UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2008
Commission File No. 000-33373
COMMUNITY CENTRAL BANK CORPORATION
(Exact name of small business issuer as specified in its charter)
Michigan 38-3291744
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
100 North Main Street, PO Box 7, Mount Clemens, MI 48046-0007
(Address of principal executive offices and zip code)
(586) 783-4500
(Issuer's telephone number)
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if a smaller reporting company)
Indicated by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes No X
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class Outstanding at May 12, 2008
----- ---------------------------
Common Stock 3,732,081 Shares
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
PART I
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
March 31,
2008 December 31,
(Unaudited) 2007
----------- ------------
(In thousands)
Assets
Cash and due from banks $ 8,530 $ 6,183
Federal funds sold 16,500 3,000
-------- --------
Cash and Cash Equivalents 25,030 9,183
-------- --------
Trading securities at fair value option 17,987 20,115
Securities available for sale, at fair value 75,644 66,809
Securities held to maturity, at amortized cost 1,886 977
FHLB stock 5,727 5,527
Residential mortgage loans held for sale 3,884 4,848
Loans
Commercial real estate 269,188 264,685
Commercial and industrial 32,508 33,039
Residential real estate 59,282 60,799
Home equity lines of credit 19,996 20,906
Consumer loans 9,585 9,754
Credit card loans 727 729
-------- --------
Total Loans 391,286 389,912
Allowance for credit losses (6,855) (6,403)
-------- --------
Net Loans 384,431 383,509
-------- --------
Net property and equipment 9,122 8,704
Accrued interest receivable 2,598 2,535
Other real estate 2,378 854
Goodwill 1,381 1,381
Intangible assets, net of amortization 100 107
Cash surrender value of Bank Owned Life insurance 10,651 10,514
Other assets 5,916 5,242
-------- --------
Total Assets $546,735 $520,305
======== ========
(continued)
2
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
CONSOLIDATED BALANCE SHEETS
March 31,
2008 December 31,
(Unaudited) 2007
----------- ------------
(In thousands, except share data)
Liabilities
Deposits
Noninterest bearing demand deposits $ 36,969 $ 31,647
NOW and money market accounts 50,858 53,467
Savings deposits 11,698` 9,326
Time deposits 248,301 234,195
-------- --------
Total deposits 347,826 328,635
-------- --------
Repurchase agreements and fed funds purchased 29,906 32,659
Federal Home Loan Bank advances ($5.0 million
at fair value at 3-31-08 and 12-31-07) 114,515 104,495
Accrued interest payable 1,297 1,018
Other liabilities 3,187 2,637
ESOP note payable 23 36
Subordinated debentures (all instruments at
fair value) 16,170 17,597
-------- --------
Total Liabilities 512,924 487,077
-------- --------
Stockholders' Equity
Common stock -- 9,000,000 shares authorized;
3,741,594 shares issued and outstanding at
3-31-2008 and 3,733,081 at 12-31-2007 32,078 32,071
Retained earnings 1,812 1,797
Unearned employee benefit (23) (36)
Accumulated other comprehensive (loss) income (56) (604)
-------- --------
Total Stockholders' Equity 33,811 33,228
-------- --------
Total Liabilities and Stockholders' Equity $546,735 $520,305
======== ========
3
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months
Ended March 31,
---------------
2008 2007
------ ------
(In thousands, except
per share data)
Interest Income
Loans (including fees) $6,491 $6,852
Taxable securities 826 667
Tax exempt securities 229 334
Federal funds sold 255 255
------ ------
Total Interest Income 7,801 8,108
------ ------
Interest Expense
Deposits 3,381 3,720
Repurchase agreements and fed funds purchased 230 160
Federal Home Loan Bank advances 1,226 921
ESOP loan interest expense -- 2
Subordinated debentures 291 394
------ ------
Total Interest Expense 5,128 5,197
------ ------
Net Interest Income 2,673 2,911
Provision for loan losses 2,100 50
------ ------
Net Interest Income after Provision 573 2,861
------ ------
Noninterest Income
Fiduciary income 108 87
Deposit service charges 132 88
Net realized security gain 61 --
Change in fair value of assets/liabilities
carried at fair value 2,139 228
Mortgage banking income 450 754
Other income 310 261
------ ------
Total Noninterest Income 3,200 1,418
------ ------
Noninterest Expense
Salaries, benefits, and payroll taxes 1,832 2,143
Premises and fixed asset expense 461 452
Other operating expense 1,264 865
------ ------
Total Noninterest Expense 3,557 3,460
------ ------
Income Before Taxes 216 819
Provision for income taxes (24) 161
------ ------
Net Income $ 240 $ 658
====== ======
(continued)
4
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Per share data:
Basic earnings $0.06 $0.17
Diluted earnings $0.06 $0.16
Cash Dividends $0.24 $0.24
5
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months
Ended March 31,
---------------
2008 2007
---- ----
(In thousands)
Net Income as Reported $240 $658
Other Comprehensive Income, Net of Tax
Change in unrealized gain on securities
available for sale 548 57
---- ----
Comprehensive Income $788 $715
==== ====
6
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
Three Months Ended
March 31,
-------------------
2008 2007
-------- --------
(In thousands)
Operating Activities
Net income $ 240 $ 658
Adjustments to reconcile net income to net cash flow from operating activities:
Net amortization of security premium 24 48
Net gain on financial instrument at fair value (2,139) (228)
Net gain on available for sale securities (61) --
Provision for loan losses 2,100 50
Depreciation expense 174 178
Deferred income tax (benefit) expense (32) (103)
ESOP compensation expense 13 16
SFAS 123R stock option expense 14 7
(Increase) decrease in accrued interest receivable (63) (90)
(Increase) decrease in other assets (322) (557)
(Increase) decrease in accrued interest payable 279 (66)
Increase (decrease) in other liabilities 550 (131)
(Increase) decrease in loans held for sale 964 (491)
-------- --------
Net Cash (Used in) Provided by Operating Activities 1,741 (709)
Investing Activities
Maturities, calls, sales and prepayments of securities available for sale 33,869 3,007
Purchase of securities available for sale (42,163) (11,875)
Maturities, calls, and prepayments of trading securities 2,455 --
Maturities, calls, and prepayments of held to maturity securities 5 --
Purchases of held to maturity securities (1,115) 10
Increase in loans (4,546) 939
Purchases of property and equipment (592) 39
-------- --------
Net Cash Used in Investing Activities (12,087) (7,880)
Financing Activities
Net increase (decrease) in demand and savings deposits 5,085 7,784
Net increase (decrease) in time deposits 14,106 (22,226)
Net increase (decrease) in borrowings (2,753) 15,834
Issuance of subordinated debentures -- 18,557
FHLB advances 10,000 --
Repayment of FHLB advances -- (3,000)
Payment of ESOP debt (13) (16)
Stock options exercise -- 12
Cash dividends paid (225) (229)
Repurchase of common stock (7) (1,012)
-------- --------
Net Cash Provided by Financing Activities 26,193 15,704
-------- --------
Increase (decrease) in Cash and Cash Equivalents 15,847 7,115
Cash and Cash Equivalents at the Beginning of the Year 9,183 24,726
-------- --------
Cash and Cash Equivalents at the End of the Period $ 25,030 $ 31,841
======== ========
Supplemental Disclosure of Cash Flow Information:
Interest Paid $ 4,849 $ 5,263
Federal Taxes Paid $ -- $ --
Loans transferred to other real estate owned $ 1,524 $ --
7
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
COMMUNITY CENTRAL BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The financial statements of Community Central Bank Corporation (the
"Corporation") include the consolidation of its direct and indirect
subsidiaries: Community Central Bank (the "Bank") and Community Central
Mortgage Company, LLC (the "Mortgage Company").
