1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1999
------------------
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 November 8, 1999
----- -------------------------------
Common Stock, $5 stated value 2,420,024 Shares
Transitional Small Business Disclosure Format:
Yes No X
---- ----
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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 September 30,
1999 and 1998, and December 31, 1998, Consolidated Statements of Operations and
Comprehensive Income for the three and nine month periods ended September 30,
1999 and 1998, and Consolidated Statement of Cash Flow for the nine months ended
September 30, 1999 and 1998. 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 contained in the Corporation's Annual
Report on Form 10-KSB for the year ended December 31, 1998.
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 may not necessarily be indicative of the results to be expected for the
full year.
Certain reclassifications have been made to the 1998 financial statements to
conform with the classifications used in 1999.
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CONSOLIDATED BALANCE SHEET
(Unaudited)
September 30, December 31, September 30,
Assets 1999 1998 1998
- -------------------------------------------- ------------- ------------ -------------
(in thousands, except fair value data)
Cash and due from banks $ 4,424 $ 6,162 $ 3,318
Federal funds sold 21,650 19,300 5,300
- -------------------------------------------- -------- -------- --------
Cash and Cash Equivalents 26,074 25,462 8,618
- -------------------------------------------- -------- -------- --------
Securities available for sale, at fair value 10,879 9,766 11,620
Investment securities, at amortized cost 4,862 9,276 10,889
(Fair value of $4.8 million at 9-30-1999,
$9.4 million at 12-31-1998, and
$11.0 million at 9-30-1998)
Loans
Residential mortgage loans 30,555 33,867 35,240
Commercial loans 95,751 64,098 51,532
Installment loans 5,623 4,439 4,257
- -------------------------------------------- -------- -------- --------
Total Loans 131,929 102,404 91,029
Allowance for credit losses (1,583) (1,330) (1,150)
- -------------------------------------------- -------- -------- --------
Net Loans 130,346 101,074 89,879
- -------------------------------------------- -------- -------- --------
Net property and equipment 1,819 1,739 1,664
Accrued interest receivable 899 655 761
Other assets 856 963 210
- -------------------------------------------- -------- -------- --------
Total Assets $175,735 $148,935 $123,641
============================================ ======== ======== ========
(continued)
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CONSOLIDATED BALANCE SHEET
(Unaudited)
September 30, December 31, September 30,
Liabilities and Stockholders' Equity 1999 1998 1998
- -------------------------------------------- ------------- ------------ -------------
(in thousands, except share data)
Deposits
Noninterest bearing demand deposits $ 17,081 $ 13,124 $ 12,771
NOW and money market accounts 19,372 18,644 13,481
Savings deposits 6,521 2,971 2,481
Time deposits 111,242 92,413 75,730
- -------------------------------------------- -------- -------- --------
Total deposits 154,216 127,152 104,463
- -------------------------------------------- -------- -------- --------
Short term borrowings 2,518 3,491 1,858
Accrued interest payable 454 280 235
Other liabilities 109 227 171
Long term debt 1,511 1,036 1,038
- -------------------------------------------- -------- -------- --------
Total Liabilities 158,808 132,186 107,765
- -------------------------------------------- -------- -------- --------
Stockholders' Equity
Common stock ($5 stated value;
9,000,000 shares authorized; 2,420,024
shares issued and outstanding at
9-30-1999; 2,196,455 shares outstanding
at 12-31-1998 and 2,196,455 shares
outstanding at 9-30-1998) 12,100 10,982 10,982
Additional paid-in capital 6,226 7,312 7,358
Accumulated deficit (1,303) (1,608) (2,545)
Accumulated other comprehensive income (96) 63 81
- -------------------------------------------- -------- -------- --------
Total Stockholders' Equity 16,927 16,749 15,876
- -------------------------------------------- -------- -------- --------
Total Liabilities and Stockholders' Equity $175,735 $148,935 $123,641
============================================ ======== ======== ========
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CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
----- ----- ----- -----
(in thousands, except per share data)
Interest Income
