UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2006
Commission File No. 000-33373
COMMUNITY CENTRAL BANK CORPORATION
----------------------------------
(Exact name of small business issuer as specified in its charter)
Michigan 38-3291744
-------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
100 North Main Street, PO Box 7, Mount Clemens, MI 48046-0007
-------------------------------------------------------------
(Address of principal executive offices and zip code)
(586) 783-4500
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(Issuer's telephone number)
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer" and "large accelerated filer" in Rule 12b-2 of the Exchange Act . (Check
One):
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]
Indicated by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class Outstanding at November 9, 2006
- ----------- -------------------------------
Common Stock 3,832,358 Shares
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
PART I
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2006 2005
(Unaudited)
------------- ------------
Assets (In thousands)
Cash and due from banks $ 7,418 $ 8,000
Federal funds sold 11,000 3,000
--------- ---------
Cash and Cash Equivalents 18,418 11,000
--------- ---------
Securities available for sale, at fair value 96,978 84,177
Securities held to maturity, at amortized cost 1,038 1,094
FHLB stock 4,630 4,331
Residential mortgage loans held for sale 2,728 4,286
Loans
Commercial loans 264,302 228,101
Residential loans 94,190 93,146
Installment loans 12,410 13,704
--------- ---------
Total Loans 370,902 334,951
Allowance for loan losses (3,709) (3,580)
--------- ---------
Net Loans 367,193 331,371
--------- ---------
Net property and equipment 9,099 8,753
Accrued interest receivable 2,618 2,122
Other real estate 274 112
Goodwill 1,381 1,381
Intangible assets, net of amortization 158 210
Cash surrender value of Bank Owned Life insurance 10,143 9,820
Other assets 3,263 3,355
--------- ---------
Total Assets $ 517,921 $ 462,012
========= =========
(continued)
2
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2006 2005
(Unaudited)
--------------- --------------
(In thousands, except share data)
Liabilities
Deposits
Noninterest bearing demand deposits $ 32,600 $ 31,979
NOW and money market accounts 45,313 41,167
Savings deposits 17,284 12,832
Time deposits 270,232 228,395
--------- ---------
Total deposits 365,429 314,373
--------- ---------
Repurchase agreements and fed funds purchased 21,832 13,184
Federal Home Loan Bank advances 80,545 86,545
Accrued interest payable 1,657 938
Other liabilities 1,357 982
ESOP note payable 104 148
Subordinated debentures 10,310 10,310
--------- ---------
Total Liabilities 481,234 426,480
--------- ---------
Stockholders' Equity
Common stock -- 9,000,000 shares authorized;
3,842,758 shares issued and outstanding at
9-30-2006 and 3,648,885 at 12-31-2005 33,351 31,154
Retained earnings 4,384 5,245
Unearned employee benefit (104) (148)
Accumulated other comprehensive (loss) income (944) (719)
--------- ---------
Total Stockholders' Equity 36,687 35,532
--------- ---------
Total Liabilities and Stockholders' Equity $ 517,921 $ 462,012
========= =========
3
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2006 2005 2006 2005
-------- -------- -------- --------
(In thousands, except per share data)
Interest Income
Loans (including fees) $ 6,959 $ 5,429 $ 19,697 $ 15,402
Taxable securities 822 587 2,402 1,615
Securities 335 145 934 379
Federal funds sold 105 96 166 190
-------- -------- -------- --------
Total Interest Income 8,221 6,257 23,199 17,586
-------- -------- -------- --------
Interest Expense
Deposits 3,706 2,044 9,681 5,440
Short term borrowings 117 68 305 146
Advances from FHLB 995 775 2,983 1,985
ESOP loan interest expense 3 2 8 8
Interest expense of subordinated debentures 244 193 691 540
-------- -------- -------- --------
Total Interest Expense 5,065 3,082 13,668 8,119
-------- -------- -------- --------
Net Interest Income 3,156 3,175 9,531 9,467
Provision for credit losses 75 -- 250 100
-------- -------- -------- --------
Net Interest Income after Provision 3,081 3,175 9,281 9,367
-------- -------- -------- --------
Noninterest Income
Fiduciary Income 70 69 202 69
Deposit service charges 95 73 265 221
Net realized security gain (loss) (3) 7 (3) 57
Mortgage banking income 810 1,097 2,630 2,713
Other income 283 133 665 441
-------- -------- -------- --------
Total Noninterest Income 1,255 1,379 3,759 3,501
-------- -------- -------- --------
Noninterest Expense
Salaries, benefits, and payroll taxes 2,186 2,098 6,357 5,617
Premises and fixed asset expense 473 408 1,386 1,161
Other operating expense 951 1,014 2,924 2,832
-------- -------- -------- --------
Total Noninterest Expense 3,610 3,520 10,667 9,610
-------- -------- -------- --------
Income Before Taxes 726 1,034 2,373 3,258
Provision for income taxes 116 283 429 925
-------- -------- -------- --------
Net Income $ 610 $ 751 $ 1,944 $ 2,333
======== ======== ======== ========
(continued)
4
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Per share data:
Basic earnings $0.16 $0.20 $0.51 $0.65
Diluted earnings $0.16 $0.19 $0.50 $0.63
===== ===== ===== =====
Cash Dividends $0.06 $0.05 $0.18 $0.15
===== ===== ===== =====
* Per share data has been retroactively adjusted for 2006 stock dividend.
5
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2006 2005 2006 2005
------- ------- ------- -------
(In thousands)
Net Income as Reported $ 610 $ 751 $ 1,944 $ 2,333
Other Comprehensive Income, Net of Tax
Change in unrealized losses on securities
Available for sale (97) (195) (225) (330)
------- ------- ------- -------
Comprehensive Income $ 513 $ 556 $ 1,719 $ 2,003
======= ======= ======= =======
6
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
Nine Months Ended September 30,
2006 2005
----------- ------------
(In thousands)
Operating Activities
Net income $ 1,944 $ 2,333
Adjustments to reconcile net income to net cash flow from operating
activities:
Net amortization of security premium 144 235
Net loss (gain) on sales and call of securities 3 (57)
Provision for credit losses 250 100
Depreciation expense 531 404
Deferred income tax expense (benefit) 216 (186)
ESOP compensation expense 44 45
SFAS 123R expensing options 17 --
(Increase) in accrued interest receivable (496) (573)
(Increase) in other assets (452) (2,863)
Increase in accrued interest payable 719 209
Increase in other liabilities 375 102
Decrease (increase) in loans held for sale 1,558 (769)
-------- --------
Net Cash Provided by (Used In) Operating Activities 4,853 (1,020)
Investing Activities
Maturities, calls, sales and prepayments of securities
available for sale 13,072 19,067
Purchase of securities available for sale (26,347) (45,867)
Maturities, calls, and prepayments of held to maturity securities 55 42
Purchases of held to maturity securities (299) (886)
Increase in loans (36,072) (22,353)
Purchases of property and equipment (877) (2,012)
-------- --------
Net Cash Used in Investing Activities (50,468) (52,009)
Financing Activities
Net increase in demand and savings deposits 9,219 2,511
Net increase in time deposits 41,837 16,011
Net decrease in short term borrowings 8,648 10,219
Decrease (increase) in FHLB advances (6,000) 18,200
Rights/Public stock offering -- 5,275
River Place merger -- 2,750
Payment of ESOP debt (46) (45)
Stock option exercise/award 235 103
Cash dividends paid (685) (523)
Repurchase of common stock (175) --
-------- --------
Net Cash Provided by Financing Activities 53,033 54,501
-------- --------
Increase in Cash and Cash Equivalents 7,418 1,472
Cash and Cash Equivalents at the Beginning of the Year 11,000 7,183
-------- --------
Cash and Cash Equivalents at the End of the Period $ 18,418 $ 8,655
======== ========
Supplemental Disclosure of Cash Flow Information:
Interest Paid $ 12,949 $ 8,119
Federal Taxes Paid $ 429 $ 1,050
======== ========
7
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
COMMUNITY CENTRAL BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The financial statements of Community Central Bank Corporation (the
"Corporation") include the consolidation of its direct and indirect
subsidiaries: Community Central Bank (the "Bank") and Community Central
Mortgage Company, LLC (the "Mortgage Company").
The Corporation's Consolidated Balance Sheets are presented as of September
30, 2006 and December 31, 2005, and Consolidated Statements of Income and
Comprehensive Income for the nine month periods ended September 30, 2006
and 2005, and Consolidated Statements of Cash Flow for the nine months
ended September 30, 2006 and 2005. These unaudited financial statements are
for interim periods, and do not include all disclosures normally provided
with annual financial statements. The interim statements should be read in
conjunction with the financial statements and footnotes contained in the
Corporation's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2005.
