42,780
-------- --------
Increase (decrease) in Cash and Cash Equivalents 19,406 (6,000)
Cash and Cash Equivalents at the Beginning of the Year 9,405 28,092
-------- --------
Cash and Cash Equivalents at the End of the Period $ 28,811 $ 22,092
======== ========
Supplemental Disclosure of Cash Flow Information:
Interest Paid $ 5,327 $ 4,744
Federal Taxes Paid $ 776 $ 865
======== ========
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 September 30, 2003 and December 31, 2002 and
the results of operations for the three and nine months ended September 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.
9
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB(continued)
ASSETS
The Corporation's total assets increased by $59.8 million, to $347.4 million at
September 30, 2003, compared to $287.6 million at December 31, 2002. The largest
segment of asset growth occurred in the loan portfolio which increased $39.3
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, securities that 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.
September 30, 2003 December 31, 2002
------------------ -----------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ----- --------- -----
(In thousands)
Securities Available for Sale
U.S. Government agency debentures $23,158 $22,992 $15,705 $15,893
Mortgage backed securities 8,204 8,234 9,244 9,392
Fed Agency / Collateralized mortgage
obligations 12,573 12,515 20,846 20,949
Municipal bonds 9,327 9,281 10,881 10,966
------- ------- ------- -------
Total Securities Available for Sale 53,262 53,022 56,676 57,200
------- ------- ------- -------
Held to Maturity
Mortgage backed securities 941 981 1,290 1,351
------- ------- ------- -------
Total Securities Held to Maturity 941 981 1,290 1,351
------- ------- ------- -------
Total Securities $54,203 $54,003 $57,966 $58,551
======= ======= ======= =======
10
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
Mortgage loans held for sale totaled $7.3 million at September 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. Accordingly, a downturn in the automotive industry could adversely
affect a borrowers ability to repay its loan. Additionally, the Corporation had
approximately $47.7 million in outstanding loans at September 30, 2003, to
commercial borrowers in the real estate rental and property management
industries, representing approximately 28% of the total commercial loan
portfolio.
A summary of nonperforming assets is as follows:
September 30, December 31,
2003 2002
------------- ------------
(In thousands)
Impaired loans:
Nonaccrual
Commercial $ 404 $ 427
Residential real estate -- 311
Installment -- 101
------ ------
Total nonaccrual loans 404 839
Loans past due 90 days and still accruing interest:
Commercial -- --
Residential real estate 116 --
Installment -- 6
------ ------
Total loans past due 90 days and
still accruing interest 116 6
------ ------
Total nonperforming loans 520 845
Other real estate owned 320 320
------ ------
Total nonperforming assets $ 840 $1,165
====== ======
Total nonperforming loans as a
percentage of total loans 0.21% 0.41%
====== ======
Total nonperforming assets as a percentage
of total assets 0.24% 0.41%
====== ======
11
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
The following table shows an analysis of the allowance for credit losses:
September 30, December 31,
2003 2002
------------- ------------
(Dollars in thousands)
Allowance for credit losses at
beginning of period $3,377 $2,930
Provision charged to expense 125 755
Loans charged off (87) (468)
Loans recovered 38 160
------ ------
Allowance for credit losses at end of period $3,453 $3,377
====== ======
Allowance for credit losses as a percentage
of total loans 1.42% 1.65%
The allowance for credit losses as a percentage of total loans, was 1.42% at
September 30, 2003, versus 1.65% at December 31, 2002. The relative decrease of
the allowance for credit losses as a percentage of total loans is attributable
to 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 the condition and value of
the collateral securing the loans.
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.
12
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
LIABILITIES
During the nine months ended September 30, 2003, total deposits increased $37.3
million to $238.0 million. The increase in deposits was attributable to
increases in non-interest bearing demand deposits of $2.7 million, money market
and NOW accounts of $5.6 million, and certificates of deposit and savings
accounts of $29.0 million. The growth in demand deposits was tied to our
marketing initiatives focused on obtaining payroll accounts and other related
services from businesses and other organizations. 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 and
the use of brokered deposits and internet based certificates of deposit. At
September 30, 2003 the Corporation had $19.5 million in brokered certificates of
deposit and $21.3 million in internet certificates of deposit. 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 September 30, 2003 consisted of short term FHLB
advances of $16.0 million and securities sold with an agreement to repurchase
them the following day of $22.1 million. Following are details of our short term
borrowings for the dates indicated:
September 30, December 31,
2003 2002
------------- ------------
(Dollars in thousands)
Amount outstanding at end of period $38,106 $19,006
Weighted average interest rate on ending balance 1.29% 2.21%
Maximum amount outstanding at any month end
during the period $38,106 $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 September 30, 2003 were as follows:
Ending Average rate
Balance at end of period
------- ----------------
(Dollars in thousands)
Short-term FHLB advances $16,000 2.04%
Long-term FHLB advances 36,388 3.95%
------- ----
$52,388 3.37%
Long-term advances were comprised twenty-five advances with maturities ranging
from October 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 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.