Loans (including fees) $2,749 $1,917 $7,468 $5,056
Securities 248 362 780 1,011
Federal funds sold 271 86 711 300
------ ------ ------ ------
Total Interest Income 3,268 2,365 8,959 6,367
------ ------ ------ ------
Interest Expense
Deposits 1,583 1,245 4,357 3,457
Short term borrowings 28 28 82 61
Long term debt 48 35 117 104
------ ------ ------ ------
Total Interest Expense 1,659 1,308 4,556 3,622
------ ------ ------ ------
Net Interest Income 1,609 1,057 4,403 2,745
Provision for credit losses 171 105 351 350
------ ------ ------ ------
Net Interest Income after Provision 1,438 952 4,052 2,395
------ ------ ------ ------
Noninterest Income
Deposit service charges 73 42 196 113
Net realized security gain -- -- 11 6
Other income 83 61 217 192
------ ------ ------ ------
Total Noninterest Income 156 103 424 311
------ ------ ------ ------
Noninterest Expense
Salaries, benefits, and payroll taxes 439 378 1,300 1,203
Premises and fixed asset expense 141 135 422 406
Other operating expense 554 339 1,430 930
------ ------ ------ ------
Total Noninterest Expense 1,134 852 3,152 2,539
------ ------ ------ ------
Income Before Taxes and Cumulative
Effect of Change in Accounting Principle 460 203 1,324 167
Provision for income taxes 170 -- 478 --
------ ------ ------ ------
Income Before Cumulative Effect of Change
in Accounting Principle 290 203 846 167
Cumulative effect of change in accounting
principle -- -- (57) --
------ ------ ------ ------
Net Income $ 290 $ 203 $ 789 $ 167
====== ====== ====== ======
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
----- ----- ----- -----
(in thousands, except per share data)
Per share data:
Basic earnings before cumulative effect of
change in accounting principle $0.12 $0.11 $0.35 $0.10
Basic earnings $0.12 $0.11 $0.33 $0.10
Diluted earnings before cumulative effect of
change in accounting principle $0.12 $0.11 $0.35 $0.10
Diluted earnings $0.12 $0.11 $0.33 $0.10
===== ===== ===== =====
Cash Dividends $ -- $ -- $ -- $ --
===== ===== ===== =====
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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
------ ------ ------ ------
(in thousands)
Net Income as Reported $290 $203 $789 $167
Other Comprehensive Income (Loss), net of tax
Change in unrealized gain on securities
available for sale (31) 59 (152) 62
Reclassification of previously reported gain
included in current year income -- -- (7) --
---- ---- ---- ----
Comprehensive Income $259 $262 $630 $229
==== ==== ==== ====
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CONSOLIDATED STATEMENT OF CASH FLOW
(Unaudited) Nine Months Ended September 30,
1999 1998
---------- ---------
(in thousands)
Operating Activities
Net income $ 789 $ 167
Adjustments to reconcile net income to net cash flow
from operating activities:
Net amortization (accretion) of security premium or discount 6 (12)
Net realized security gain (11) (6)
Net gain on sales of mortgage loans -- (61)
Provision for credit losses 351 350
Net gain on sales of property and equipment -- (3)
Depreciation expense 238 269
Deferred income tax 102 --
Increase in accrued interest receivable (244) (262)
Decrease in other assets 55 11
Increase in accrued interest payable 174 44
Increase in other liabilities 16 150
-------- --------
Net Cash Provided by Operating Activities 1,476 647
Investing Activities
Maturities, calls, and prepayments of securities available for sale 2,618 1,500
Purchases of securities available for sale (3,984) (7,136)
Maturities, calls, and prepayments of investment securities 4,597 4,027
Purchases of investment securities (165) (282)
Sales of residential mortgage loans -- 9,232
Net increase in loans (29,623) (47,065)
Sales of property and equipment -- 15
Purchases of property and equipment (318) (131)
-------- --------
Net Cash Used in Investing Activities (26,875) (39,840)
Financing Activities
Net increase in demand and savings deposits 8,235 9,519
Net increase in time deposits 18,829 26,589
Net increase (decrease) in short term borrowings (973) 455
Repayment of long term debt (112) (101)
Public stock offering -- 7,821
Fractional shares paid on stock dividend (1) (1)
Stock option exercise 33 --
-------- --------
Net Cash Provided by Financing Activities 26,011 44,282
-------- --------
Increase in Cash and Cash Equivalents 612 5,089
Cash and Cash Equivalents at the Beginning of the Year 25,462 3,529
-------- --------
Cash and Cash Equivalents at the End of the Period $ 26,074 $ 8,618
======== ========
Supplemental Disclosure of Cash Flow Information:
Interest paid $ 4,278 $ 3,474
Federal taxes paid 345 --