In the opinion of management, the interim statements referred to above
contain all adjustments (consisting of normal, recurring items) necessary
for a fair presentation of the financial statements. The results of
operations for interim periods are not necessarily indicative of the
results to be expected for the full year.
2. The accounting and reporting policies of the Corporation conform to
accounting principles generally accepted in the United States of America
and general practices within the banking industry. The following describes
the critical accounting policies, which are employed in the preparation of
financial statements.
Allowance for Loan Losses: The allowance for loan losses is maintained at a
level considered by management to be adequate to absorb losses inherent in
existing loans and loan commitments. The adequacy of the allowance is based
on evaluations that take into consideration such factors as prior loss
experience, changes in the nature and volume of the portfolio, overall
portfolio quality, loan concentrations, specific impaired or problem loans
and commitments, current economic conditions that may affect the borrower's
ability to pay, and other subjective factors. The determination of the
allowance is also based on regulatory guidance. This guidance includes, but
is not limited to, generally accepted accounting principles, and guidance
issued from other regulatory bodies such as the joint policy statement
issued by the Federal Financial Institutions Examination Council.
3. Community Central Capital Trust I, a business trust subsidiary of the
Corporation sold 10,000 shares of cumulative preferred securities ("trust
preferred securities") at $1,000.00 per trust preferred security in June
2002. The proceeds from the sale of the trust preferred securities were
used by the trust to purchase an equivalent amount of subordinated
debentures from the Corporation. The trust preferred securities carry a
variable rate of interest at the three month libor plus 365 basis points,
have a stated maturity of 30 years, and, in effect, are guaranteed by the
Corporation. The securities are redeemable at par after 5 years.
Distributions on the trust preferred securities are payable quarterly on
March 30, June 30, September 30 and December 30. The first distribution was
paid on September 30, 2002 and distributions have been made quarterly ever
since. Under certain circumstances, distributions may be deferred for up to
20 calendar quarters. However, during any such deferrals, interest accrues
on any unpaid distributions at the rate of the three month libor plus 365
basis points. The trust preferred securities are carried on the
Corporation's consolidated balance sheet as a liability and the interest
expense is recorded on the Corporation's consolidated statement of income.
The trust preferred securities may constitute up to 25% of tier I capital.
Any amount in excess of this limit may be included as tier 2 capital. At
September 30, 2006, the total allowable trust preferred issuance of $10
million was included in the Corporation's tier 1 capital.
4. In December 2004, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 (revised 2004), Sharebased
Payment, (SFAS 123R), which requires entities to measure the cost of
employee services received in exchange for an award of equity instruments
based on the grant-date fair value of the award (with limited exceptions).
The cost is recognized as an expense over the period during which the
employee is required to provide service in exchange for the award, which is
usually the vesting period. As
8
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
required by SFAS 123R, as with SFAS 123, the Corporation is required to
estimate the fair value of all stock options on each grant date, using an
appropriate valuation approach such as the Black-Scholes option pricing
model. The provisions of this statement are effective for the Corporation
beginning January 1, 2006.
The Corporation did not issue options during the nine months ended
September 30, 2006. The Corporation did issue options to purchase 13,250
shares during the nine month ended September 30, 2005. The total amount of
options outstanding at September 30, 2006 was 277,208 shares at a weighted
average exercise price of $9.14 per share. During the nine months ended
September 30, 2006, 22,385 options were exercised at a weighted exercise
price of $7.54 per share. The Corporation recognized compensation expense,
using the Black Scholes option-pricing model, of $6,000 and $18,000 for the
third quarter and nine months ended September 30, 2006, respectively for
the options vesting in 2006 based on the fair market value of the grant
date. The net income and earnings per share for the third quarter and nine
months ended September 30, 2005 and 2006, on a pro forma basis, are
disclosed for comparison below.
Three Months Ended Nine Months Ended
September 30, September 30,
2006 2005 2006 2005
--------- --------- --------- ---------
(in thousands, except per share data)
Net income, as reported $ 610 $ 751 $ 1,944 $ 2,333
Add: Stock-based employee compensation expense,
net of related tax effects, included in reported
net income 6 -- 18 --
Deduct: Total stock-based employee and director
compensation expense under fair value based
methods of awards, net of related tax effects (6) (89) (18) (151)
--------- --------- --------- ---------
Pro forma net income $ 610 $ 662 $ 1,944 $ 2,182
========= ========= ========= =========
Earnings per share
Basic - as reported $ 0.16 $ 0.20 $ 0.51 $ 0.65
Basic - pro forma $ 0.16 $ 0.17 $ 0.51 $ 0.61
Diluted - as reported $ 0.16 $ 0.19 $ 0.50 $ 0.63
Diluted - pro forma $ 0.16 $ 0.17 $ 0.50 $ 0.59
9
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
The fair value of each option grant is estimated on the date of grant using the
Black Scholes option pricing model with the following weighted average
assumptions. The assumptions listed below were used in 2006 and 2005.
Three Months Ended Nine Months Ended
September 30, September 30,
2006 2005 2006 2005
----- ----- ------ -----
Dividend yield or expected dividends 2.07% 1.39% 2.01% 1.39%
Risk free interest rate 5.10% 4.60% 5.10% 4.40%
Expected life 10 yrs. 10 yrs. 10 yrs. 10 yrs.
Expected volatility 22.6% 30.28% 22.6% 26.53%
10
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion compares the financial condition of the Corporation and
its wholly owned subsidiaries at September 30, 2006 and December 31, 2005 and
the results of operations for the three and nine months ended September 30, 2006
and 2005. This discussion should be read in conjunction with the financial
statements and statistical data presented elsewhere in this report. This report
contains forward-looking statements that are based on management's beliefs,
assumptions, current expectations, estimates and projections about the financial
services industry, the economy, and about the Corporation and the Bank. Words
such as anticipates, believes, estimates, expects, forecasts, intends, is
likely, plans, projects, variations of such words and similar expressions are
intended to identify such forward-looking statements. These forward-looking
statements are intended to be covered by the safe-harbor provisions of the
Private Securities Litigation Reform Act of 1995. These statements are not
guarantees of future performance and involve certain risks, uncertainties and
assumptions ("Future Factors") that are difficult to predict with regard to
timing, extent, likelihood and degree of occurrence. Actual results and outcomes
may materially differ from what may be expressed or forecasted in the
forward-looking statements. The Corporation undertakes no obligation to update,
amend, or clarify forward looking statements, whether as a result of new
information, future events (whether anticipated or unanticipated), or otherwise.
Future factors that could cause actual results to differ materially from the
results anticipated or projected include, but are not limited to, the following:
expected cost savings and synergies from our acquisition activities might not be
realized within the expected time frames, and costs or difficulties related to
integration matters might be greater than expected; expenses associated with the
implementation of our trust and wealth management services might be greater than
expected, whether due to a possible need to hire more employees than anticipated
or other costs incurred in excess of budgeted amounts; the credit risks of
lending activities, including changes in the level and direction of loan
delinquencies and write-offs and changes in estimates of the adequacy of the
allowance for loan losses; competitive pressures among depository institutions;
interest rate movements and their impact on customer behavior and net interest
margin; the impact of repricing and competitor's pricing initiatives on loan and
deposit products; the ability to adapt successfully to technological changes to
meet customers' needs and development in the market place; our ability to access
cost-effective funding; changes in financial markets; changes in economic
conditions in general and particularly as related to the automotive and related
industries in the Detroit metropolitan area; new legislation or regulatory
changes, including but not limited to changes in federal and/or state tax laws
or interpretations thereof by taxing authorities; changes in accounting
principles, policies or guidelines; and our future acquisitions of other
depository institutions or lines of business.
EXECUTIVE SUMMARY
Community Central Bank Corporation is the holding company for Community Central
Bank in Mount Clemens, Michigan. The Bank opened for business in October 1996
and serves businesses and consumers across Macomb, Oakland, St. Clair and Wayne
counties with a full range of lending, deposit, trust, wealth management, and
Internet banking services. The Bank operates three full service facilities, in
Mount Clemens, Rochester Hills and Grosse Pointe, Michigan. Community Central
Mortgage Company, LLC, a subsidiary of the Corporation and Bank, operates
locations servicing the Detroit metropolitan area, central and northwest
Indiana, northern Illinois, and Raleigh, North Carolina. River Place Trust and
Community Central Wealth Management are divisions of Community Central Bank.
Community Central Insurance Agency, LLC is a wholly owned subsidiary of
Community Central Bank. The Corporation's common shares trade on The NASDAQ
Global Market under the symbol "CCBD."