September 30, December 31, Minimum Ratio
2003 2002 for Capital
-------------- -------------- Adequacy Ratio to be
Capital Ratio Capital Ratio Purposes "Well Capitalized"
------- ----- ------- ----- -------- ------------------
Total capital to risk-weighted assets
Consolidated $36,513 14.71% $34,394 16.64% 8% 10%
Bank only 32,900 13.28% 30,903 14.97% 8% 10%
Tier I capital to risk-weighted assets
Consolidated $31,208 12.57% $29,067 14.06% 4% 6%
Bank only 29,800 12.03% 28,313 13.72% 4% 6%
Tier I capital to average assets
Consolidated $31,208 9.55% $29,067 10.40% 4% NA
Bank only 29,800 9.13% 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 shares of cumulative preferred securities ("trust
preferred securities") at $1,000.00 per trust preferred security in June 2002.
The proceeds from the sale of the trust preferred securities were used by the
trust to purchase an equivalent amount of subordinated debentures from the
Corporation. The trust preferred securities carry a variable rate of interest at
the three month libor plus 365 basis points, have a stated maturity of 30 years,
and, in effect, are guaranteed by the Corporation. The securities are redeemable
at par after 5 years. Distributions on the trust preferred securities are
payable quarterly on March 30, June 30, September 30 and December 30. The first
distribution was paid on September 30, 2002 and distributions have been made
quarterly ever since. Under certain circumstances, distributions may be deferred
for up to 20 calendar quarters. However, during any such deferrals, interest
accrues on any unpaid distributions at the rate of the three month libor plus
365 basis points. The trust preferred securities are carried on the
Corporation's consolidated balance sheet as a liability and the interest expense
is recorded on the Corporation's consolidated statement of income.
The trust preferred securities 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 nine
months ended September 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 -- -- (406) -- -- (406)
Stock option exercise/award 358 242 -- -- -- 600
Repurchase of common stock (98) -- (98) -- -- (196)
Net income -- -- 1,568 -- -- 1,568
Release of ESOP shares -- -- -- 38 -- 38
Change in unrealized gain/loss -- -- -- -- (505) (505)
------- ------ ------- ----- ----- -------
Balance September 30, 2003 $13,589 $5,277 $ 4,823 ($283) ($160) $23,246
======= ====== ======= ===== ===== =======
During the third quarter of 2003, options to purchase a total of 9,500 shares
were exercised, with an average exercise price of $7.32 per share.
NET INTEREST INCOME
For the quarter ended September 30, 2003, net interest income increased by 4.5%,
or $99,000, over the third quarter of 2002. This increase was primarily
attributable to an expanded interest 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 third quarter of 2003 increased
$37,000, or 1.7% from second 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 third quarter
2003 to 2.94% compared with 3.34% for the third quarter of 2002. The net
interest margin for the third quarter 2003 on a fully taxable equivalent basis
was 3.00% compared to the third quarter of 2002 at 3.43%. The net interest
margin decreased for the first nine months of 2003 to 2.94% or 3.01% on a fully
taxable equivalent basis, compared with 3.43% or 3.49% on a fully taxable
equivalent basis for the first nine months of 2002. Decreases in the net
interest margin for the first nine months of 2003 compared to 2002 were due
largely to same reasons as described above.