The Corporation's Consolidated Balance Sheets are presented as of March 31,
2008 and December 31, 2007, and Consolidated Statements of Income and
Comprehensive Income for the three month periods ended March 31, 2008 and
2007, and Consolidated Statements of Cash Flow for the three months ended
March 31, 2008 and 2007. 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-K for the fiscal year ended December
31, 2007.
In the opinion of management, the interim statements referred to above
contain all adjustments (consisting of normal, recurring items) necessary
for a fair presentation of the financial statements. The results of
operations for interim periods are not necessarily indicative of the
results to be expected for the full year.
2. The accounting and reporting policies of the Corporation conform to
accounting principles generally accepted in the United States of America
and general practices within the banking industry. The following describes
the critical accounting policies, which are employed in the preparation of
financial statements.
Allowance for Loan Losses: The allowance for loan losses is maintained at a
level considered by management to be adequate to absorb losses inherent in
existing loans and loan commitments. The adequacy of the allowance is based
on evaluations that take into consideration such factors as prior loss
experience, changes in the nature and volume of the portfolio, overall
portfolio quality, loan concentrations, specific impaired or problem loans
and commitments, current economic conditions that may affect the borrower's
ability to pay, and other subjective factors. The determination of the
allowance is also based on regulatory guidance. This guidance includes, but
is not limited to, generally accepted accounting principles, and guidance
issued from other regulatory bodies such as the joint policy statement
issued by the Federal Financial Institutions Examination Council.
3. 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 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.
4. In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement No. 123R "Sharebased 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 value previously calculated for
disclosure purposes Prior periods have not been restated.
The Corporation did not grant any options during the first quarter of 2008
and 2007. The total amount of options outstanding at March 31, 2008 was
286,993 shares at a weighted average exercise price of $9.10 per share.
During the first quarter of 2008, no options were exercised. Using the
Black Scholes option-pricing
8
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
model, the Corporation recognized compensation cost of $14,000 for the
options vesting in the first quarter of 2008 and $7,000 for the options
vesting in the first quarter of 2007, based on the fair market value at the
grant date. The net income and earnings per share for the first quarters of
2008 and 2007, on a pro forma basis, are disclosed for comparison below.
Three Months Ended
March 31,
------------------
2008 2007
-------- ------
(In thousands, except
per share data)
Net income, as reported $ 240 $ 658
Add: Stock-based employee compensation expense,
net of related tax effects, included in reported net
income 14 7
Deduct: Total stock-based employee and director
compensation expense under fair value based
methods of awards, net of related tax effects (14) (7)
----- -----
Pro forma net income $ 240 $ 658
===== =====
Earnings per share
Basic - as reported $0.06 $0.17
Basic - pro forma $0.06 $0.17
Diluted - as reported $0.06 $0.16
Diluted - pro forma $0.06 $0.16
The fair value of each option grant is estimated on the date of grant using the
Black Scholes option pricing model.
9
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
5. In February 2007, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 159 "The Fair Value Option for
Financial Assets and Financial Liabilities" (SFAS 159). The statement
permitted an entity to immediately elect the fair value option for existing
eligible items. While not required to adopt the new standard until 2008,
the Corporation elected to adopt it in the first quarter of 2007. The
Corporation was also required to simultaneously adopt all the requirements
under SFAS 157, Fair Value Measurements. As a result of the Corporation's
adoptions, certain financial instruments were valued at fair value using
the fair value option.
The Corporation utilizes fair value measurements to record fair value
adjustments to certain assets and liabilities and to determine fair value
disclosures. Additionally, from time to time, the Corporation may be required to
record at fair value other assets on a nonrecurring basis, such as loans held
for sale, loans held for investment and certain other assets. These nonrecurring
fair value adjustments typically involve application of lower of cost or market
accounting or write-downs of individual assets.
Fair Value Hierarchy
Under SFAS 157, the Corporation groups assets and liabilities at fair value in
three levels, based on the markets in which the assets and liabilities are
traded and the reliability of the assumptions used to determine fair value.
These levels are:
Level 1 Valuation is based upon quoted prices for identical instruments
traded in active markets.
Level 2 Valuation is based upon quoted prices for similar instruments in
active markets, quoted prices for identical or similar
instruments in markets that are not active, and model-based
valuation techniques for which all significant assumptions are
observable in the market.
Level 3 Valuation contains unobservable input(s) and is used to the
extent observable inputs are not available, thereby allowing for
situations in which there is little, if any, market activity.
Level 3 instruments typically include, in addition to
unobservable or Level 3 components, observable components.
Management has elected the fair value option for the following reasons for each
of the eligible items or group of similar eligible items.
Investment Securities and FHLB Advances:
The election of SFAS 159 and SFAS 157 treatment for existing eligible investment
securities was based on multiple factors which included the desire to utilize
the Federal Home Loan Bank advance portfolio to offset volatility with the
investment portfolio. Approximately $27.0 million of investment securities were
originally selected for early adoption of SFAS 159 based primarily on the
relatively short overall duration in the selected instruments. The overall
effective duration of the instruments was 1.8 years based on current market
interest rates. Many of the instruments have early call provisions, which based
on current interest rate expectations have a high degree of probability to be
called. Some instruments have been pre-refunded with certainty of maturity
expected. The investments selected are primarily comprised of agency debentures
and short callable bank qualified tax exempt municipal bonds. The selected
securities will be categorized under trading portfolio status. Management
believes that it has more options of balance sheet management under the fair
value option, including the management of volatility caused by the embedded
options within these instruments. The short overall duration of the selected
instruments, coupled with the utilization of FHLB advances as an attempt to
hedge the risk, should mitigate large swings in fair values that will be
recorded in the income statement as part of adoption of SFAS 159 and SFAS 157.
Management cannot predict future interest rates and is reliant on forecasts and
models to make decisions regarding interest rate and fair value risk.
The election of SFAS 159 treatment for the selected FHLB advances was based on
management's choice to provide a natural hedge against the securities selected
under SFAS 159. The FHLB advances were selected for the fair value option based
on the maturity ranges within the FHLB portfolio of advances. All maturities
within 18
10
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
months from the early adoption date of January 1, 2007 were selected regardless
of the instruments' interest rates. The selected FHLB advances had a net
unrealized gain position as of January 1, 2007 and March 31, 2007 and were
selected solely as a natural balance sheet hedge for the investment portfolio
elected under SFAS 159. The decrease in the unrealized loss position of the
selected investments and the income recognized under SFAS 159 for the first
three months of 2007 was completely offset by a corresponding decrease in
unrealized gains within the selected FHLB advances. In the second quarter of
2007, management reviewed the selected instruments, the changes in overall
market interest rates, the treasury yield curve and the structure of the
embedded call options of the investments. Management felt that FHLB advances
alone would not accurately hedge the investments. In May 2007, the Corporation
acquired an interest rate swap to better hedge the fair value of the portfolio.