Our results of operations depend largely on net interest income. Net interest
income is the difference in interest income the Corporation earns on
interest-earning assets, which comprise primarily commercial and residential
real estate loans, and to a lesser extent commercial business and consumer
loans, and the interest the Corporation pays on our interest-bearing
liabilities, which are primarily deposits and borrowings. Management strives to
match the repricing characteristics of the interest earning assets and interest
bearing liabilities to protect net interest income from changes in market
interest rates and changes in the shape of the yield curve.
The results of our operations may also be affected by local and general economic
conditions. The largest geographic segment of our customer base is in Macomb
County, Michigan. The economic base of the County continues to diversify from
the automotive service sector. This trend should lessen the impact on the County
of future economic downturns in the automotive sector of the economy. Macomb
County's proximity to major highways and affordable
11
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
housing has continued to spur economic growth in the area. Changes in the local
economy may affect the demand for commercial loans and related small to medium
business related products. This could have a significant impact on how the
Corporation deploys earning assets. The competitive environment among other
financial institutions and financial service providers and the Bank in the
Macomb, Oakland, Wayne and St. Clair counties of Michigan may affect the pricing
levels of various deposit products. The impact of competitive rates on deposit
products may increase the relative cost of funds for the Corporation and thus
negatively impact net interest income.
The Corporation continues to see competitive deposit rates offered from local
financial institutions within the geographic proximity of the Bank which could
have the effect of increasing the costs of funds to a level higher than
management projects. The Corporation continues to utilize wholesale forms of
funding earning assets through the FHLB and brokered certificates of deposit to
balance both interest rate risk and the overall cost of funds. Brokered and
internet certificates of deposit are based on a nationwide interest rate
structure, typically at what is considered to be a premium interest rate. The
local competition for certificates of deposit products has intensified and the
Bank has found this type of wholesale funding to often effectively compete with
the rates offered for similar term retail certificates of deposit products of
local community and regional banks.
Net income during the first nine months of 2006 was affected by startup,
expansion and operational costs including those related to the new wealth and
trust management division as well as the new Hub in Grosse Pointe, Michigan. In
early June of 2006, the Bank opened a full service branch located in Grosse
Pointe Farms, Michigan. Grosse Pointe Farms, Michigan is an upscale, suburban
community on the shores of Lake St. Clair in southeastern Michigan. The Bank has
appointed a regional President for the Grosse Pointe region who is a veteran
banker who has ties to the local community. The branch facility is staffed with
a branch manager and customer service representatives, as well as a commercial
loan officer. The upscale demographics of the surrounding area appear to be well
suited for establishing new relationships for trust and wealth management.
Additionally, the first nine months of 2006 reflected additional costs related
to expansion of mortgage loan production offices in Ohio, North Carolina and
Florida. The Corporation continued to experience a compression in net interest
margin during the third quarter of 2006 compared with the second quarter of
2006. This was the result of competitive pricing pressure in both loans and
deposit generation. Additionally, the continuation of a flat treasury yield
curve has resulted in overall lower interest rate spreads than in other
reporting periods.
12
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
ASSETS
At September 30, 2006, the Corporation's total assets were $517.9 million, an
increase of $55.9 million, or 12.1%, from December 31, 2005. The largest segment
of asset growth for the first nine months ended September 30, 2006, occurred in
our loan portfolio, which increased $36.0 million. Total investment securities
available for sale increased $12.8 million for the first nine months of 2006.
The largest portion of loan growth occurred in the commercial real estate
portfolio, which increased $34.6 million. This growth is consistent with the
Corporation's commercial lending focus. Commercial and industrial loans
increased $1.6 million for the first nine months of 2006 as the focus continues
to be on commercial real estate. Loan growth during the first nine months was
largely due to a pipeline of loans developed during prior quarterly periods. The
Corporation added two new commercial loan officers in 2005 and one new
commercial loan officer in 2006 to increase the commercial lending program and
service the expected growth in the portfolio. The composition of the commercial
real estate portfolio has changed in interest rate mix over prior reporting
periods. The portfolio has been moving from prime based loans to fixed rate
loans. At September 30, 2006, approximately 65% of the commercial real estate
portfolio comprised fixed rate loans. The fixed rate loans are normally priced
at a spread over the treasury yield curve. The maturities of the fixed rate
loans typically range between 3 to 5 years. The borrower's preference for fixed
rate loans has been more pronounced in recent quarters, due in part to the
recent inversion in the treasury yield curve, making these loans less costly to
the borrower than prime based loans. The competitive environment amongst local
financial institutions for commercial real estate loans has given the borrower
more leverage in deciding the types of interest rates and other terms of the
loan. The residential mortgage portfolio was $79.6 million at September 30,
2006, an increase of $4.9 million from December 31, 2005. Most of the
residential mortgage portfolio comprises adjustable rate mortgages, which
represented $54.6 million, or 68.6%, of the total residential portfolio. Those
residential mortgage loans the Corporation considered to be held for investment
in the residential portfolio comprise both banking relationships and other
attributes deemed to match with the Corporation's interest rate risk profile.
Home equity lines of credit ("HELOC") totaled $14.6 million at September 30,
2006, a decrease of $3.9 million from December 31, 2005. The decrease in HELOCs
was due to a sale of $4.6 million during the third quarter of 2006 and resulted
in a gain of $74,000. This portfolio product is tied to Wall Street Journal
prime interest rate. These loans are fully secured by real estate and are
generally originated with loan to values (including prior liens) up to 95% of
the appraised value of the real estate. The consumer portfolio totaled $11.8
million at September 30, 2006, a decrease of $1.3 million, primarily from pay
downs in the portfolio. The largest portion of the installment loan portfolio
comprises loans for marine craft. The Corporation's geographic proximity to Lake
St. Clair and the lending experience in this area have been contributors to this
segment of the portfolio. In 2005, the Corporation offered less competitive
interest rates on marine craft loans to reduce exposure in the area. This change
contributed to the decline in the overall installment portfolio. At September
30, 2006, loans for marine craft comprised approximately $11.9 million, or 96.1%
of the installment portfolio and 3.2% of total loans. Credit card loans totaled
$636,000 at September 30, 2006, which decreased $14,000 from December 31, 2005.
The Corporation continues to book credit card loans as a customer accommodation
and does not actively market this product.
Additionally, the Corporation had approximately $88.8 million in outstanding
loans at September 30, 2006, to borrowers in the real estate rental and
properties management industries, representing approximately 37.6% of the total
commercial real estate portfolio.
13
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
The major components of the loan portfolio for loans held for sale and loans in
the portfolio are as follows:
September 30, Percentage December 31, Percentage Net Net
2006 of total loans 2005 of total loans Change Change %
------------- -------------- ------------ -------------- --------- ---------
(Dollars in thousands)
Loans held for sale:
Residential real estate $ 2,728 $ 4,286 ($ 1,558) (36.4%)
========= ========= ========= ========= ========= =========
Loans held in the portfolio:
Commercial real estate $ 235,983 63.7% $ 201,348 60.1% $ 34,635 17.2%
Commercial and industrial 28,319 7.6 26,753 8.0 1,566 5.9
Residential real estate 79,545 21.4 74,601 22.3 4,944 6.6
Home equity lines 14,645 3.9 18,545 5.5 (3,900) (21.0)
Consumer loans 11,774 3.2 13,054 3.9 (1,280) (9.8)
Credit cards 636 0.2 650 0.2 (14) (2.2)
--------- --------- --------- --------- --------- ---------
$ 370,902 100.0% $ 334,951 100.0% $ 35,951 10.7%
========= ========= ========= ========= ========= =========
Total securities available for sale increased $12.8 million from December 31,
2005 to $97.0 million at September 30, 2006. The increase was comprised of a net
increase of $5.1 million in short term agency debentures, $6.7 million in bank
qualified tax-exempt municipal bonds and $1.0 million in mortgage backed
securities. All other categories of the available for sale portfolio remained
relatively unchanged. The bank qualified tax-exempt municipal bonds comprise
primarily AAA ratings through an underlying or insured basis. Total mortgage
backed securities are comprised of both fixed rate and variable rate
instruments. Variable rate mortgage backed securities represented 36% of the
mortgage backed security portfolio. At September 30, 2006, the available for
sale portfolio had net unrealized losses of $1.4 million or approximately 1.5%
of the aggregate portfolio. At December 31, 2005, the net unrealized losses in
the available for sale portfolio ended at $1.2 million which was 1.3% of the
aggregate. Unrealized losses have not been recognized into income because of the
issuer's bonds are of high credit quality. The Corporation has the intent and
ability to hold the securities for the foreseeable future and the decline in the
fair value is primarily due to increased market interest rates. The increase in
the investment portfolio for the nine months ended September 30, 2006, was
primarily driven by the need to temporarily collateralize repurchase agreements.
Approximately $8 million of agency debentures will mature in November of 2006
coinciding with the expected decrease in repurchase agreement funding.