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 Nine Months Ended
September 30, 2003 vs. 2002 September 30, 2003 vs. 2002
--------------------------- ---------------------------
Increase (Decrease) Increase (Decrease)
Due to Changes In Due to Changes In
----------------- -----------------
Volume Volume
Total and Both Rate Total and Both Rate
----- -------- ---- ----- -------- ----
(in thousands)
Earning Assets - Interest Income
Federal funds sold $(69) $(29) $ (40) $(185) $ (97) $ (88)
Securities (305) (5) (300) (416) 190 (606)
Loans 437 902 (465) 1,401 2,680 (1,279)
---- ---- ----- ----- ------ -------
Total 63 868 (805) 800 2,773 (1,973)
---- ---- ----- ----- ------ -------
Deposits and Borrowed Funds - Interest Expense
NOW and money market accounts 13 33 (20) 115 122 (7)
Savings deposits (7) (2) (5) (26) (7) (19)
Time deposits (193) 30 (223) (480) 88 (568)
FHLB and repo sweeps 217 285 (68) 715 833 (118)
Lease and ESOP (34) (10) (24) (101) (33) (68)
Guaranteed preferred beneficial interest in
Corporation's subordinated debentures (32) -- (32) 220 247 (27)
---- ---- ----- ----- ------ -------
Total (36) 336 (372) 443 1,250 (807)
---- ---- ----- ----- ------ -------
Net Interest Income $ 99 $532 $(433) $ 357 $1,523 $(1,166)
==== ==== ===== ===== ====== =======
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 and nine month periods ended September 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 September 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 $ 9,015 $ 22 0.98% $ 21,076 $ 91 1.73%
Securities 54,267 327 2.41 55,106 632 4.59
Loans 246,776 3,611 5.85 185,167 3,174 6.86
-------- ------- ---- --------- ------- ----
Total Earning Assets/
Total Interest Income 310,058 3,960 5.11 261,349 3,897 5.96
-------- ------- ---- --------- ------- ----
Cash and due from banks 6,116 5,954
All other assets 10,682 2,092
-------- ---------
Total Assets $326,856 $ 269,395
======== =========
Liabilities and Equity
NOW and money market accounts $ 38,785 96 0.99 $ 25,466 83 1.30
Savings deposits 5,591 8 0.57 6,767 15 0.89
Time deposits 143,682 946 2.63 139,089 1,139 3.28
FHLB and repurchase agreements 69,194 504 2.91 30,056 287 3.82
Capitalized lease and ESOP 291 3 4.12 1,298 37 11.40
Guaranteed preferred beneficial interest
in Corporation's subordinated debentures 10,000 124 4.96 10,000 156 6.24
-------- ------- ---- --------- ------- ----
Total Interest Bearing Liabilities/
Total Interest Expense / Interest Rate
Spread 267,543 1,681 2.51 212,676 1,717 3.23
-------- ------- ---- --------- ------- ----
Noninterest bearing demand deposits 34,855 34,308
All other liabilities 1,254 1,060
Stockholders' equity 23,204 21,351
-------- ---------
Total Liabilities and Stockholder's Equity $326,856 $ 269,395
======== =========
Net Interest Income $ 2,279 $ 2,180
======= =======
Net Interest Margin (Net Interest
Income/Total Earning Assets) 2.94% 3.34%
==== ====
Net Interest Margin
(fully taxable equivalent) 3.00% 3.43%
==== ====
17
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
Nine Months Ended September 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 $ 8,109 $ 68 1.12% $ 19,704 $ 253 1.71%
Securities 57,637 1,353 3.13 49,531 1,769 4.76
Loans 233,970 10,425 5.94 173,820 9,024 6.92
-------- -------- ------- -------- ------- -----
Total Earning Assets/
Total Interest Income 299,716 11,846 5.27 243,055 11,046 6.06
-------- -------- ------- -------- ------- -----
Cash and due from banks 5,871 6,229
All other assets 7,247 1,506
-------- --------
Total Assets $312,834 $250,790
======== ========
Liabilities and Equity
NOW and money market accounts $ 36,704 327 1.19 $ 23,066 212 1.23
Savings deposits 5,613 27 0.64 7,165 53 0.99
Time deposits 140,085 3,026 2.88 136,033 3,506 3.44
FHLB and repurchase agreements 61,631 1,466 3.17 26,605 751 3.76
Capitalized lease and ESOP 310 10 4.30 1,320 111 11.21
Guaranteed preferred beneficial
interest in Corporation's
subordinated debentures 10,000 381 5.08 3,516 161 6.11
-------- -------- ------- -------- ------- -----
Total Interest Bearing
Liabilities/ Total Interest
Expense / Interest Rate Spread 254,343 5,237 2.75 197,705 4,794 3.23
-------- -------- ------- -------- ------- -----
Noninterest bearing demand deposits 34,778 31,195
All other liabilities 1,028 782
Stockholders' equity 22,685 21,108
-------- --------
Total Liabilities and Equity $312,834 $250,790
======== ========
Net Interest Income $ 6,609 $ 6,252
======== =======
Net Interest Margin (Net Interest
Income/Total Earning Assets) 2.94% 3.43%
======= =====
Net Interest Margin
(fully taxable equivalent) 3.01% 3.49%
======= =====
18
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
NONINTEREST INCOME
Noninterest income increased by $380,000, or 20.1%, for the third quarter of
2003 versus the third quarter of 2002. The largest component of noninterest
income is mortgage banking income. Mortgage banking income increased $414,000,
or 25.0%, to $2.1 million for the quarter ended September 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 $6.5 million increased $2.9 million, or 81.1%, for the
first nine months of 2003 compared to the first nine months of 2002. The largest
portion of the increase was attributable to the increase in mortgage banking
income, which increased $2.6 million over the same time period, again due to the
factors listed above.