Supplemental Disclosure of Non-Cash Information:
ESOP loan guarantee recognized $500 --
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion compares the financial condition of the Corporation and
its wholly owned subsidiary, Community Central Bank, at September 30, 19999 to
September 30, 1998 and the results of operations for the three and nine
months ended September 30, 1999 and September 30, 1998. This discussion
should be read in conjunction with the interim consolidated (condensed)
financial statements and footnotes presented elsewhere in this report. This
report contains forward-looking statements that are based on management's
beliefs, assumptions, current expectations, estimates and projections about the
financial services industry, the economy, and about the Corporation and the
Bank. Words such as "anticipates," "believes," "estimates," "expects,"
"forecasts," "intends," "is likely," "plans," "projects," variations of such
words and similar expressions are intended to identify such forward-looking
statements. These forward-looking statements are intended to be covered by the
safe-harbor provisions of the Private Securities Litigation Reform Act of 1995.
These statements are not guarantees of future performance and involve certain
risks, uncertainties and assumptions ("Future Factors") that are difficult to
predict with regard to timing, extent, likelihood and degree of occurrence.
Actual results and outcomes may materially differ from what may be expressed or
forecasted in the forward-looking statements. The Corporation undertakes no
obligation to update, amend, or clarify forward looking statements, whether as a
result of new information, future events (whether anticipated or unanticipated),
or otherwise.
Future Factors include changes in interest rate and interest rate relationships;
demand for products and services; the degree of competition by traditional and
non-traditional competitors; changes in banking regulation; changes in tax laws;
changes in prices, levies, and assessments; the impact of technological
advances; governmental and regulatory policy changes; the outcomes of
contingencies; trends in customer behavior as well as their ability to repay
loans; changes in the national and local economy; and other factors, including
risk factors, referred to from time to time in filings made by the Corporation
with the Securities and Exchange Commission. These are representative of the
Future Factors that could cause a difference between an ultimate actual outcome
and a preceding forward-looking statement.
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ASSETS
The Corporation's total assets have increased by 18%, or $26.8 million, to
$175.7 million at September 30, 1999, compared with $148.9 million at December
31, 1998. Assets have grown by $52.1 million since September 30, 1998.
During the nine months ended September 30, 1999, total deposits rose by $27.1
million, while total loans increased by $29.5 million.
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 (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.
September 30, 1999 December 31, 1998 September 30, 1998
------------------ ----------------- ------------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
--------- ----- --------- ----- --------- -----
(in thousands)
Securities Available for Sale
United States Government agencies $ 7,382 $ 7,326 $ 5,402 $ 5,466 $ 6,888 $ 6,990
Mortgage backed securities 3,576 3,487 3,171 3,204 3,295 3,310
Collateralized mortgage obligations 66 66 1,098 1,096 1,315 1,320
------- ------- ------- ------- ------- -------
Total Securities Available for Sale 11,024 10,879 9,671 9,766 11,498 11,620
------- ------- ------- ------- ------- -------
Investment Securities
United States Treasury -- -- -- -- 499 499
United States Government agencies 2,001 2,001 4,369 4,424 4,868 4,925
Mortgage backed securities 1,790 1,766 2,208 2,235 2,315 2,338
Collateralized mortgage obligations 625 626 2,417 2,431 2,925 2,956
Other securities 446 446 282 282 282 282
------- ------- ------- ------- ------- -------
Total Investment Securities 4,862 4,839 9,276 9,372 10,889 11,000
------- ------- ------- ------- ------- -------
Total Securities $15,886 $15,718 $18,947 $19,138 $22,387 $22,620
======= ======= ======= ======= ======= =======
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Total loans increased by $29.5 million during the nine months ended September
30, 1999, as the Corporation continued building its loan base. Commercial loans
grew by $31.7 million, while residential mortgage loans decreased by $3.3
million.
