1
CONFORMED
---------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1998
-------------
Commission File No. 333-04113
COMMUNITY CENTRAL BANK CORPORATION
----------------------------------
(Exact name of small business issuer as specified in its charter)
Michigan 38-3291744
-------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
100 North Main Street, PO Box 7, Mount Clemens, MI 48046-0007
-------------------------------------------------------------
(Address of principal executive offices)
(810) 783-4500
--------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Class Outstanding at August 12, 1998
----- ------------------------------
Common Stock, $5 stated value 1,391,455 Shares
Transitional Small Business Disclosure Format:
Yes No X
--- ---
2
PART I
ITEM 1. FINANCIAL STATEMENTS
The financial statements of Community Central Bank Corporation (the Corporation)
include the consolidation of its subsidiary; Community Central Bank (the Bank).
Following are the Corporation's Consolidated Balance Sheet as of June 30, 1998
and 1997, and December 31, 1997, Consolidated Statements of Operations and
Comprehensive Income for the three and six month periods ended June 30, 1998 and
1997, and Consolidated Statement of Cash Flow for the six months ended June 30,
1998 and 1997. These unaudited financial statements are for interim periods, and
do not include all disclosures normally provided with annual financial
statements. The interim statements should be read in conjunction with the
financial statements and footnotes contained in the Corporation's Annual Report
on Form 10-KSB for the fiscal year ended December 31, 1997.
In the opinion of management, the interim statements referred to above contain
all adjustments (consisting of normal, recurring items) necessary for a fair
presentation of the financial statements. The results of operations for interim
periods are not necessarily indicative of the results to be expected for the
full year.
Certain reclassifications have been made to the 1997 financial statements to
conform with the classifications used in 1998.
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CONSOLIDATED BALANCE SHEET
(Unaudited)
June 30, December 31, June 30,
Assets 1998 1997 1997
- -------------------------------------------- --------- --------- ---------
(in thousands, except fair value data)
Cash and due from banks $ 2,972 $ 2,279 $ 3,000
Federal funds sold 7,050 1,250 8,250
- --------------------------------------------- --------- --------- ---------
Cash and Cash Equivalents 10,022 3,529 11,250
- --------------------------------------------- --------- --------- ---------
Securities available for sale, at fair value 11,944 5,392 987
Investment securities, at amortized cost 11,780 15,115 10,332
(Fair value of $11.8 million at 6-30-1998,
$15.1 million at 12-31-1997, and
$10.3 million at 6-30-1997)
Loans
Residential mortgage loans 33,423 21,314 13,402
Commercial loans 43,362 29,165 14,300
Installment loans 3,861 2,656 1,794
- --------------------------------------------- --------- --------- ---------
Total Loans 80,646 53,135 29,496
Allowance for credit losses (1,045) (800) (450)
- --------------------------------------------- --------- --------- ---------
Net Loans 79,601 52,335 29,046
- --------------------------------------------- --------- --------- ---------
Net property and equipment 1,654 1,814 2,046
Accrued interest receivable 639 499 327
Other assets 215 221 179
- --------------------------------------------- --------- --------- ---------
Total Assets $ 115,855 $ 78,905 $ 54,167
============================================= ========= ========= =========
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CONSOLIDATED BALANCE SHEET
(Unaudited)
June 30, December 31, June 30,
Liabilities and Stockholders Equity 1998 1997 1997
- -------------------------------------------------- --------- --------- ---------
(in thousands, except fair value data)
Deposits
Noninterest bearing demand deposits $ 12,996 $ 7,323 $ 6,032
NOW and money market accounts 10,726 9,834 6,463
Savings deposits 2,667 2,057 746
Time deposits 77,911 49,141 30,337
- -------------------------------------------------- --------- -------- --------
Total deposits 104,300 68,355 43,578
- -------------------------------------------------- --------- -------- --------
Short term borrowings 2,330 1,403 788
Accrued interest payable 259 191 107
Other liabilities 136 84 101
Capitalized lease obligation 1,037 1,035 1,029
- -------------------------------------------------- --------- -------- --------
Total Liabilities 108,062 71,068 45,603
- -------------------------------------------------- --------- -------- --------
Stockholders' Equity
Common stock ($5 stated value; 9,000,000 shares
authorized; 1,391,455 shares issued and