Net security gains of $11,000 for the third quarter of 2003 were comprised of
$24,000 in gross gains and $13,000 in 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 third quarter of 2002 by $637,000, or
20.7%, to $3.7 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 as well as expanded staffing levels and other areas of
infrastructure.
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.
19
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
The Corporation issued incentive options for 7,000 shares during the nine months
ended September 30, 2003, and 52,500 shares for the same period in 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 market value of the grant date, net income and earnings per
share on a pro forma basis would have been as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
----- ----- ----- -----
(in thousands, except per share data)
Net income, as reported $ 567 $ 496 $ 1,568 $ 1,340
Deduct: Total stock-based employee and director
compensation expense under fair value based
methods of awards, net of related tax effects (27) (37) (82) (111)
------- ------- --------- ---------
Pro forma net income $ 540 $ 459 $ 1,486 $ 1,229
======= ======= ========= =========
Earnings per share
Basic - as reported $ 0.21 $ 0.19 $ 0.59 $ 0.51
Basic - pro forma $ 0.20 $ 0.17 $ 0.56 $ 0.47
Diluted - as reported $ 0.21 $ 0.19 $ 0.58 $ 0.51
Diluted - pro forma $ 0.20 $ 0.17 $ 0.55 $ 0.46
The fair value of each option grant is estimated on the date of grant using the
Black Scholes option pricing model with the following weighted average
assumptions. The assumptions listed below were used in 2003, with no practical
changes during the first nine months of each respective period.
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
----- ----- ----- -----
Dividend yield or expected dividends 1.92% 2.03% 1.92% 2.03%
Risk free interest rate 4.30% 4.00% 4.30% 4.00%
Expected life 10 yrs. 10 yrs. 10 yrs. 10 yrs.
Expected volatility 9.60% 21.92% 9.60% 21.92%
20
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 $22.5 million in available
unsecured federal funds borrowing facilities, and a $75.0 million secured line
of credit with the FHLB. Large deposit balances which might fluctuate in
response to interest rate changes are closely monitored. These deposits consist
mainly of jumbo time certificates of deposit. We anticipate that we will have
sufficient funds available to meet our future commitments. As of September 30,
2003, unused commitments comprised $77.0 million. The Bank has $108.0 million in
time deposits coming due within the next twelve months from September 30, 2003.
At September 30, 2003, the Bank had $19.5 million in brokered certificates of
deposit, of which $1.4 million is due within one year or less. On September 16,
2003, the Corporation's Board of Directors declared the Corporation's sixth
consecutive quarterly cash dividend of $0.05 per common share, payable October
1, 2003, to shareholders of record September 1, 2003.
On October 17, 2003, Community Central Bank completed the purchase of
substantially all of the assets and the assumption of substantially all of the
liabilities of North Oakland Community Bank ("NOCB"); $23.5 million in assets
were purchased, which included discounted loans of $17.3 million and $23.5
million in deposits assumed at a premium of $1,037,000. The premium paid on the
transaction will be treated as goodwill and core deposit intangible assets.
Final settlement of funds will take place according to the Purchase and
Assumption agreement, dated July 9, 2003.
Management believes that the capital position of the Bank and Corporation, after
the NOCB transaction, is sufficient to maintain a level at or above what is
considered to be "Well Capitalized" under regulatory requirements. The
transaction should have minimal impact to the liquidity levels of the Bank and
Corporation.
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.
21
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
Interest sensitivity gap analysis measures the difference between the assets and
liabilities repricing or maturing within specific time periods. An
asset-sensitive position indicates that there are more rate-sensitive assets
than rate-sensitive liabilities repricing or maturing within specific time
periods, which would generally imply a favorable impact on net interest income
in periods of rising interest rates and a negative impact in periods of falling
rates. A liability-sensitive position would generally imply a negative impact on
net interest income in periods of rising rates and a positive impact in periods
of falling rates.
