Exhibit 13
COMMUNITY CENTRAL BANK
CORPORATION
Report of Independent Registered Public
Accounting Firm
and
Stockholder Report
December 31, 2006
(PLANTE & MORAN LOGO) PLANTE & MORAN, PLLC
Suite 500
2601 Cambridge Court
Auburn Hills, MI 48326
Tel: 248.375.7100
Fax: 248.375.7101
plantemoran.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Community Central Bank Corporation
Mount Clemens, Michigan
We have audited the accompanying consolidated balance sheet of Community Central
Bank Corporation as of December 31, 2006 and 2005, and the related consolidated
statements of income, comprehensive income, changes in stockholders' equity, and
cash flows for the years ended December 31, 2006, 2005 and 2004. These
consolidated financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Community Central Bank Corporation as of December 31, 2006 and 2005, and the
results of its operations for the years ended December 31, 2006, 2005 and 2004,
in conformity with accounting principles generally accepted in the United States
of America.
Our audit was conducted for the purpose of forming an opinion on the
consolidated basic financial statements taken as a whole. The information
contained in Notes 3, 4, 5, and 8 pertaining to 2004, 2003 and 2002 is presented
for the purposes of additional analysis and is not a required part of the
consolidated basic financial statements. Such information has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, is fairly stated in all material respects in relation to
the basic financial statements taken as a whole.
/s/ Plante & Moran, PLLC
Auburn Hills, Michigan
March 7, 2007
A MEMBER OF
(MRI LOGO)
A WORLDWIDE ASSOCIATION OF INDEPENDENT ACCOUNTING FIRMS
COMMUNITY CENTRAL BANK CORPORATION
CONSOLIDATED BALANCE SHEET
December 31,
-------------------
2006 2005
-------- --------
(In thousands)
Assets
Cash and Cash Equivalents
Cash and due from banks (Note 2) $ 11,026 $ 8,000
Federal funds sold 13,700 3,000
-------- --------
Total Cash and Cash Equivalents 24,726 11,000
Securities available for sale, at fair value (Note 3) 80,916 84,177
Securities held to maturity, at amortized cost (Note 3) 1,017 1,094
FHLB stock 4,540 4,331
Residential mortgage loans held for sale 3,441 4,286
Loans (Note 4)
Commercial real estate 236,399 201,348
Commercial and industrial 28,393 26,753
Residential real estate 72,517 74,601
Home equity lines of credit 17,614 18,545
Consumer loans 11,666 13,054
Credit card loans 693 650
-------- --------
Total Loans 367,282 334,951
Allowance for credit losses (Note 5) (3,815) (3,580)
-------- --------
Net Loans 363,467 331,371
Net property and equipment (Note 6) 9,225 8,753
Accrued interest receivable 2,599 2,122
Other real estate 108 112
Goodwill (Note 1) 1,381 1,381
Intangible assets, net of amortization (Note 1) 145 210
Cash surrender value of Bank Owned Life Insurance (Note 13) 10,163 9,820
Other assets (Note 16) 3,300 3,355
-------- --------
Total Assets $505,028 $462,012
======== ========
The accompanying notes are an integral part of the financial statements.
1
COMMUNITY CENTRAL BANK CORPORATION
CONSOLIDATED BALANCE SHEET
December 31,
-------------------
2006 2005
-------- --------
(In thousands,
except share data)
Liabilities
Deposits
Noninterest bearing demand deposits $ 33,331 $ 31,979
NOW and money market accounts 59,339 41,167
Savings deposits 10,569 12,832
Time deposits (Note 7) 252,617 228,395
-------- --------
Total Deposits 355,856 314,373
Repurchase agreements (Note 8) 15,688 13,184
Federal Home Loan Bank advances (Note 9) 83,528 86,545
Accrued interest payable 1,257 938
Other liabilities (Note 13) 1,629 982
ESOP note payable (Note 10) 95 148
Subordinated debentures (Note 11) 10,310 10,310
-------- --------
Total Liabilities 468,363 426,480
Stockholders' Equity (Note 12)
Common stock (No par value; 9,000,000 shares,
authorized, and 3,829,758 issued and outstanding at
12-31-2006 and 3,831,329 at 12-31-2005) 33,220 31,154
Retained earnings 4,303 5,245
Unearned employee benefit (Note 13) (95) (148)
Accumulated other comprehensive loss (763) (719)
-------- --------
Total Stockholders' Equity 36,665 35,532
-------- --------
Total Liabilities and Stockholders' Equity $505,028 $462,012
======== ========
The accompanying notes are an integral part of the financial statements.
2
COMMUNITY CENTRAL BANK CORPORATION
CONSOLIDATED STATEMENT OF INCOME
Year Ended December 31,
---------------------------
2006 2005 2004
------- ------- -------
(In thousands,
except per share data)
Interest Income
Loans (including fees) $26,732 $21,120 $17,498
Taxable securities 3,203 2,294 1,641
Tax exempt securities 1,241 613 481
Federal funds sold 299 203 105
------- ------- -------
Total Interest Income 31,475 24,230 19,725
Interest Expense
NOW and money market accounts 1,176 612 426
Savings deposits 299 343 240
Time deposits 12,111 6,733 4,725
Repurchase agreements and fed funds purchased 432 245 109
Federal Home Loan Bank advances 3,936 2,865 1,878
ESOP loan interest expense 10 11 10
Subordinated debentures 928 746 548
------- ------- -------
Total Interest Expense 18,892 11,555 7,936
------- ------- -------
Net Interest Income 12,583 12,675 11,789
Provision for credit losses (Note 5) 550 100 2,000
------- ------- -------
Net Interest Income after provision for credit losses 12,033 12,575 9,789
Noninterest Income
Fiduciary income 289 133 --
Deposit service charges 357 297 298
Net realized security gain (Note 3) 8 56 191
Mortgage banking income 3,376 3,752 5,256
Other income 905 571 801
------- ------- -------
Total Noninterest Income 4,935 4,809 6,546
Noninterest Expense
Salaries, benefits and payroll taxes (Note 13) 8,768 7,689 7,890
Net occupancy expense (Note 14) 1,865 1,635 1,498
Other operating expense (Note 15) 3,876 3,808 3,958
------- ------- -------
Total Noninterest Expense 14,509 13,132 13,346
------- ------- -------
Income Before Taxes 2,459 4,252 2,989
Provision for Income Tax Expense (Note 16) 363 1,179 782
------- ------- -------
Net Income $ 2,096 $ 3,073 $ 2,207
======= ======= =======
The accompanying notes are an integral part of the financial statements.
3
COMMUNITY CENTRAL BANK CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(continued)
Year Ended December 31,
-----------------------
2006 2005 2004
----- ----- -----
(In thousands, except
per share data)
Per share data:*
Basic earnings $0.55 $0.84 $0.71
Diluted earnings $0.54 $0.82 $0.69
Cash Dividends $0.24 $0.21 $0.20
* Per share data has been retroactively adjusted to reflect the issuance of
stock dividends.
4
COMMUNITY CENTRAL BANK CORPORATION
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year Ended December 31,
--------------------------
2006 2005 2004
------- ------- ------
(In thousands)
Net Income as Reported $ 2,096 $ 3,073 $2,207
Other Comprehensive Income
Change in unrealized net (loss) gain on
securities available for sale, net of
tax of ($12) and a reclassification
adjustment of ($7) in 2006, ($328) in
2005, and $2 in 2004 (44) (630) 6
------- ------- ------
Comprehensive Income $ 2,052 $ 2,443 $2,213
======= ======= ======
The accompanying notes are an integral part of the financial statements.
5
COMMUNITY CENTRAL BANK CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Accumulated
Unearned Other
Common Retained Employee Comprehensive Total
Stock Earnings Benefits Income (Loss) Equity
-------- -------- -------- ------------- --------
(In thousands)
Balance January 1, 2004 $ 18,917 $ 5,225 ($271) ($ 95) $ 23,776
Cash dividend -- (571) -- -- (571)
Stock options exercised/awards 73 -- -- -- 73
Stock dividend (Note 12) 1,750 (1,750) -- -- --
Net income for 2004 -- 2,207 -- -- 2,207
Release of ESOP shares 34 -- 66 -- 100
Other comprehensive income -- -- -- 6 6
-------- ------- ----- ----- --------
Balance December 31, 2005 $ 20,774 $ 5,111 ($205) ($ 89) $ 25,591
Cash dividend -- (742) -- -- (742)
Stock options exercised/awards 108 -- -- -- 108
Rights Offering 5,275 -- -- -- 5,275
Stock dividend (Note 12) 2,197 (2,197) -- -- --
Net income for 2005 -- 3,073 -- -- 3,073
Release of ESOP shares 50 -- 57 -- 107
RPFC merger 2,750 -- -- -- 2,750
Other comprehensive income -- -- -- (630) (630)
-------- ------- ----- ----- --------
Balance December 31, 2005 $ 31,154 $ 5,245 ($148) ($719) $ 35,532
Cash dividend -- (918) -- -- (918)
Stock options exercised/awards 252 -- -- -- 252
SFAS 123R 23 -- -- -- 23
Stock dividend (Note 12) 2,120 (2,120) -- -- --
Net income for 2006 -- 2,096 -- -- 2,096
Release of ESOP shares 22 -- 53 -- 75
Repurchase of common stock (351) -- -- -- (351)
Other comprehensive income -- -- -- (44) (44)
-------- ------- ----- ----- --------
Balance December 31, 2006 $ 33,220 $ 4,303 ($ 95) ($763) $ 36,665
======== ======= ===== ===== ========
The accompanying notes are an integral part of the financial statements.
6
COMMUNITY CENTRAL BANK CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOW
Year Ended December 31,
---------------------------------
2006 2005 2004
--------- --------- ---------
(In thousands)
Operating Activities
Net income $ 2,096 $ 3,073 $ 2,207
Adjustments to reconcile net income to net
cash flow from operating activities:
Net amortization of security premium 187 309 392
Net gain on available for sale securities (8) (56) (191)
Provision for credit losses 550 100 2,000
Depreciation expense 718 560 458
Loss on disposal of property and equipment -- -- 40
Deferred income tax (benefit) expense (24) (305) 255
ESOP compensation expense 75 107 100
SFAS 123R option expense 23 -- --
Increase in accrued interest receivable (477) (731) (86)
Increase in other assets (187) (1,200) (549)
Increase in accrued interest payable 319 158 269
Increase in other liabilities 647 38 192
Loans originated held for sale (119,934) (142,072) (172,831)
Loans sold held for sale 120,779 144,277 173,581
Decrease (increase) in other real estate 4 569 (318)
--------- --------- ---------
Net Cash Provided By Operating Activities 4,768 4,827 5,519
Investing Activities
Sales, maturities, calls and prepayments of securities available for sale 33,537 23,320 79,180
Purchases of securities available for sale (30,506) (55,169) (73,648)
Maturities, calls, and prepayments of held to maturity securities 158 65 95
Purchases of held to maturity securities (295) (1,085) (519)
Increase in loans (32,646) (28,727) (36,807)
Purchases of property and equipment (1,190) (2,392) (3,442)
Purchase of Bank Owned Life Insurance -- (2,000) --
--------- --------- ---------
Net Cash Used in Investing Activities (30,942) (65,988) (35,141)
Financing Activities
Net increase (decrease) in demand and savings deposits 17,261 (7,087) 11,378
Net increase in time deposits 24,222 42,604 12,122
Net increase (decrease) in short term borrowings 2,504 1,692 (1,344)
FHLB advances 38,700 50,900 29,000
FHLB advance repayments (41,717) (27,715) (20,014)
Payment of ESOP debt (53) (57) (66)
Rights/Public Stock Offering -- 5,275 --
Stock options exercised 252 108 73
Cash dividends paid (918) (742) (571)
Repurchase of stock (351) -- --
--------- --------- ---------
Net Cash Provided by Financing Activities 39,900 64,978 30,578
Increase (decrease) in Cash and Cash Equivalents 13,726 3,817 956
Cash and Cash Equivalents at the Beginning
of the Period 11,000 7,183 6,227
--------- --------- ---------
Cash and Cash Equivalents at the End of the Period $ 24,726 $ 11,000 $ 7,183
========= ========= =========
Supplemental Disclosure of Cash Flow Information
Interest paid $ 18,892 $ 11,555 $ 7,667
Federal Taxes Paid $ 175 $ 1,740 $ 650
Loans transferred to other real estate owned $ 263 $ 555 $ 461
========= ========= =========
7
COMMUNITY CENTRAL BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006 and 2005
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Community Central Bank Corporation (the
"Corporation") conform to accounting principles generally accepted in the United
States of America. Management is required to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates and assumptions. Material
estimates that are particularly susceptible to significant change in the near
term relate to the determination of the allowance for loan losses, the valuation
of foreclosed real estate, and deferred tax assets.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of the Corporation and its wholly-owned subsidiaries, Community Central
Bank (the "Bank") and Community Central Mortgage Company, LLC ("the Mortgage
Company"). All significant intercompany transactions are eliminated in
consolidation. The ownership structure of the Mortgage Company consists of two
members, Community Central Bank and Community Central Bank Corporation, owning
99% and 1% of the Mortgage Company, respectively.
NATURE OF OPERATIONS: Community Central Bank Corporation is the bank 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, Wayne and St. Clair counties with a full range of lending, deposit,
trust, wealth management and Internet banking services. The Bank operates three
full service facilities in Mount Clemens, Rochester Hills and Grosse Pointe,
Michigan. Community Central Mortgage Company, LLC, a subsidiary of the
Corporation and Bank, operates locations servicing the Detroit metropolitan
area, northwest Indiana, northern Illinois, central Ohio 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.
SECURITIES: On the balance sheet, securities held to maturity are stated at
cost, adjusted for amortization of premium and accretion of discount. Securities
classified as available for sale are those that may be sold in the future to
meet investment objectives of quality, liquidity and yield, and to avoid
significant market deterioration. Securities available for sale are reported at
estimated fair value. Unrealized gain or loss on securities available for sale
is recorded (net of tax) as a component of other comprehensive income in the
equity section of the balance sheet. Gain or loss on sales or calls of
securities is computed based on the amortized cost of the specific security.
FEDERAL HOME LOAN BANK STOCK: Federal Home Loan Bank Stock ("FHLB Stock") is
considered a restricted investment security and is carried at cost. Purchases
and sales of FHLB stock are made directly with the FHLB at par value.
LOANS: Loans are generally reported at the principal amount outstanding.
Non-refundable loan origination fees and certain direct loan origination costs
are deferred and included in interest income over the term of the related loan
as a yield adjustment. Interest on loans is accrued and credited to income based
upon the principal amount outstanding. The accrual of interest on loans is
discontinued when, in the opinion of management, there is an indication that the
borrower may be unable to meet payments as they become due. Upon such
discontinuance, all unpaid interest accrued is reversed. Interest accruals are
generally resumed when all delinquent principal and/or interest has been brought
current or the loan becomes both well secured and in the process of collection.
LOANS HELD FOR SALE: Loans held for sale consist of fixed rate residential
mortgage loans with maturities of 15 to 30 years. Such loans are recorded at the
lower of aggregate cost or estimated fair value.
ALLOWANCE FOR CREDIT LOSSES: The allowance for credit losses is maintained at a
level considered by management to be adequate to absorb probable 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, and current economic conditions that may affect the borrower's
ability to pay.
8
COMMUNITY CENTRAL BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FORECLOSED ASSETS: Assets acquired through, or in lieu of, loan foreclosure are
held for sale and are initially recorded at fair value as of the date of the
foreclosure, establishing a new cost basis. Subsequent to foreclosure,
valuations are periodically performed by management and the assets are carried
at the lower of carrying amount or fair value less cost to sell. Revenue and
expenses from operations and changes in the valuation allowance are included in
net expenses from foreclosed assets.
PROPERTY AND EQUIPMENT: Property and equipment are stated at cost, less
accumulated depreciation and amortization. Depreciation, generally computed
using a declining balance method, is charged to operations over the estimated
useful lives of the assets. Leasehold improvements are amortized over the terms
of their respective leases or the estimated useful lives of the improvements,
whichever is shorter.
GOODWILL: Goodwill results from business acquisitions and represents the excess
of the purchase price over the fair value of the acquired tangible assets and
liabilities and identifiable intangible asset. Goodwill is assessed annually for
impairment and any such impairment will be recognized in the period identified.
As of December 31, 2006, the goodwill intangible asset of $1,381,000 had no
impairment.
INTANGIBLES: The core deposit intangible of $19,000 as of December 31, 2006
consists of core deposit intangible assets arising from an acquisition. The
assets were measured at fair value and are being amortized on an accelerated
method over their estimated useful lives. Amortization expense of $41,000 was
recognized in 2006. Under accelerated amortization, the core deposit intangible
is expected to be fully amortized by 2008.