outstanding at 6-30-1998; 1,264,985 shares
outstanding at 12-31-1997 and 6-30-1997) 6,957 6,325 6,325
Additional paid-in capital 3,562 4,195 4,195
Accumulated deficit (2,748) (2,712) (1,956)
Unrealized gain on securities available
for sale, net of tax 22 29 ----
- -------------------------------------------------- --------- -------- --------
Total Stockholders' Equity 7,793 7,837 8,564
- -------------------------------------------------- --------- -------- --------
Total Liabilities and Stockholders' Equity $ 115,855 $ 78,905 $ 54,167
================================================== ========= ======== ========
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CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
1998 1997 1998 1997
- ------------------------------------------------------------ ----- ----- ----- -----
(in thousands, except per share data)
Interest Income
Loans (including fees) $1,725 $ 570 $ 3,139 $ 799
Securities 339 128 649 161
Federal funds sold 134 135 214 363
- ------------------------------------------------------------ ------ ----- ------- -------
Total Interest Income 2,198 833 4,002 1,323
- ------------------------------------------------------------ ------ ----- ------- -------
Interest Expense
Deposits 1,228 437 2,212 685
Short term borrowings 18 3 33 3
Capitalized lease obligation 34 34 69 68
- ------------------------------------------------------------ ------ ----- ------- -------
Total Interest Expense 1,280 474 2,314 756
- ------------------------------------------------------------ ------ ----- ------- -------
Net Interest Income 918 359 1,688 567
Provision for credit losses 85 190 245 360
- ------------------------------------------------------------ ------ ----- ------- -------
Net Interest Income after Provision 833 169 1,443 207
- ------------------------------------------------------------ ------ ----- ------- -------
Noninterest Income
Deposit service charges 43 15 71 26
Net realized security gain ---- ---- 6 ----
Mortgage banking income 54 20 64 20
Other income 41 12 67 17
- ------------------------------------------------------------ ------ ----- ------- -------
Total Noninterest Income 138 47 208 63
- ------------------------------------------------------------ ------ ----- ------- -------
Noninterest Expense
Salaries, benefits, and payroll taxes 433 341 825 661
Premises and fixed asset expense 131 165 271 289
Other operating expense 300 279 591 496
- ------------------------------------------------------------ ------ ----- ------- -------
Total Noninterest Expense 864 785 1,687 1,446
- ------------------------------------------------------------ ------ ----- ------- -------
Income (Loss) Before Taxes 107 (569) (36) (1,176)
Provision for income taxes ---- ---- ---- ----
- ------------------------------------------------------------ ------ ----- ------- -------
Net Income (Loss) $ 107 ($569) ($ 36) ($1,176)
============================================================ ====== ===== ======= =======
Per share data:
Basic Net Income (Loss) $ 0.08 ($0.41) ($ 0.03) ($ 0.85)
============================================================ ====== ===== ======= =======
Diluted Net Income (Loss) $ 0.08 ($0.41) ($ 0.03) ($ 0.85)
============================================================ ====== ===== ======= =======
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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
1998 1997 1998 1997
- --------------------------------------------------------------- ------ ------ ------ ------
(in thousands)
Net Income (Loss) as Reported $ 107 ($569) ($36) ($1,176)
Other Comprehensive Income
Change in unrealized gain on
securities available for sale, net of tax (6) ---- 3 ----
- --------------------------------------------------------------- ----- ----- ---- -------
Comprehensive Income (Loss) $ 101 ($569) ($33) ($1,176)
=============================================================== ===== ===== ==== =======
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CONSOLIDATED STATEMENT OF CASH FLOW
(Unaudited)
Six Months Ended June 30,
1998 1997
- --------------------------------------------------------------------------- ---------- ---------
(in thousands)
Operating Activities
Net loss ($36) ($ 1,176)
Adjustments to reconcile net loss to net cash flow
from operating activities:
Net accretion of security discount (9) (8)
Net realized security gain (6) ----
Net gain on sales of mortgage loans (55) ----
Provision for credit losses 245 360
Net gain on sales of property and equipment (5) ----
Depreciation expense 183 220
Increase in accrued interest receivable (140) (310)
Decrease in other assets 6 47
Increase in accrued interest payable 68 75
Increase in other liabilities 110 57
- --------------------------------------------------------------------------- -------- --------