The notional value of the interest rate swap was $18 million for duration of
three years, which approximated the overall duration of the trading portfolio
under SFAS 159. Under the interest rate swap, the bank receives the three month
libor rate and pays a fixed rate of 5.275%, which is the average weighted yield
of the hedged portfolio at the inception of the interest rate swap. During the
fourth quarter of 2007, the Corporation restructured many of the instruments
originally selected during the early adoption of SFAS 159. The resulting
portfolio better matched the Corporation's asset liability position.
Additionally, should management and the ALCO committee, believe other balance
sheet strategies will better position the Bank and Corporation, other
transactions could be considered including the sale of investments classified
under trading status. Management has no intent to extinguish, before stated
maturity, any FHLB advances. It is the intent of management for the foreseeable
future to utilize fair value option on selected investment securities, or like
kind dollars on disposal.
11
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
Subordinated Debentures:
Management elected the fair value option for both its subordinated debentures.
Management considers the subordinated debentures a critical component for future
growth and wishes to utilize interest rate swaps to hedge the risk of this
longer term liability and critical form of regulatory capital. Management
elected SFAS 159 accounting treatment for interest rate swaps because it was
less complex than alternative methods and therefore suitable for a community
bank with limited resources. Management has elected the fair value option on the
subordinated debenture which was issued on February 13, 2007 for $18.6 million.
Additionally, an interest rate swap for a like kind notional value was secured,
in part, to reduce any volatility associated with the recognition of the fair
value option under SFAS 159. Under the interest rate swap the Corporation has
agreed to receive a fixed rate of 6.71% and pay Libor plus 170 basis points. The
debenture carries an interest rate fixed for 10 years at 6.71%, and was
originally based on a ten year treasury interest rate swap of 5.06%, plus 165
basis points and was prior to the settlement of the interest rate swap hedging
market fluctuations.
Management has the intent to utilize the fair value option on selected financial
assets and liabilities on a go forward basis.
The valuations of the instruments measured under Fair Value Measurement SFAS 157
for 2007 were measured under a market approach using matrix pricing investment
for investment securities and the income approach using observable data for the
liabilities reported under the Fair Value Option SFAS 159. The inputs were
observable for the assets and liabilities interest rate on commonly quoted
intervals based on similar assets and liabilities for level 2 instruments.
Community Central Bank Corporation does not have a credit rating through any
major credit research credit rating facilities. The Trust Preferred Market from
which a basis for pricing on the subordinated debenture is arrived at is
reflective of changes in the commercial banking environment. The pricing of the
subordinated debenture is considered by management to be reflective of the
current assessments as to the market for fixed rate trust preferred and
subordinated debentures of similar duration. During the past several quarterly
periods, the Trust Preferred Market reflected only a small base of participants
in the market place. The disarray in the credit markets contributed to the lack
of market transactions in this financial instrument. A determination was made,
based upon the significance of unobservable parameters as of March 31, 2008 to
the overall fair value measurement, to continue to report the subordinated
debentures under Level 3 Significant Unobservable Inputs. In addition to the
unobservable components, or Level 3 components, observable components that can
be validated to external sources are part of the validation methodology.
The first quarter of 2008 resulted in the net change in the fair value of
financial assets and liabilities, as measured under the fair value option under
Statement of Financial Accounting Standards (SFAS) 159, of $2.1 million on a
pretax basis or $1.4 million after tax. This net gain from fair value reporting
under SFAS 159 was primarily attributable to the change in fair value on the
Corporation's subordinated debenture. Since the issuance of the Corporation's
$18 million subordinated debenture in February 2007 and related fair value
accounting election under SFAS 159, the dramatic widening of market credit
spreads experienced for trust preferred security issuances has continued to
favorably impact the fair value measurement of the Corporation's subordinated
debenture through March 31, 2008. The Corporation hedges and protects itself
from changes in interest rates with an interest rate swap. The hedge does not
cover changes in credit spreads which typically occur over longer time periods.
Changes in market conditions are not predictable and changes in credit spreads
will cause changes in the fair value of this instrument and a possible loss in
income.
12
COMMUNITY CENTRAL BANK CONRPORATION
FORM 10-Q (continued)
The table presents the recorded amount of assets and liabilities measured at
fair value on a recurring basis at March 31, 2008.
Changes in fair value for
Three months ended
March 31, 2008 measured
at fair value pursuant
Fair Value Measurement at to election of the fair
March 31, 2008 value Option
Fair Value Significant Other Significant Other Gains or Losses
Measurements Observable Inputs Unobservable Inputs in noninterest income
Description 03/31/2008 (Level 2) (Level 3) pretax income
- ----------- ------------ ------------------------- ------------------- -------------------------
(in thousands of dollars)
Trading Securities $17,987 $17,987 -- $ 328
Securities available for sale 75,644 75,644 -- --
Interest rate swap hedging securities (1,040) (1,040) -- (499)
Federal Home Loan Bank Advances 5,005 5,005 -- (19)
Subordinated Debentures 16,170 -- 16,170 1,427
Interest rate swap hedging subordinated
debentures 1,571 1,571 -- 902
------
$2,139
======
Interest income and interest expense of the respective financial instruments
have been recorded in the consolidated statement of income based on the category
of financial instrument.
CHANGES IN LEVEL 3 RECURRING FAIR VALUE MEASUREMENTS
The table below includes a rollforward of the balance sheet amounts for the
quarter ended March 31, 2008 (including the change in fair value), for financial
instruments subject to recurring fair value measurements and classified by the
Corporation within Level 3 of the valuation hierarchy. When a determination is
made to classify a financial instrument within Level 3, the determination is
based upon the significance of the unobservable parameters to the overall fair
value measurement. However, Level 3 financial instruments typically include, in
addition to the unobservable or Level 3 components, observable components (that
is, components that can be validated to external sources); accordingly, the
gains and losses in the table below include changes in fair value due in part to
observable factors that are part of the valuation methodology. Also, the
Corporation attempts to risk manage the observable components of Level 3
financial instruments using derivative positions that are classified within
Level 2 of the valuation hierarchy; as these Level 2 risk management instruments
are not included below, the gains or losses in the tables do not reflect the
effect of the Corporation's risk management activities related to such Level 3
instruments.
Fair value measurements using significant unobservable inputs
Changes in unrealized
Total Purchases Transfers in gains and (losses)
For the quarter ended Fair value, realized/ issuances and/or related to financial
March 31, 2008 January 1, unrealized settlements, out of Fair value, instruments held at
(in millions) 2008 gains/(losses) net Level 3 March 31, 2008 March 31, 2008
- ---------------------- ----------- -------------- ------------ ------------ -------------- ---------------------
Subordinated
Debentures 17,597 1,427 -- -- 16,170 1,427
13
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
Assets Measured at Fair Value on a Nonrecurring Basis
IMPAIRED LOANS
The Corporation does not record loans at fair value on a recurring basis.