Additional growth has been primarily in bank qualified municipal bonds offering
favorable tax benefits.
14
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
A summary of nonperforming assets is as follows:
September 30, December 31,
2006 2005
------------- ------------
(Dollars in thousands)
Nonaccrual loans:
Commercial real estate $1,877 $1,637
Commercial and industrial 869 985
Residential real estate -- 67
Home equity lines -- --
Consumer loans -- --
Credit cards -- --
------ ------
Total nonaccrual loans 2,746 2,689
Accruing loans delinquent more than 90 days:
Commercial real estate $ -- $ --
Commercial and industrial -- --
Residential real estate 287 621
Home equity lines -- --
Consumer loans 7 1
Credit cards 5 1
------ ------
Total accruing loans delinquent more than 90 days 299 623
------ ------
Total nonperforming loans 3,045 3,312
Other real estate owned
Commercial real estate -- 112
Residential real estate 274 --
------ ------
Total other real estate owned 274 112
------ ------
Total nonperforming assets $3,319 $3,424
====== ======
Total nonperforming loans as a
percentage of total loans 0.82% 0.99%
====== ======
Total nonperforming assets as a percentage
of total assets 0.64% 0.74%
====== ======
At September 30, 2006, nonperforming loans, which represents nonaccruing loans
and those loans past due 90 days or more and still accruing interest, totaled
$3.0 million compared to $3.3 million at December 31, 2005, a decrease of
$267,000. Nonaccruing loans of $2.7 million remains relatively unchanged from
December 31, 2005 and is primarily comprised of two commercial relationships, a
marina with collateral comprising commercial real estate and marine craft, and a
tool and die manufacturer, being partially guaranteed by the Small Business
Administration and secured by commercial real estate.
15
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
The following table shows an analysis of the allowance for loans losses:
Nine Months Ended Year Ended
September 30, December 31,
2006 2005
----------------- ------------
(Dollars in thousands)
Balance as beginning of the period $ 3,580 $ 3,377
Charge-offs:
Commercial real estate -- 181
Commercial and industrial 79 57
Residential real estate 21 103
Home equity lines 21 --
Consumer loans 16 171
Credit cards 9 12
------- -------
Total charge-offs $ 146 $ 524
------- -------
Recoveries:
Commercial real estate -- 1
Commercial and industrial 14 606
Residential real estate 8 --
Home equity lines -- --
Consumer loans 2 18
Credit cards 1 2
------- -------
Total recoveries $ 25 $ 627
------- -------
Net charge-offs (recoveries) 121 (103)
------- -------
Provision charged to earnings 250 100
------- -------
Balance at end of the period $ 3,709 $ 3,580
======= =======
Net charge-offs (net recoveries) during the period
annualized to average loans outstanding during
the period 0.05% (0.03%)
Allowance as a percentage of total portfolio loans 1.00% 1.07%
The allowance for loan losses as a percentage of total loans was 1.00% at
September 30, 2006, compared to 1.07% at December 31, 2005, with changes in the
percentage of the allowance to total loans attributable to the quarterly
analysis of the allowance for loan losses. Net loan charge offs comprised 5
basis points through the first nine months of 2006 on an annualized basis. The
Corporation performs a detailed quarterly review of the allowance for loan
losses. The Corporation evaluates those loans classified as substandard, under
its internal risk rating system, on an individual basis for impairment under
SFAS 114. The level and allocation of the allowance is determined primarily on
management's evaluation of collateral value, less the cost of disposal, for
loans reviewed in this category. The remainder of the total loan portfolio is
segmented into homogeneous loan pools with similar risk characteristics for
evaluation under SFAS 5. The primary risk element considered by management
regarding each consumer and residential real estate loan is lack of timely
payment. Management has a reporting system that monitors past due loans and has
adopted policies to pursue its creditor's rights in order to preserve the Bank's
position. The primary risk elements concerning commercial and industrial loans
and commercial real estate loans are the financial condition of the borrower,
the sufficiency of collateral, and lack of timely payment. Management has a
policy of requesting and reviewing annual financial statements from its
commercial loan customers and periodically reviews existence of collateral and
its value.
16
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
LIABILITIES
During the nine months ended September 30, 2006, total deposits increased $51.1
million to $365.4 million. The increase in deposits was attributable to
increases in money market accounts and savings of $11.2 million and time
deposits $100,000 and over of $48.0 million. The growth in money market accounts
was attributable to a new indexed money market product with a competitive
interest rate that reverts to the six-month treasury index after the special
offering period through the first quarter of 2007. The growth in larger time
deposits of $100,000 and over was primarily due to deposits generated in the
Bank's branches comprising larger jumbo deposits of individuals and
municipalities totaling $25.7 million. Out of state time deposits, which
comprised the remainder of the growth for the first nine months in jumbo time
deposits consisted of internet and brokered time deposits which increased $22.3
million. Noninterest bearing deposits, which comprise primarily business related
checking accounts increased $621,000, or 1.9%. NOW accounts decreased $2.6
million as depositors migrated to higher rate deposit products. Time deposits
under $100,000 decreased $6.2 million for the nine month period ended September
30, 2006, due in part to the very competitive rate environment amongst local
financial institutions. The competitive rate environment amongst local financial
institutions has made the Corporation decide in some cases not to raise the
interest rate on the deposit product at the same frequency or level to match or
exceed interest rates given by local financial institutions. The Corporation
continues to see competitive deposit rates offered by local financial
institutions within the geographic proximity of the Bank, which could have the
affect of increasing the cost of funds to a level higher than management
projects. The Corporation continues to utilize wholesale forms of funding
earning assets through the Federal Home Loan Bank and brokered CDs to balance
both interest rate risk and the overall cost of funds. Brokered and internet CDs
are based on nationwide interest rate structure, typically at what is considered
to be a premium interest rate. The local competition for CD products has
intensified and the Bank has found this type of whole funding to often
effectively compete with the rates offered for similar term retail CD products
of local community and regional banks.
The major components of deposits are as follows:
September 30, Percentage December 31, Percentage Net Net
2006 of total deposits 2005 of total deposits Change Change %
------------- ----------------- ------------ ----------------- -------- --------
(Dollars in Thousands)
Noninterest bearing demand $ 32,600 8.9% $ 31,979 10.2% $ 621 1.9%
NOW accounts-interest
bearing checking 19,177 5.2 21,767 6.9 (2,590) (11.9)
Money market 26,136 7.2 19,400 6.2 6,736 34.7
Savings 17,284 4.7 12,832 4.1 4,452 34.7
Time deposits under $100,000 48,648 13.3 54,853 17.4 (6,205) (11.3)
Time deposits $100,000 and
over 221,584 60.7 173,542 55.2 48,042 27.7
-------- -------- -------- -------- -------- --------
Total deposits 365,429 100.00% 314,373 100.0% 51,056 16.2%
======== ======== ======== ======== ======== ========
17
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
Short term borrowings at September 30, 2006 consisted of short term FHLB
advances of $5.0 million and securities sold with an agreement to repurchase
them the following day of $21.8 million. Following are details of our short term
borrowings for the dates indicated:
September 30, December 31,
2006 2005
------------- ------------
(Dollars in thousands)
Amount outstanding at end of period
Repurchase agreements $21,832 $13,184
Short-term FHLB advances $ 5,000 $26,700
Weighted average interest rate on ending balance
Repurchase agreements 3.14% 2.50%
Short-term FHLB advances 3.36% 3.60%
Maximum amount outstanding at any month end
during the period
Repurchase agreements $21,832 $21,711
Short-term FHLB advances $26,700 $26,700
In June 2001, the Corporation started to borrow long-term advances from the FHLB
to fund fixed rate instruments and to minimize the interest rate risk associated
with certain fixed rate mortgage instruments and investment securities. These
advances are secured under a blanket security agreement by first mortgage loans,
certain home equity loans, commercial real estate loans and the pledging of
certain securities. Long-term advances comprised 33 advances with maturities
from July 2007 to June 2016.