Net Cash Provided by (Used in) Operating Activities 361 (735)
Investing Activities
Maturities, calls, and prepayments of securities available for sale 3,087 ----
Purchases of securities available for sale (7,135) (986)
Maturities, calls, and prepayments of investment securities 3,132 ----
Purchases of investment securities (282) (10,325)
Sales of residential mortgage loans 7,625 ----
Net increase in loans (35,081) (23,918)
Sales of property and equipment 15 ----
Purchases of property and equipment (33) (570)
- --------------------------------------------------------------------------- -------- --------
Net Cash Used in Investing Activities (30,672) (35,799)
Financing Activities
Net increase in demand and savings deposits 7,175 8,622
Net increase in time deposits 28,770 22,775
Net increase in short term borrowings 927 788
Repayments of capitalized lease obligation (67) (59)
Fractional shares paid on stock dividend (1) ----
- --------------------------------------------------------------------------- -------- --------
Net Cash Provided by Financing Activities 36,804 32,126
- --------------------------------------------------------------------------- -------- --------
Increase (Decrease) in Cash and Cash Equivalents 6,493 (4,408)
Cash and Cash Equivalents at the Beginning
of the Year 3,529 15,658
- --------------------------------------------------------------------------- -------- --------
Cash and Cash Equivalents at the End
of the Period $ 10,022 $ 11,250
=========================================================================== ======== ========
Supplemental Disclosure of Cash Flow Information:
Interest Paid $ 2,177 $ 613
=========================================================================== ======== ========
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following analysis of the Corporation's financial condition and operating
results for the periods ended June 30, 1998 and 1997, should be read in
conjunction with the financial statements and statistical data presented
elsewhere. The discussion and analysis contains forward-looking statements that
are based on management's beliefs, assumptions, current expectations, and
projections. These statements are not guarantees of future performance, and
involve certain risks and uncertainties. Actual results may materially differ
from what may be expressed herein.
ASSETS
The Corporation's total assets have increased by 47%, or $37.0 million, to
$115.9 million at June 30, 1998, compared with $78.9 million at December 31,
1997. Assets have grown by $61.7 million since June 30, 1997.
During the six months ended June 30, total deposits rose by $35.9 million, while
total loans increased by $27.5 million. The increased liquidity resulting from
the deposit growth is being held as federal funds sold, and is available to
finance continued loan growth.
The following table shows the amortized cost and estimated fair value of the
Corporation's security portfolio as of the dates indicated. On the balance
sheet, investment securities (i.e., those which the Corporation has the ability
and intent to hold to maturity) are stated at cost, adjusted for amortization of
premium and accretion of discount. Securities available for sale are shown on
the balance sheet at estimated fair value.
June 30, 1998 December 31, 1997 June 30, 1997
------------------- ------------------ -------------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
--------- ----- --------- ----- --------- ------
(in thousands)
Securities Available for Sale
United States Government agencies $ 6,888 $ 6,920 $ 3,875 $ 3,906 $ 987 $ 987
Mortgage backed securities 3,546 3,547 1,085 1,084 ---- ----
Collateralized mortgage obligations 1,477 1,477 403 402 ---- ----
------- ------- ------- ------- ------- -------
Total Securities Available for Sale 11,911 11,944 5,363 5,392 987 987
------- ------- ------- ------- ------- -------
Investment Securities
United States Treasury 498 498 1,990 1,993 4,977 4,981
United States Government agencies 5,367 5,393 6,613 6,632 5,355 5,350
Mortgage backed securities 2,604 2,618 2,839 2,841 ---- ----
Collateralized mortgage obligations 3,029 3,047 3,673 3,683 ---- ----
Other securities 282 282 ---- ---- ---- ----
------- ------- ------- ------- ------- -------
Total Investment Securities 11,780 11,838 15,115 15,149 10,332 10,331
------- ------- ------- ------- ------- -------
Total Securities $23,691 $23,782 $20,478 $20,541 $11,319 $11,318
======= ======= ======= ======= ======= =======
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Total loans increased by $27.5 million during the six months ended June 30,
1998, as the Corporation continued building its loan base. Commercial loans grew
by $14.2 million, while residential mortgage loans increased by $12.1 million.