OTHER INTANGIBLE ASSETS: The other intangible assets of $126,000 as of December
31, 2006 consist of an intangible generated from an acquisition. The intangible
is associated with customer relationships, which will be amortized straight-line
over their estimated useful lives. Amortization expense of $23,000 was
recognized in 2006. Under the straight-line method, the intangible asset is
expected to be fully amortized by 2012.
STOCK OPTION PLAN AND ADOPTION OF SFAS 123R: In December 2004, the Financial
Accounting Standards Board ("FASB") issued Statement No. 123R "Share-based
Payment" ("SFAS 123R"), a revision to Statement No. 123, "Accounting for
Stock-Based Compensation." This standard requires the Corporation to measure the
cost of employee services received in exchange for equity awards, including
stock options, based on the grant date fair calculated value of the awards.
The Corporation adopted the provisions of SFAS 123R as of January 1, 2006. The
standard provides for a modified prospective application. Under this method, the
Corporation began recognizing compensation cost for equity based compensation
for all new or modified grants after the date of adoption. In addition, the
Corporation is recognizing the unvested portion of the grant date fair value of
awards issued prior to adoption based on the fair values previously calculated
for disclosure purposes. Prior periods have not been restated.
EARNINGS PER SHARE: Basic earnings per share are based on the weighted average
number of shares outstanding during the period. For earnings per share,
committed-to-be-released and allocated shares of the "ESOP" are considered
outstanding. Diluted earnings per share are adjusted for the dilutive effects of
stock options, where applicable. All share amounts have been retroactively
adjusted to reflect the issuance of stock dividends.
The effect of adoption of SFAS 123R in 2006 was a decrease in income from
continuing operations and income before income taxes of $23,000 and a decrease
in net income of $23,000. Cash flows from operating activities increased by
$23,000. Basic and diluted earnings per share decreased by $0.01.
9
COMMUNITY CENTRAL BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Weighted average shares reconciliation is as follows:
Year Ended December 31,
------------------------
2006 2005 2004
----- ----- -----
(In thousands of shares)
Basic 3,823 3,640 3,119
Effect of stock options 63 93 74
----- ----- -----
Diluted 3,886 3,733 3,193
===== ===== =====
COMPREHENSIVE INCOME: Accounting principles generally require that recognized
revenue, expense, gain and loss be included in net income. Certain changes in
assets and liabilities, such as unrealized gain or loss on securities available
for sale, are reported as a separate component of equity. Such items, along with
net income, are components of comprehensive income. Accumulated other
comprehensive income at December 31, 2006, 2005 and 2004 consisted solely of
unrealized gain and losses on available for sale securities, net of tax.
RECENT ACCOUNTING PRONOUNCEMENTS: Financial Accounting Standard Number 157 Fair
Value Measurements. This statement clarifies the definition of fair value,
establishes a framework for measuring fair value, and expands the disclosures on
fair value measurements. It applies under other accounting pronouncements that
require or permit fair value measurements and does not require any new fair
value measurements. SFAS No. 157 for fiscal years beginning after November 15,
2007. The Corporation has not determined the impact the adoption of SFAS 157
will have on the financial statements.
FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement No. 109 (FIN 48) In July 2006, the Financial
Accounting Standards Board (FASB) issued this interpretation to clarify the
accounting for uncertainty in tax positions. FIN 48 requires, among other
matters, that the Corporation recognize in its financial statements the impact
on a tax position, if that position is more likely than not of being sustained
on audit, based on the technical merits of the position. The provisions of FIN
48 are effective as of the beginning of the Corporation's 2007 fiscal year, with
any cumulative effect of the change in accounting principle recorded as an
adjustment to opening retained earnings. The Corporation is currently evaluating
the impact of adopting FIN 48 on the financial statements.
10
COMMUNITY CENTRAL BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) CASH AND DUE FROM BANKS
The Bank is required to maintain cash on hand or noninterest bearing deposits
with the Federal Reserve Bank, based on a percentage of the Bank's deposits. The
requirement is met using a combination of vault cash and deposits made using a
pass-through relationship with a correspondent bank. As of December 31, 2006, no
reserves were required.
(3) SECURITIES
The following table shows the amortized cost and estimated fair value of the
Corporation's security portfolios as of the dates indicated:
December 31, 2006
-------------------------------------
Unrealized
Amortized --------------- Fair
Cost Gains Losses Value
--------- ----- ------- -------
(In thousands)
Securities Available for Sale
United States Government agencies $19,453 $-- ($243) $19,210
Mortgage backed securities 19,331 21 (293) 19,059
Collateralized mortgage obligations 11,273 17 (182) 11,108
Municipal securities 31,515 25 (486) 31,054
Mutual fund 500 -- (15) 485
------- --- ------- -------
Total Securities Available for Sale 82,072 63 (1,219) 80,916
------- --- ------- -------
Held to Maturity Securities
Municipal securities 105 3 -- 108
Trust Preferred securities 250 -- (10) 240
Mortgage backed securities 662 1 (18) 645
------- --- ------- -------
Total Held to Maturity Securities 1,017 4 (28) 993
------- --- ------- -------
Total Securities $83,089 $67 ($1,247) $81,909
======= === ======= =======
11
COMMUNITY CENTRAL BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
----------------------------------------
Unrealized
Amortized ------------------ Fair
Cost Gains Losses Value
--------- ----- ---------- -------
(In thousands)
Securities Available for Sale
United States Government agencies $24,170 $ -- ($355) $23,815
Mortgage backed securities 25,503 35 (372) 25,166
Collateralized mortgage obligations 10,936 5 (214) 10,727
Municipal securities 24,168 61 (249) 23,980
Mutual fund 500 -- (11) 489
------- ---- ------- -------
Total Securities Available for Sale 85,277 101 (1,201) 84,177
------- ---- ------- -------
Held to Maturity Securities
Municipal securities 115 4 -- 119
Trust Preferred securities 250 -- (6) 244
Mortgage backed securities 729 2 (9) 722
------- ---- ------- -------
Total Held to Maturity Securities 1,094 6 (15) 1,085
------- ---- ------- -------
Total Securities $86,371 $107 ($1,216) $85,262
======= ==== ======= =======
December 31, 2004
----------------------------------------
Unrealized
Amortized ------------------ Fair
Cost Gains Losses Value
--------- ----- ---------- -------
(In thousands)
Securities Available for Sale
United States Government agencies $12,661 $ 4 ($44) $12,621
Mortgage backed securities 16,181 31 (126) 16,086
Collateralized mortgage obligations 10,699 35 (82) 10,652
Municipal securities 11,519 103 (54) 11,568
Mutual fund 500 -- (2) 498
------- ---- ----- -------
Total Securities Available for Sale 51,560 173 (308) 51,425
------- ---- ----- -------
Held to Maturity Securities
Municipal securities 125 3 -- 128
Trust Preferred securities 250 -- -- 250
Mortgage backed securities 786 7 (4) 789
------- ---- ----- -------
Total Held to Maturity Securities 1,161 10 (4) 1,167
------- ---- ----- -------
Total Securities $52,721 $183 ($312) $52,592
======= ==== ===== =======
For the years ended December 31, 2006, 2005 and 2004, proceeds from sales of
securities available for sale amounted to $11.8 million, $15.2 million and $49.5
million, respectively. Gross realized gains amounted to $54,000, $90,000 and
$335,000, respectively. Gross realized losses amounted to $46,000, $34,000 and
$144,000, respectively.
12
COMMUNITY CENTRAL BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table shows information pertaining to securities with gross
unrealized losses at December 31, 2006 and 2005, aggregated by investment
category and length of time that individual security has been in continuous loss
position. Unrealized losses on securities have not been recognized into income
because the issuers' bonds are of high credit quality. We have the intent and
ability to hold the securities for the foreseeable future and the decline in
fair value is primarily due to increased market interest rates.
December 31, 2006
-------------------------------------------
Less than 12 Months Over 12 Months
-------------------- --------------------
Gross Gross
Unrealized Fair Unrealized Fair
Losses Value Losses Value
---------- ------- ---------- -------
(In thousands)
Securities Available for Sale
United States Government agencies $ -- $ -- ($243) $18,255
Mortgage backed securities (5) 779 (288) 15,935
Collateralized mortgage obligations -- 289 (182) 8,052
Municipal securities (181) 12,532 (305) 14,125
Mutual funds -- -- (15) 485
------ ------- ------- -------
Total Securities Available for Sale ($186) $13,600 ($1,033) $56,852
====== ======= ======= =======
As of December 31, 2006, the unrealized loss on held to maturity securities was
$28,000 and was in an unrealized loss position for over twelve months.
December 31, 2005
-------------------------------------------
Less than 12 Months Over 12 Months
-------------------- --------------------
Gross Gross
Unrealized Fair Unrealized Fair
Losses Value Losses Value
---------- ------- ---------- -------
(In thousands)
Securities Available for Sale
United States Government agencies ($214) $16,958 ($141) $ 6,608
Mortgage backed securities (176) 12,621 (196) 7,893
Collateralized mortgage obligations (108) 6,339 (106) 3,427
Municipal securities (215) 15,534 (34) 1,493
Mutual funds (11) 489 -- --
----- ------- ----- -------
Total Securities Available for Sale ($724) $51,941 ($477) $19,421
===== ======= ===== =======
As of December 31, 2005, the unrealized loss on held to maturity securities was
$15,000 and was in an unrealized loss position for less than twelve months.
13
COMMUNITY CENTRAL BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Maturity distribution of the investment portfolio as of December 31, 2006, 2005
and 2004 with weighted average yields to maturity.
2006 2005 2004
--------------------------- --------------------------- ---------------------------
Amortized Fair Yield Amortized Fair Yield Amortized Fair Yield
Cost Value (%) Cost Value (%) Cost Value (%)
--------- ------- ----- --------- ------- ----- --------- ------- -----
(In thousands)
U.S. Government debentures
One year or less 4,099 4,067 4.14% 7,358 7,253 3.26% 9,306 9,284 3.22%
Over 1 year through five years 12,122 11,958 4.64% 9,984 9,840 4.47% 1,956 1,936 3.05%
Over 5 years through 10 years 3,232 3,185 5.32% 6,828 6,722 5.34% 1,399 1,401 4.82%
Over ten years -- -- -- -- -- --
------- ------- ---- ------- ------- ---- ------- ------- ----
19,453 19,210 4.65% 24,170 23,815 4.35% 12,661 12,621 3.37%
State and political subdivisions*
One year or less 753 743 4.55% 140 140 6.28% 725 725 3.71%
Over 1 year through five years 3,700 3,632 4.78% 2,179 2,141 4.81% 6,482 6,491 4.58%
Over 5 years through 10 years 4,871 4,849 5.87% 4,398 4,367 5.90% 4,412 4,453 5.32%
Over ten years 22,296 21,938 6.66% 17,566 17,451 6.60% 25 27 7.07%
------- ------- ---- ------- ------- ---- ------- ------- ----
31,620 31,162 6.27% 24,283 24,099 6.31% 11,644 11,696 4.81%
U.S. government mortgage-backed
and collateralized mortgage
obligations 31,266 30,812 4.92% 37,168 36,615 4.60% 27,666 27,527 4.08%
Mutual Fund (CRA Qualified) 500 485 3.98% 500 489 3.98% 500 498 3.62%
Trust Preferred securities 250 240 8.50% 250 244 8.50% 250 250 6.50%
------- ------- ---- ------- ------- ---- ------- ------- ----
Total securities $83,089 $81,909 5.38% $86,371 $85,262 5.02% $52,721 $52,592 4.08%
======= ======= ==== ======= ======= ==== ======= ======= ====
Memo:
Total variable rate securities
Included above 9,918 9,797 12,625 12,419 13,557 13,455
* weighted yield on state and political subdivisions is calculated on a
taxable equivalent basis and is based on yield to maturity of the
instruments.
The preceding table shows securities generally by contractual maturity. Actual
maturities may differ from contractual maturities because issuers (or underlying
borrowers) may have the right to call or prepay obligations.
Investment securities of $47.1 million were pledged at December 31, 2006 to
secure short term repurchase agreements and partially secure Federal Home Loan
Bank advances.
14
COMMUNITY CENTRAL BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) LOANS
Certain directors and executive officers of the Corporation and their associates
are loan customers of the Bank. Such loans were made in the ordinary course of
business and do not involve more than a normal risk of collectibility. The
outstanding loan balance for these persons amounted to $7,678,000 and $8,024,000
at December 31, 2006 and 2005, respectively. The total unused commitments
related to these loans were $3,378,000 at December 31, 2006. During 2006, new
loans and advances were $310,000, while repayments totaled $656,000.
The Bank grants loans to customers who reside primarily in Macomb, St. Clair and
Oakland Counties. Although the Bank has a diversified loan portfolio, a
substantial portion of the local economy has traditionally been dependent upon
the automotive industry. Additionally, the Bank had approximately $138.5 million
in outstanding loans at December 31, 2006, to commercial borrowers in the real
estate rental and property management industry.
LOAN PORTFOLIO
The following table sets forth the composition of our loan portfolios as of the
dates indicated. The loan amounts in the table reflect amounts before deductions
for loans in process, deferred loan fees and discounts and allowance for credit
losses.
2006 2005 2004 2003 2002
-------- -------- -------- -------- ---------
(In thousands)
Commercial real estate (1) $236,399 $201,348 $166,686 $149,769 $122,917
Commercial and industrial 28,393 26,753(2) 40,614 39,330 29,127
Residential real estate 72,517 74,601 64,240 60,046 41,373
Home equity lines 17,614 18,545 18,864 11,217 4,949
Consumer loans 11,666 13,054 14,377 9,844 5,161
Credit cards 693 650 658 622 522
-------- -------- -------- -------- --------
Total loans $367,282 $334,951 $305,439 $270,828 $204,049
======== ======== ======== ======== ========
(1) Included in the category of commercial real estate in the above table are
real estate construction loans totaling $42.4 million, $40.6 million, $18.2
million, $13.2 million and $14.1 million for the years ended 2006, 2005,
2004, 2003 and 2002, respectively.
(2) Approximately $12 million of the commercial and industrial loan portfolio
was reclassified during the first quarter of 2005 as commercial real estate
loans.
Commercial (and multi-family) real estate loans make up the largest component of
our loan portfolio. Loans secured by commercial and multi-family real estate
properties are generally larger and involve a greater degree of risk than one-
to four-family residential mortgage loans. Commercial and multi-family real
estate loans typically involve large balances to single borrowers or groups of
related borrowers. Because payments on loans secured by commercial and
multi-family real estate properties are often dependent on the successful
operation or management of the properties, repayment of such loans may be
subject to adverse conditions in the real estate market or the economy. If the
cash flow from the project is reduced (for example, if leases are not obtained
or renewed), the borrower's ability to repay the loan may be impaired. We
attempt to minimize the risks associated with these transactions by generally
limiting our commercial real estate lending to well-known customers or new
customers whose businesses have an established profitable history. In many
cases, risk is further reduced by limiting the amount of credit to any one
borrower to an amount less than our legal lending limit and avoiding certain
types of commercial real estate financing.
Our commercial and industrial business lending activities have encompassed loans
with a variety of purposes and security, including loans to finance inventory
and equipment. Commercial and industrial business loans generally involve
different risks than residential and commercial mortgage loans. Commercial and
industrial business loans are of higher risk and typically are made on the basis
of the borrower's ability to make repayment from the cash flow of the borrower's
business. As a result, the availability of funds for the repayment of commercial
business
15
loans may be substantially dependent on the success of the business
itself, rather than on the value of the real estate that secures mortgage loans.
16
COMMUNITY CENTRAL BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table illustrates the nominal interest rate sensitivity of
selected loan portfolios at December 31, 2006. Loans which have adjustable or
renegotiable interest rates are shown as maturing in the period during which the
contract is due. The table does not reflect the effects of interest rate
adjustments and possible repayments.
Commercial and industrial loans due
during the years ending December 31,
(In thousands)
2007 $19,121
2008 to 2011 8,688
2012 and thereafter 584
-------
Total loans $28,393
=======
The total amount of commercial and industrial loans due after December 31, 2007
which have fixed interest rates is $3.6 million, while the total amount of these
loans due after such date which have floating or adjustable interest rates is
$5.7 million. Some of these loans may have floor interest rate levels which are
reported as fixed interest rate loans.
Real estate construction loans due
during the years ending December 31,
(In thousands)
2007 $28,347
2008 to 2011 14,034
2012 and thereafter --
-------
Total loans $42,381
=======
The total amount of construction loans due after December 31, 2007 which have
fixed interest rates is $2.8 million and $11.2 million in loans due after such
date which have floating or adjustable interest rates.