FHLB advances outstanding at September 30, 2006 were as follows:
Ending Average rate
Balance at end of period
------- ----------------
(Dollars in thousands)
Short-term FHLB advances $ 5,000 3.36%
Long-term FHLB advances 75,545 4.65%
------- -------
$80,545 4.57%
18
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
LIQUIDITY AND CAPITAL RESOURCES
The liquidity of a bank allows it to provide funds to meet loan requests, to
accommodate possible outflows in deposits, and to take advantage of other
investment opportunities. Funding of loan requests, providing for possible
deposit outflows, and managing interest rate risk require continuous analysis to
match the maturities of specific categories of loans and investments with
specific types of deposits and borrowings. Bank liquidity depends upon the mix
of the banking institution's potential sources and uses of funds. The major
sources of liquidity for the Bank have been deposit growth, federal funds sold
and loans and securities which mature within one year. Additional liquidity is
provided by $43.7 million in available unsecured federal funds borrowing
facilities, and a $150.0 million secured line of credit with the FHLB. Large
deposit balances which might fluctuate in response to interest rate changes are
closely monitored. These deposits consist mainly of jumbo time certificates of
deposit. We anticipate that we will have sufficient funds available to meet our
future commitments. As of September 30, 2006, unused commitments comprised $93.6
million. The Bank has $192.2 million in time deposits coming due within the next
twelve months from September 30, 2006, which includes brokered, internet and
municipal time deposits. At September 30, 2006, the Bank had $130.3 million in
brokered certificates of deposit, of which $76.0 million is due within one year
or less. Additionally, at September 30, 2006, municipal time deposits and
internet time deposits were $45.9 million and $7.7 million, respectively.
Municipal time deposits typically have maturities less than three months. $5.7
million of internet certificates of deposit mature in one year or less.
The largest uses and sources of cash and cash equivalents for the Corporation
for the nine months ended September 30, 2006, as noted in the Consolidated
Statement of Cash Flow, were centered primarily on the uses of cash in investing
activities and the net cash provided by financing activities. The uses of cash
in investing activities were largely due to the increase in loans of $36.1
million and the purchase of securities of $26.3 million, offset by maturities,
calls and sales of securities totaling $13.1 million. Offsetting the uses of
cash in investing activities, was the area of cash provided from financing
activities which included net increases in time deposits of $41.8 million,
demand and savings of $9.2 million and short term borrowings of $8.6 million.
Repayment of matured FHLB advances reduced the cash provided by financing
activities by $6.8 million. The total net cash provided in operating activities
was $4.9 million and was largely attributable to net income of $1.9 million and
cash provided by a decrease in loans held for sale of $1.6 million. Total cash
and cash equivalents at the end of September 30, 2006 increased to $18.4 million
from the year ended December 31, 2005, which was $11.0 million.
On August 16, 2006, the Corporation's Board of Directors declared the
Corporation's eighteenth consecutive quarterly cash dividend of $0.06 per common
share, payable October 2, 2006, to shareholders of record September 1, 2006.
Following are selected capital ratios for the Corporation and the Bank as of the
dates indicated, along with the minimum regulatory capital requirement for each
item. Capital requirements for bank holding companies are set by the Federal
Reserve Board. In many cases, bank holding companies are expected to operate at
capital levels higher than the minimum requirement.
September 30, December 31, Minimum Ratio
2006 2005 for Capital
-------------------- -------------------- Adequacy Ratio to be
Capital Ratio Capital Ratio Purposes "Well Capitalized"
------- ----- ------- ----- -------------- ------------------
Total capital to risk-weighted assets
Consolidated $49,745 12.61% $48,229 13.79% 8% NA
Bank only 47,272 12.02% 46,271 12.98% 8% 10%
Tier I capital to risk-weighted assets
Consolidated $46,075 11.68% $44,649 12.77% 4% NA
Bank only 43,563 11.07% 41,691 11.95% 4% 6%
Tier I capital to average assets
Consolidated $46,075 9.05% $44,649 9.94% 4% NA
Bank only 43,563 8.58% 41,691 9.30% 4% 5%
19
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
Management believes that the current capital position as well as net income from
operations, loan repayments and other sources of funds will be adequate to meet
our short and long term liquidity needs. Management currently has no plans to
raise additional capital.
The following table shows the changes in stockholders' equity for the three
months ended September 30, 2006:
Accumulated
Unearned Other
Common Retained Employee Comprehensive Total
Stock Earnings Benefits Income/(Loss) Equity
-------- -------- ---------- ------------- ---------
Beginning balance, January 1, 2006 $ 31,154 $ 5,245 ($ 148) ($ 719) $ 35,532
Cash dividend -- (685) -- -- (685)
Stock dividend 2,120 (2,120) -- -- --
Stock option exercise 235 -- -- -- 235
SFAS 123R expensing of options 17 -- -- -- 17
Net income -- 1,944 -- -- 1,944
Repurchase 15,000 shares (175) -- -- -- (175)
Release of ESOP shares -- -- 44 -- 44
Change in unrealized gain/loss -- -- -- (225) (225)
-------- -------- --------- --------- --------
Balance September 30, 2006 $ 33,351 $ 4,384 ($ 104) ($ 944) $ 36,687
======== ======== ========= ========= ========
Stockholder's equity was $36.7 million as of September 30, 2006. This was an
increase of $1.2 million from December 31, 2005. The change in stockholder's
equity was primarily attributable to net income for the nine months ended
September 30, 2006 of $1.9 million, offset by cash dividends of $685,000. The
proceeds from stock options exercised added $235,000 to equity. Additionally,
the release of ESOP shares, at fair market value, contributed $44,000 to total
equity. The change in other comprehensive income of $225,000 was due to the net
change in after tax decreases in the available for sale security portfolio.
Unrealized losses have not been recognized into income because the issuer's
bonds are of high credit quality. The Corporation has the intent and the ability
to hold the securities for the foreseeable future and the decline in the fair
value during the first quarter of 2006 was primarily due to increased market
interest rates.
NET INTEREST INCOME
Net interest income was $3.2 million during the third quarter of 2006, a
decrease of $19,000 over the third quarter of 2005. Net interest margin for the
third quarter of 2006 was 2.62%, or 2.77% on a taxable equivalent basis,
compared with 3.06%, or 3.13% on a tax equivalent basis for the third quarter of
2005. The decrease in net interest margin was primarily the result of higher
deposit funding costs in a highly competitive deposit pricing environment.
During the first nine months of 2006, the decrease in lower yielding core
deposit accounts was one of the primary drivers of net interest margin
compression. Additionally, the flat treasury yield curve produced an interest
rate environment that results in lower incremental interest rate spreads on new
loan and investment growth. The decrease in interest income for the third
quarter of 2006 compared to the third quarter of 2005 was primarily due to
increases in interest expense exceeding the growth of interest income and was
primarily driven by increases on rates paid for certificates of deposit.
Increases in average loan balances aided in partially offsetting the increase
from higher interest rates. Increases in average loan balances and loan yields
helped to partially offset the affect of the flat yield environment during the
period ended September 30, 2006. The largest increase in interest expense was
associated with time deposits. Increases in interest expense on time deposits
represented 79.7% of the overall increase in interest expense due to an increase
in the rate paid on and the volume of deposits, with the increase in rate,
accounting for approximately 47% of the overall increase. Conversely, the
increase in interest expense due to other borrowings represented only 14% of the
total increase.
20
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
Net interest income was $9.5 million for the first nine months of 2006, an
increase of $64,000 over the first nine months of 2005. Net interest margin for
the nine months ended September 30, 2006 was 2.75%, or 2.89% on a taxable
equivalent basis, compared with 3.20%, or 3.27% on a taxable equivalent basis
for the nine months ended September 30, 2005. The compression in net interest
margin, for the first nine months of 2006 was due to primarily the same factors
detailed above for the third quarter of 2006. The increase of net interest
income for the first nine months of $64,000 was attributable to an increase in
the volume of earning assets which more than offset the overall affect of
compression in net interest margin.
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, 2006 vs. 2005 September 30, 2006 vs. 2005
----------------------------------- --------------------------------
Increase (Decrease) Increase (Decrease)
Due to Changes In Due to Changes In
---------------------- ---------------------
Volume Volume
Total and Both Rate Total and Both Rate
--------- --------- -------- -------- --------- --------
(In thousands)
Earning Assets - Interest Income
Loans $ 1,530 $ 790 $ 740 $ 4,295 $ 2,209 $ 2,086
Securities 425 305 120 1,342 1,063 279
Federal funds sold 9 (25) 34 (24) (122) 98
--------- --------- -------- -------- -------- --------
Total 1,964 1,070 894 5,613 3,150 2,463
--------- --------- -------- -------- -------- --------
Deposits and Borrowed Funds - Interest Expense
NOW and money market accounts 75 (44) 119 249 (32) 281
Savings deposits 6 (12) 18 (71) (112) 41
Time deposits 1,581 836 745 4,063 1,951 2,112
FHLB and repo sweeps 269 127 142 1,157 695 462
ESOP 1 (2) 3 -- (4) 4
Subordinated debentures 51 -- 51 151 -- 151
--------- --------- -------- -------- -------- --------
Total 1,983 905 1,078 5,549 2,498 3,051
--------- --------- -------- -------- -------- --------
Net Interest Income ($ 19) $ 165 ($ 184) $ 64 $ 652 ($ 588)
========= ========= ======== ======== ======== ========
The average yield earned on interest earning assets for the third quarter of
2006 was 6.82% compared to 6.02% for the third quarter of 2005. The average
yield earned on the total loan portfolio, which contains both loans held for
sale and investment for 2006 was 7.42% compared to 6.53% during the third
quarter of 2005. The overall increase in the loan portfolio yield was partially
tied to the increase in the prime interest rate during that time period. The
commercial, commercial real estate and home equity line loans that repriced with
prime interest rate changes totaled approximately $145 million at September 30,
2006. The Corporation's security portfolio had an average non-tax adjusted yield
of 4.67% during the third quarter of 2006, with the weighted average taxable
equivalent yield to maturity at September 30, 2006 totaling 5.64%.