During the six months, the Corporation sold residential mortgage loans (with a
book value of $7.6 million) without recourse to the Federal National Mortgage
Association (FNMA). The net gain from these sales totaled $55,000.
The Corporation makes loans to customers primarily in Macomb County, Michigan.
Although the Corporation has a diversified loan portfolio, a substantial portion
of the local economy has traditionally been dependent on the automotive
industry. Additionally, the Corporation had approximately $13.8 million in
outstanding loans at June 30, 1998, to commercial borrowers in the real estate
rental and property management industry.
Loans would be placed in nonaccrual status when, in the opinion of management,
uncertainty exists as to the ultimate collection of principal and interest. No
loans have been placed in nonaccrual status since the Corporation's inception.
At June 30, 1998, there were no significant loans where known information about
possible credit problems of borrowers causes management to have serious doubts
as to the ability of the borrower to comply with present loan repayment terms.
Furthermore, management is not aware of any potential problem loans which could
have a material effect on the Corporation's operating results, liquidity, or
capital resources.
The following table shows changes in the allowance for credit losses arising
from additions to the allowance that were charged to expense, and a selected
ratio:
Six Months Ended June 30,
1998 1997
------- -------
(in thousands)
Allowance for credit losses at
beginning of period $800 $90
Provision charged to expense 245 360
------ ------
Allowance for credit losses at end of period $1,045 $450
====== ======
Allowance for credit losses as a percentage
of loans at period end 1.30% 1.53%
In each accounting period, management evaluates the problems and potential
losses in the loan portfolio. Consideration is also given to off-balance sheet
items that may involve credit risk, such as commitments to extend credit and
financial guarantees. Management's evaluation of the allowance is further based
on consideration of actual loss experience, the present and prospective
financial condition of borrowers, adequacy of collateral, industry
concentrations within the portfolio, and general economic conditions. The
results of this evaluation are reflected in the allowance and periodic provision
for credit losses. Management believes that the present allowance is adequate,
based on the broad range of considerations listed above.
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The primary risk element considered by management regarding each installment and
residential real estate loan is lack of timely payment. Management has a
reporting system that monitors past due loans and has adopted policies to pursue
its creditor's rights in order to preserve the Bank's position. The primary risk
elements concerning commercial loans are the financial condition of the
borrower, the sufficiency of collateral, and lack of timely payment. Management
has a policy of requesting and reviewing annual financial statements from its
commercial loan customers, and periodically reviews existence of collateral and
its value.
Although management believes that the allowance for credit losses is adequate to
absorb losses as they arise, there can be no assurance that the Bank will not
sustain losses in any given period that could be substantial in relation to the
size of the allowance for credit losses. Management is not aware of any factors
that would cause future net loan charge-offs, in total or by loan category, to
significantly differ from those experienced by institutions of similar size.
LIABILITIES
During the six months ended June 30, 1998, total deposits increased by 52%, or
$35.9 million, to $104.3 million.
Short term borrowings at June 30, 1998, represent securities sold with an
agreement to repurchase them the following day. The maximum amount outstanding
at any month end during 1998 was $2.3 million. The average rate on the ending
balance of short term borrowings at June 30, 1998, was 4.75%.
CAPITAL
The Corporation declared a 10% stock dividend on April 7, 1998. The dividend was
paid on May 6, 1998, to stockholders of record on April 21, 1998. As a result,
approximately $632,000 was transferred from additional paid-in capital to common
stock. The effects of the stock dividend have been retroactively applied to
applicable figures in this report. The Corporation also declared and paid a 10%
stock dividend in the second quarter of 1997.
Following are selected capital ratios for the Corporation as of the dates
indicated, along with the minimum regulatory requirement for each item. In many
cases, bank holding companies are expected to operate at capital levels higher
than the minimum requirement.