17
COMMUNITY CENTRAL BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) ALLOWANCE FOR CREDIT LOSSES
A summary of the activity in the allowance for credit losses is as follows:
2006 2005 2004 2003 2002
------ ------ ------ ------ ------
(In thousands)
Balance at beginning of the period $3,580 $3,377 $3,573 $3,377 $2,930
Charge-offs:
Commercial real estate -- 181 -- -- 193
Commercial and industrial 248 57 2,040 38 190
Residential real estate 21 103 61 18 --
Home equity lines 21 -- -- -- --
Consumer loans 40 171 71 64 57
Credit cards 13 12 44 3 28
------ ------ ------ ------ ------
Total charge-offs 343 524 2,216 123 468
------ ------ ------ ------ ------
Recoveries:
Commercial real estate -- 1 -- -- --
Commercial and industrial 14 606 1 19 114
Residential real estate 8 -- -- -- 31
Home equity lines -- -- -- -- --
Consumer loans 5 18 18 24 14
Credit cards 1 2 1 1 1
------ ------ ------ ------ ------
Total recoveries 28 627 20 44 160
------ ------ ------ ------ ------
Net charge-offs 315 (103) 2,196 79 308
------ ------ ------ ------ ------
Provision charged to earnings 550 100 2,000 275 755
------ ------ ------ ------ ------
Balance at the end of the period $3,815 $3,580 $3,377 $3,573 $3,377
====== ====== ====== ====== ======
As a percentage of total portfolio loans 1.04% 1.07% 1.11% 1.32% 1.65%
Ratio of net charge-offs (net recoveries)
during the period to average
loans during the period 0.09% (0.03%) 0.74% 0.03% 0.18%
The loan portfolio has been reviewed and analyzed for the purpose of estimating
probable credit losses inherent in the loan portfolio. The Corporation performs
a detailed quarterly review of the allowance for credit 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 Corporation uses factors such as, historical portfolio losses,
national and local economic trends and levels of delinquency to determine the
appropriate level and allocation of the allowance for loans in this grouping.
The Corporation's policy dictates that specifically identified credit losses be
recognized immediately by a charge to the allowance for credit losses.
Management believes that the present allowance is adequate, based on the broad
range of considerations listed above.
The Corporation considers a loan impaired when it is probable that not all of
the interest and principal will be collected in accordance with the contractual
terms of the loan agreement. Consistent with this definition, all nonaccrual and
reduced-rate loans (with the exception of residential mortgage loans and
consumer loans) are considered impaired. The Corporation had $4,838,000 in loans
and other real estate owned classified as nonperforming at December 31, 2006 and
$3,424,000 at December 31, 2005.
COMMUNITY CENTRAL BANK CORPORATION
18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ANALYSIS OF ALLOWANCE FOR CREDIT LOSSES (IN THOUSANDS)
The following table contains reserve allocations for types of loans for the
years presented.
Commercial Commercial Residential Home Equity Consumer Credit
Real Estate and Industrial Real Estate Lines Loans Cards Unallocated Total
----------- -------------- ----------- ----------- -------- ------ ----------- ------
Balances:
December 31, 2006 $1,741 $ 499 $ 931 $436 $155 $ 26 $ 27 $3,815
% of loans in category 64.4% 7.7% 19.7% 4.8% 3.2% 0.2% 100.0%
December 31, 2005 $1,526 $ 594 $ 993 $138 $154 $ 24 $ 151 $3,580
% of loans in category 60.1% 8.0% 22.3% 5.5% 3.9% 0.2% 100.0%
December 31, 2004 $ 805 $1,673 $ 441 $ 94 $205 $ 30 $ 129 $3,377
% of loans in category 54.6% 13.3% 21.0% 6.2% 4.7% 0.2% 100.0%
December 31, 2003 $2,015 $1,025 $ 181 $ 8 $ 80 $ 17 $ 247 $3,573
% of loans in category 55.3% 14.5% 22.2% 4.1% 3.6% 0.3% 100.0%
December 31, 2002 $2,561 $ 607 $ 84 $ 16 $ 59 $ 26 $ 24 $3,377
% of loans in category 60.2% 14.3% 20.3% 2.4% 2.5% 0.3% 100.0%
LEGAL LENDING LIMIT
Pursuant to state regulations, the Bank is limited in the amount that it may
lend to a single borrower. As of December 31, 2006, the legal lending limit was
approximately $4.8 million or 15% of capital and surplus of the Bank; however,
that limit can be increased (for individual loans) to approximately $10.9
million or 25% of capital and surplus, with two-thirds approval of the Board of
Directors.
19
COMMUNITY CENTRAL BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NONPERFORMING ASSETS
The table below sets forth the amounts and categories of nonperforming assets in
our loan portfolio. See "Loans" and "Allowance for Credit Losses" under Notes 4
and 5 of Notes to Consolidated Financial Statements. For all years presented, we
have had no troubled debt restructuring, which involve forgiving a portion of
interest or principal on any loans or making loans at a rate materially less
than market rates.
December 31,
----------------------------------------
2006 2005 2004 2003 2002
------ ------ ------ ---- ------
(In thousands)
Nonaccrual loans
Commercial real estate $2,711 $1,637 $ 220 $277 $ 419
Commercial and industrial 646 985 305 88 8
Residential real estate -- 67 16 -- 311
Home equity lines -- -- -- -- 101
Consumer loans -- -- -- -- --
Credit cards -- -- -- -- --
------ ------ ------ ---- ------
Total 3,357 2,689 541 365 839
Accruing loans delinquent more
than 90 days
Commercial real estate $ -- $ -- $ -- $ -- $ --
Commercial and industrial -- -- -- -- --
Residential real estate 876 621 100 116 --
Home equity lines 336 -- -- -- --
Consumer loans 160 1 124 1 --
Credit cards 1 1 10 2 6
------ ------ ------ ---- ------
Total 1,373 623 234 119 6
------ ------ ------ ---- ------
Total nonperforming loans 4,730 3,312 775 484 845
Other real estate owned
Commercial real estate -- -- 681 363 320
Residential real estate 108 112 -- -- --
------ ------ ------ ---- ------
Total 108 112 681 363 320
------ ------ ------ ---- ------
Total nonperforming assets $4,838 $3,424 $1,456 $847 $1,165
====== ====== ====== ==== ======
Total nonperforming loans as a
percentage of total loans 1.29% 0.99% 0.25% 0.18% 0.41%
Total nonperforming assets as a
percentage of total assets 0.96% 0.74% 0.37% 0.24% 0.41%
The Corporation did not recognize any interest income in 2006, 2005 and 2004 on
those loans classified as nonaccruing for the period ended December 31, 2006,
2005 and 2004. The amount of interest that would have been recognized on those
loans classified as nonaccruing, if the loans were in accrual status during that
same time period was $140,000, $39,000 and $46,000 during the periods of 2006,
2005 and 2004, respectively.
Nonperforming loans without a related allowance for credit losses totaled
$68,000 and $784,000 for the periods ended December 31, 2006 and 2005,
respectively. Nonperforming loans with a related allowance for credit losses
totaled $3.3 million and $2.5 million for the periods ended December 31, 2006
and 2005, respectively. The related allowance for nonperforming loans for the
period ended December 31, 2006 and 2005 was $208,000 and $329,000, respectively.
Total nonperforming loans averaged $3.4 million in 2006, $1.8 million in 2005
and $1.9 million in 2004.
20
COMMUNITY CENTRAL BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) PROPERTY AND EQUIPMENT
A summary of property and equipment as of December 31 is as follows:
2006 2005
------- -------
(In thousands)
Land $ 1,340 $ 1,340
Buildings and improvements 5,869 5,809
Building construction in process -- --
Leasehold improvements 585 229
Furniture and equipment 4,533 3,803
Vehicles 56 56
------- -------
12,383 11,237
Less accumulated depreciation and amortization 3,158 2,484
------- -------
Net property and equipment $ 9,225 $ 8,753
======= =======
(7) TIME DEPOSITS
As of December 31, 2006, scheduled maturities of all time deposits are as
follows:
Year ending December 31, (In thousands)
- ------------------------ --------------
2007 $165,849
2008 41,567
2009 25,427
2010 18,905
2011 869
Subsequent years --
--------
Total time deposits $252,617
========
The following table depicts the maturity distribution of certificates of deposit
with balances of $100,000 or more at December 31, 2006.
(In thousands)
Three months or less $ 61,832
Over three months to six months 54,427
Over six months to twelve months 19,653
Over one year to three years 52,428
Over three years 18,759
--------
Total time deposits of $100,000 or more $207,099
========
21
COMMUNITY CENTRAL BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8) SHORT TERM BORROWINGS
Short term borrowings at December 31, 2006, consisted of short term FHLB
advances of $14.0 million and securities sold with an agreement to repurchase of
$15.7 million. Repurchase agreements generally mature within one day. Following
are details of short term borrowings for the dates or periods indicated:
2006 2005 2004
------- ------- -------
(Dollars in thousands)
Amount outstanding at end of year
Repurchase agreements $15,688 $13,184 $11,492
Short-term FHLB advances $14,000 $26,700 $17,000
Weighted average interest rate on ending balance
Repurchase agreements 3.15% 2.50% 1.00%
Short-term FHLB advances 3.92% 3.60% 2.23%
Maximum amount outstanding at any month end
during the year
Repurchase agreements $21,832 $21,711 $24,995
Short-term FHLB advances 26,700 $26,700 $17,000
Average amount outstanding during the year
Repurchase agreements $13,443 $11,668 $12,653
Short-term FHLB advances $11,500 $22,775 $16,500
Weighted average interest rate
Repurchase agreements 2.91% 1.99% 0.86%
Short-term FHLB advances 3.76% 3.22% 1.96%
22
COMMUNITY CENTRAL BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(9) FHLB ADVANCES
In June of 2001, the Corporation started to borrow long-term advances from the
FHLB to fund fixed rate instruments and to attempt to minimize the interest rate
risk associated with certain fixed rate commercial mortgage loans and investment
securities. The advances are collateralized by mortgage loans under a blanket
collateral agreement totaling approximately $132.1 million and $65.8 million at
December 31, 2006 and 2005, respectively. The advances are also secured by
specific investment securities with an amortized cost of $28.0 million and $32.8
million and fair market values of $27.6 million and $32.3 million at December
31, 2006 and 2005, respectively. All advances with the exception of variable
rate advances representing $3.0 million at December 31, 2006, all of which are
short-term, have prepayment penalties. All advances have final maturities
without callable provisions.
FHLB advances outstanding were as follows:
December 31, 2006 December 31, 2005
-------------------------- --------------------------
Ending Average rate Ending Average rate
Balance at end of period Balance at end of period
------- ---------------- ------- ----------------
(Dollars in thousands)
Short-term FHLB advances $14,000 3.92% $26,700 3.60%
Long-term FHLB advances 69,528 4.73% 59,845 4.38%
------- ---- ------- ----
$83,528 4.60% $86,545 4.14%
Long-term advances were comprised of 31 advances with maturities ranging from
April 2008 to June 2016.
The principal maturities of long-term advances outstanding at December 31, 2006
are as follows:
Year ending December 31, (In thousands)
- ------------------------ --------------
2008 $11,828
2009 7,000
2010 12,000
2011 5,500
Subsequent years 33,200
-------
Total $69,528
=======
23
COMMUNITY CENTRAL BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) ESOP NOTE PAYABLE
In 1999, the ESOP entered into a 10 year note payable with an outside financial
institution as a part of the Bank's employee stock ownership plan ("ESOP"). The
contractual repayment terms of the note include a variable rate payable, due in
monthly installments to 2009, however dividends paid by the Corporation on
unearned shares of common stock held by the ESOP can and have been used to repay
the note, resulting in expected maturity of the note in 2008. In addition, the
note is floating at prime rate which was 8.25% at December 31, 2006. The
Corporation has guaranteed the loan, with the ESOP stock pledged as collateral.
In addition, the Bank has issued a letter of credit supporting the note payable.
Since ESOP debt is guaranteed by the Corporation, it is reflected on the
consolidated balance sheet as a liability with a related amount shown as a
reduction in the stockholders' equity. Dividends paid by the Corporation on
unallocated shares of common stock held by the ESOP can be used to repay the
loan used to purchase the Corporation's common stock at the discretion of the
plan administrator. In 2006, $7,000 was paid from accumulated dividends on
unallocated shares on the ESOP note payable in addition to the scheduled loan
payments.
As of December 31, 2006, scheduled maturities of the ESOP note payable are as
follows:
(In thousands)
2007 $50
2008 45
---
$95
===
24
COMMUNITY CENTRAL BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(11) SUBORDINATED DEBENTURES
Community Central Capital Trust I, a business trust subsidiary of the
Corporation, sold 10,000 Cumulative Preferred Securities ("trust preferred
securities") at $1,000.00 per trust preferred security in June 2002. The
proceeds from the sale of the trust preferred securities were used by the trust
to purchase an equivalent amount of subordinated debentures from the
Corporation. The trust preferred securities carry a variable rate of interest at
the three month libor plus 365 basis points, have a stated maturity of 30 years,
and, in effect, are guaranteed by the Corporation. The securities are redeemable
at par after 5 years. Distributions on the trust preferred securities are
payable quarterly on March 30, June 30, September 30 and December 30. The first
distribution was paid on September 30, 2002. Under certain circumstances,
distributions may be deferred for up to 20 calendar quarters. However, during
any such deferrals, interest accrues on any unpaid distributions at the rate of
the three month libor plus 365 basis points. The trust preferred securities are
carried on the Corporation's consolidated balance sheet as a liability and the
interest expense is recorded on the Corporation's consolidated statement of
income. The Corporation owns common shares totaling $310,000 in Community
Central Capital Trust 1 which are recorded in other assets of the consolidated
balance sheet of the Corporation.
The subordinated debentures qualify for up to 25% of Tier I Capital. Any amount
in excess of this limit may be included in Tier 2 Capital. At December 31, 2006,
the total amount of subordinated debentures was included in the Corporation's
Tier 1 Capital.
On February 15, 2007, Community Central Bank Corporation issued $18.0 million in
trust preferred securities through Community Central Capital Trust II, a
statutory trust formed by the Corporation for the purpose of issuing the
securities. See Note 21 of these Notes to Consolidated Financial Statements for
additional information.
(12) STOCKHOLDERS' EQUITY
The Corporation and the Bank are subject to various regulatory capital
requirements administered by Federal banking agencies. Failure to meet these
requirements can initiate certain mandatory (and possible additional
discretionary) actions by regulators. These actions, if undertaken, could have a
material effect on the Corporation's financial position. Under capital adequacy
guidelines, the Corporation and the Bank must meet specific capital requirements
that involve quantitative measures of assets, liabilities, and certain
off-balance sheet items. Capital amounts are also subject to qualitative
judgments by the regulators about individual components, risk-weightings, and
other factors.
Quantitative measures established by regulation require the Corporation and the
Bank to maintain minimum amounts and ratios of Tier I capital and total capital
(as defined in the regulations) to risk-weighted assets. The Corporation and the
Bank are also subject to a minimum Tier I leverage ratio expressed as a
percentage of quarterly average assets (as defined). The Corporation is further
subject to leverage ratios consisting of primary capital and total capital as a
percentage of assets at period end. Management believes, as of December 31,
2006, that the Corporation and the Bank meet all capital adequacy requirements
to which they are subject and is considered "Well Capitalized".
On April 18, 2006, Community Central Bank Corporation declared a 5% stock
dividend, payable on June 1, 2006 to stockholders of record on May 2, 2006. The
outstanding numbers of shares, earnings per share, exercise price data and
common stock price data have been adjusted to reflect this dividend. Retained
earnings and common stock were adjusted to reflect the stock dividend as
indicated in the Consolidated Statement of Changes in Stockholders' Equity.
25
COMMUNITY CENTRAL BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table shows the Corporation's and the Bank's actual capital
amounts and ratios as of December 31, as well as certain minimum requirements:
2006 2005 Minimum Ratio Ratio
--------------- --------------- for Capital to be
Capital Ratio Capital Ratio Adequacy Purposes "Well Capitalized"
------- ----- ------- ----- ----------------- ------------------
(In thousands)
Tier I capital to risk-weighted assets
Consolidated $45,878 11.68% $44,649 12.77% 4% NA
Bank only 43,677 11.14% 41,691 11.95% 4% 6%
Total capital to risk-weighted assets
Consolidated 49,693 12.65% 48,229 13.79% 8% NA
Bank only 47,486 12.11% 46,271 12.98% 8% 10%
Tier I capital to average assets
Consolidated 45,878 9.01% 44,649 9.94% 4% NA
Bank only 43,671 8.60% 41,691 9.30% 4% 5%
26
COMMUNITY CENTRAL BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(13) BENEFIT PLANS
DEFINED CONTRIBUTION PLAN - The Corporation has a 401(k) defined contribution
savings plan for employees. Employer contributions are discretionary and are
determined annually by the Board of Directors. Employer contributions of
$72,000, $72,000 and $72,000 were paid or accrued for the periods ended December
31, 2006, 2005 and 2004.