However, from time to time, a loan is considered impaired and an allowance for
loan losses is established. Loans for which it is probable that payment of
interest and principal will not be made in accordance with the contractual terms
of the loan agreement are considered impaired. Once a loan is identified as
individually impaired, management measures impairment in accordance with SFAS
114, "Accounting by Creditors for Impairment of a Loan." The fair value of
impaired loans is estimated using primarily collateral value. Those impaired
loans not requiring an allowance represent loans for which the fair value of the
expected repayments or collateral exceed the recorded investments in such loans.
The fair value of the collateral is based on an observable market price, current
appraised value and management's estimates of collateral and other market
conditions. Due to the lack of market transactions, volatility in pricing and
other factors, some of which may be unobservable, the Corporation recorded the
impaired loans as nonrecurring Level 3.
OTHER REAL ESTATE OWNED
Other real estate owned assets are adjusted to fair value upon transfer of the
loans to foreclosed assets. Subsequently, other real estate owned assets are
carried at the lower of carrying value or fair value. Fair value is based upon
independent market prices, appraised values of the collateral or management's
estimation of the value of the collateral. The fair value of the collateral is
based on an observable market price, a current appraised value, or management's
estimates. Due to the lack of transactions, volatility in pricing and other
factors, some of which may be unobservable, the Corporation recorded other real
estate owned as nonrecurring Level 3.
The following table presents assets measured at fair value on a nonrecurring
basis at March 31, 2008.
Quoted Prices in
Active Markets for Significant Other Significant Total Losses for
Balance at Identical Assets Observable Inputs Unobservable Inputs the period ended
Assets March 31, 2008 (Level 1) (Level 2) (Level 3) March 31, 2008
------ -------------- ------------------ ----------------- ------------------- ----------------
Impaired loans
accounted for
under FAS 114 18,648 -- -- 18,648 1,938
Other real estate owned 2,378 -- -- 2,378 39
14
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion compares the financial condition of the Corporation and
its wholly owned subsidiaries at March 31, 2008 and December 31, 2007 and the
results of operations for the three months ended March 31, 2008 and 2007. This
discussion should be read in conjunction with the financial statements and
statistical data presented elsewhere in this report. This report contains
forward-looking statements that are based on management's beliefs, assumptions,
current expectations, estimates and projections about the financial services
industry, the economy, and about the Corporation and the Bank. Words such as
anticipates, believes, estimates, expects, forecasts, intends, is likely, plans,
projects, variations of such words and similar expressions are intended to
identify such forward-looking statements. These forward-looking statements are
intended to be covered by the safe-harbor provisions of the Private Securities
Litigation Reform Act of 1995. These statements are not guarantees of future
performance and involve certain risks, uncertainties and assumptions ("Future
Factors") that are difficult to predict with regard to timing, extent,
likelihood and degree of occurrence. Actual results and outcomes may materially
differ from what may be expressed or forecasted in the forward-looking
statements. The Corporation undertakes no obligation to update, amend, or
clarify forward looking statements, whether as a result of new information,
future events (whether anticipated or unanticipated), or otherwise.
Future factors that could cause actual results to differ materially from the
results anticipated or projected include, but are not limited to, the following:
expected cost savings and synergies from our acquisition activities might not be
realized within the expected time frames, and costs or difficulties related to
integration matters might be greater than expected; expenses associated with the
implementation of our trust and wealth management services might be greater than
expected, whether due to a possible need to hire more employees than anticipated
or other costs incurred in excess of budgeted amounts; the credit risks of
lending activities, including changes in the level and direction of loan
delinquencies and write-offs and changes in estimates of the adequacy of the
allowance for loan losses; competitive pressures among depository institutions;
interest rate movements and their impact on customer behavior and net interest
margin; the impact of repricing and competitor's pricing initiatives on loan and
deposit products; the ability to adapt successfully to technological changes to
meet customers' needs and development in the market place; our ability to access
cost-effective funding; changes in financial markets; changes in economic
conditions in general and particularly as related to the automotive and related
industries in the Detroit metropolitan area; new legislation or regulatory
changes, including but not limited to changes in federal and/or state tax laws
or interpretations thereof by taxing authorities; changes in accounting
principles, policies or guidelines; and our future acquisitions of other
depository institutions or lines of business.
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, and northwest
Indiana. River Place Trust and Community Central Wealth Management are divisions
of Community Central Bank. Community Central Insurance Agency, LLC is a wholly
owned subsidiary of Community Central Bank. The Corporation's common shares
trade on The NASDAQ Global Market under the symbol "CCBD."
Our results of operations depend largely on net interest income. Net interest
income is the difference in interest income we earn on interest-earning assets,
which comprise primarily commercial and residential real estate loans, and to a
lesser extent commercial business and consumer loans, and the interest we pay on
our interest-bearing liabilities, which are primarily deposits and borrowings.
Management strives to match the repricing characteristics of the interest
earning assets and interest bearing liabilities to protect net interest income
from changes in market interest rates and changes in the shape of the yield
curve.
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 although the impact of the restructuring of the
American automobile companies has a direct impact on southeastern Michigan. A
slowdown in the local and statewide economy has produced increased financial
strain on segments of our customer base. We have experienced increased
delinquency levels and losses in our loan portfolio, primarily with residential
developer loans, residential real estate loans, and
15
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
home equity and consumer loans. Further downturns in the local economy may
affect the demand for commercial loans and related small to medium business
related products. This could have a significant impact on how we deploy earning
assets. The competitive environment among the Bank, other financial institutions
and financial service providers 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 our relative
cost of funds and thus negatively impact net interest income.
Net interest income, before provision for loan losses, for the first quarter of
2008 was $2.7 million, compared to $2.9 million for the first quarter of 2007.
Significantly affecting net interest income was the reversal and non-recognition
of interest income on nonaccrual loans. This accounted for more than half of the
decline in net interest income for the quarterly comparison. Net interest margin
fell from 2.59% for the three months ended March 31, 2007 to 2.18% for the three
months ended March 31, 2008. Additionally, net interest margin was negatively
affected by the significant decreases in overnight federal funds interest rates
and the corresponding drop in the prime interest rate The Federal Reserve's rate
cuts negatively affected the net interest margin in the near term, as the
Corporation's Asset/Liability position is somewhat asset sensitive in a three
month or less time frame. The historically large series of Federal Reserve
interest rate cuts have outpaced the Corporation's ability to reduce our funding
costs as rapidly, as a significant portion of the funding base is comprised of
time deposits. Once short term rates stabilize, the Corporation expected to see
improvement in the net interest margin as approximately $120 million in time
deposits will reprice in the next nine months. The interest rate risk position
of the Corporation remains slightly liability sensitive over a 12-month horizon.
The price competition for deposits has also exacerbated margin pressures.
We recorded a $2.1 million provision for loan losses for the first quarter of
2008. A significant portion of this provision related to collateral impairment,
the result of declining property values reflecting Michigan's economic
conditions. The specific allowance associated with residential builder loans was
$3.3 million at March 31, 2008. Total residential builder loans represent
approximately 5% of our total loan portfolio at March 31, 2008.