June 30, December 31, June 30, Minimum
1998 1997 1997 Requirement
-------- ---------- -------- ----------
Tier I capital to risk-weighted assets 10.65% 15.81% 27.11% 4.00%
Total capital to risk-weighted assets 11.90% 17.07% 28.37% 8.00%
Primary capital to assets 7.54% 9.80% 15.68% 5.50%
Total capital to assets 7.54% 9.80% 15.68% 6.00%
Tier I capital to quarterly average assets 6.92% 10.42% 18.05% 4.00%
Additionally, as a condition of its initial application for deposit insurance,
the Bank (unconsolidated) is required to maintain a ratio of capital to
unadjusted assets of 8.0%, through October 28, 1999. Due to its rapid growth,
the Bank did not meet this requirement at June 30, 1998. Management has
submitted a capital plan to the Federal Deposit Insurance Corporation (FDIC),
and the Corporation has filed a registration statement with the Securities and
Exchange Commission (SEC) for the issuance of additional common stock. If the
offering is successful, management expects to contribute a substantial portion
of the proceeds to the Bank as additional capital. This should result in the
Bank once again complying with this requirement.
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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.
Three Months Ended Six Months Ended
June 30, 1998 vs. 1997 June 30, 1998 vs. 1997
------------------------------------ -----------------------------------
Increase (Decrease) Increase (Decrease)
Due to Changes In Due to Changes In
---------------------- ----------------------
Total Volume Rate Total Volume Rate
and Both and Both
--------- --------- ------- --------- ---------- ---------
(in thousands)
Earning Assets - Interest Income
Federal funds sold ($1) $1 ($2) ($149) ($160) $11
Securities 211 201 10 488 478 10
Loans 1,155 1,172 (17) 2,340 2,359 (19)
--------- --------- ------- -------- -------- -------
Total 1,365 1,374 (9) 2,679 2,677 2
--------- --------- ------- -------- -------- -------
Deposits and Borrowed Funds -
Interest Expense
NOW and money market accounts 33 38 (5) 73 82 (9)
Savings deposits 16 14 2 27 25 2
Time deposits 742 743 (1) 1,427 1,415 12
Short term borrowings 15 16 (1) 30 31 (1)
Capitalized lease obligation ---- ---- ---- 1 1 ----
--------- --------- ------- -------- -------- -------
Total 806 811 (5) 1,558 1,554 4
--------- --------- ------- -------- -------- -------
Net Interest Income $559 $563 ($4) $1,121 $1,123 ($2)
========= ========= ======= ======== ======== =======
For the quarter ended June 30, 1998, net interest income increased by 156%, or
$559,000 over the second quarter of 1997. Net interest income for the six month
period increased by $1.1 million, or 198% over the first half of 1997. This was
due to a significant rise in the volume of interest earning assets, especially
in loans and securities. On the liability side, interest bearing liability
volumes increased sharply as the Corporation continued to build a deposit base.
The large percentage increase in both interest earning assets and interest
bearing liabilities was a function of the small average balances in the prior
year. This was the result of the Bank's having commenced operations in the
fourth quarter of 1996. The net interest margin improved slightly in the quarter
to 3.41%, compared with 3.34% for the second quarter of 1997. For the six month
period, the net interest margin improved to 3.46%, up from 3.12% in 1997. The
margin improvements were the result of a higher current percentage of interest
bearing assets in loans rather than federal funds, compared with the prior year
periods. Interest rates on individual asset and liability categories were fairly
consistent with the prior year periods.
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AVERAGE BALANCE SHEET
The following tables show the Corporation's consolidated average balances of
assets, liabilities, and stockholders' equity; the amount of interest income or
interest expense and the average yield or rate for each major category of
interest earning asset and interest bearing liability, and the net interest
margin, for the three and six month periods ended June 30, 1998 and 1997.
Average loans are presented net of unearned income, gross of the allowance for
credit losses. Interest on loans includes loan fees. Average securities are
based on amortized cost.