EMPLOYEE STOCK OWNERSHIP PLAN - During the second quarter of 1999, the Bank
established an employee stock ownership plan ("ESOP") for the benefit of
eligible employees. As of December 31, 2006, the plan had a total of 73,337
shares of the Corporation's stock. This represented both committed-to-be
released shares and unearned shares. Under the plan, the shares of stock
committed-to-be released into all participants' accounts are directly
proportional to the ratio of the principal reductions to the total original
principal amount. Dividends paid by the Corporation on common stock held by the
ESOP, as committed-to-be released, are allocated proportionately to the number
of shares of each participant. Dividends paid by the Corporation on unearned
shares of common stock held by the ESOP can be used to repay the loan or used to
purchase the Corporation's common stock at the discretion of the plan
administrator. Under Statement of Position 93-6, "Employer's Accounting for
Employee Stock Ownership Plans", the compensation expense recognized was based
on the fair value of the committed-to-be released shares which was $34,000 for
2006. As of December 31, 2006, 57,636 shares were committed-to-be released, with
15,701 remaining unearned. The value of unearned shares as of December 31, 2006,
was $188,000.
The ESOP borrowed $500,000 from a bank to purchase shares of the Corporation
stock (see Note 10). The ESOP intends to repay the loan (plus interest) using
Bank contributions.
Information regarding the ESOP transactions for the years ended December 31 is
as follows:
2006 2005 2004
---- ---- ----
(In thousands)
Amounts paid by ESOP for:
Debt repayment* $53 $57 $66
Interest $10 $11 $10
Other $12 $11 $12
Amounts received from the Corporation as:
Contributions $72 $72 $72
* Includes debt repayment in 2006 and 2005 from cash contained in ESOP from
accumulated dividends.
27
COMMUNITY CENTRAL BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN - Effective April 30, 2003, the
Corporation began sponsoring a non-qualifying defined benefit plan to provide
supplemental retirement benefits for certain key executives. The plan which
started in April 2003, benefiting three executive officers, have a minimum
benefit upon retirement for each participant of $75,000 and the maximum benefit
is 50% of the average of the three highest years of compensation. Effective
August 2005, the Corporation added two additional executive officers to the
plan, with the benefit payable upon retirement for these two additional
executives is $50,000. The following table sets forth the plan activity and
other information as of and for the year ended December 31, 2006.
2006
--------------
(In thousands)
Plan assets at fair value $ --
Benefit obligation 1,320
--------
Overfunded (underfunded) status ($1,320)
========
Pension liability
--------
Net pension costs $ 589
--------
Change in minimum liability $ 589
========
Actuarial comparisons:
Weighted average discount rate 7.0%
Increase in future compensation levels 5.0%
To fund the supplemental retirement benefit obligation, the Corporation has
purchased insurance policies on the lives of the participants with the
Corporation as the owner and beneficiary of the policies. At December 31, 2006,
the cash surrender value of all bank owned life insurance policies on the
participants amounted to $10.2 million. There were no supplemental retirement
benefits paid by the plan during 2006.
STOCK OPTION PLANS - The Corporation had five stock-based compensation plans,
two have expired, with three remaining. The 1996 Stock Option Plan for
nonemployee directors and 1999 Stock Option Plan for Directors expired in 2003
and 2004, respectively. The three remaining plans, the 1996 and 2000 Employee
Stock Plans and the 2002 Incentive Plan have various expiration dates. Under the
1996 and 2000 Employee Stock Option Plans ("Employee Plans"), the Corporation is
authorized to grant options to key employees for up to 58,564 and 66,000 shares
of common stock, respectively. No options are presently available for grant
under the 1996 and 2000 Employee Stock Option Plan. Under the 2002 Incentive
Plan, as amended in 2005, up to 46,305 shares were available for grant to
directors and 324,948 for grant to employees. In December 2006, 46,000 stock
options were granted to employees with terms of 10 years under the 2002
Incentive Plan. As part of the annual stock award provision of the 2002
Incentive Plan, 300 shares of common stock were awarded to each Director for a
total of 3,300 shares. At December 31, 2006, 98,292 shares were available to
employees and 28,915 shares to directors under all remaining plans. The shares
awarded were recorded as director and employee compensation expense,
respectively. Under all plans, the exercise price of each option equals the
market price of the Corporation's common stock at the date of grant.
28
COMMUNITY CENTRAL BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Corporation recognizes compensation expense using the Black Scholes option
pricing model. The volatility assumption used in the Black Scholes formula is
based on the volatility of Community Central Bank Corporation common stock,
which is traded on the NASDAQ global market. The weighted average assumptions
used in the Black Scholes model are noted in the table at the bottom of the
page. The Corporation uses historic data to estimate option exercise and
employee termination within the valuation model. The risk-free rate for periods
within the contractual life of the option is based on the U.S. Treasury yield
curve in effect at the time of the grant. The Corporation has estimated the fair
value of the options issued in December 2006 at $3.20 per share. The options
become exercisable on January 1, 2008 for 20% of shares covered under the
agreement and for an additional 20% of the shares annually thereafter.
Compensation expense connected with these options will be recognized at an
annual rate of $29,000 from 2007 through 2012 for a total of $146,000. The
forfeiture rate is assumed to be 1% of the total compensation expense. These
options were not expensed in 2006, as the portion applicable under FAS 123R was
considered insignificant. The Corporation will recognize compensation expense
evenly over the requisite service period in future years through 2012. Options
issued in 2005 and 2004 had an estimated fair value of $4.66 and $4.44 per
share, respectively, The Corporation recognized $23,000 in compensation expense
for those options vesting after the date of adoption of SFAS No. 123R under the
modified prospective method and with no remaining compensation expense
associated with this group of options in future years since they are fully
vested. No tax expense was recognized as the options were incentive stock
options.
Year Ended December 31,
------------------------
2006 2005 2004
------ ------ ------
(In thousands, except
per share data)
Net income, as reported $2,096 $3,073 $2,207
Add: Stock-based employee compensation expense,
net of related tax effects, included in
reported net income 23 -- --
Deduct: Total stock-based employee
and director compensation expense
under fair value based methods of
awards, net of related tax effects (23) (377) (198)
------ ------ ------
Pro forma net income $2,096 $2,696 $2,009
====== ====== ======
Earnings per share
Basic - as reported $ 0.55 $ 0.84 $ 0.71
Basic - pro forma $ 0.55 $ 0.74 $ 0.64
Diluted - as reported $ 0.54 $ 0.82 $ 0.69
Diluted - pro forma $ 0.54 $ 0.72 $ 0.63
Earnings per share have been retroactively adjusted to reflect the issuance of
stock dividends.
The fair value of each option grant is estimated on the date of the grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions.
Year Ended December 31,
---------------------------
2006 2005 2004
------- ------- -------
Dividend yield or expected dividends 2.06% 1.49% 1.51%
Riskfree interest rate 4.80% 4.50% 4.20%
Expected life 10 yrs. 10 yrs. 10 yrs.
Expected volatility 19.19% 22.66% 24.65%
29
COMMUNITY CENTRAL BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Following is a summary of the stock option activity for the periods indicated
and the stock options outstanding at the end of such periods:
Year Ended December 31,
--------------------------------------------------------------
2006 2005 2004
-------------------- ------------------ ------------------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Exercise of Exercise of Exercise
Shares Price Shares Price Shares Price
-------- -------- ------- -------- ------- --------
Outstanding, beginning of period 300,486 $ 8.99 250,676 $ 7.93 202,134 $ 6.94
Granted 46,000 11.30 63,525 12.85 52,369 11.71
Exercised (25,378) 7.16 (11,068) 6.91 (3,827) 7.35
Forfeited (6,563) 13.66 (2,647) 9.95 -- --
------- ------ ------- ------ ------- ------
Outstanding, end of year 314,545(a) $ 9.38 300,486 $ 8.99 250,676 $ 7.93
======= ====== ======= ====== ======= ======
The following table shows summary information about stock options outstanding at
December 31, 2006:
Stock Options Outstanding Stock Options Exercisable
- ------------------------------------------------------------ -------------------------
Number Weighted Average Number Weighted
Range of of Remaining Weighted Average of Average Exercise
Exercise Prices Shares Contractual Life Exercise Price Shares Price
- --------------- ------- ---------------- ---------------- ------- ----------------
$4.52 4,318 3.0 years $ 4.52 4,318 $ 4.52
4.75 14,653 3.8 years 4.75 14,653 4.75
4.95 - 5.23 54,986 4.4 years 5.07 54,986 5.07
7.34 48,041 5.4 years 7.34 48,041 7.34
8.70 - 8.89 7,062 6.5 years 8.73 7,062 8.73
10.31 31,256 6.9 years 10.31 31,256 10.31
11.71 - 12.34 51,266 7.9 years 11.72 51,266 11.72
13.81 8,138 8.6 years 13.81 8,138 13.81
12.58 48,825 8.9 years 12.58 48,825 12.58
11.30 46,000 10.0 years 11.30 -- --
------- ------ ------- ------
314,545 $ 9.38 268,545 9.06
======= ====== ======= ======
All share number and exercise price data have been adjusted to reflect the
issuance of stock dividends.
(a) The aggregate intrinsic value of options outstanding and exercisable as of
December 31, 2006 was $823,000 and $1,093,000, respectively, based on the share
price of $12.00 for Community Central Bank Corporation common stock at December
31, 2006. The total intrinsic value of options exercised during the years ended
December 31, 2006, 2005 and 2004 was $108,000, $70,000 and $10,000,
respectively. The federal income tax benefit from the exercise of nonqualified
stock options in 2006 was $32,000.
30
COMMUNITY CENTRAL BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(14) LEASES
Operating expense includes rentals on a leased facility and certain equipment in
the amount of $422,000, $380,000 and $484,000 for 2006, 2005 and 2004,
respectively. Following is a schedule of future minimum rental payments required
under operating leases that have remaining lease terms in excess of one year as
of December 31, 2006:
Year ending December 31, (In thousands)
- ------------------------ --------------
2007 $ 250
2008 196
2009 187
2010 181
2011 108
Subsequent years 411
------
Total minimum rental payments $1,333
======
(15) OTHER OPERATING EXPENSE
The following is a summary of significant components of other operating expense
for the periods indicated:
Year Ended December 31,
------------------------
2006 2005 2004
------ ------ ------
(In thousands)
Advertising, business development and public relations $ 645 $ 672 $ 742
Data processing 549 479 441
Professional and regulatory fees 425 438 308
Legal fees 316 439 554
Director fees 316 302 317
Credit card processing 47 42 34
Printing and supplies 165 173 171
Telephone 214 152 187
Loan closing 171 89 198
Other insurance 131 121 149
Deposit insurance 41 35 50
Single business tax 87 97 133
Other 769 769 674
------ ------ ------
Total other operating expense $3,876 $3,808 $3,958
====== ====== ======
31
COMMUNITY CENTRAL BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(16) TAXES ON INCOME
The Corporation and the Bank file a consolidated federal income tax return.
Deferred income taxes are provided for the temporary differences between the
financial reporting basis and the tax basis of the Corporation's assets and
liabilities. The income tax expense for the years ended December 31 consists of
the following:
2006 2005 2004
----- ------ ----
(In thousands)
Current expense $ 387 $1,484 $527
Deferred (benefit) expense (24) (305) 255
----- ------ ----
Total income expense $ 363 $1,179 $782
===== ====== ====
The temporary differences and carryforwards which comprise deferred tax assets
and liabilities at December 31 are as follows:
2006 2005
------ ------
(In thousands)
Deferred tax assets
Provision for loan losses $ 722 $ 626
Depreciation 131 166
SERP Expense 449 249
Unrealized net loss on securities available for sale 393 381
NOL carryforward 72 121
Intangible asset amortization 71 59
Mortgage subsidiary accumulated timing differences 155 171
Deferred loan costs -- 43
Other 17 18
------ ------
2,010 1,834
Valuation allowance for deferred tax assets -- --
Deferred tax liabilities
Original issue discount (104) (66)
Accretion (30) (12)
FHLB dividends (104) (106)
Net deferred loan fees (16) --
Goodwill amortization (75) (44)
Other (59) (20)
------ ------
(388) (248)
------ ------
Net deferred tax asset $1,622 $1,586
====== ======
32
COMMUNITY CENTRAL BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Corporation's effective tax rates differ from the statutory federal tax
rates. The following is a summary of such differences:
Year Ended December 31,
-----------------------
2006 2005 2004
----- ------ ------
(In thousands)
Provision at statutory federal income tax rate $ 836 $1,446 $1,016
Nondeductible expenditures 43 47 35
Tax exempt municipal interest (399) (212) (168)
Increase in cash surrender value of bank owned
life insurance (117) (102) (101)
----- ------ ------
Provision at effective federal income tax rate $ 363 $1,179 $ 782
===== ====== ======
33
COMMUNITY CENTRAL BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(17) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair values are based on quoted market prices for similar instruments or
estimated using discounted cash flow analysis. The discount rates used are
estimated using comparable market rates for similar types of instruments
adjusted to be commensurate with the credit risk, overhead costs and optionality
of such instruments. Considerable judgment is inherently required to interpret
market data to develop the estimates of fair value. Accordingly, the estimates
presented below do not necessarily represent amounts that the Corporation could
realize in a current market exchange. The following methods and assumptions were
used to estimate the fair value of financial instruments:
CASH AND CASH EQUIVALENTS: For these short term instruments, the carrying amount
is a reasonable estimate of fair value.
SECURITIES, FEDERAL HOME LOAN BANK STOCK: For marketable debt securities,
estimated fair value is based on quoted market prices or dealer quotes. The
carrying value of FHLB stock approximate fair value based on their redemption
provisions.
LOANS: For variable rate loans with no significant change in credit risk since
loan origination, the carrying amount is a reasonable estimate of fair value.
For all other loans, including fixed rate loans, the fair value is estimated
using a discounted cash flow analysis, using interest rates currently offered on
similar loans to borrowers with similar credit ratings and for the same
remaining maturities. The resulting value is reduced by an estimate of losses
inherent in the portfolio.
RESIDENTIAL MORTGAGES HELD FOR SALE: The estimated fair value of residential
mortgages held for sale is the carrying amount. The duration of the portfolio is
typically within two weeks or less and a commitment of sale has already occurred
when the loans are funded.
DEPOSITS: The estimated fair value of demand deposits, certain money market
deposits, and savings deposits is the amount payable on demand at the reporting
date. The fair value of fixed maturity time deposits is estimated using the
rates currently offered for deposits of similar remaining maturities.
FEDERAL HOME LOAN BANK ADVANCES: The estimated fair value of Federal Home Loan
Bank advances is estimated using rates currently offered for funding sources of
similar remaining maturities.
REPURCHASE AGREEMENTS: The estimated fair value of short term borrowings is the
carrying amount, since they mature the next day.
ACCRUED INTEREST: Accrued interest receivable and payable are short term in
nature; therefore, their carrying amount approximates fair value.
ESOP NOTE PAYABLE: The ESOP note payable floats at prime rate; therefore, its
carrying amount approximates fair value.
SUBORDINATED DEBENTURES: Subordinated debentures are based on current rates for
similar financing.
COMMITMENTS: The fair value of commitments is estimated using the fees currently
charged to enter into similar arrangements, taking into account the remaining
terms of the agreements and the present creditworthiness of the counterparties.
The majority of commitments to extend credit and letters of credit would result
in loans with a market rate of interest if funded. The fair value of these
commitments is not material.
34
COMMUNITY CENTRAL BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The recorded carrying amounts and estimated fair values of the Corporation's
financial instruments at December 31 are as follows:
2006 2005
--------------------- ---------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
(In thousands)
Financial Assets
Cash and cash equivalents $ 24,726 $ 24,726 $ 11,000 $ 11,000
Securities 81,933 81,909 85,271 85,262
FHLB stock 4,540 4,540 4,331 4,331
Residential mortgages held for sale 3,441 3,441 4,286 4,286
Loans, net of allowance 363,467 365,905 331,371 334,530
Accrued interest receivable 2,599 2,599 2,122 2,122
Financial Liabilities
Demand and savings deposits 103,239 103,239 85,978 85,978
Time deposits 252,617 251,910 228,395 227,321
Repurchase agreements 15,688 15,688 13,184 13,184
Federal Home Loan Bank advances 83,528 80,869 86,545 85,161
Accrued interest payable 1,257 1,257 938 938
ESOP note payable 95 95 148 148
Subordinated debentures 10,310 10,550 10,310 10,619
35
COMMUNITY CENTRAL BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(18) OFF-BALANCE SHEET RISK
The Corporation is party to financial instruments with off-balance sheet risk in
the normal course of business, to meet financing needs of its customers and to
reduce its own exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit and financial guarantees. These
instruments involve, to varying degrees, elements of credit and interest rate
risk that are not recognized in the balance sheet.