Gap analysis has limitations because it cannot measure precisely the effect of
interest rate movements and competitive pressures on the repricing and maturity
characteristics of interest-earning assets and interest-bearing liabilities. In
addition, a significant portion of our adjustable-rate assets have limits on
their maximum yield, whereas most of our interest-bearing liabilities are not
subject to these limitations. As a result, certain assets and liabilities
indicated as repricing within a stated period may in fact reprice at different
times and at different volumes, and certain adjustable-rate assets may reach
their yield limits and not reprice.
The following table presents an analysis of our interest-sensitivity gap
position at September 30, 2003. All interest-earning assets and interest-bearing
liabilities are shown based on the earlier of their contractual maturity or
repricing dated adjusted by forecasted repayment and decay rates. Asset
prepayment and liability decay rates are selected after considering the current
rate environment, industry prepayment and decay rates and our historical
experience. At September 30, 2003, the Corporation is considered slightly asset
sensitive in the time interval of the first three months. The Corporation is
also considered to be slightly liability sensitive at the one year accumulated
gap position.
After Three After One
Within Months But Year But After
Three Within One Within Five
Months Year Five Years Years Total
------ ----------- ---------- ----- -----
(in thousands)
Interest earning assets:
Federal funds sold $ 20,600 $ -- $ -- $ -- $ 20,600
Securities 22,655 3,933 13,523 14,092 54,203
FHLB stock -- -- -- 3,014 3,014
Portfolio loans and
held for resale 73,329 45,953 84,053 47,279 250,614
-------- -------- -------- -------- --------
Total 116,584 49,886 97,576 64,385 $328,431
-------- -------- -------- -------- ========
Interest bearing liabilities:
NOW and money market
accounts 5,143 15,318 16,677 -- $ 37,138
Savings deposits 449 1,403 3,761 -- 5,613
Jumbo time deposits 51,162 27,905 26,286 2,248 107,601
Time deposits < $100,000 12,104 25,301 15,336 -- 52,741
Repurchase agreements 22,106 -- -- -- 22,106
FHLB and repo sweeps 10,000 6,000 25,000 11,388 52,388
Capitalized lease obligation
and ESOP payable 283 -- -- -- 283
Guaranteed preferred beneficial
interest in Corporation's
subordinated debentures 10,000 -- -- -- 10,000
-------- -------- -------- -------- --------
Total 111,247 75,927 87,060 13,636 $287,870
-------- -------- -------- -------- ========
Interest rate sensitivity gap $ 5,337 $(26,041) $ 10,516 $ 50,749
Cumulative interest rate
sensitivity gap $(20,704) $(10,188) $ 40,561
Interest rate sensitivity gap
ratio 1.05 0.66 1.12 4.72
Cumulative interest rate
sensitivity gap ratio 0.89 0.96 1.14
22
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
In addition to the static gap analysis set forth above, we also use a third
party earnings simulation model to identify and manager our interest rate risk
profile. The model is based on actual cash flows and repricing characteristics
for all financial instruments and incorporates market-based assumptions
regarding the impact of changing interest rates on future volumes and the
prepayment rate of applicable financial instruments. Assumptions based on the
historical behavior of deposit rates and balances in relation to changes in
interest rates are also incorporated into the model. These assumptions are
inherently uncertain and, as a result, the model cannot precisely measure net
interest income or precisely predict the impact of fluctuations in interest
rates on net interest income. Actual results will differ from simulated results
due to timing, magnitude and frequency of interest rate changes as well as
changes in market conditions and management strategies.
As of June 30, 2003, the most recent and available analysis, the simulation
model projects net interest income would increase by 2.00% 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
3.40%.
ITEM 3. CONTROLS AND PROCEDURES
An evaluation of the Corporation's disclosure controls and procedures (as
defined in Rule 13a-15(e) of the Securities and Exchange Act of 1934 ("Act")) as
of September 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 as 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.
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
September 30, 2003, that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
23
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-QSB (continued)
PART II
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
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 August 19, 2003, the Corporation's Board of Directors
declared the Corporation's sixth quarterly cash dividend of $0.05 per common
share, payable October 1, 2003, to shareholders of record September 1, 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 September 30, 2003:
On July 9, 2003, the Registrant issued a press release
indicating the signing of a definitive agreement to purchase
substantially all of the assets and liabilities of North Oakland
Community Bank.
24
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 November 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)
25
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
is incorporated by reference to exhibit 10.6 of the
Corporation's Form 10-QSB filed with the SEC for the quarter
ended June 20, 3003 (Commission File No. 000-3373)
10.7 Community Central Bank Death Benefit Plan is incorporated by
reference to exhibit 10.7 of the Corporation's Form 10-QSB
filed with the SEC for the quarter ended June 20, 3003
(Commission File No. 000-3373)
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
26