Three Months Ended June 30,
-----------------------------------------------------------------------------
1998 1997
------------------------------------- -----------------------------------
Average Average
Interest Rate Interest Rate
Average Income/ Earned/ Average Income/ Earned/
Balance Expense Paid Balance Expense Paid
--------- --------- --------- --------- --------- ---------
(in thousands)
Assets
Federal funds sold $9,849 $134 5.44% $9,785 $135 5.53%
Securities 21,583 339 6.28 8,793 128 5.82
Loans 76,234 1,725 9.05 24,454 570 9.33
--------- --------- -------- -------- -------- -------
Total Earning Assets/
Total Interest Income 107,666 2,198 8.17% 43,032 833 7.75%
--------- -------- -------- -------
Cash and due from banks 3,062 2,308
All other assets 1,528 2,117
--------- --------
Total Assets $112,256 $47,457
========= ========
Liabilities and Equity
NOW and money market accounts $9,960 86 3.45% $5,592 53 3.81%
Savings deposits 2,453 20 3.26 693 4 2.42
Time deposits 76,990 1,122 5.83 26,025 380 5.84
Short term borrowings 1,518 18 4.74 198 3 5.19
Capitalized lease obligation 1,026 34 13.45 1,016 34 13.50
--------- --------- -------- -------- -------- -------
Total Interest Bearing Liabilities/
Total Interest Expense 91,947 1,280 5.57% 33,524 474 5.66%
--------- -------- -------- -------
Noninterest bearing demand deposits 12,179 4,911
All other liabilities 351 122
Stockholders' equity 7,779 8,900
--------- --------
Total Liabilities and Equity $112,256 $47,457
========= ========
Net Interest Income $918 $359
======= ========
Net Interest Margin (Net Interest
Income/Total Earning Assets) 3.41% 3.34%
======= =======
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Six Months Ended June 30,
-----------------------------------------------------------------------------
1998 1997
------------------------------------- -----------------------------------
Average Average
Interest Rate Interest Rate
Average Income/ Earned/ Average Income/ Earned/
Balance Expense Paid Balance Expense Paid
--------- --------- --------- --------- --------- ---------
(in thousands)
Assets
Federal funds sold $ 7,865 $ 214 5.44% $13,752 $363 5.28%
Securities 20,647 649 6.29 5,450 161 5.92
Loans 68,968 3,139 9.10 17,145 799 9.32
-------- ------ -------- ------- -------- -------
Total Earning Assets/
Total Interest Income 97,480 4,002 8.21% 36,347 1,323 7.28%
------ -------- -------- -------
Cash and due from banks 3,033 1,734
All other assets 1,593 2,014
-------- -------
Total Assets $102,106 $40,095
======== =======
Liabilities and Equity
NOW and money market accounts $9,503 161 3.39% $4,671 88 3.76%
Savings deposits 2,211 35 3.17 607 8 2.48
Time deposits 69,073 2,016 5.84 20,587 589 5.73
Short term borrowings 1,351 33 4.89 99 3 5.19
Capitalized lease obligation 1,026 69 13.45 1,014 68 13.49
-------- ------ -------- ------- -------- -------
Total Interest Bearing Liabilities/
Total Interest Expense 83,164 2,314 5.56% 26,978 756 5.60%
------ -------- -------- -------
Noninterest bearing demand deposits 10,833 3,818
All other liabilities 318 108
Stockholders' equity 7,791 9,191
-------- -------
Total Liabilities and Equity $102,106 $40,095
======== =======
Net Interest Income $1,688 $567
====== ========
Net Interest Margin (Net Interest
Income/Total Earning Assets) 3.46% 3.12%
======== =======
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NONINTEREST INCOME
Noninterest income increased by 230%, to $208,000 for the first six months of
1998. The largest components of the increase were overdraft income, gains on
sales of residential mortgages, and fees from processing merchant credit card
deposits.
NONINTEREST EXPENSE
Noninterest expense increased over the first half of 1997 by 17%, to $1.7
million in 1998. This was primarily the result of growth of the Corporation, and
the accompanying rise in payroll and other operating expense. Premises and
fixed asset expense declined in 1998, as depreciation fell in the absence of
significant new purchases.
PROVISION FOR INCOME TAXES
The Corporation currently has no recorded provision for income taxes. Net
operating loss carryforwards totaled $1.7 million through tax years ended
December 31, 1997. The Corporation has not recorded a corresponding asset for
any future benefit of these carryforwards, since it has not yet demonstrated a
history of earnings.
LIQUIDITY AND ASSET/LIABILITY MANAGEMENT
The liquidity of a bank allows it to provide funds to meet loan requests, to
accommodate possible outflows in deposits, and to take advantage of other
investment opportunities. Funding of loan requests, providing for liability
outflows, and managing interest rate margins require continuous analysis to
match the maturities of specific categories of loans and investments with
specific types of deposits and borrowings. Bank liquidity depends upon the mix
of the banking institution's potential sources and uses of funds. For the
Corporation, the major sources of liquidity have been deposit growth, federal
funds sold, loans and securities which mature within one year, and sales of
residential mortgage loans. Additional liquidity is provided by a $2.0 million
secured federal funds line of credit, and a $10.0 million secured line of credit
with the Federal Home Loan Bank of Indianapolis (FHLB). The Corporation's large
deposit balances which might fluctuate in response to interest rate changes are
closely monitored. These deposits consist mainly of jumbo time certificates of
deposit.