Commitments to extend credit are agreements to lend to a customer as long as
there are no violations of any conditions established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Fees from issuing these commitments to extend
credit are recognized over the period to maturity. Since a portion of the
commitments is expected to expire without being drawn upon, the total
commitments do not necessarily represent future cash requirements. The
Corporation evaluates each customer's creditworthiness on a case by case basis.
The amount of collateral obtained upon extension of credit is based on
management's credit evaluation of customers. The Corporation also has legally
binding commitments to extend credit in the form of loans that have been
approved but not yet closed. These funds are normally disbursed unless the
customer fails to comply with closing requirements.
Standby letters of credit are issued in connection with agreements between
customers and a third party. If the customer fails to comply with the agreement,
the counterparty may enforce the standby letter of credit as a remedy. Credit
risk arises from the possibility that the customer may not be able to repay the
Corporation after the letter of credit is enforced.
A summary of commitments not recorded on the balance sheet at December 31 is as
follows:
2006 2005
------- -------
(In thousands)
Unused home equity lines of credit $ 8,973 $ 7,977
Unused credit card lines 1,687 3,238
Unused portion of construction lines of credit 26,945 22,310
Unused portion of all other credit lines 55,566 44,349
Standby letters of credit 763 290
------- -------
Total outstanding commitments $93,934 $78,164
======= =======
(19) RESTRICTIONS ON DIVIDENDS, LOANS AND ADVANCES
Banking regulations place certain restrictions on dividends paid and loans or
advances made by the Bank to the Corporation. The total amount of dividends
which may be paid at any date is generally limited to the retained earnings of
the Bank. However, dividends paid by the Bank would be prohibited if the effect
thereof would cause the Bank's capital to be reduced below applicable minimum
standards. At December 31, 2006, the Bank's retained earnings available for the
payment of dividends totaled $13.1 million. Accordingly, $31.3 million of the
Corporation's investment in the Bank was restricted at December 31, 2006. Loans
and advances made by the Bank to the Corporation are generally limited to 10
percent of the Bank's stock and surplus. Accordingly, at December 31, 2006, Bank
funds available for loans or advances to the Corporation amounted to $3.2
million.
36
COMMUNITY CENTRAL BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(20) PARENT-ONLY FINANCIAL STATEMENTS
The following condensed financial information presents the financial condition
of Community Central Bank Corporation, the Parent Holding Company, (the
"Parent") only, along with the results of its operations and its cash flow. The
Parent has recorded its investment in the Bank and Community Central Capital
Trust I at cost, plus the undistributed surplus of the Bank since it was formed.
The Parent recognizes undistributed income of the Bank as noninterest income,
and undistributed losses as noninterest expense. The Parent-only financial
information should be read in conjunction with the Corporation's consolidated
financial statements.
PARENT-ONLY BALANCE SHEET
December 31,
-----------------
2006 2005
------- -------
(In thousands)
Assets
Cash $ 1,972 $ 2,493
Investment in subsidiary 44,449 42,574
Investment in unconsolidated subsidiary 310 310
Other assets 801 783
------- -------
Total Assets $47,532 $46,160
======= =======
Liabilities and Stockholders' Equity
Due to subsidiary $ 557 $ 318
Subordinated debentures 10,310 10,310
------- -------
Total Liabilities 10,867 10,628
Common stock 33,220 31,154
Retained earnings 4,303 5,245
Unearned employee benefit (95) (148)
Accumulated other comprehensive income (763) (719)
------- -------
Total Stockholders' Equity 36,665 35,532
------- -------
Total Liabilities and Stockholders' Equity $47,532 $46,160
======= =======
37
COMMUNITY CENTRAL BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PARENT-ONLY STATEMENT OF OPERATIONS
Year Ended December 31,
------------------------
2006 2005 2004
------ ------ ------
(In thousands)
Operating Income
Interest income $ 76 $ 67 $ 28
------ ------ ------
Total Interest Income 76 67 28
Dividend from subsidiary 1,400 1,175 760
------ ------ ------
Total Interest and Dividend Income 1,476 1,242 788
Interest Expense
Subordinated debentures 929 746 548
------ ------ ------
Net interest (loss) income 547 496 240
Other expense 932 972 814
------ ------ ------
Total Operating Expense 932 972 814
------ ------ ------
Loss Before Taxes and Undistributed
Income of Subsidiary (385) (476) (574)
Income tax benefit (597) (561) (452)
------ ------ ------
Loss (Income) Before Share in
Undistributed Income of Subsidiary 212 85 (122)
Share of undistributed income of subsidiary 1,884 2,988 2,329
------ ------ ------
Net Income $2,096 $3,073 $2,207
====== ====== ======
38
COMMUNITY CENTRAL BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PARENT-ONLY STATEMENT OF CASH FLOW
Year Ended December 31,
---------------------------
2006 2005 2004
------- ------- -------
(In thousands)
Operating Activities
Net income $ 2,096 $ 3,073 $ 2,207
Adjustments to reconcile net income to
net cash flow from operating activities
Undistributed income of subsidiary (1,884) (2,988) (2,329)
Decrease (Increase) in other assets (18) 94 (218)
Increase (decrease) increase in other liabilities 239 75 134
------- ------- -------
Net Cash (Used in) Provided by Operating Activities 433 254 (206)
Investing Activities
Capital contribution to subsidiaries 63 (3,134) (1,036)
Cash paid for River Place Financial Corporation -- (512) --
------- ------- -------
Net Cash Provided by (Used in) Investing Activities 63 (3,646) (1,036)
Financing Activities
Stock options exercised/awards 252 108 73
Rights offering -- 5,275 --
Cash dividend paid (918) (742) (571)
Repurchase of stock (351) -- --
------- ------- -------
Net Cash (Used in) Provided by Financing Activities (1,017) 4,641 (498)
------- ------- -------
(Decrease) Increase in Cash (521) 1,249 (1,740)
Cash at the Beginning of the Period 2,493 1,244 2,984
------- ------- -------
Cash at the End of the Period $ 1,972 $ 2,493 $ 1,244
======= ======= =======
39
COMMUNITY CENTRAL BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(21) SUBSEQUENT EVENTS
On February 13, 2007, Community Central Bank Corporation issued $18.0 million
aggregate liquidation amount of cumulative trust preferred securities through
Community Central Capital Trust II, a statutory trust formed by the Corporation
for the purpose of issuing the securities (the "Trust II Securities"). The Trust
II securities will bear a fixed distribution rate of 6.71% per annum through
March 6, 2017, and thereafter will bear a floating distribution rate equal to
90-day LIBOR plus 1.65%. The Trust II Securities are redeemable, at the
Corporation's option, in whole or in part, at par, beginning March 6, 2017, and
if not sooner redeemed, mature on March 6, 2037. The Trust II Securities were
sold in a private transaction exempt from registration under the Securities Act
of 1933, as amended.
The Corporation anticipates using a portion of the proceeds from the sale of the
Trust II Securities to fund the redemption of the $10.0 million aggregate
liquidation amount of cumulative trust preferred securities issued by Community
Central Capital Trust I, which may be deemed at par on or after June 30, 2007.
The Corporation intends to use the remaining proceeds of the sale of the Trust
II Securities for general corporate purposes.
(22) SUMMARY OF QUARTERLY FINANCIAL STATEMENTS (UNAUDITED)
The following quarterly information is unaudited. However, in the opinion of
management, the information reflects all adjustments, which are necessary for
the fair presentation of the results of operations, for the periods presented.
For the Year Ended December 31, 2006
-----------------------------------------------------
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- -----------
Total interest income $7,114 $7,864 $8,221 $8,276
Total interest expense 3,970 4,633 5,065 5,224
Net interest income 3,144 3,231 3,156 3,052
Provision for credit losses 50 125 75 300
------ ------ ------ ------
Net interest income after provision
for loan losses 3,094 3,106 3,081 2,752
Other income 1,202 1,302 1,255 1,176
Other expense 3,416 3,641 3,610 3,842
------ ------ ------ ------
Income before taxes 880 767 726 86
Income tax expense 177 136 116 (66)
------ ------ ------ ------
Net income $ 703 $ 631 $ 610 $ 152(1)
====== ====== ====== ======
Earnings Per Share
Basic $ 0.19 $ 0.16 $ 0.16 $ 0.04
Diluted $ 0.18 $ 0.16 $ 0.16 $ 0.04
(1) The decrease in net income for the fourth quarter of 2006 was primarily the
result on an increased loan loss provision over prior quarterly periods to
reflect further softening of economic conditions in Southeastern Michigan,
a lower level of net interest income from further margin compression from
an increased cost of funds, a quarterly decrease in noninterest income
primarily from a decrease in quarterly gains on the sale of residential
mortgages and a quarterly increase in noninterest expense from higher legal
costs and a lower level of deferral of loan origination costs.
40
COMMUNITY CENTRAL BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 2005
-----------------------------------------------------
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- -----------
Total interest income $5,427 $5,902 $6,257 $6,644
Total interest expense 2,324 2,713 3,082 3,436
Net interest income 3,103 3,189 3,175 3,208
Provision for credit losses 100 -- -- --
------ ------ ------ ------
Net interest income after provision
for loan losses 3,003 3,189 3,175 3,208
Other income 946 1,176 1,379 1,308
Other expense 2,889 3,201 3,520 3,522
------ ------ ------ ------
Income before taxes 1,060 1,164 1,034 994
Income tax expense 308 334 283 254
------ ------ ------ ------
Net income $ 752 $ 830 $ 751 $ 740
====== ====== ====== ======
Earnings Per Share
Basic $ 0.22 $ 0.23 $ 0.20 $ 0.19
Diluted $ 0.21 $ 0.23 $ 0.19 $ 0.19
41
COMMUNITY CENTRAL BANK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FORWARD LOOKING STATEMENTS
This report contains forward-looking statements throughout 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 that are difficult to predict with regard
to timing, extent, likelihood and degree of occurrence. Actual results and
outcomes may materially differ from what may be expressed or forecasted in the
forward-looking statements. The Corporation undertakes no obligation to update,
amend, or clarify forward looking statements, whether as a result of new
information, future events (whether anticipated or unanticipated), or otherwise.
Future factors that could cause actual results to differ materially from the
results anticipated or projected include, but are not limited to, the following:
expected cost savings and synergies from our acquisition activities might not be
realized within the expected time frames, and costs or difficulties related to
integration matters might be greater than expected; expenses associated with the
implementation of our trust and wealth management services might be greater than
expected, whether due to a possible need to hire more employees than anticipated
or other costs incurred in excess of budgeted amounts; the credit risks of
lending activities, including changes in the level and direction of loan
delinquencies and write-offs and changes in estimates of the adequacy of the
allowance for loan losses; competitive pressures among depository institutions;
interest rate movements and their impact on customer behavior and net interest
margin; the impact of repricing and competitor's pricing initiatives on loan and
deposit products; the ability to adapt successfully to technological changes to
meet customers' needs and development in the market place; our ability to access
cost-effective funding; changes in financial markets; changes in economic
conditions in general and particularly as related to the automotive and related
industries in the Detroit metropolitan area; new legislation or regulatory
changes, including but not limited to changes in federal and/or state tax laws
or interpretations thereof by taxing authorities; changes in accounting
principles, policies or guidelines; and our future acquisitions of other
depository institutions or lines of business.
EXECUTIVE SUMMARY
Community Central Bank Corporation is the holding company for Community Central
Bank (the "Bank") in Mount Clemens, Michigan. The Bank opened for business in
October 1996 and serves businesses and consumers across Macomb, Oakland, St.
Clair and Wayne counties with a full range of lending, deposit, trust, wealth
management and Internet banking services. The Bank operates three full service
facilities, in Mount Clemens, Rochester Hills and Grosse Pointe, Michigan.
Community Central Mortgage Company, LLC a subsidiary of the Corporation and Bank
operates locations servicing the Detroit metropolitan area, northwest Indiana,
northern Illinois and Raleigh, North Carolina. River Place Trust and Community
Central Wealth Management are divisions of Community Central Bank. Community
Central Insurance Agency, LLC is a wholly owned subsidiary of Community Central
Bank. The Corporation's common shares trade on The NASDAQ Global Market under
the symbol "CCBD."
Our results of operations depend largely on net interest income. Net interest
income is the difference in the interest income the Corporation earns on
interest-earning assets, which are comprised primarily of commercial and real
estate loans, and to a lesser extent commercial business and consumers loans,
and the interest the Corporation pays on 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.
Our results of 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 housing has continued to
spur economic growth in the area. Changes in the local economy may affect the
42
demand for commercial loans and related small to medium business related
products. This could have a significant impact on
COMMUNITY CENTRAL BANK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
how the Corporation deploys its assets.
The competitive environment among other financial institutions and financial
service providers and the Bank in the Macomb, Oakland, Wayne and St. Clair
counties of Michigan may affect the pricing levels of various deposit products.
The impact of competitive rates on deposit products may increase the relative
cost of funds for the Corporation and thus negatively impact net interest
income.
The Corporation continues to see competitive deposit rates offered from local
financial institutions within the geographic proximity of the Bank which could
have the effect of increasing the costs of funds to a level higher than
management projects. The Corporation continues to utilize wholesale forms of
funding earning assets through the FHLB and brokered certificates of deposit to
balance both interest rate risk and the overall cost of funds. Brokered and
internet certificates of deposit are based on a nationwide interest rate
structure, typically at what is considered to be a premium interest rate. The
local competition for certificates of deposit products has intensified and the
Bank has found this type of wholesale funding to often effectively compete with
the rates offered for similar term retail certificates of deposit products of
local community and regional banks.
Net income for 2006 was affected by startup, expansion and operational costs
including those related to the new wealth and trust management divisions, as
well as the new branch in Grosse Pointe, Michigan. The trust division of the
Bank was formed on June 30, 2005, when the Corporation completed its acquisition
and merger with River Place Financial Corp. William A. Penner, CEO of River
Place, became the President of the Bank's newly created trust division at the
time of the acquisition. In early 2006, two executives were recruited to head
the trust and newly created wealth management divisions. Mr. Penner retired from
the Bank effective December 31, 2006. The Corporation continues to focus on
expanding this area of its banking operations and expects the trust and wealth
management divisions to provide increased fee income from future operations.
In early June of 2006, the Bank opened 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.
Further, 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 2006 compared with 2005. 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.
43
COMMUNITY CENTRAL BANK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
SELECTED FINANCIAL INFORMATION
The following table sets forth the Selected Consolidated Financial
Statements for the period reported.
Selected Financial Condition Data
For the Year Ended December 31,
----------------------------------------------------
2006 2005 2004 2003 2002
-------- -------- -------- -------- --------
Total assets $505,028 $462,012 $391,538 $357,876 $287,636
Securities available for sale 80,916 84,177 51,425 57,135 57,200
Securities held to maturity 1,017 1,094 1,161 895 1,290
Gross loans 367,282 334,951 305,439 270,828 204,049
Allowance for credit losses 3,815 3,580 3,377 3,573 3,377
Total deposits 355,856 314,373 278,856 255,356 200,719
FHLB advances 83,528 86,545 63,360 54,374 44,388
Repurchase agreements 15,688 13,184 11,492 12,836 8,006
Subordinated debentures 10,310 10,310 10,310 10,000 10,000
Total stockholders' equity 36,665 35,532 25,591 23,776 22,147
Summary of Operations
For the Year Ended December 31,
-----------------------------------------------
2006 2005 2004 2003 2002
------- ------- ------- ------- -------
(In thousands, except per share data)
Interest income $31,475 $24,230 $19,725 $16,420 $14,956
Interest expense 18,892 11,555 7,936 7,033 6,533
------- ------- ------- ------- -------
Net interest income 12,583 12,675 11,789 9,387 8,423
Provision for credit losses 550 100 2,000 275 755
Non-interest income 4,935 4,809 6,546 8,415 5,511
Non-interest expense 14,509 13,132 13,346 14,582 10,541
------- ------- ------- ------- -------
Income before taxes 2,459 4,252 2,989 2,945 2,638
Provision for income tax expense 363 1,179 782 840 828
------- ------- ------- ------- -------
Net income $ 2,096 $ 3,073 $ 2,207 $ 2,105 $ 1,810
======= ======= ======= ====== =======
Per share data:*
Basic earnings $ 0.55 $ 0.84 $ 0.71 $ 0.68 $ 0.60
Diluted earnings $ 0.54 $ 0.82 $ 0.69 $ 0.67 $ 0.59
Dividend declared $ 0.24 $ 0.21 $ 0.20 $ 0.20 $ 0.15
* Per share data has been retroactively adjusted to reflect the issuance of
stock dividends.