Nonperforming assets to total assets increased to 4.28% at March 31, 2008
compared to 3.56% at December 31, 2007. The increase in nonperforming assets for
the first three months of 2008 was primarily attributable to several additional
loan relationships that management felt were experiencing financial difficulties
and should be placed into nonaccrual loan status. The majority of these new
loans had experienced various loan payment difficulties, but were not over 90
days past due at March 31, 2008.
We continue 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. We continue 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 we have 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.
One of our business objectives has been the diversification of revenue from
interest income. Our Wealth and Trust divisions have been providing us with an
increased source of fee income. The addition of a new branch location in Grosse
Pointe Woods, Michigan, which is anticipated to open this spring, will represent
the second branch location in this upscale market of Southeastern Michigan. We
continue to focus on strategies to increase our market share of core deposits as
well as wealth and trust services. We expect our new Grosse Pointe Woods branch
to open in May 2008 to supplement these efforts. Assets under management of our
trust and wealth management divisions continue to grow and totaled $153.4
million at the end of March 2008.
16
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
ASSETS
At March 31, 2008, the Corporation's total assets were $546.7 million, an
increase of $26.4 million, or 5.1%, from December 31, 2007. The largest segment
of asset growth for the three months ended March 31, 2008, occurred in federal
funds and investment securities available for sale.
Total loans increased $1.4 million or 1.4% to $391.3 million at March 31, 2008
from $390.0 million at December 31, 2007. Loan growth was comprised primarily of
commercial real estate loans, which increased $4.5 million or 1.7% from December
31, 2007 to March 31, 2008. Total commercial real estate loans represent 68.8%
of the total loan portfolio. This is consistent with the current and historical
commercial loan focus of the Corporation. The Corporation had approximately
$145.7 million in outstanding loans at March 31, 2008, to borrowers in the real
estate rental and properties management industries, representing approximately
54.8% of the total commercial real estate portfolio. All other segments of the
loan portfolio decreased for the first three months with the largest decline
occurring in the residential mortgage portfolio which decreased $1.5 million.
The decrease in the residential mortgage portfolio was purposeful as management
sought to sell most of its new mortgage originations primarily to Fannie Mae and
other investors in the secondary market and runoff was allowed to occur in the
portfolio. During the first quarter of 2008, we originated $19.8 million of
residential mortgage loans, retaining only $509,000 in our portfolio. During
this period we experienced pay-downs and pay-offs of $2.0 million. Additionally,
the Corporation further tightened its underwriting guidelines, which had the
effect of limiting new loan volume. Generally, these changes included reductions
in the allowable loan to value ratio on mortgage loans.
Most of the residential mortgage portfolio comprises adjustable rate mortgages,
which at March 31, 2008 represented $44.5 million or 76% of the total
residential portfolio. Residential mortgage loans which the Corporation retains
in portfolio comprise primarily loans with borrowers whom the Corporation has
other banking relationships with, as well as loans with attributes deemed to
match the Corporation's rate risk profile. Home equity lines of credit ("HELOC")
totaled $20.0 million at March 31, 2008, and decreased $910,000 for the first
three months of 2008. As with our residential mortgage loan portfolio,
management has intentionally limited growth in this segment of the portfolio
given the real estate environment in southeastern Michigan. New underwriting
guidelines for our HELOC loans carried in portfolio limit loan to values,
including prior liens, to 85% of appraised value of the real estate. This
represents a change from the prior loan to value level of 95%.
The consumer loan portfolio, comprising primarily boat loans, totaled $9.6
million at March 31, 2008, a decrease of $169,000 from December 31, 2007. The
Corporation continues to monitor this portion of the loan portfolio as it has
experienced increase delinquencies and repossessions. The increase in
delinquencies and repossessions are attributable to local economic conditions.
The major components of the loan portfolio for loans held for sale and loans in
the portfolio are as follows:
March 31, Percentage December 31, Percentage Net Net
2008 of total loans 2007 of total loans Change Change %
--------- -------------- ------------ -------------- ------- --------
(in thousands, except
percentages)
Loans held for sale:
Residential real estate $ 3,884 $ 4,848 ($964) (19.9%)
======== ======== ====== =====
Loans held in the portfolio:
Commercial real estate $269,188 68.8% $264,685 67.9% $ 4,503 1.7%
Commercial and industrial 32,508 8.3 33,039 8.5 (531) (1.6)
Residential real estate 59,282 15.2 60,799 15.6 (1,517) (2.5)
Home equity lines 19,996 5.1 20,906 5.4 (910) (4.4)
Consumer loans 9,585 2.4 9,754 2.4 (169) (1.7)
Credit cards 727 0.2 729 0.2 (2) (0.3)
-------- ----- -------- ----- ------ -----
$391,286 100.0% $389,912 100.0% $ 1,374 0.4%
======== ===== ======== ===== ====== =====
17
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
The investment security portfolio, excluding FHLB stock totaled $95.5 million at
March 31, 2008, compared to $87.9 million at December 31, 2007, and was
comprised of securities held as available for sale, held to maturity and held as
trading. Securities available for sale, the largest portion of our investment
portfolio, increased $8.8 million or 13.2% to $75.6 million at March 31, 2008
from December 31, 2007. The largest changes in the portfolio occurred in the
mortgage backed agency portfolio which increased $8.8 million. Purchases in the
mortgage backed agency portfolio primarily were in Government National Mortgage
Association ("GNMA") securities which carry the full faith and credit of the
United States Government. The collateralized mortgage obligations ("CMO")
totaled $20.2 million at March 31, 2008, which was an increase of $13.5 million
from December 31, 2007. The increases represented all agency backed CMOs
including GNMA collateral based instruments. The municipal security portfolio
totaled $18.0 million at March 31, 2008, which was a decrease of $10.8 million
from December 31, 2007. During the first quarter of 2008, the Corporation sold
approximately 36% of the bank qualified municipal bond portfolio to decrease
volatility in this type of investment due to the dramatic changes in the
municipal insurance market. Additionally, the portfolio of municipal bonds was
reduced for federal income tax considerations.
At March 31, 2008, we had unrealized losses of $56,000, or less than 9 basis
points, in our available for sale portfolio. This represents a $1.0 million
increase in the market value of the available for sale portfolio. The favorable
increase in market value was attributable to a decrease in interest rates and
the disposal of municipal bonds at an advantageous period during the first
quarter of 2008, producing minimal realized security losses. The total net gain
from the sale of available for sale securities totaled $61,000 and was the
result of portfolio restructuring activity. The Corporation has the intent and
ability to hold the securities classified under available for sale for the
foreseeable future and declines in fair value are primarily due to increased
market interest rates.
The Corporation has less than one percent of its total investment portfolio,
including those in trading, available for sale and held to maturity, in
non-agency investments.