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 $23.1 million in
outstanding loans at September 30, 1999, to commercial borrowers in the real
estate rental and property management industries.
Loans would be placed in nonaccrual status when, in the opinion of management,
uncertainty exists as to the ultimate collection of principal and interest.
There were no loans in nonaccrual status at September 30, 1999 and 1998. Loans
90 or more days past due but still accruing totaled $420,000 at September 30,
1999 and none as of September 30, 1998.
At September 30, 1999, there were no material 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 an analysis of the allowance for credit losses:
Nine Months Ended September 30,
1999 1998
------- --------
(in thousands)
Allowance for credit losses at beginning of period $1,330 $ 800
Provision charged to expense 351 350
Loans charged off (116) --
Loans recovered 18 --
------ ------
Allowance for credit losses at end of period $1,583 $1,150
====== ======
Allowance for credit losses as a percentage
of loans at period end 1.20% 1.26%
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
Corporation also includes a "year 2000" risk component in its allowance
analysis. The results of these evaluations 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.
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
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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 nine months ended September 30, 1999, total deposits increased by
21%, or $27.1 million, to $154.2 million. Total demand deposits increased by
$4.0 million, while savings and time deposits rose by a total of $23.1 million.
Short term borrowings at September 30 consisted of securities sold with an
agreement to repurchase them the following day. Following are additional details
of short term borrowings for the dates or periods indicated:
1999 1998
----------- -----------
(in thousands)
Weighted average interest rate on ending balance 4.10% 4.75%
Maximum amount outstanding at any month end
during the nine month period $3,195 $2,709
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CAPITAL
The Corporation declared a 10% stock dividend on March 23, 1999. The dividend
was paid on April 21, 1999, to stockholders of record on April 6, 1999. As a
result, approximately $1.1 million 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 1998.
The Corporation completed a secondary stock offering in September, 1998. The net
proceeds to the Corporation (after deducting offering costs) were approximately
$7.8 million.
Following are selected capital ratios for the Corporation as of the dates
indicated, along with the minimum regulatory requirement for each item. Capital
requirements for bank holding companies are set by the Federal Reserve Board. In
many cases, bank holding companies are expected to operate at capital levels
higher than the minimum requirement.
September 30, December 31, September 30,
Minimum
1999 1998 1998 Requirement
-------- ---------- -------- ----------
Tier I capital to risk-weighted assets 13.09% 16.89% 18.99% 4.00%
Total capital to risk-weighted assets 14.31% 18.15% 20.24% 8.00%
Primary capital to assets 10.48% 11.99% 13.58% 5.50%
Total capital to assets 10.48% 11.99% 13.58% 6.00%
Tier I capital to quarterly average assets 10.15% 12.15% 13.29% 4.00%
During the second quarter of 1999, the Corporation established an employee stock
ownership plan ("ESOP"). The ESOP subsequently borrowed $500,000 from an
unrelated bank to finance the future purchase of the Corporation's stock. The
ESOP loan has been recorded as if it was long term debt of the Corporation, with
a corresponding reduction to equity. Repayment of the loan will be made solely
from contributions by the Corporation, which has guaranteed the loan.