44
COMMUNITY CENTRAL BANK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Selected Financial Ratios
For the Year Ended December 31,
------------------------------------
2006 2005 2004 2003 2002
---- ----- ----- ----- -----
Total nonperforming assets as a
percentage of total assets 0.96% 0.74% 0.37% 0.24% 0.41%
Total nonperforming loans as a
percentage of total loans 1.29% 0.99% 0.25% 0.18% 0.41%
Total allowance for credit losses
as a percentage of total portfolio
loans 1.04% 1.07% 1.11% 1.32% 1.65%
Return on average assets 0.42% 0.72% 0.57% 0.65% 0.70%
Return on average equity 5.82% 9.43% 8.98% 9.20% 8.49%
Net interest margin 2.83% 3.23% 3.31% 3.10% 3.43%
Dividend payout ratio 43.8% 24.15% 25.87% 25.70% 22.15%
Average equity to average assets 7.25% 7.61% 6.34% 7.06% 8.26%
45
COMMUNITY CENTRAL BANK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
ASSETS
At December 31, 2006, the Corporation's total assets were $505.0 million, an
increase of $43.0 million, or 9.3% from December 31, 2005. The largest segment
of asset growth for the year ended occurred in the loan portfolio, which
increased $32.3 million. The remaining increase comprised federal funds sold of
$13.7 million, which increased $10.7 million from December 31, 2005. The
increase in available fed funds was due to excess funding provided primarily by
security pay downs, maturities and sales not reinvested. The inverted treasury
yield curve, which provided relatively low yielding investment alternatives to
federal funds and the desire to let higher priced brokered time deposits mature
were also the primary reasons for the increased level of federal funds at
December 31, 2006. The Corporation uses excess federal funds to also fund loan
demand, which varies from time to time, depending on borrower's needs and the
amount of outstanding pipeline of loans available to close at any given period.
Commercial real estate loans increased $35.1 million in 2006 or 17.4% over 2005.
The growth in the commercial real estate portfolio is consistent with the
Corporation's commercial lending focus. The Corporation believes that the staff
of seasoned commercial lenders and referrals from the board of directors
actively involved in the local business community has contributed to the growth
of the commercial real estate portfolio in a competitive lending environment.
Commercial and industrial loans at December 31, 2006 totaled $28.4 million, an
increase of $1.6 million or 6.1% over the year ended December 31, 2005.
Commercial and industrial loans as a percentage of total loans comprised 7.7% at
December 31, 2006, a slight decrease from 8.0% of total loans at December 31,
2005. The Corporation has historically had a lower percentage of loans in the
commercial and industrial type loans compared to commercial real estate loans as
it concentrates its level of lending expertise in the commercial real estate
sector. The residential mortgage loan portfolio totaled $72.5 million at
December 31, 2006, a decrease of $2.1 million, or 2.8%, from 2005. Adjustable
rate loans represented $48.5 million, or 66.8%, of the total residential
mortgage loan portfolio at December 31, 2006. Residential mortgage loans are
made principally as an accommodation to our business banking customers.
Adjustable rate residential mortgage loans are held in the loan portfolio over
longer duration 15 year and 30 year fixed residential loans to manage the
Corporation's interest rate risk profile. The home equity lines of credit
("HELOC") totaled $17.6 million, or 4.8% of total loans, at December 31, 2006, a
decrease of $931,000 to 18.5 million, or 5.5% of total loans, at December 31,
2005. This portfolio product is tied to Wall Street Journal prime interest rate.
As short-term market rates have increased during 2006, some customers have moved
balances out of the HELOC loan product into other fixed rate products with lower
overall interest rates. These loans are fully secured by real estate and are
generally originated with loan to values (including all prior liens) up to 95%
of the appraised value of the real estate. Consumer loans (excluding HELOCs and
credit card loans) totaled $11.7 million at December 31, 2006, a decrease of
$1.4 million from December 31, 2005, as management intentionally sought to
reduce the Corporation's exposure in this portfolio. The largest portion of the
consumer loan portfolio is comprised of boat loans. 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 boat loans to reduce potential credit
exposure in the area. Management believes that current downturns in the local
economy could adversely affect borrower's ability to repay the outstanding loan,
coupled with the potential decrease in collateral value. At December 31, 2006,
boat loans comprised approximately $10.0 million, or 85.6% of the consumer loan
portfolio and 2.7% of total loans compared to $11.0 million, or 84.0% of the
consumer portfolio and 3.3% of total loans at December 31, 2005.
Credit card loans ended December 31, 2006 at $693,000, which was almost
unchanged from $650,000 at December 31, 2005. The Corporation continues to book
credit card loans as a customer accommodation and does not actively market this
product.
Mortgage loans held for sale totaled $3.4 million at December 31, 2006 compared
to $4.3 million at December 31, 2005. The mortgage loans were originated by the
Bank's mortgage subsidiary. The decrease in total mortgages held for sale at
December 31, 2006 compared to December 31, 2005 was due to a decrease in overall
mortgage origination activity. The slow down in mortgage loan origination is
reflective of the regional and national slowdown in refinance activity as well
as the slow down of purchased homes in Southeastern Michigan. 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.
46
COMMUNITY CENTRAL BANK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The investment security portfolio totaled $81.9 million at December 31, 2006
compared to $85.2 million at December 31, 2005, and was comprised of $80.9
million in available for sale securities and $1.0 million in held to maturity
securities. The security portfolio consisted of government agency and bank
qualified tax-exempt municipal securities. The $3.3 million decrease in the
security portfolio was due to scheduled maturities of mortgage-backed securities
and sales of available for sale securities. In 2006, the Corporation invested
less available funds into securities than in prior periods. This was principally
due to the inverted U.S. Treasury yield curve coupled with smaller credit
spreads, whereby the interest spread produced was relatively smaller than the
interest spread on a loan transaction. United States Government agency
securities of $19.2 million, which are primarily pledged against overnight
repurchase agreements, decreased $4.6 million from December 31, 2005 to December
31 2006 from maturities and calls during 2006. Total mortgage backed securities
of $19.7 million decreased $6.1 million in 2006, from paydowns and sales of
instruments. The securities were sold to enhance overall interest margin as the
yields offered minimal spreads as compared to the incremental funding costs of
the overall Corporation. Collateralized mortgage obligations of $11.1 million
remained relatively unchanged, increasing $381,000 and representing
approximately 13.6% of the total investment portfolio. The municipal security
portfolio increased $7.1 million to $31.2 million in 2006 as a result of the
Corporation's purchases of bank qualified tax-exempt municipal bonds, with
substantially all purchases having AAA ratings through an underlying or insured
basis. At December 31, 2006, the available for sale portfolio had net unrealized
losses of $1.2 million, or approximately 1.42% of the aggregate portfolio. At
December 31, 2005, the net unrealized losses in the available for sale portfolio
ended at $1.1 million. Unrealized losses have not been recognized into income
because the issuers' 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 2006 was primarily due to increased market
interest rates.
47
COMMUNITY CENTRAL BANK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
At December 31, 2006, nonperforming loans, which represents nonaccruing loans
and loans past due 90 days or more and still accruing interest, totaled $4.7
million compared to $3.3 million at December 31, 2005, an increase of $1.4
million. At December 31, 2006, other real estate owned comprised $108,000. The
primary reason for the increase in nonperforming loans at December 31, 2006
compared to December 31, 2005, was related to increases in nonperforming
commercial real estate loans which increased $1.1 million, residential mortgage
loans which increased $188,000, home equity lines of credit which increased
$336,000 and consumer loans which increased $159,000. Nonperforming commercial
and industrial loans decreased $339,000 during the same period. The increase in
nonperforming commercial real estate loans was primarily attributable to two
lending relationships which are collateralized by commercial real estate. The
increase in residential mortgage loans, home equity lines of credit and
installment loans is indicative of the economic downturn in southeastern
Michigan experienced in 2006. For additional information on our nonperforming
assets, see nonperforming assets under Note 5 of the Notes to Consolidated
Financial Statements. Total nonperforming loans as a percentage of total loans
has increased over the past four years moving from 0.25% at December 31, 2003 to
1.29% at December 31, 2006. The Corporation believes that the upward trend in
nonperforming loans has been due in part to the worsening economic conditions in
Southeastern Michigan over the corresponding period.
Commercial loans and lease financing receivables are to be reported as being in
nonaccrual status if: (a) they are maintained on a cash basis because of
deterioration in the financial position of the borrower, (b) payment in full of
interest or principal is not expected, or (c) principal or interest has been in
default for a period of 90 days or more. If it can be documented that the loan
obligation is both well secured and in the process of collection, the loan may
stay on accrual status. However, if the loan is not brought current before
becoming 120 days past due, the loan should be reported as non-accrual. Any
exceptions to automatic non-accrual status at 90 days must be approved in
writing by the Senior Loan Officer and the Chief Financial Officer. A
non-accrual asset may be restored to an accrual status when none of its
principal or interest is due and unpaid, when it otherwise becomes well secured,
and in the process of collection. A debt is "well-secured" if it is secured (1)
by collateral in the form of liens on or pledges of real or personal property,
including securities, that have a realizable value sufficient to discharge the
debt (including accrued interest) in full, or (2) by the guaranty of a
financially responsible party. A debt is "in the process of collection" if
collection of the debt is proceeding in due course either through legal action,
including judgment enforcement procedures, or, in appropriate circumstances,
through collection efforts not involving legal action which are reasonably
expected to result in repayment of the debt or in its restoration to a current
status in the near future, generally within the next 90 days. Residential
mortgages and other consumer loans may accrue interest if the principal or
interest has been in default for more than 90 days if the loan is well secured
and in the process of collection.
The allowance for credit losses as a percentage of total loans was 1.04% at
December 31, 2006 versus 1.07% at December 31, 2005. Management evaluates the
condition of the loan portfolio on a quarterly basis to determine the adequacy
of the allowance for credit losses. 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.
Net loan charge offs to average loans for the year ended December 31, 2006
totaled 0.09%, compared to a net recovery of (0.03%) for the year ended December
31, 2005. Total loan charge-offs for 2006 were $343,000 compared with $524,000
in loan charge-offs in 2005. Total recoveries in 2006 were $28,000 compared with
total recoveries of $627,000 in 2005. The large recovery in 2005 was
attributable to a $1.0 million charge off on a commercial and industrial loan
during the second quarter of 2004 that was partially recovered on the sale of
real estate that provided part of the collateral securing the loan.
During 2006, we increased the reserve allocations in the allowance for credit
losses for commercial real estate loans, by $215,000 and for home equity lines
of credit by $298,000. In contrast, the reserve allocation for commercial and
industrial loans was decreased by $95,000 and for residential real estate loans
by $62,000. The allowance for credit losses increased $235,000 in 2006 totaling
$3.8 million. These changes in reserve allocations between the types of loans
were the result of changes in impairment as defined under SFAS 114 and under
SFAS 5. The Corporation performs a detailed quarterly review of the allowance
for credit losses. The Corporation evaluates those loans classified substandard
under its internal risk rating system, on an individual basis for impairment
under SFAS 114.
48
COMMUNITY CENTRAL BANK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The level of allocation of the allowance is determined primarily on management's
evaluation of collateral value, less the cost of disposal, for the loans
reviewed in this category. The remainder of the loan portfolio is segmented into
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.
At December 31, 2006, loans totaling $5.6 million were not included in the
non-performing asset table contained in Note 5 of the Notes to Consolidated
Financial Statements where the known information about possible credit problems
of borrowers caused management to have serious doubts as to the ability of the
borrowers to fully comply with present loan repayment terms and which may result
in disclosure of such loans in the future.
Although management believes that the allowance for credit losses is adequate to
absorb losses as they arise, there can be no assurance that the Bank will not
sustain losses in any given period that could be substantial in relation to the
size of the allowance for credit losses. It must be understood that inherent
risks and uncertainties related to the operation of a financial institution
require management to depend on estimates, appraisals and evaluations of loans
to prepare the Corporation's financial statements. Changes in economic
conditions and the financial prospects of borrowers may result in changes to the
estimates, appraisals and evaluations used. In addition, if circumstances and
losses differ substantially from management's assumptions and estimates, the
allowance for loan losses may not be sufficient to absorb all future losses and
net income could be significantly impacted.
49
COMMUNITY CENTRAL BANK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
LIABILITIES
During the year ended December 31, 2006, total deposits increased $41.5 million
to $355.9 million. The increase in deposits was attributable to an increase in
money market accounts of $25.9 million and time deposits of $24.2 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 time period ending the first quarter of 2007. The growth
in time deposits, was attributable to time deposits of $100,000 and over and was
primarily due to deposits generated in the Bank's branches comprising larger
jumbo deposits of individuals and municipalities totaling $33.5 million.
Brokered and internet deposits included in the category of time deposits over
$100,000, comprised $108.0 million and $5.3 million, respectively. These
deposits decreased in total $2.3 million during 2006, as the Bank focused on
generating local deposit growth. Noninterest bearing deposits, primarily
business related checking accounts, increased $1.3 million, or 4.2% at December
31, 2006 compared to December 31, 2005.
NOW accounts-interest bearing checking decreased $7.7 million as depositors
migrated to higher rate deposit products. Time deposits under $100,000 decreased
$9.2 million in 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 time 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. While the Bank will continue its focus on generating local
deposits, it will continue to use Federal Home Loan Bank ("FHLB") advances and
brokered certificates of deposit to fund assets growth as a viable alternative
to local deposits 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 premium interest
rate. The local competition for certificates of deposit products has continued
to be strong and the Bank has found wholesale funding to often effectively
compete with the rates offered for similar term retail certificates of deposit
products of local community and regional banks.
December 31, 2006 December 31, 2005
--------------------- --------------------
Balance Percentage Balance Percentage
-------- ---------- -------- ----------
(in thousands, except percent)
Noninterest bearing demand $ 33,331 9.4% $ 31,979 10.2%
NOW accounts-interest bearing checking 14,084 4.0 21,767 6.9%
Money Market 45,255 12.7 19,400 6.2%
Savings 10,569 3.0 12,832 4.1%
Time deposits under $100,000 45,608 12.8 54,853 17.4%
Time deposits $100,000 and over 207,009 58.2 173,542 55.2%
-------- ----- -------- -----
Total deposits $355,856 100.0% $314,373 100.0%
======== ===== ======== =====
The short-term borrowings decreased $10.2 million to $29.7 million at December
31, 2006 from December 31, 2005, due primarily to a decrease in short term FHLB
advances of $12.7 million. Repurchase agreements are based on the seasonal needs
for funds to the commercial and municipal customers who utilize the program and
may vary in total size dependent upon the customer's needs. The weighted average
interest rate on the ending balance of the short-term borrowings for December
31, 2006 and December 31, 2005, was 3.51% and 3.24%, respectively.
In June 2001, the Corporation started to borrow long-term advances from the FHLB
to fund fixed rate investments, as part of its efforts to manage 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. The
total FHLB advances were comprised of $14.0 million in short term advances with
a weighted average rate of 3.92% and long term advances of $69.5 million with a
weighted average
50
rate of 4.73%. The aggregate weighted rate of the entire FHLB advance portfolio
was 4.60% with a weighted average
51
COMMUNITY CENTRAL BANK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
remaining maturity of 4.6 years as of December 31, 2006. Long-term advances
comprised 31 advances maturing from April 2008 to June 2016.
STOCKHOLDERS' EQUITY
Stockholders' equity was $36.7 million as of December 31, 2006. This was an
increase of $1.1 million for the year ended December 31, 2006. On September 20,
2006 the Corporation announced a stock repurchase plan for up to 5% of its
outstanding shares in the open market for privately negotiated transactions. In
2006, 30,100 shares of common stock were repurchased for a total reduction in
equity of $351,000. Net income for 2006 of $2.1 million was the primarily
component of growth in equity and was partially offset by cash dividends
declared in 2006 of $918,000. Stock options exercised and stock awards added
$252,000 to equity in 2006. The change in other comprehensive income of $44,000
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 issuers' 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 2006 was primarily due to increased market
interest rates. Management believes, as of December 31, 2006, that the
Corporation and the Bank meet all capital adequacy requirements to which they
are subject and is considered "well capitalized."
On April 18, 2006, Community Central Bank Corporation declared a 5% stock
dividend, payable on June 1, 2006 to stockholders of record on May 2, 2006. The
outstanding number of shares, earnings per share, exercise price data and common
stock price data have been adjusted to reflect this dividend. Retained earnings,
common stock and additional paid-in-capital were adjusted to reflect the stock
dividend as indicated in the Consolidated Statement of Changes in Stockholders'
Equity.
52
COMMUNITY CENTRAL BANK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
NET INTEREST INCOME
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.