The securities classified as held for trading totaled $18.0 million as of March
31, 2008. The average effective duration of the trading portfolio as of March
31, 2008 was approximately 1.879 years, with an average life of 2.02 years and a
weighted average coupon rate of 4.72%. Management elected early adoption of SFAS
159 effective January 1, 2007 for certain securities based on the
characteristics of the instruments, giving the Corporation the option and
ability to hedge the instruments utilizing above market value Federal Home Loan
Bank advances. Furthermore, in adopting SFAS 159, the Corporation was able to
utilize the fair value option to effect hedges in a less complex manner than was
previously available under GAAP. Other reasons influencing management's decision
to classify the selected instruments under SFAS 159 include overall ALCO
strategies and the shape of the treasury yield curve and management expectations
on short term interest rates. The trading portfolio as of March 31, 2008
comprised $11.6 million of U.S. Agency debentures with an effective duration of
1.8 years and $6.4 million in U.S. agency collateralized mortgage obligations
(CMOs) with an effective duration of 1.6 years. All of the CMOs held in the
trading portfolio pass the stress testing recommended by the Federal Financial
Institutions Examination Council with relatively short average lives under
differing rate scenarios.
In May 2007, the Corporation acquired an interest rate swap to better hedge the
fair value of the portfolio. The notional value of the interest rate swap was
$18 million for duration of three years, which approximated the overall duration
of the trading portfolio under SFAS 159. Under the interest rate swap the bank
receives the three month libor rate and pays a fixed rate of 5.275%, which is
the average weighted yield of the hedged portfolio at the inception of the
interest rate swap. The interest rate swap was accounted for under the Fair
Value Option for Financial Assets and Liabilities (SFAS 159) and therefore no
formal hedge accounting under SFAS 133 is applicable. The Corporation
periodically reviews the structure of hedge to evaluate the risks of changes in
interest rates under various rate scenarios. During the fourth quarter of 2007,
the Corporation restructured many of the instruments originally selected during
the early adoption of SFAS 159. The resulting portfolio better matched the
Corporation's asset liability position. Additionally, should management and the
ALCO committee believe other balance sheet strategies will better position the
Bank and Corporation, other transactions could be considered including the sale
of investments classified under trading status. Management has no intent to
extinguish, before stated maturity, any FHLB advances. It is the intent of
management for the foreseeable future to utilize fair value option on selected
investment securities, or like kind dollars on disposal.
18
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
A summary of nonperforming assets is as follows:
March 31, December 31,
2008 2007
--------- ------------
(Dollars in thousands)
Nonaccrual loans:
Commercial real estate $18,056 $14,379
Commercial and industrial 251 146
Residential real estate 1,627 2,053
Home equity lines 631 354
Consumer loans 462 30
Credit cards -- --
------- -------
Total nonaccrual loans 21,027 16,962
Accruing loans delinquent more than 90 days:
Commercial real estate $ -- $ --
Commercial and industrial -- --
Residential real estate -- 654
Home equity lines -- 44
Consumer loans -- --
Credit cards 4 25
------- -------
Total accruing loans delinquent more than 90 days 4 723
------- -------
Total nonperforming loans 21,031 17,685
Other real estate owned
Commercial real estate 1,722 319
Residential real estate 656 535
------- -------
Total other real estate owned 2,378 854
------- -------
Total nonperforming assets $23,409 $18,539
======= =======
Total nonperforming loans as a
percentage of total loans 5.37% 4.54%
======= =======
Total nonperforming assets as a percentage
of total assets 4.28% 3.56%
======= =======
At March 31, 2008, nonperforming loans, which represents nonaccruing loans and
those loans past due 90 days or more and still accruing interest, totaled $21.0
million compared to $17.7 million at December 31, 2007, an increase of $3.3
million. The primary reason for the increase was attributable to an increase in
nonaccruing commercial real estate loans of $3.7 million for the first three
months of 2008. The largest portion of this increase was related to one
commercial real estate credit that had irregular loan payments, but was
contractually current at March 31, 2008. Net charge offs for the first quarter
of 2008 totaled $1.6 million, of which $1.2 million was specifically
attributable to builder developer loans for which specific reserves had been
established in prior quarter periods. Total nonperforming assets as a percentage
of total assets was 4.28% at March 31, 2008, compared to 3.56% at December 31,
2007. The allowance for loan losses at March 31, 2008 was $6.9 million, or 1.75%
of total loans and 32.6% of nonperforming loans, versus $6.4 million, or 1.64%
and 36.2% at December 31, 2007, respectively. Management felt that given the
economic conditions in southeastern Michigan that the borrower would have
difficulty in continuing a regular payment stream. Management believes to be
adequately covered with the collateral of this particular loan. Nonperforming
residential mortgage loans decreased $1.1 million for the first three months of
2008 as the Corporation continued to dispose of residential real estate
collateral positions. The majority of the consumer loans classified as
nonaccrual comprised boat loans. The delinquency level of these loans has
increased over prior
19
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
periods. The relative size of the boat loan portfolio totals 2.4% of the entire
loan portfolio at March 31, 2008. Other real estate owned (OREO) was $2.4
million at March 31, 2008. The Corporation has valuation reserves established on
certain OREO properties. The largest segment of OREO is comprised of commercial
real estate of $1.7 million. Of that total, $1.0 million represents a marina and
a commercial building. The remaining commercial real estate OREO totaling
$700,000 is related to residential development real estate from property
acquired through foreclosure.
The following table shows an analysis of the allowance for loans losses:
Three Months Ended Year Ended
March 31, December 31,
2008 2007
------------------ ------------
(Dollars in thousands)
Balance as beginning of the period $6,403 $3,815
Charge-offs:
Commercial real estate 1,317 338
Commercial and industrial 128 110
Residential real estate 103 106
Home equity lines 42 131
Consumer loans 59 382
Credit cards 15 33
------ ------
Total charge-offs $1,664 $1,100
------ ------
Recoveries:
Commercial real estate -- --
Commercial and industrial 15 12
Residential real estate -- --
Home equity lines -- --
Consumer loans 1 69
Credit cards -- 7
------ ------
Total recoveries $ 16 $ 88
------ ------
Net charge-offs (recoveries) 1,648 1,012
------ ------
Provision charged to earnings 2,100 3,600
------ ------
Balance at end of the period $6,855 $6,403
====== ======
Net charge-offs (net recoveries) during
the period to to average loans
outstanding during the period on an
annualized basis 1.70% 0.27%
Allowance as a percentage of total portfolio loans 1.75% 1.64%
The allowance for loan losses as a percentage of total loans remained relatively
unchanged at March 31, 2008, compared to December 31, 2007. The Corporation
performs a detailed quarterly review of the allowance for loan losses. The
Corporation evaluates those loans classified as substandard, under its internal
risk rating system, on an individual basis for impairment under SFAS 114. The
level and allocation of the allowance is determined primarily on management's
evaluation of collateral value, less the cost of disposal, for loans reviewed in
this category. The remainder of the total loan portfolio is segmented into
homogeneous loan pools with similar risk characteristics for evaluation under
SFAS 5. The primary risk element considered by management regarding each
consumer and
20
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
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.