The following table shows the changes in stockholders' equity for the nine
months ended September 30, 1999:
Accumulated
Additional Other
Common Paid-in Accumulated Comprehensive Total
Stock Capital Deficit Income Equity
------- ----------- --------------- --------------- ----------
(in thousands)
Balance January 1, 1999 $10,982 $ 7,312 $(1,608) $ 63 $16,749
Stock dividend 1,098 (1,099) -- -- (1)
Stock option exercise 20 13 -- -- 33
Net income -- -- 789 -- 789
Change in ESOP loan guarantee -- -- (484) -- (484)
Other comprehensive income -- -- -- (159) (159)
------- -------- ------- ------- -------
Balance September 30, 1999 $12,100 $ 6,226 $(1,303) $ (96) $16,927
======= ======== ======= ======= =======
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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 Nine Months Ended
September 30, 1999 vs. 1998 September 30, 1999 vs. 1998
------------------------------------ -----------------------------------
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 $ 185 $ 191 $ (6) $ 411 $ 443 $ (32)
Securities (114) (111) (3) (231) (203) (28)
Loans 832 873 (41) 2,412 2,617 (205)
------- ------- ------- -------- -------- --------
Total 903 953 (50) 2,592 2,857 (265)
------- ------- ------- -------- -------- --------
Deposits and Borrowed Funds - Interest Expense
NOW and money market accounts 68 70 (2) 197 217 (20)
Savings deposits 24 25 (1) 59 62 (3)
Time deposits 246 347 (101) 644 946 (302)
Short term borrowings -- 4 (4) 21 28 (7)
Long term debt 13 15 (2) 13 20 (7)
-------- ------- ------- -------- -------- --------
Total 351 461 (110) 934 1,273 (339)
-------- ------- ------- -------- -------- --------
Net Interest Income $ 552 $ 492 $ 60 $ 1,658 $ 1,584 $ 74
======== ======= ======= ======== ======== ========
For the quarter ended September 30, 1999, net interest income increased by 52%,
or $552,000 over the third quarter of 1998. Net interest income for the nine
month period increased by $1.6 million, or 60% over the first nine months of
1998. This was due to a significant rise in the volume of interest earning
assets, especially in loans. On the liability side, interest bearing liability
volumes increased significantly as the Corporation continued to build a deposit
base. The net interest margin improved in the quarter to 4.00%, compared with
3.71% for the third quarter of 1998. For the nine month period, the net interest
margin improved to 3.89%, up from 3.55% in 1998. The margin improvements were
the result of the Corporation's continued growth.
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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 nine month periods ended September 30, 1999 and 1998.
Average loans are presented net of unearned income, gross of the allowance for
credit losses. Interest on loans includes loan fees. Average securities are
based on amortized cost.
Three Months Ended September 30,
-----------------------------------------------------------------------------
1999 1998
------------------------------------- -----------------------------------
Average Average
Interest Rate Interest Rate
Average Income/ Earned/ Average Income/ Earned/
Balance Expense Paid Balance Expense Paid
--------- --------- --------- --------- --------- ---------
(in thousands)
Assets
Federal funds sold $ 20,915 $ 271 5.18% $ 6,200 $ 86 5.55%
Securities 16,032 248 6.19 23,188 362 6.24
Loans 124,093 2,749 8.86 84,663 1,917 9.06
-------- ------- ------- -------- ------- -------
Total Earning Assets/
Total Interest Income 161,040 3,268 8.12% 114,051 2,365 8.29%
------- ------- ------- -------
Cash and due from banks 4,889 3,279
All other assets 1,745 1,547
-------- --------
Total Assets $167,674 $118,877
======== ========
Liabilities and Equity
NOW and money market accounts $ 21,459 174 3.24% $ 12,797 106 3.31%
Savings deposits 6,070 45 2.97 2,678 21 3.14
Time deposits 102,634 1,364 5.32 76,572 1,118 5.84
Short term borrowings 2,684 28 4.17 2,290 28 4.89
Long term debt 1,512 48 12.70 1,030 35 13.59
-------- ------- ------- -------- ------- -------