The average yield on earning assets for the first nine months of 2006 was 6.70%
compared to 5.95% for the first nine months of 2005. The average yield on the
total loan portfolio, which contains both loans held for sale and investment for
2006 was 7.29% compared to 6.42% during the same period of 2005. The overall
increase in the loan portfolio yield was partially tied to the increase in the
prime interest rate during that period. The Corporation's security
21
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
portfolio had an average non-tax adjusted yield of 4.56% during the first nine
months of 2006, compared to 4.00% for the same period in 2005, as new securities
added to the portfolio reflected the increase in market rates over that same
relative period, coupled with and secondarily, the increase in the variable rate
mortgage backed securities.
The average rate paid on interest bearing liabilities for the third quarter of
2006 was 4.60% compared to 3.35% in the third quarter of 2005. The increase in
average rate was due to the overall rate paid on interest bearing liabilities,
primarily as a result of the increase in overall market interest rates. The rate
paid on the total time deposit portfolio increased to 4.86% for the third
quarter of 2006, from 3.43% for the same time period in 2005 and was driven by
highly competitive interest rates paid among local financial institutions. The
increase in the average rate for NOW and money market accounts for 2006 was
primarily attributable to the introduction of a premium rate based NOW account,
with the average rate moving to 2.78% during the third quarter of 2006 versus
1.70% in the third quarter of 2005. The average rate paid on savings also
increased, moving to 2.33% for the third quarter of 2006 from 1.84% in the third
quarter of 2005. The rate paid on FHLB advances and repurchase agreements
increased to 4.36% in the third quarter of 2006 from 3.73% in the third quarter
of 2005. New advances, repricing of variable advances and the increase in the
interest rate paid on repurchase agreements were the primary reasons for the
increase. At September 30, 2006, the FHLB portfolio had a weighted average
maturity of 5.0 years and an overall weighted average interest rate of 4.50%,
which was 75 basis points below the current overnight federal funds rate. The
average rate paid on the subordinated debenture increased in the third quarter
of 2006 to 9.39% from 7.43%, closely tracking the overall increase in short-term
market interest rates during the comparable period. This instrument is priced
quarterly based on the three-month libor interest rate.
The average rate paid interest bearing liabilities for the first nine months of
2006 was 4.35% compared to 3.10% in the first nine months of 2005. The increase
in average rate was due to the overall rate paid on interest bearing liabilities
and was due to the increase in overall market interest rates. The increase in
yield on time deposits was the primary reason for the overall increase in
interest bearing liability yield for the first nine months of 2006 compared to
the first nine months of 2005. The overall increase in interest bearing deposits
and liabilities for the first nine months ended September 30, 2006 over the same
time period in 2005 was due to the same factors as mentioned above for the first
quarter of 2006.
22
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
AVERAGE BALANCE SHEET
The following tables show the Corporation's consolidated average balances of
assets, liabilities, and stockholders' equity; the amount of interest income or
interest expense and the average yield or rate for each major category of
interest earning asset and interest bearing liability, and the net interest
margin, for the three and nine month periods ended September 30, 2006 and 2005.
Average loans are presented net of unearned income, gross of the allowance for
loan losses. Interest on loans includes loan fees. Effective January 1, 2006,
the Corporation began calculating yields earned on interest earning assets and
rates paid on interest bearing liabilities based on the actual number of days in
the quarter. Previously, the Corporation calculated these yields using four
equal quarterly periods. While these different methods of calculating yields and
rates may have a slight effect on yields, rates, net interest margins and net
interest rate spreads reported during the quarterly or year to date periods, it
has no effect on yields, rates, net interest margins and net interest rate
spreads reported on an annual basis. This change in methodology does not have a
material impact on the yields, rates, net interest margin or net interest rate
spreads in reported in prior periods; accordingly, this change was implemented
prospectively and as such, prior periods have not been restated.
Three Months Ended September 30,
----------------------------------- ----------------------------------
2006 2005
---------- --------- --------- -------- --------- ---------
Average Average
Interest Rate Interest Rate
Average Income/ Earned/ Average Income/ Earned/
Balance Expense Paid Balance Expense Paid
---------- --------- --------- -------- --------- ---------
(In thousands)
Assets
Loans $ 372,009 $ 6,959 7.42% $330,045 $ 5,429 6.53%
Securities 99,067 1,157 4.67 73,003 732 4.01
Federal funds sold 7,994 105 5.21 9,860 96 3.86
---------- --------- --------- -------- --------- ---------
Total Earning Assets/
Total Interest Income 479,070 8,221 6.82 412,908 6,257 6.02
---------- --------- --------- -------- --------- ---------
Cash and due from banks 8,648 8,697
All other assets 23,020 19,747
---------- --------
Total Assets $ 510,738 $441,352
========== ========
Liabilities and Equity
NOW and money market accounts $ 37,375 262 2.78 $ 43,696 187 1.70
Savings deposits 12,788 75 2.33 14,886 69 1.84
Time deposits 275,136 3,369 4.86 206,668 1,788 3.43
FHLB advances and repurchase agreements 101,116 1,112 4.36 89,647 843 3.73
ESOP loan 113 3 8.25 175 2 4.53
Subordinated debentures 10,310 244 9.39 10,310 193 7.43
---------- --------- --------- -------- --------- ---------
Total Interest Bearing Liabilities/
Total Interest Expense / Interest Rate Spread 436,838 5,065 4.60 365,382 3,082 3.35
---------- --------- --------- -------- --------- ---------
Noninterest bearing demand deposits 35,072 38,829
All other liabilities 2,758 2,279
Stockholders' equity 36,070 34,862
---------- --------
Total Liabilities and Stockholder's Equity $ 510,738 $441,352
========== ========
Net Interest Income $ 3,156 $ 3,175
========= =========
Net Interest Spread 2.22% 2.67%
========= =========
Net Interest Margin (Net Interest
Income/Total Earning Assets) 2.62% 3.06%
========= =========
Net Interest Margin
(fully taxable equivalent) 2.77% 3.13%
========= =========
23
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
Nine Months Ended September 30,
----------------------------------- ----------------------------------
2006 2005
---------- --------- --------- -------- --------- ---------
Average Average
Interest Rate Interest Rate
Average Income/ Earned/ Average Income/ Earned/
Balance Expense Paid Balance Expense Paid
---------- --------- --------- -------- --------- ---------
(In thousands)
Assets
Loans $ 361,061 $ 19,697 7.29% $320,585 $ 15,402 6.42%
Securities 97,440 3,336 4.56 66,450 1,994 4.00
Federal funds sold 4,457 166 4.98 7,741 190 3.28
---------- --------- --------- -------- --------- ---------
Total Earning Assets/
Total Interest Income 462,958 23,199 6.70 394,776 17,586 5.95
---------- --------- --------- -------- --------- ---------
Cash and due from banks 7,108 7,770
All other assets 22,598 17,947
---------- --------
Total Assets $ 492,664 $420,493
========== ========
Liabilities and Equity
NOW and money market accounts $ 38,328 681 2.38 $ 40,046 432 1.44
Savings deposits 12,219 202 2.21 19,016 273 1.92
Time deposits 257,406 8,798 4.57 200,235 4,735 3.16
FHLB advances and repurchase agreements 101,769 3,288 4.32 80,233 2,131 3.55
ESOP loan 128 8 7.90 187 8 5.72
Subordinated debentures 10,310 691 8.96 10,310 540 7.00
---------- --------- --------- -------- --------- ---------
Total Interest Bearing Liabilities/
Total Interest Expense / Interest Rate Spread 420,160 13,668 4.35 350,027 8,119 3.10
---------- --------- --------- -------- --------- ---------
Noninterest bearing demand deposits 34,260 36,828
All other liabilities 2,432 1,926
Stockholders' equity 35,812 31,712
---------- --------
Total Liabilities and Stockholder's Equity $ 492,664 $420,493
========== ========
Net Interest Income $ 9,531 $ 9,467
========= =========
Net Interest Spread 2.35% 2.85%
========= =========
Net Interest Margin (Net Interest
Income/Total Earning Assets) 2.75% 3.20%
========= =========
Net Interest Margin
(fully taxable equivalent) 2.89% 3.27%
========= =========
24
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
PROVISION FOR LOAN LOSSES
The provision for loan losses for the third quarter and first nine months of
2006 was $75,000 and $250,000, respectively. This was based upon management's
review of the risks inherent in the loan portfolio and the level of our
allowance for loan losses. Net loan charge-offs for the first nine months of
2006 totaled $121,000, or 5 basis points on an annualized basis. Total
nonperforming loans as a percentage of total loans was 0.82% at September 30,
2006, compared to 0.99% at December 31, 2005. The allowance for loan losses was
$3.7 million at September 30, 2006, or 1.00% of total loans and 121.81% of
nonperforming loans, versus $3.6 million, or 1.07% and 108.10% at December 31,
2005, respectively.