LIABILITIES
At March 31, 2008, total deposits increased $19.2 million or 5.8% to $347.8
million from $328.6 million at December 31, 2007. The increase was primarily due
to a $14.1 million or 6.0% increase in time deposits, principally brokered time
deposits, to $248.3 million at March 31, 2008. Time deposits below $100,000
decreased $3.2 million as depositors sought higher rates supplied by larger
regional banks that are increasing the time deposit yields as they seek
additional funding. Noninterest bearing demand deposits increased $5.3 million
or 16.9% to $37.0 million at March 31, 2008. The increase was due in part to the
continued emphasis on growth in this important area of core deposits, coupled
with seasonal fluctuations in balances. The Corporation has continued to focus
on complete commercial lending relationships that include core deposits as part
of the overall approval process. Additionally, the Grosse Pointe Farms branch
that was opened in June of 2006 continues to generate additional demand deposit
relationships. Money market accounts decreased $2.6 million or 4.9% from
December 31, 2007 to March 31, 2008 due to withdrawals from the indexed money
market product which is tied to the six months treasury rate. Management
attributes this decline to customers seeking higher rate products, as the
indexed rate fell below 2 percent based on market rate conditions.
The competitive rate environment amongst local financial institutions has made
the Corporation decide in some cases not to raise the interest rate on the
deposit product at the same frequency or level to match or exceed interest rates
given by local financial institutions. The Corporation continues to see
competitive deposit rates offered by local financial institutions within the
geographic proximity of the Bank, which has had the affect of increasing the
cost of funds to a level higher than management originally projected. The
Corporation continues to utilize wholesale forms of funding earning assets
through the Federal Home Loan Bank and brokered CDs to balance both interest
rate risk and the overall cost of funds. Brokered and internet CDs are based on
nationwide interest rate structure, typically at what is considered to be a
premium interest rate. The local competition for CD products has intensified and
the Corporation has found this type of whole funding to often effectively
compete with the rates offered for similar term retail CD products of local
community and regional banks.
The major components of deposits are as follows:
Percentage Percentage
March 31, of total December 31, of total Net Net
2008 deposits 2007 deposits Change Change %
--------- ---------- ------------ ---------- ------- --------
(Dollars in Thousands)
Noninterest bearing demand $ 36,969 10.6% $ 31,647 9.6% $ 5,322 16.8%
NOW accounts 15,276 4.4 14,907 4.5 369 2.5
Money market accounts 35,582 10.2 38,560 11.7 (2,978) (7.7)
Savings deposits 11,698 3.4 9,326 2.8 2,372 25.4
Time deposits under $100,000 36,186 10.4 39,395 12.0 (3,209) (8.1)
Time deposits $100,000 and
over 212,115 61.0 194,800 59.4 17,315 8.9
-------- ------ -------- ----- ------- ----
Total deposits $347,826 100.00% $328,635 100.0% $19,191 5.8%
======== ====== ======== ===== ======= ====
21
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
Short term borrowings at March 31, 2008, consisted of short term FHLB advances
of $11.8 million at fair value and securities sold with an agreement to
repurchase them the following day of $10.9 million. Following are details of our
short term borrowings for the dates indicated:
March 31, December 31,
2008 2007
--------- -----------
(Dollars in thousands)
Amount outstanding at end of period
Short-term repurchase agreements $10,906 $13,659
Short-term FHLB advances $11,815 $23,795
Weighted average interest rate on ending balance
Short-term repurchase agreements 1.99% 3.00%
Short-term FHLB advances 4.53% 4.14%
Maximum amount outstanding at any month end
during the period
Short-term repurchase agreements $11,974 $14,932
Short-term FHLB advances $11,815 $23,795
During the first quarter of 2007, the Corporation borrowed $19 million in a
wholesale structured repurchase agreement with an initial interest rate tied to
the three month Libor rate, less 250 basis points adjusted quarterly. On March
3, 2008, the interest rate changed to a fixed interest rate of 4.95% and is
fixed until March 2, 2017. The repurchase agreement is callable quarterly.
In June 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 residential and commercial
mortgage loans under a blanket collateral agreement totaling approximately
$230.6 million and $240.1 million at March 31, 2008 and 2007, respectively.
Long-term advances were comprised of 32 advances with maturities ranging from
June 2009 to June 2016.
FHLB advances outstanding at March 31, 2008, were as follows:
Fair Value Face Value Average rate
at end of period of obligation at end of period
---------------- ------------- ----------------
(Dollars in thousands)
Short-term FHLB advances $ 11,815 $ 11,810 4.53%
Long-term FHLB advances 102,700 102,700 4.40%
-------- --------
$114,515 $114,510 4.42%
======== ========
Effective January 1, 2007, the Corporation elected early adoption of SFAS 159
for all FHLB advances maturing in 18 months from January 1, 2007, which
represented originally $16 million in total. At March 31, 2008, the fair value
of the selected advances reported at fair value was $5,005,000 (face value $5.0
million). The overall weighted yield of these FHLB advances was 3.73% at March
31, 2008. Management believed that the selected instruments at the initial
election partially served as a hedge for those securities recorded as trading
from the transfer from available for sale under SFAS 159.
22
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
LIQUIDITY AND CAPITAL RESOURCES
The liquidity of a bank allows it to provide funds to meet loan requests, to
accommodate possible outflows 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 $27.5 million
in available unsecured federal funds borrowing facilities, and a $150.0 million
secured line of credit with the FHLB. Large deposit balances which might
fluctuate in response to interest rate changes are closely monitored. These
deposits consist mainly of jumbo time certificates of deposit. We anticipate
that we will have sufficient funds available to meet our future commitments. As
of March 31, 2008, unused commitments totaled $88.1 million. The Bank has $168.4
million in time deposits coming due within the next twelve months from March 31,
2008, which includes brokered, internet and municipal time deposits. At March
31, 2008, the Bank had $145.1 million in brokered certificates of deposit, of
which $79.6 million is due within one year or less. Additionally, at March 31,
2008, municipal time deposits and internet time deposits were $32.7 million and
$1.8 million, respectively. Municipal time deposits typically have maturities
less than three months. All of the $1.8 million of internet certificates of
deposit mature in one year or less.
On February 19, 2008, the Corporation's Board of Directors declared the
Corporation's twenty-fourth consecutive quarterly cash dividend of $0.06 per
common share, payable April 1, 2008, to shareholders of record March 3, 2008.
Following are selected capital ratios for the Corporation and the Bank as of the
dates indicated, along with the minimum regulatory capital requirement for each
item. Capital requirements for bank holding companies are set by the Federal
Reserve Board. In many cases, bank holding companies are expected to operate at
capital levels higher than the minimum requirement.
March 31, December 31, Minimum Ratio
2008 2007 for Capital
--------------- --------------- Adequacy Ratio to be
Capital Ratio Capital Ratio Purposes "Well Capitalized"
------- ----- ------- ----- ------------- ------------------
Tier 1 capital to risk-weighted assets
Consolidated $43,017 10.15% $42,932 10.29% 4% NA
Bank only 41,675 9.88% 42,889 10.32% 4% 6%
Total capital to risk-weighted assets
Consolidated $55,580 13.11% $55,430 13.28% 8% NA
Bank only 46,979 11.13% 48,199 11.57% 8% 10%
Tier I capital to average assets
Consolidated $43,017 7.91% $42,932 8.37% 4% NA
Bank only 41,675 7.69% 42,889 8.39% 4% 5%
Management believes that the current capital position as well as net income from
operations, loan repayments and other sources of funds will be adequate to meet
our short and long term liquidity needs.