Total Interest Bearing Liabilities/
Total Interest Expense 134,359 1,659 4.93% 95,367 1,308 5.49%
------- ------- ------- -------
Noninterest bearing demand deposits 15,826 12,406
All other liabilities 564 352
Stockholders' equity 16,925 10,752
-------- --------
Total Liabilities and Equity $167,674 $118,877
======== ========
Net Interest Income $1,609 $ 1,057
====== =======
Net Interest Margin (Net Interest
Income/Total Earning Assets) 4.00% 3.71%
======= ======
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Nine Months Ended September 30,
-----------------------------------------------------------------------------
1999 1998
------------------------------------- -----------------------------------
Average Average
Interest Rate Interest Rate
Average Income/ Earned/ Average Income/ Earned/
Balance Expense Paid Balance Expense Paid
--------- --------- --------- --------- --------- ---------
(in thousands)
Assets
Federal funds sold $ 19,411 $ 711 4.88% $ 7,305 $ 300 5.48%
Securities 17,064 780 6.09 21,503 1,011 6.27
Loans 114,298 7,468 8.71 74,248 5,056 9.08
-------- ------ ----- -------- ------ -----
Total Earning Assets/
Total Interest Income 150,773 8,959 7.92% 103,056 6,367 8.24%
------ ----- ------ -----
Cash and due from banks 4,486 3,115
All other assets 1,826 1,587
-------- --------
Total Assets $157,085 $107,758
======== ========
Liabilities and Equity
NOW and money market accounts $ 19,977 464 3.10% $ 10,613 267 3.35%
Savings deposits 5,096 115 3.01 2,368 56 3.15
Time deposits 95,493 3,778 5.27 71,600 3,134 5.84
Short term borrowings 2,532 82 4.32 1,667 61 4.88
Long term debt 1,245 117 12.53 1,027 104 13.50
-------- ------ ----- --------- ------ -----
Total Interest Bearing Liabilities/
Total Interest Expense 124,343 4,556 4.89% 87,275 3,622 5.53%
------ ----- ------ -----
Noninterest bearing demand deposits 15,299 11,363
All other liabilities 506 331
Stockholders' equity 16,937 8,789
-------- --------
Total Liabilities and Equity $157,085 $107,758
======== ========
Net Interest Income $4,403 $2,745
====== ======
Net Interest Margin (Net Interest
Income/Total Earning Assets) 3.89% 3.55%
===== =====
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NONINTEREST INCOME
Noninterest income increased by 36%, to $424,000 for the first nine months of
1999 as compared to the same period for 1998. The largest components of the
increase were overdraft income and fees from processing merchant credit card
deposits. Mortgage banking income decreased significantly as the Corporation
discontinued the operation of its residential mortgage department in 1998.
NONINTEREST EXPENSE
Noninterest expense increased over the first nine months of 1998 by 24%, to $3.1
million in 1999. This was primarily the result of growth of the Corporation, and
the accompanying rise in payroll and other operating expense. The largest
components of the increase were in advertising, promotional, and other business
development related costs.
PROVISION FOR INCOME TAXES
The Corporation and the Bank file a consolidated federal income tax return.
Before 1998, no net deferred tax asset had been provided for the future benefit
of the net operating loss carryforward generated since inception, because the
Corporation did not have a history of earnings. A total tax benefit of $774,000
was recognized in 1998 when it became more likely than not that the credits
would be realized in the future. Beginning in 1999, the Corporation is
recognizing a federal tax provision based on "book taxable" income. During the
third quarter of 1999, the Corporation paid estimated federal income taxes
having utilized the net operating loss carryforward available to the Corporation
as the result of ongoing earnings.
CHANGE IN ACCOUNTING PRINCIPLE
The American Institute of Certified Public Accountants issued Statement of
Position (SOP) 98-5, "Reporting on the Costs of Start-Up Activities," effective
for fiscal years beginning after December 31, 1998. SOP 98-5 mandates that the
costs of start-up activities and organization costs be expensed as incurred.