Year Ended Year Ended
December 31, 2006 vs. 2005 December 31, 2005 vs. 2004
--------------------------- --------------------------
Increase Increase
(Decrease) (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 $5,612 $2,946 $ 2,666 $3,622 $1,476 $2,146
Securities 1,537 1,162 375 785 636 149
Federal funds sold 96 (12) 108 98 (72) 170
------ ------ ------- ------ ------ ------
Total 7,245 4,096 3,149 4,505 2,040 2,465
------ ------ ------- ------ ------ ------
Deposits and Borrowed Funds - Interest Expense
NOW and money market accounts 564 41 523 186 (29) 215
Savings deposits (44) (115) 71 103 59 44
Time deposits 5,378 2,590 2,788 2,008 405 1,603
Other borrowings 1,258 674 584 1,123 613 510
Capitalized lease obligation and ESOP loan (1) (5) 4 1 (4) 5
Subordinated debentures 182 -- 182 198 -- 198
------ ------ ------- ------ ------ ------
Total 7,337 3,185 4,152 3,619 1,044 2,575
------ ------ ------- ------ ------ ------
Net Interest Income $ (92) $ 911 $(1,003) $ 886 $ 996 $ (110)
====== ====== ======= ====== ====== ======
Net interest income was $12.6 million for the year ended December 31, 2006, a
decrease of $92,000 or 0.73%, compared to the year ended December 31, 2005. Net
interest margin, as measured on a tax equivalent basis, was 2.83% for 2006
compared with 3.23% in 2005. The decrease in net interest margin was primarily
the result of higher deposit funding costs in a highly competitive deposit
pricing environment. During 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 increase in interest income was attributable to both an increase in loan
volume and in the higher overall yield earned on loans as a result of an
increase in market interest rates. The increase in interest income from
securities for the same time period was primarily attributable to an increase in
volume, as most of the securities have fixed interest rates. The increase in
interest expense from 2006 compared to 2005 was largely due to interest expense
time deposits, which increased $5.4 million. The increase in interest expense
associated with time deposits was evenly attributable to the $24.2 million
increase in time deposits and the increased rates paid on time deposits that
repriced during 2006. The increase in interest expense from time deposits
represented 73.3% of the total increase in interest expense. The increase in
interest expense from other borrowings, which primarily comprises FHLB advances,
was $1.3 million with the increase attributable evenly to volume and rate.
53
COMMUNITY CENTRAL BANK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Net interest income was $12.7 million for the year ended December 31, 2005, an
increase of $886,000 or 7.5% over the year ended December 31, 2004. Net interest
margin, as measured on a tax equivalent basis, was 3.23% for 2005 compared with
3.31% in 2004. Growth in earning assets was the primary reason for the increase
in net interest income for 2005, as net interest margin compressed slightly in
2005. Increases in interest income during 2005 were primarily driven by
increases in earning asset yields. The increase in interest income related to
the loan portfolios was largely driven by increases in the loan portfolio
sensitive to prime interest rate increases, which primarily occurred in the
commercial and home equity line portfolios. An increase in interest income from
the security portfolio was primarily due to increase in volume, as the majority
of the investment portfolio is fixed rate in nature. Increases in various
categories of interest expense were primarily driven by increases in interest
rates paid on deposits and other borrowings. The largest increase in interest
expense was associated with time deposits. Increases in interest expense on time
deposits contributed 62.3% of the overall increase in interest expense due to an
increase in rate. Conversely, the increase interest expense due to other
borrowings was primarily due to increases in volume and secondarily due to
increases in rates, as the duration of the FHLB advances is much longer than
other categories of deposits and borrowed funds.
The average yield on earning assets for 2006 was 6.74% compared to 6.03% in
2005. The average yield on the total loan portfolio, which contains both loans
held for sale and investment for 2006 was 7.33% compared to 6.51% in 2005. In
2006, the Federal Open Market Committee of the Federal Reserve Bank increased
the overnight federal funds rate four times. At the end of 2006, the Community
Central Bank prime rate stood at 8.25%. The commercial, commercial real estate
and home equity line loan portfolios that reprice with prime interest rate
changes totaled approximately $140 million and were the primary driver for the
increase in total loan yield during 2006. The Corporation's security portfolio
had an average non-tax adjusted yield of 4.59% during 2006, although yield
climbed through 2006, with the ending weighted average taxable equivalent yield
to maturity at December 31, 2006 totaling 5.38%. At December 31, 2006, $9.8
million of the total investment portfolio was variable rate.
The average rate paid on interest bearing liabilities in 2006 was 4.45% compared
to 3.24% in 2005. The increase in the average rate was due to the overall rate
paid on interest bearing liabilities due to the increase in overall market
interest rates. The increase in the average yield for NOW and money market
accounts for 2006 was primarily attributable to the introduction of a premium
rate based money market account, with an average yield of 2.79% in 2006 versus
1.50% in 2005. The average yield paid on savings also increased, moving to 2.34%
in 2006, from 1.94% in 2005 as the result of the introduction of a high balance
savings product. The average yield on time deposits increased due to the
increase in market rates and the repricing characteristics of this deposit
category. The yield on the total time deposit portfolio increased to 4.68% in
2006 from 3.31% in 2005. The yield on FHLB advances and repurchase agreements
increased to 4.35% in 2006 from 3.66% in 2005 due to new advances, repricing of
variable advances and the increase in the interest rate paid on repurchase
agreements moving to 3.15% at the end of 2006 from 2.50% at the end of 2005. The
average rate paid on the subordinated debenture increased in 2006 to 9.00% from
7.24%, closely tracking the overall increase in short-term market interest rates
in 2005. This instrument is priced quarterly based on the three month libor rate
plus 365 basis points.
The average yield on earning assets for 2005 was 6.03% compared to 5.39% in
2004. The average yield on the total loan portfolio, which contains both loans
held for sale and investment for 2005 was 6.51% compared to 5.80% in 2004. In
2005, the Federal Open Market Committee of the Federal Reserve Bank increased
the overnight federal funds rate eight times. At the end of 2005, the Community
Central Bank prime rate stood at 7.25%. The commercial, commercial real estate
and home equity line loan portfolios that reprice with prime interest rate
changes totaled approximately $154 million and the primary driver for the
increase in total loan yield during 2005. The Corporation's security portfolio
had an average non-tax adjusted yield of 4.07% during 2005, although yield
climbed through 2005, with the ending weighted average taxable equivalent yield
to maturity at December 31, 2005 totaling 5.02%. At December 31, 2005, $12.6
million of the total investment portfolio was variable rate based in nature.
54
COMMUNITY CENTRAL BANK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The average rate paid on interest bearing liabilities in 2005 was 3.24% compared
to 2.43% in 2004. The increase in the average rate was due to the overall rate
paid on interest bearing liabilities due to the increase in overall market
interest rates. The increase in the average yield for NOW and money market
accounts for 2005 was primarily attributable to the introduction of a premium
rate based NOW account, with the average yield to 1.50% in 2005 versus 1.00% in
2004. The average yield paid on savings also increased moving to 1.94% in 2005
from 1.64% in 2004, from the introduction of a high balance savings product. The
average yield on time deposits increased due to the increase in market rates and
the repricing characteristics of this deposit category. The yield on the total
time deposit portfolio increased to 3.31% in 2005 from 2.47% in 2004. The yield
on FHLB advances and repurchase agreements increased to 3.66% in 2005 from 2.91%
in 2004 due to new advances, repricing of variable advances and the increase in
the interest rate paid on repurchase agreements moving to 2.50% at the end of
2005 from 1.00% at the end of 2004. The average rate paid on the subordinated
debenture increased in 2005 to 7.24% from 5.32%, closely tracking the overall
increase in short-term market interest rates in 2005. This instrument is priced
quarterly based on the three month libor rate.
55
COMMUNITY CENTRAL BANK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following table shows the Corporation's consolidated average balances of
assets, liabilities, and equity. The table also details the amount of interest
income or interest expense and the average yield or rate for each category of
interest earning asset or interest bearing liability, and the net interest
margin for the periods indicated. The average balance of securities represents
amortized cost. Nonaccruing loans are included in the average loans outstanding
with no yield associated with them.
Year Ended December 31,
-------------------------------------------------------------------------------------
2006 2005 2004
--------------------------- --------------------------- ---------------------------
Interest Average Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
-------- -------- ------- -------- -------- ------- -------- -------- -------
(In thousands)
Assets
Loans $364,593 $26,732 7.33% $324,290 $21,120 6.51% $301,637 $17,498 5.80%
Securities 96,720 4,444 4.59 71,472 2,907 4.07 55,825 2,122 3.80
Federal funds sold 5,906 299 5.06 6,142 203 3.31 8,321 105 1.26
-------- ------- -------- ------- -------- -------
Total Earning Assets/
Total Interest Income/
Average Yield 467,219 31,475 6.74 401,904 24,230 6.03 365,783 19,725 5.39%
------- ------- -------
Cash and due from banks 7,308 7,441 7,313
All other assets 22,661 18,812 14,204
-------- -------- --------
Total Assets $497,188 $428,157 $387,300
======== ======== ========
Liabilities and Equity
NOW and money market accounts $ 42,210 1,176 2.79 $ 40,703 612 1.50 $ 42,633 426 1.00%
Savings deposits 12,761 299 2.34 17,664 343 1.94 14,627 240 1.64
Time deposits 258,664 12,111 4.68 203,170 6,733 3.31 190,957 4,725 2.47
FHLB advances and repurchase
Agreements 100,494 4,368 4.35 85,048 3,110 3.66 68,278 1,987 2.91
ESOP loan 121 10 8.26 179 11 6.15 237 10 4.22
Subordinated debentures 10,310 928 9.00 10,310 746 7.24 10,310 548 5.32
-------- ------- -------- ------- -------- -------
Total Interest Bearing Liabilities/
Total Interest Expense/Average
Interest Rate Spread 424,560 18,892 4.45 357,074 11,555 3.24 327,042 7,936 2.43%
-------- -------- --------
Noninterest bearing demand deposits 34,064 36,485 34,567
All other liabilities 2,540 2,002 1,124
Stockholders' equity 36,024 32,596 24,567
-------- -------- --------
Total Liabilities and Stockholders'
Equity $497,188 $428,157 $387,300
======== ======== ========
Net Interest Income $12,583 $12,675 $11,789
======= ======= =======
Net interest rate spread 2.29% 2.79% 2.97%
Net Interest Margin (Net Interest
Income/Total Earning Assets) 2.69% 3.15% 3.22%
Taxable equivalent 2.83% 3.23% 3.31%
56
COMMUNITY CENTRAL BANK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
PROVISION FOR CREDIT LOSSES
The provision for credit losses for the year ended December 31, 2006 was
$550,000, an increase of $450,000 from 2005. The increase in the provision was
due in part to the continued economic softening of the southeastern area of
Michigan. The provision for credit losses for the year ended December 31, 2005
was $100,000, a decrease of $1.9 million from 2004. See Management's Discussion
and Analysis of Financial Condition and Results of Operations- Assets.
NONINTEREST INCOME
Noninterest income for 2006 of $4.9 million increased $126,000, or 2.6% over
2005. Increases in fiduciary income, deposit service charges and other fee based
revenue were offset by declines in fee income experienced from mortgage banking
activities. Total fiduciary income in 2006 of $289,000 increased $156,000 over
2005. The increase in 2006 was primarily due to a full year's income from this
division, versus six months in 2005, as the trust operations started on June 30,
2005, upon the acquisition of River Place Financial Corporation. Total deposit
service charges of $357,000 increased 20.2% over 2005 due in part to an
overdraft program initiated in November of 2005. Mortgage banking income
comprised of gains on the sale of residential mortgage loans, decreased
$376,000, or 10.0% to $3.4 million. The slow down in local new home purchases
primarily in the Michigan region significantly contributed to the total decrease
in this non-interest income component. Net realized security gains were $8,000
in 2006, which was a decrease of $48,000 from 2005. The net gains recorded in
2006 were the result of investment sales from overall balance sheet
restructuring. Other income of $905,000 increased $334,000 over 2005. The
increase was due in part to servicing income, gains on the sale of portfolio
loans during 2006 and fee income from wealth management services, representing
respective increases of $94,000, $99,000 and $40,000. The Corporation started a
division of the Bank connected with trust operations called Community Central
Wealth Management in early 2006.
Noninterest income for 2005 of $4.8 million decreased $1.7 million or 26.5% from
2004, primarily from a decrease of $1.5 million in mortgage banking income. The
decrease in mortgage banking income was the result of lower gains on the sale of
residential mortgage loans due to lower origination of residential loans sold in
the secondary market. The slow down in refinance activity, coupled with a local
slow down in new home purchases, contributed to this decrease. Total fiduciary
income in 2005, from six months of trust department operations was $133,000.
This income is not reflective of the costs involved in the trust operations
which are part of other noninterest expense categories in the consolidated
statement of income. Starting on June 30, 2005 the Bank began offering full
trust services through the acquisition of River Place Financial Corporation. The
fee income recognized during the last six months of 2005 was related to total
fiduciary assets of $71.7 million. Total deposit service charges of $297,000 in
2005 remained unchanged from $298,000 recorded in 2004. The Corporation did not
increase service charge income in 2005 and total checking account recorded in
the category of noninterest bearing demand deposits remained relatively flat for
2005. Net realized security gains were $135,000 lower than the $191,000 recorded
in 2004 primarily from the result of changes in market interest rates and the
overall asset liability structuring needs of the Corporation. Other income was
$571,000 in 2005, which was a decrease of $230,000 from 2004. The decrease was
primarily attributable to a decrease in gains recorded on the sale of portfolio
loans, which was $53,000 in 2005 versus $255,000 in 2004, or a decrease of
$202,000.
NONINTEREST EXPENSE
Noninterest expense for 2006 of $14.5 million increased 10.5%, or $1.4 million
over 2005. The increase was largely attributable to an increase in salary,
benefits and payroll taxes associated with the Trust and Wealth Management
divisions and the Grosse Pointe branch.
57
COMMUNITY CENTRAL BANK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Total salaries, benefits and payroll taxes in 2006, increased $1.1 million, or
14.0% over 2005. The largest component of the increase was attributable to the
trust and wealth management operations, which had a respective increase in
salaries, payroll and benefits of $421,000. The Corporation started the wealth
management division in early 2006 with a high level executive and support staff.
The increase in salary expense in the trust division was partially due to a full
year's salary and benefit expense in 2006 compared to a partial year in 2005, as
the trust division started July 1, 2005. Additionally, a high-level executive
was added in 2006 as the replacement for the retiring division head.
Additionally, the new branch location established in 2006 in Grosse Pointe,
Michigan added an additional $190,000 in payroll expense in 2006 as the branch
was staffed with a regional banking executive and branch staff. Salaries,
benefits and payroll taxes related to the Mortgage Company decreased $229,000 in
2006, with the decrease related to reduced level of commission related expense
on lower origination of mortgages from the previous year. The remainder of the
increase was attributable to merit increases, increases in health care costs and
an increase in the supplemental executive retirement plan over the prior year.
The SERP accrual increased due in part to factors including the amount of
participants accrued for over the full year. The Corporation has used Bank Owned
Life Insurance to informally fund the SERP and offset the expense of providing
the SERP plan to key executives.
Net occupancy expense of $1.9 million, increased $230,000 or 14.1% over 2005.
The increase was largely due to an increase in rent in other occupancy related
costs of new mortgage loan production offices started in 2006 in different
states. Additionally, the Bank opened a new branch location in Grosse Pointe,
Michigan, which started operations in June 2006. Increases in utility costs
during 2006, were offset by reductions in equipment service agreement costs.
Total other operating expense of $3.9 million increased $68,000 or 1.8% over
2005, with the significant changes highlighted below. Data processing expense
was $549,000 in 2006, which was an increase of $70,000 or 14.6%. The increase
was attributable to upgrades in technology required to meet regulatory
requirements and increased expense related with branch expansion. Telephone
expense was $214,000 for 2006, which was an increase of $62,000 or 40.8%. The
increase was attributable to costs related with the voice over IP system the
Corporation has expanded to all branches and loan production offices in 2006,
which should reduce these expenses in the future. Legal expenses were $316,000
in 2006, which was a reduction of $123,000 from 2005. The decrease in legal
expenses in 2006 was due in part to the additional legal costs related to the
River Place Financial Inc., acquisition in 2005.