Managing rates on earning assets and interest bearing liabilities focuses on
maintaining stability in the net interest margin, which is 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.
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The following table shows the maturity and repricing distribution of the
Corporation's interest earning assets and interest bearing liabilities as of
June 30, 1998. This table displays the interest rate sensitivity gap (i.e.,
interest rate sensitive assets less interest rate sensitive liabilities),
cumulative interest rate sensitivity gap, the interest rate sensitivity gap
ratio (i.e., interest rate sensitive assets divided by interest rate sensitive
liabilities), and cumulative interest rate sensitivity gap ratio.
After Three After One
Within Months But Year But After
Three Within One Within Five
Months Year Five Years Years Total
--------- ------------ ------------ ---------- ---------
(in thousands)
Interest earning assets:
Federal funds sold $7,050 $ ---- $ ---- $ ---- $7,050
Securities 499 2,956 16,541 3,695 23,691
Loans 27,575 3,766 31,229 18,076 80,646
-------- ------- ------- ------- --------
Total 35,124 6,722 47,770 21,771 $111,387
-------- ------- ------- ------- ========
Interest bearing liabilities:
NOW and money market
accounts 10,726 ---- ---- ---- $10,726
Savings deposits 2,667 ---- ---- ---- 2,667
Jumbo time deposits 17,053 19,970 ---- ---- 37,023
Time deposits<$100,000 8,622 31,718 548 ---- 40,888
Short term borrowings 2,330 ---- ---- ---- 2,330
Capitalized lease
obligation ---- 7 106 924 1,037
-------- ------- ------- ------- --------
Total 41,398 51,695 654 924 $94,671
-------- ------- ------- ------- ========
Interest rate sensitivity gap ($6,274) (44,973) 47,116 20,847
Cumulative interest rate
sensitivity gap ($51,247) ($4,131) $16,716
Interest rate sensitivity gap
ratio 0.85 0.13 73.04 23.56
Cumulative interest rate
sensitivity gap ratio 0.45 0.96 1.18
The preceding table indicates the time periods in which interest earning assets
and interest bearing liabilities will mature or may be repriced, generally
according to their contractual terms. However, this table does not necessarily
indicate the impact that general interest rate movements would have on the
Corporation's net interest margin, because the repricing of various categories
of assets and liabilities is discretionary, and is subject to competitive and
other pressures. As a result, various assets and liabilities indicated as
repricing within the same period may, in fact, reprice at different times and by
different increments. At June 30, 1998, the Corporation is considered "liability
sensitive" according to the preceding table. In a rising rate environment, the
Corporation might not be able to increase rates on earning assets faster than
the increase in rates on interest bearing liabilities.
The Corporation is also working with a vendor to develop a personal
computer-based model to simulate the effects of possible interest rate changes.
The Corporation intends to limit estimated negative exposure to changing rates
within a one year period. The exposure estimate will be based on a variety of
assumptions built into the model, and assumed interest rate changes of plus or
minus 200 basis points. The results of this analysis will be reported to the
Board of Directors, to assist in the interest rate risk management process.
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OTHER MATTERS
The Company is in the process of assessing the impact of the arrival of 2000 on
its computerized information systems and other electronic equipment. The "year
2000 problem" is the result of abbreviating an applicable year with two digits
rather than four. As a result, computer programs and other devices may interpret
a date field of "00" as 1900 rather than 2000. This or any similar error could
lead to system malfunction or complete failure. The banking industry is highly
dependent on computer systems due to significant transaction volumes, and date
sensitive calculations for interest accruals on financial instruments such as
loans and deposits.