Previously, organization costs had been amortized over five years. As a result,
the Corporation recognized its remaining unamortized organization costs in the
first quarter of 1999. This resulted in an after tax charge of $57,000. If SOP
98-5 had not been issued, these costs would have been amortized ratably through
the third quarter of 2001.
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 risk require continuous analysis to match
the maturities of specific categories of loans and investments with specific
types of deposits and borrowings. Bank liquidity depends upon the mix of the
banking institution's potential sources and uses of funds. For the Corporation,
the major sources of liquidity have been deposit growth, federal funds sold, and
loans and securities which mature within one year. Additional liquidity is
provided by a $2.0 million unsecured federal funds facility, and a $10.0 million
secured borrowing facility 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
September 30, 1999. 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 $21,650 $ -- $ -- $ -- $ 21,650
Securities 1,178 1,355 11,152 2,201 15,886
Loans 57,721 4,527 54,382 15,299 131,929
-------- --------- ------- ------- --------
Total 80,549 5,882 65,534 17,500 $169,465
-------- --------- ------- ------- ========
Interest bearing liabilities
NOW and money market
accounts 19,372 -- -- -- $ 19,372
Savings deposits 6,521 -- -- -- 6,521
Jumbo time deposits 35,475 12,764 3,406 -- 51,645
Time deposits < $100,000 32,753 17,924 8,920 -- 59,597
Short term borrowings 2,518 -- -- -- 2,518
Long term debt 486 9 150 866 1,511
-------- --------- ------- ------- --------
Total 97,125 30,697 12,476 866 $141,164
-------- --------- ------- ------- ========
Interest rate sensitivity gap $(16,576) (24,815) 53,058 16,634
Cumulative interest rate
sensitivity gap $(41,391) $11,667 $28,301
Interest rate sensitivity gap
ratio 0.83 0.19 5.25 20.21
Cumulative interest rate
sensitivity gap ratio 0.68 1.08 1.20
The table above indicates the time periods in which interest earning assets and
interest bearing liabilities will mature or may be repriced, generally according
to their contractual terms. However, this table does not necessarily indicate
the impact that general interest rate movements would have on the Corporation's
net interest margin, because the repricing of 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 September 30, 1999, 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
Asset/Liability Committee, to assist in the interest rate risk management
process.
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YEAR 2000 READINESS DISCLOSURE
The Corporation is finalizing plans to address 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 Corporation 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 Corporation was founded during 1996, much
of its equipment and computer technology are new; and, in many cases, were 2000
ready from the outset. The Corporation's main data processing vendor has
represented that it is fully 2000 ready, and provides regular updates to the
Corporation. Final testing by this vendor was substantially completed during the
first quarter of 1999. The Corporation has a written plan which is regularly
updated and reported to the Board of Directors. Testing on systems and equipment
is complete, and no material concerns have been encountered. To date,
approximately $25,000 has been spent on the year 2000 project. While it is
expected that the remainder of the project will involve additional costs, the
total amount is not currently expected to exceed $35,000. Such costs are
expensed as incurred. If any unusual and unforeseen problems arise during 1999
this amount could be significantly higher. Additionally, if the Corporation (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
Corporation's business. Based on information that is currently available, the
Corporation does not anticipate that the cost of achieving year 2000 readiness
will have a material effect on its capital resources, results of operations, or
liquidity as presented herein.
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
Not applicable.
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 November 8, 1999.
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/ ANDREW TASSOPOULOS
---------------------
Andrew Tassopoulos;
President
By: S/ RAY T. COLONIUS
------------------
Ray T. Colonius;
Treasurer
(Principal Financial and Accounting Officer)
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EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------ -------------------
3.1 Articles of Incorporation are incorporated by reference to
exhibit 3.1 of the Corporation's Registration Statement on
Form SB-2 (Commission File Number 333-04113) which became
effective on September 23, 1996
3.2 Bylaws of the Corporation 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
11 Computation of Per Share Earnings
27 Financial Data Schedule
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