Noninterest expense in 2005 was $13.1 million, a decrease of $214,000 from 2004,
or a decrease of 1.60%. Salary, benefits and payroll taxes for 2005 were $7.7
million, a decrease of $201,000, or 2.5% compared to 2004. Salaries, benefits
and payroll taxes related to the Mortgage Company decreased $1.0 million in 2005
compared to 2004. The decrease in salaries, benefits and payroll taxes from the
Mortgage Company, being primarily variable based commission expense was directly
related to the decrease in mortgage banking income noted above and detailed in
the Consolidated Statement of Income. Offsetting the decrease in salaries,
benefits and payroll taxes in the mortgage company was increases in salaries,
benefits and payroll taxes attributable to the staffing of trust operations,
which started in June 2005, the addition of two commercial lenders at the
Rochester Hills branch location, the general growth and needs of infrastructure
of the Corporation as well as merit increases, which averaged 3.0% through the
Corporation. Total net occupancy expense of $1.6 million, increased $137,000 or
9.1% with the increase attributable to higher utility costs, the increased
depreciation expense of the new headquarters and the general costs of expanded
operations of the Corporation and subsidiaries. Total other operating expense of
$3.8 million decreased $150,000 or 3.8% in 2005 over 2004, with the significant
changes highlighted below. The higher level of loan workouts in 2004 over 2005
was the primary reason for the $115,000, or 20.7%, decrease in legal fees. Total
advertising, business development and public relations expense of $672,000
decreased $70,000, or 9.4%, from 2004 due to an effort to reduce advertising
conducted by outside vendors and concentrate on in-house staff. Data processing
expense of $479,000 increased $38,000, or 8.6%, from continued emphasis on
compliance and general safeguarding of operations. Professional and regulatory
fees of $438,000 increased $130,000 or 42.2%, due to expenses associated with
the placement fees for new officers, coupled with consulting and other expenses
in the acquisition of River Place Financial Corporation. Telephone related costs
of $152,000 decreased $35,000 or 18.7%, due in part to the installation of a
voice over IP telephone system in April of 2005. Other categories of other
noninterest expense were relatively unchanged during 2005.
58
COMMUNITY CENTRAL BANK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
INCOME TAXES
The provision for federal income taxes of $363,000 for 2006 decreased $816,000
or 69.2%, from the federal income tax provision in 2005. The decrease was
primarily attributable to a lower level of pretax income in 2006 over 2005,
coupled with a lower effective tax rate. The effective tax rate for 2006 and
2005 was 14.8% and 27.7%, respectively. The statutory tax rate for the
Corporation is 34%. The lower effective tax rate is primarily due to investments
in bank qualified tax-exempt securities and the Bank's ownership in bank owned
life insurance (BOLI). The increase in cash surrender value of BOLI is exempt
from federal income tax.
The provision for federal income taxes of $1,179,000 for 2005 increased $397,000
or 50.8%, from the federal income tax provision in 2004. The increase was
primarily attributable to a higher level of pretax income in 2005 over 2004,
coupled with a slightly higher effective tax rate. The effective tax rate for
2005 and 2004 was 27.7%and 26.2%, respectively. The statutory tax rate for the
Corporation is 34%. The lower effective tax rate is primarily due to investments
in bank qualified tax-exempt securities and the Bank's ownership in bank owned
life insurance (BOLI). The increase in cash surrender value of BOLI is exempt
from federal income tax.
LIQUIDITY AND CAPITAL RESOURCES; ASSET/LIABILITY MANAGEMENT
The liquidity of a bank allows it to provide funds to meet loan requests, to
accommodate possible outflows of 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
attempt to match the maturities and repricing 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 $74.6 million
in available unsecured federal funds borrowing facilities and a $150.0 million
secured line of credit with the FHLB. Large deposit balances which might
fluctuate in response to interest rate changes are closely monitored. These
deposits consist mainly of jumbo certificates of deposit. We anticipate that we
will have sufficient funds available to meet our future commitments. As of
December 31, 2006, unused commitments comprised $93.9 million. The Bank has
$165.8 million in time deposits coming due within the next twelve months from
December 31, 2006. At December 31, 2006, the Bank had $108.0 million in brokered
certificates of deposit, of which $47.9 million is due within one year or less.
The Bank will continue to use brokered certificates and other wholesale funding
sources for replacement sources of matured funds. Additionally, at December 31,
2006, municipal time deposits and internet time deposits were $56.0 million and
$5.3 million, respectively. Municipal time deposits typically have maturities
less than three months. $3.2 million of internet certificates of deposit mature
in one year or less. On February 15, 2007, the Corporation's Board of Directors
declared the Corporation's twentieth consecutive quarterly cash dividend of
$0.06 per common share, payable April 1, 2007, to shareholders of record March
1, 2007.
The largest uses and sources of cash and cash equivalents for the Corporation
for the year ended December 31, 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 $32.6 million and the
purchase of securities of $30.5 million, offset by maturities, calls and sales
of securities totaling $33.5 million. The purchase of property and equipment for
$1.2 million was primarily due leasehold improvements for the new Grosse Pointe
branch and some remaining costs of the completion of the construction of the new
administration building for the Corporation and Bank. Offsetting the uses of
cash in investing activities, was the area of cash provided from financing
activities which included net increases in demand and savings, time deposits and
short term borrowings of $17.3 million, $24.2 million, and $2.5 million,
respectively. The net cash provided in operating activities was $4.7 million,
which was largely attributable to net income of $2.1 million and supplemented by
the cash proceeds from the net decrease in the loans held for sale. Total cash
and cash equivalents at the end of December 31, 2006 was $24.7 million, which
was an increase of $13.7 million from December 31, 2005.
59
COMMUNITY CENTRAL BANK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OFF -BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
Off-Balance Sheet Arrangements. As of December 31, 2006, we have not
participated in any material unconsolidated entities or financial partnerships,
such as entities often referred to as structured finance or special entities.
The Corporation does have significant commitments to fund loans in the ordinary
course of business. These commitments and resulting off balance sheet risk are
further discussed in Note 18 of the Corporation's Consolidated Financial
Statements.
Contractual Obligations.
Payments Due by Period
-----------------------------------------------
Less than 1-3 3.5 More than
Total 1 Year Years Years 5 Years
------- --------- ----- ----- ---------
Long term debt (1) $10,405 $ 50 $ 45 -- $10,310
Capital lease obligations -- -- -- -- --
Operating leases (2) 1,333 250 383 $289 411
Other contractual obligations (3) 768 384 384
(1) Includes $95,000 of long term debt from a Note payable on the Bank's
employee stock ownership plan (see Note 10 to the Consolidated Financial
Statements) and $10.3 million of Subordinated Debentures (see Note 11 to
the Consolidated Financial Statements).
(2) See Note 14 to the Consolidated Financial Statements.
(3) Remaining contract with core processing provider for IT services.
60
COMMUNITY CENTRAL BANK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Managing rates on earning assets and interest bearing liabilities focuses on
maintaining stability in the net interest margin, an important factor in
earnings growth and stability. Emphasis is placed on maintaining a controlled
rate sensitivity position to avoid wide swings in margins and to manage risk due
to changes in interest rates.
The Corporation's Asset Liability Committee ("ALCO") meets periodically. Some of
the major areas of focus of the ALCO incorporate the following overview
functions: review the interest rate risk sensitivity of the Bank to measure the
impact of changing interest rates on the Bank's net interest income, review the
liquidity position through various measurements, review current and projected
economic conditions and the corresponding impact on the Bank, ensure that
capital and adequacy of the allowance for loan losses are maintained at proper
levels to sustain growth, monitor the investment portfolio, recommend policies
and strategies to the Board that incorporate a better balance of our interest
rate risk, liquidity, balance sheet mix and yield management, and review the
current balance sheet mix and proactively determine the future product mix.
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.
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 minimum and 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.
61
COMMUNITY CENTRAL BANK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following table presents an analysis of our interest-sensitivity gap
position at December 31, 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 prepayment and decay rates, our historical
experience, and the repricing and prepayment characteristics of portfolios
acquired through acquisition.
After Three After One
Within Months But Year But After
Three Within Within Five
Months One Year Five Years Years Total
-------- ----------- ---------- ------- --------
(In thousands)
Interest earning assets
Federal funds sold $ 13,700 $ -- $ -- $ -- $ 13,700
Securities, at amortized cost 4,860 12,502 27,415 38,312 83,089
FHLB stock -- -- -- -- --
Loans (including held for sale) 139,856 62,451 142,762 25,654 370,723
-------- -------- -------- ------- --------
Total 158,416 74,953 170,177 63,966 $467,512
========
Interest bearing liabilities
NOW and money market accounts 40,457 3,789 15,093 -- 59,339
Savings deposits 1,057 2,114 7,398 -- 10,569
Jumbo time deposits 61,832 74,080 71,187 -- 207,099
Time deposits < $100,000 5,766 24,018 15,735 -- 45,519
Repurchase agreements 15,688 -- -- -- 15,688
FHLB 3,000 11,000 36,328 33,200 83,528
Capitalized lease obligation and
ESOP loan 95 -- -- -- 95
Subordinated debentures 10,310 -- -- -- 10,310
-------- -------- -------- ------- --------
Total 138,205 115,001 145,741 33,200 $432,147
-------- -------- -------- ------- ========
Rate sensitivity gap $ 20,211 ($40,048) $ 24,436 $30,766
======== ======== ======== =======
Cumulative rate sensitivity gap ($19,837) $ 4,599 $35,365
======== ======== =======
Rate sensitivity gap ratio 1.15x 0.65x 1.17x 1.93x
Cumulative rate sensitivity gap ratio 0.92x 1.01x 1.08x
62
COMMUNITY CENTRAL BANK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The Bank also evaluates interest rate risk using a simulation model. The use of
simulation models to assess interest rate risk is an accepted industry practice,
and the results of the analysis are useful in assessing the vulnerability of the
Bank's net interest income to changes in interest rates. However, the
assumptions used in the model are oversimplifications and not necessarily
representative of the actual impact of interest rate changes. The simulation
model assesses the direction and magnitude of variations in net interest income
resulting from potential changes in market interest rates. Key assumptions in
the model include prepayment speeds of various loan and investment assets; cash
flows and maturities of interest-sensitive assets and liabilities, and changes
in market conditions impacting loan and deposit volumes and pricing. These
assumptions are inherently uncertain, and subject to fluctuation and revision in
a dynamic environment. Therefore, the model cannot precisely estimate future net
interest income or exactly predict the impact of higher or lower interest rates.
Actual results may differ from simulated results due to, among other factors,
the timing, magnitude and frequency of interest rate changes, changes in market
conditions and management's pricing decisions and customer reactions to those
decisions.
On a quarterly basis, the net interest income simulation model is used to
quantify the effects of hypothetical changes in interest rates on the Bank's net
interest income over a projected twelve-month period. The model permits
management to evaluate the effects of shifts in the Treasury yield curve, upward
and downward, on net interest income expected in a stable interest rate
environment.
As of December 31, 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. Interest rate
risk is a potential loss of income and/or potential loss of economic value of
equity. Rate sensitivity is the measure of the effect of changing interest rates
on the Bank's net interest income or the net interest spread. The policy of the
Bank shall be to risk no more than 10% of its net interest income in a changing
interest rate scenario of +/- 200 basis points over a one-year simulation
period. Furthermore, no more than 15% of net interest income can be projected at
risk in a scenario of +/- 300 basis points over a one-year simulation period.
Percentage Change
Interest Rate Scenario In Net Interest Income
---------------------- ----------------------
Interest rates up 300 basis points (0.54%)
Interest rates up 200 basis points 0.61%
Interest rates up 100 basis points 0.95%
Base Case --
Interest rates down 100 basis points 0.08%
Interest rates down 200 basis points 0.52%
Interest rates down 300 basis points 1.09%
APPLICATION OF CRITICAL ACCOUNTING POLICIES
ALLOWANCE FOR CREDIT LOSSES: The Corporation performs a detailed quarterly
review of the allowance for credit 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 Corporation
uses factors such as, historical portfolio losses, national and local economic
trends and levels of delinquency to determine the appropriate level and
allocation of the allowance for loans in this grouping. The Corporation's policy
dictates that specifically identified credit losses be recognized immediately by
a charge to the allowance for credit losses.
Inherent risks and uncertainties related to determination of adequacy of the
allowance for credit losses require management to depend on estimates,
appraisals and evaluations of loans to prepare the analysis. Changes in economic
conditions and the financial prospects of borrowers may result in changes to the
estimates, appraisals and evaluations used. In addition, if circumstances and
losses differ substantially from management's assumptions and estimates, the
allowance for credit losses may not be sufficient to absorb all future losses
and net income could be significantly impacted.
63
COMMUNITY CENTRAL BANK CORPORATION
STOCKHOLDER INFORMATION
SEC FORM 10-KSB
Copies of the Corporation's annual report on Form 10-KSB, as filed with the
Securities and Exchange Commission are available to stockholders without charge,
upon written request. Please mail your request to Ray T. Colonius; Corporate
Treasurer, Community Central Bank Corporation, 120 North Main Street, Mount
Clemens, MI 48043.
STOCK INFORMATION
The common stock of Community Central Bank Corporation trades on The NASDAQ
Global Market under the ticker symbol "CCBD." At December 31, 2006, there were
3,829,758 shares of Community Central Bank Corporation common stock issued and
outstanding and approximately 500 shareholders of record.
The following table presents the quarterly range of high and low sales prices of
Community Central Bank Corporation common stock for 2005 and 2006, as well as
the dividends declared during the stated periods. The price information set
forth in the table was reported by The NASDAQ Global Market. Our cash dividend
payout policy is continually reviewed by management and the Board of Directors.
Dividend payment decisions are made after considering a variety of factors,
including earnings, financial condition, market considerations and regulatory
restrictions. The Corporation relies significantly upon dividends originating
from the Bank to accumulate cash for payment of dividends to our stockholders.
Restrictions of dividend payments from the Bank are described in Note 19 of the
Notes to Consolidated Statements included in this Annual Report.
2006 Cash
--------------- Dividends
Quarter High Low Declared
- ------- ------ ------ ---------
Fourth $12.00 $10.76 $.06
Third 12.00 10.40 .06
Second 11.85 11.33 .06
First 13.08 10.66 .06
2005 Cash
--------------- Dividends
Quarter High Low Declared
- ------- ------ ------ ---------
Fourth $13.81 $11.94 $.06
Third 14.66 12.93 .05
Second 15.12 13.13 .05
First 16.62 12.30 .05
Price information has been retroactively adjusted to reflect the issuance of
stock dividends
64
COMMUNITY CENTRAL BANK CORPORATION
STOCKHOLDER INFORMATION
STOCKHOLDER RETURN PERFORMANCE PRESENTATION
The line graph below compares the cumulative total stockholder return on
Community Central Bank Corporation's common stock to the cumulative total return
of a broad index of the Nasdaq Stock Market and a state commercial bank industry
index for the period December 31, 2001 through December 31, 2006. The
information presented below assumes $100 was invested on December 31, 2001 in
Community Central Bank Corporation's common stock and in each of the indices and
assumes the reinvestment of all dividends. Historical stock price performance is
not necessarily indicative of future stock price performance.
5-YEAR COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG COMMUNITY CENTRAL BANK CORPORATION,
NASDAQ MARKET INDEX AND STATE COMMERCIAL BANK (HEMSCOTT GROUP) INDEX
(PERFORMANCE GRAPH)
12/31/01 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06
-------- -------- -------- -------- -------- --------
Community Central Bank Corporation $100.00 $113.63 $170.74 $169.15 $183.58 $178.37
State Commercial Bank Index 100.00 93.67 122.15 132.84 130.62 148.64
NASDAQ Market Index 100.00 69.75 104.88 113.70 116.19 128.12
65
COMMUNITY CENTRAL BANK CORPORATION
STOCKHOLDER INFORMATION
PRIMARY MARKET MAKERS
Hill, Thompson, Magid & Co., Inc.
15 Exchange Place
Jersey City, NJ 07302-3912
Wedbush Morgan Securities, Inc.
4949 S.W. Meadows Road, Suite 100
Lake Oswego, OR
Susquehanna Capital Group
401 City Avenue
Balacynwd, PA 19004
Howe Barnes Investment, Inc.
222 South Riverside Plaza, 7th Floor
Chicago, IL 60606
Knight Securities, L.P.
545 Washington Blvd.
Jersey City, NJ 07310
UBS Capital Markets, L.P.
111 Pavosia Avenue East
Jersey City, NJ 07310
STOCK REGISTRAR AND TRANSFER AGENT
Computershare Trust Company, N.A.
PO Box 43010
Providence, RI 02940-3010
Shareholder Inquiries 1-800-426-5523
www.computershare.com
INDEPENDENT AUDITOR
Plante & Moran, PLLC
2601 Cambridge Ct., Suite 500
Auburn Hills, MI 48326
LEGAL COUNSEL
Silver, Freedman & Taff, LLP
1700 Wisconsin Avenue, N.W.
Washington D.C. 20007
INFORMATION
News media representatives and those seeking additional information about the
Corporation should contact Ray T. Colonius, Corporate Treasurer, at (586)
783-4500, or by writing him at 120 North Main Street, Mount Clemens, MI 48043.
ANNUAL MEETING
This year's annual meeting of stockholders will be held at 9:00 a.m., on
Tuesday, April 17, 2007, at Best Western Concorde Inn, 44315 Gratiot Avenue,
Clinton Township, MI 48036.
66