NONINTEREST INCOME
Noninterest income in the third quarter of 2006 was $1.3 million, a decrease of
$124,000 or 9.0%, compared to the third quarter of 2005. This was attributable
to decreases in mortgage banking income of $287,000, or 26.2%, which comprises
gains on the sale of residential mortgages and parallels the industry-wide
slowdown in secondary mortgage sales. Other income of $283,000 increased
$150,000 for the third quarter of 2006, compared to the third quarter of 2005,
reflecting growth in most other income areas with the largest being attributable
to increases in gains on the sale of portfolio loans, net gains and losses on
disposal of assets and an increase in cash surrender value of bank owned life
insurance of $28,000, $39,000 and $27,000, respectively.
Noninterest income for the nine months ended September 30, 2006 of $3.8 million
increased $258,000, or 7.4%, over the nine months ended September 30, 2005.
Fiduciary income of $202,000 increased $133,000, or 192.7% over the same time
period last year. The Trust division did not start operations until July of
2005, therefore year to date September 2005 results reflect three months of
income versus nine months for year to date September 2006. Deposit service
charge income of $265,000 increased $44,000, or 19.9%, for the first nine months
of 2006 compared to 2005 for the same respective period due to an overdraft
privilege program instituted in late 2005. Net security losses of $3,000 were
recorded for the first nine months of 2006 from restructuring activities,
compared to 2005 when $57,000 in net security gains were recorded. Other income
of $665,000 increased $224,000 for the first nine months of 2006, compared to
the first nine months of 2005, due primarily to those item changes noted above
in the third quarter.
NONINTEREST EXPENSE
Noninterest expense was $3.6 million for the third quarter of 2006 compared to
$3.5 million for the third quarter of 2005, an increase of $90,000 or 2.6%. The
increase was largely due to an increase of $88,000 in salary, benefits and
payroll taxes related to the new Grosse Pointe Hub. Net occupancy expense of
$473,000 increased $65,000, or 15.9%, due primarily to the new Grosse Pointe
Hub, coupled with increased utility costs for the entire Corporation. The
quarterly increase in premises and fixed assets was offset by decreases in other
operating expenses.
Noninterest expense for the first nine months of 2006 of $10.7 million increased
$1.1 million, or 11.0% compared to the first nine months of 2005. All categories
of noninterest expense for the first nine months of 2006 increased primarily due
to startup and operational costs in trust, wealth management, new residential
loan production offices and establishment of the new Grosse Pointe banking
branch location. The largest portion of the increase in noninterest expense
occurred in salaries, benefits and payroll taxes of $6.4 million for the nine
months ended September 30, 2006, which increased $740,000, or 13.2% over the
first nine months of 2005 from these new divisions and Hub.
PROVISION FOR INCOME TAXES
The provision for federal income taxes of $116,000 for the third quarter of 2006
decreased $167,000, or 59.0%, from the federal income tax provision for the
third quarter of 2005. The decrease was primarily attributable to a higher level
of tax exempt municipal bonds and bank owned life insurance (BOLI) over the same
respective time period, coupled with a lower level of pretax income. The
increase in cash surrender value of BOLI is exempt from federal income tax. The
effective tax rate for the third quarter of 2006 and 2005 was 16.0% and 27.4%,
respectively. The statutory tax rate of the Corporation is 34%.
25
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
The provision for federal income taxes of $429,000 for the nine months ended
September 30, 2006 decreased $496,000 over the first nine months of 2005. The
effective tax rate for the first nine months of 2006 was 18.1% compared to 28.4%
for the first nine months of 2005. The difference in the effective rates is due
to the relative percentage of tax-exempt income to the total pretax income,
which would include both taxable and tax exempt income. The tax-exempt income as
a percentage of total pretax income was 53.4%, compared to 19.0% for the nine
month periods ended September 30, 2006 and 2005, respectively.
26
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
ASSET/LIABILITY MANAGEMENT
The Asset Liability Management Committee ("ALCO"), which meets at least
quarterly, is responsible for reviewing interest rate sensitivity position and
establishing policies to monitor and limit exposure to interest rate risk.
Currently two quantitative tools are used to measure and monitor interest rate
risk: static gap analysis and net interest income simulation modeling. Each of
these interest rate risk measurements has limitations, but management believes
when these tools are evaluated together, they provide a balanced view of our
exposure to interest rate risk.
Static gap analysis measures the difference between the assets and liabilities
repricing or maturing within specific time periods. An asset-sensitive position
indicates that there are more rate-sensitive assets than rate-sensitive
liabilities repricing or maturing within specific time periods, which would
generally imply a favorable impact on net interest income in periods of rising
interest rates and a negative impact in periods of falling rates. A
liability-sensitive position would generally imply a negative impact on net
interest income in periods of rising rates and a positive impact in periods of
falling rates.
Static gap analysis has limitations because it cannot measure precisely the
effect of interest rate movements and competitive pressures on the repricing and
maturity characteristics of interest-earning assets and interest-bearing
liabilities. In addition, a significant portion of our adjustable-rate assets
have limits on their maximum yield, whereas most of our interest-bearing
liabilities are not subject to these limitations. As a result, certain assets
and liabilities indicated as repricing within a stated period may in fact
reprice at different times and at different volumes, and certain adjustable-rate
assets may reach their yield limits and not reprice.
27
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
The following table presents an analysis of our interest-sensitivity static gap
position at September 30, 2006. All interest-earning assets and interest-bearing
liabilities are shown based on the earlier of their contractual maturity or
repricing date adjusted by forecasted repayment and decay rates. Asset
prepayment and liability decay rates are selected after considering the current
rate environment, industry prepayment and decay rates and our historical
experience. At September 30, 2006, we are considered asset sensitive in the time
interval of the first three months. We are also considered to be slightly
liability sensitive at the one year accumulated gap position.
After Three After One
Within Months But Year But After
Three Within One Within Five
Months Year Five Years Years Total
-------- ------------ ------------ ---------- --------
(Dollars in thousands)
Interest earning assets:
Federal funds sold and
interest bearing cash $ 11,000 $ -- $ -- $ -- $ 11,000
Securities 10,880 11,024 32,396 45,145 99,445
FHLB stock -- 4,630 -- -- 4,630
Portfolio loans and held for resale 144,923 56,754 146,330 25,623 373,630
-------- ------------ ------------ ---------- --------
Total 166,803 72,408 178,726 70,768 $488,705
-------- ------------ ------------ ---------- ========
Interest bearing liabilities:
NOW and money market accounts 2,634 6,343 24,533 -- $33,510
Indexed MM account and trust money market 3,494 8,309 -- -- 11,803
Savings deposits 1,728 3,457 12,099 -- 17,284
Jumbo time deposits 79,616 80,114 61,854 -- 221,584
Time deposits < $100,000 10,187 22,266 16,195 -- 48,648
Repurchase agreements 21,832 -- -- -- 21,832
FHLB advances -- 5,000 42,345 33,200 80,545
ESOP payable 104 -- -- -- 104
Subordinated debentures 10,310 -- -- -- 10,310
-------- ------------ ------------ ---------- --------
Total 129,905 125,489 157,026 33,200 $445,620
-------- ------------ ------------ ---------- ========
Interest rate sensitivity gap $ 36,898 ($ 53,081) $ 21,700 $ 37,568
Cumulative interest rate sensitivity gap ($ 16,183) $ 5,517 $ 43,085
Interest rate sensitivity gap ratio 1.28 0.58 1.14 2.13
Cumulative interest rate sensitivity gap ratio 0.94 1.01 1.10
We also evaluate interest rate risk using a simulation model. The use of
simulation models to assess interest rate risk is an accepted industry practice,
and the results of the analysis are useful in assessing the vulnerability of our
net interest income to changes in interest rates. However, the assumptions used
in the model are oversimplifications and not necessarily representative of the
actual impact of interest rate changes. The simulation model assesses the
direction and magnitude of variations in net interest income resulting from
potential changes in market interest rates. Key assumptions in the model include
prepayment speeds of various loan and investment assets; cash flows and
maturities of interest-sensitive assets and liabilities, and changes in market
conditions impacting loan and deposit volumes and pricing. These assumptions are
inherently uncertain, and subject to fluctuation and revision in a dynamic
environment. Therefore, the model cannot precisely estimate future net interest
income or exactly predict the impact of higher or lower interest rates. Actual
results may differ from simulated results due to the timing, magnitude, and
frequency of interest rate changes, changes in market conditions, management's
pricing decisions, and customer reactions to those decisions, among other
factors.