The Company began to prepare for the year 2000 project in 1997. The plan began
with an internal evaluation of equipment, software applications, and vendor
supplied products. Because the Company was founded during 1996, much of its
equipment and computer technology is new, and in many cases, already year 2000
compliant. The Company's main data processing vendor has represented that it
will be compliant by the end of 1998, and has provided updates on its progress
to the Company. The Company has a written plan which is regularly updated and
reported to the Board of Directors. The next phase of the plan is to begin
testing on systems and equipment. To date, spending on the year 2000 project has
been negligible. While it is expected that the remainder of the project will
involve additional costs, the amount is not currently expected to exceed
$50,000. Such costs will be expensed as incurred. If any unusual and unforeseen
problems arise during testing, this amount could be significantly higher.
Additionally, if the Company (or its customers or vendors) are unable to remedy
any potential year 2000 problems in a timely manner, there could be a material
adverse effect on the Company's business. Based on information that is currently
available, the Company does not anticipate that the cost of achieving year 2000
compliance will have a material effect on its capital resources, results of
operations, or liquidity as presented herein.
On July 17, 1998, the Bank discontinued the operation of its residential
mortgage lending department. At the same time, it entered into an agreement with
Plus 4 Mortgage Company, L.C. (Plus 4) to originate residential mortgages for
customers referred by the Bank. Plus 4 will operate under the name of Central
Mortgage Funding. The affiliation with Plus 4 will give the Bank's customers
access to a larger variety of residential mortgage programs. Products such as
FHA and VA loans, First Time Buyer programs and No-Documentation loans were not
economically feasible for the Bank to offer by itself. In exchange for the
opportunity to market these programs, Plus 4 will pay the Bank a marketing fee.
Plus 4 will be responsible for funding and servicing all loans that they
originate. The Bank will retain its current mortgage loan portfolio, and has the
right to purchase certain conforming and non-conforming loans from Plus 4 in the
future.
EXHIBITS
Exhibits filed in accordance with Part I of this Form 10-QSB are shown in the
Exhibit Index, which immediately precedes such exhibits, and is incorporated by
reference herein.
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PART II
ITEM 1. LEGAL PROCEEDINGS
As a depository of funds, the Bank is occasionally named as a defendant in
lawsuits (such as garnishment proceedings) involving claims to the ownership of
funds in particular accounts. Such litigation is incidental to the Bank's
business. Management is not aware of any threatened or pending litigation in
which the Corporation or the Bank is likely to experience loss or exposure which
would materially affect the Corporation's capital resources, results of
operations, or liquidity as presented herein.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At its Annual Meeting held April 21, 1998, the Corporation's stockholders voted
to elect four directors. Results of the election were as follows:
Abstentions
Nominee Votes For Votes Against and No Vote Total
------- --------- ------------- ----------- -----
Salvatore Cottone 1,173,013 ---- 91,972 1,264,985
Bobby L. Hill 1,173,013 ---- 91,972 1,264,985
Richard J. Miller 1,173,873 ---- 91,112 1,264,985
Dean S. Petitpren 1,173,873 ---- 91,112 1,264,985
The terms of office of the following directors (who were not up for election)
continued after the Annual Meeting; Harold W. Allmacher, Gebran S. Anton, Joseph
Catenacci, Raymond M. Contesti, Celestina Giles, Joseph F. Jeannette, and Carole
L. Schwartz.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
A list of exhibits included as part of this Form 10-QSB is shown in the
Exhibit Index, which immediately precedes such exhibits, and is
incorporated by reference herein.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for which this
report is filed.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized, on August 12, 1998.
COMMUNITY CENTRAL BANK CORPORATION
By: S/ HAROLD W. ALLMACHER
----------------------
Harold W. Allmacher;
Chairman of the Board and Chief Executive Officer
(Principal Executive Officer)
By: S/ RICHARD J. MILLER
----------------------
Richard J. Miller;
President and Chief Operating Officer
By: S/ PETER J. PRZYBOCKI
----------------------
Peter J. Przybocki, CPA;
Corporate Treasurer
(Principal Financial and Accounting Officer)
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EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
PART I EXHIBITS
11 Computation of Per Share Earnings
27 Financial Data Schedule
PART II EXHIBITS
3.1 Articles of Incorporation are incorporated
by reference to exhibit 3.1 of the
Corporation's Registration Statement on Form
SB-2 (Commission File Number 333-04113)
which became effective on September 23, 1996
3.2 Bylaws of the Corporation are incorporated
by reference to exhibit 3.2 of the
Corporation's Registration Statement on Form
SB-2 (Commission File Number 333-04113)
which became effective on September 23, 1996
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