28
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
On a quarterly basis, the net interest income simulation model is used to
quantify the effects of hypothetical changes in interest rates on the Bank's net
interest income over a projected twelve-month period. The model permits
management to evaluate the effects of instantantious parallel shifts in the
Treasury Yield curve, upward and downward, on net interest income expected in a
stable interest rate environment.
As of September 30, 2006, the table below reflects the impact the various
instantaneous parallel shifts in the yield curve would have on net interest
income over a twelve month period of time from the base forecast. The overall
interest rate risk profile of the Corporation, which is quantified by our
simulation model, has changed from prior reporting periods. The results of
model, which produces forecasts under various rate scenarios would indicate that
the Corporation's net interest income would react more favorably in a declining
parallel shift in market rates and conversely, react negatively to an increase
in market interest rates. The change in the interest rate risk profile is
primarily attributable to an increase in fixed rate commercial real estate loans
we have experienced. Additionally, the Corporation's dependence on time
deposits, versus non-maturity core deposits, has added to the liability
sensitivity.
Percentage Change
Interest Rate Scenario In Net Interest Income
- ------------------------------------ ----------------------
Interest rates up 300 basis points (8.23%)
Interest rates up 200 basis points (4.26%)
Interest rates up 100 basis points (1.62%)
Base case --
Interest rates down 100 basis points 2.18%
Interest rates down 200 basis points 5.24%
Interest rates down 300 basis points 8.25%
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, 2006, was carried out under the supervision and with the
participation of the Corporation's Chief Executive Officer, Chief Financial
Officer and several other members of the Corporation's senior management. The
Corporation's Chief Executive Officer and Chief Financial Officer concluded that
the Corporation's disclosure controls and procedures as currently in effect are
effective in ensuring that the information required to be disclosed by the
Corporation in the reports it files or submits under the Act is (i) accumulated
and communicated to the Corporation's management (including the Chief Executive
Officer and Chief Financial Officer) in a timely manner, and (ii) recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms.
There have been no changes in our internal control over financial reporting (as
defined in Rule 13a-15(f) of the Act) that occurred during the quarter ended
September 30, 2006, that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
The Corporation intends to continually review and evaluate the design and
effectiveness of its disclosure controls and procedures and to improve its
controls and procedures over time and to correct any deficiencies that it may
discover in the future. The goal is to ensure that senior management has timely
access to all material non-financial information concerning the Corporation's
business. While the Corporation believes the present design of its disclosure
controls and procedures is effective to achieve its goal, future events
affecting its business may cause the Corporation to modify its disclosures and
procedures.
29
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
PART II
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 1A. RISK FACTORS
No material changes from risk factors as previously disclosed in Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
STOCK REPURCHASES
The following table sets forth information about the Corporation's purchases of
its outstanding Common Stock during the quarter ended September 30, 2006.
(d) Maximum Number
(c) Total Number of (or approximate
(a) Total Shares (or Units) Dollar Value) of
Number of Purchased as Part of shares (or Units) that
Shares (or (b) Average Price Publicly Announced May Yet Be Purchased
Units) Paid per Share (or Plans or Programs Under the Plans or
Period Purchased (1) Unit) (2) Programs (2)
- -------------------------------------- ------------- ------------------ -------------------- ----------------------
July 1, 2006 - July 31, 2006 -- -- -- --
August 1, 2006 - August 31, 2006 -- -- -- --
September 1, 2006 - September 30, 2006 15,000 $ 11.65 15,000 177,887
Total 15,000 $ 11.65 15,000 177,887
(1) Of these shares, no shares were purchased other than through a publicly
announced program.
(2) On September 20, 2006, the Corporation announced its attention to
repurchase up to 5%, totaling 192,887 shares, of its outstanding shares in
the open market or privately negotiated transactions. No stock repurchase
plans or programs expired or were terminated by the Corporation during the
quarter
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 16, 2006, the Corporation's Board of Directors
declared the Corporation's seventeenth quarterly cash dividend of $0.06 per
common share, payable October 2, 2006, to shareholders of record September 1,
2006.
On September 20, 2006, the Corporation announced its attention to repurchase up
to 5% of its outstanding shares in the open market or privately negotiated
transactions. These shares will be purchased at prevailing market prices from
time to time over a twelve month period dependent upon market conditions.
ITEM 6. EXHIBITS.
See Exhibit Index attached.
30
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized, on November 13, 2006.
COMMUNITY CENTRAL BANK CORPORATION
By: S/ DAVID A. WIDLAK
------------------
David A. Widlak;
President and CEO
(Principal Executive Officer)
By: S/ RAY T. COLONIUS
------------------
Ray T. Colonius;
Treasurer
(Principal Financial and Accounting Officer)
31
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ -------------------
3.1 Articles of Incorporation are incorporated by reference to
Exhibit 3.1 of the Corporation's Registration Statement on Form
SB-2 (SEC File No. 333-04113) which became effective on September
23, 1996
3.2 Bylaws of the Corporation are incorporated by reference to
Exhibit 3.2 of the Corporation's Quarterly Report on Form 10-QSB
filed with the SEC for the quarter ended June 30, 2004 (SEC File
No. 000-33373)
4.1 Specimen of Stock Certificate of Community Central Bank
Corporation is incorporated by reference to Exhibit 4.2 of the
Corporation's Registration Statement on Form SB-2 (SEC File No.
333-04113) which became effective on September 23, 1996
10.1 1996 Employee Stock Option Plan is incorporated by reference to
Exhibit 10.1 of the Corporation's Registration Statement on Form
SB-2 (SEC File No. 333-04113) which became effective September
23, 1996
10.2 1996 Stock Option Plan for Nonemployee Directors is incorporated
by reference to Exhibit 10.2 of the Corporation's Registration
Statement on Form SB-2 (SEC File No. 333-04113) which became
effective September 23, 1996
10.3 1999 Stock Option Plan for Directors in incorporated by reference
to Exhibit 10.5 of the Corporation's Annual Report filed with the
SEC on Form 10-KSB for the year ended December 31, 1999 (SEC File
No. 000-33373)
10.4 2000 Employee Stock Option Plan is incorporated by reference to
Exhibit 10.6 of the Corporation's Annual Report filed with the
SEC on Form 10-KSB for the year ended December 31, 2000 (SEC File
No. 000-33373)
10.5 2002 Incentive Plan is incorporated by reference to Exhibit 10.7
of the Corporation's Annual Report filed with the SEC on Form
10-KSB for the year ended December 31, 2001 (SEC File No.
000-33373)
10.6 Community Central Bank Supplemental Executive Retirement Plan is
incorporated by reference to Exhibit 10.6 of the Corporation's
Quarterly Report on Form 10-QSB filed with the SEC for the
quarter ended June 20, 3003 (SEC File No. 000-33373)
10.7 Community Central Bank Death Benefit Plan is incorporated by
reference to Exhibit 10.7 of the Corporation's Quarterly Report
on Form 10-QSB filed with the SEC for the quarter ended June 20,
3003 (SEC File No. 000-33373)
10.8 Form of Incentive Stock Option Agreement incorporated by
reference to Exhibit 99.1 of the Corporation's Current Report on
Form 8-K filed with the SEC on March 25, 2005. (SEC File No.
000-33373)
10.9 Form of Non-qualified Stock Option Agreement is incorporated by
reference to the Corporation's Current Report on Form 8-K filed
on January 17, 2006. (SEC File No. 000-33373)
10.10 Summary of Named Executive Officer Salary and Bonus Arrangements
is incorporated by reference to Exhibit 99.1 of the Corporation's
Current Report on Form 8-K filed on January 17, 2006. (SEC File
No. 000-33373)
32
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
10.11 Summary of Current Director Fee Arrangements is incorporated by
reference to Exhibit 10.10 of the Corporation's Annual Report
filed with the SEC on Form 10-KSB for the year ended December 31,
2004. (SEC File No. 000-33373)
11 Computation of Per Share Earnings
31.1 Rule 13a - 14(a) Certification (Chief Executive Officer)
31.2 Rule 13a - 14(a) Certification (Chief Financial Officer)
32 Rule 1350 Certifications
33