23
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
The following table shows the changes in stockholders' equity for the three
months ended March 31, 2008:
Unearned Accumulated Other
Common Retained Employee Comprehensive Total
Stock Earnings Benefits Income/(Loss) Equity
------- -------- -------- ----------------- -------
Beginning balance, January 1, 2008 $32,071 $1,797 ($36) ($604) $33,228
Cash dividend -- (225) -- -- (225)
SFAS 123R expensing of options 14 -- -- -- 14
Net income -- 240 -- -- 240
Release of ESOP shares -- -- 13 -- 13
Repurchase of common stock (7) -- -- -- (7)
Change in unrealized gain/loss -- -- -- 548 548
------- ------ ---- ----- -------
Balance March 31, 2008 $32,078 $1,812 ($23) ($56) $33,811
======= ====== ==== ===== =======
Stockholder's equity was $33.8 million as of March 31, 2008. This was an
increase of $583,000 from December 31, 2007. The net change was primarily driven
by the increase in accumulated other comprehensive income from the increase in
the after tax unrealized increase in market value of the available for sale
security portfolio. An increase in net income of $240,000 was offset from the
first quarter cash dividend of $225,000.
NET INTEREST INCOME
Net interest income before the provision for loan losses for the first quarter
of 2008 was $2.7 million, a decrease of $238,000 or 8.2% from the first quarter
of 2007. Significantly affecting net interest income was the reversal of
interest on new loans placed into nonaccrual status, as well as existing loans
in nonaccrual status. This constituted more than half of the decline in net
interest income for the quarterly comparison. Our net interest margin declined
41 basis points from 2.59% for the three months ended March 31, 2007 to 2.18%
for the three months ended March 31, 2008. The net interest margin was
negatively affected by the significant decreases in overnight federal funds
interest rates and corresponding drop in the prime interest rate. The Federal
Reserve's 300 basis point rate cut over a period of six months negatively
affected the net interest margin in the near term, as the Corporation's
Asset/Liability position is somewhat asset sensitive in a three month or less
time frame. The historically large series of Federal Reserve interest rate cuts
has outpaced our ability to reduce our funding costs as rapidly, as a
significant portion of the funding base is comprised of time deposits. The price
competition for deposits has also exacerbated margin pressures. Once short term
rates stabilize, the Corporation expects to see improvement in the net interest
margin as approximately $120 million in time deposits will reprice in the next
nine months. The interest rate risk position of the Corporation remains slightly
liability sensitive over a twelve month horizon.
24
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
The following table shows the dollar amount of changes in net interest income
for each major category of interest earning asset and interest bearing
liability, and the amount of change attributable to changes in average balances
(volume) or average rates for the periods shown. Variances that are jointly
attributable to both volume and rate changes have been allocated to the volume
component.
Three Months Ended
March 31, 2008 vs. 2007
---------------------------
Increase (Decrease)
Due to Changes In
-------------------
Volume
Total and Both Rate
----- ---------- -----
(In thousands)
Earning Assets - Interest Income
Loans ($361) $377 ($738)
Securities, including trading 54 25 29
Federal funds sold -- 96 (96)
----- ---- -----
Total (307) 498 (805)
----- ---- -----
Deposits and Borrowed Funds - Interest Expense
NOW and money market accounts (302) (36) (266)
Savings deposits (40) (12) (28)
Time deposits 3 162 (159)
FHLB advances and repurchase agreements 375 393 (18)
ESOP loan interest expense (2) (1) (1)
Subordinated debentures (103) (29) (74)
----- ---- -----
Total (69) 477 (546)
----- ---- -----
Net Interest Income ($238) $ 21 ($259)
===== ==== =====
The average yield earned on interest earning assets for the first quarter of
2008 was 6.09% compared to 6.83% for the first quarter of 2007. The average
yield earned on the total loan portfolio, including loans held for sale, was
6.64% during the quarter ended March 31, 2008 compared to 7.44% during the
comparable quarter in 2007. The overall decrease in the loan portfolio yield was
attributable to the decrease in prime interest rates. The commercial, commercial
real estate and home equity line loans that repriced with prime interest rate
changes totaled approximately $126 million at March 31, 2008.
The average rate paid on interest bearing liabilities for the first quarter of
2008 was 4.34% compared to 4.80% in the first quarter of 2007. The decrease in
average rate was due to the overall rate paid on interest bearing liabilities,
primarily as a result of the decrease in overall market interest rates. The rate
paid on time deposits decreased to 4.81% for the first quarter of 2008, from
5.08% for the same time period in 2007, as a result of the decrease in short
term interest rates, although the highly competitive interest rates paid amongst
local financial institutions has had an effect of keeping these rates higher
than would have historically been expected. The decrease in the average rate for
NOW and money market accounts for 2008 was primarily attributable to the drop in
short term interest rates, with the average rate moving to 2.18% during the
first quarter of 2008 compared to 3.94% in the first quarter of 2007. The
average rate paid on savings accounts also decreased, moving to 1.82% for the
first quarter of 2008 from 2.63% in the first quarter of 2007. The rate paid on
FHLB advances and repurchase agreements decreased only slightly to 4.24% in the
first quarter of 2008 from 4.31% in the first quarter of 2007 and had the least
yield movement of interest bearing liabilities as many of these instruments have
relatively long maturities. The average rate paid on the subordinated debenture
decreased in the first quarter of 2008 to 6.55% from 8.06%. The overall decrease
in interest rate paid on the subordinated debenture was the result of the
redemption of the subordinated debenture in June 2007, replaced with a
subordinated debenture with a relatively lower interest rate. The Corporation
also utilizes an interest rate swap hedging the subordinated debenture which has
further reduced the rate.
25
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
AVERAGE BALANCE SHEET
The following table shows the Corporation's consolidated average balances of
assets, liabilities, and stockholders' equity; the amount of interest income or
interest expense and the average yield or rate for each major category of
interest earning asset and interest bearing liability, and the net interest
margin, for the three month periods ended March 31, 2008 and 2007. Average loans
are presented net of unearned income, gross of the allowance for loan losses.
Interest on loans includes loan fees.
Three Months Ended March 31,
--------------------------------------------------------
2008 2007
--------------------------- ---------------------------
Average Average
Interest Rate Interest Rate
Average Income/ Earned/ Average Income/ Earned/
Balance Expense Paid Balance Expense Paid
-------- -------- ------- -------- -------- -------
(In thousands)
Assets
Loans $391,978 $6,491 6.64% $373,426 6,852 7.44%
Securities 89,516 1,055 4.71 87,474 1,001 4.58
Federal funds sold 31,862 255 3.21 20,076 255 5.15
-------- ------ ---- -------- ------ ----
Total Interest Earning Assets/
Total Interest Income/Average Yield Earned 513,356 7,801 6.09 480,976 8,108 6.83
-------- ------ ---- -------- ------ ----
Cash and due from banks 8,338 7,246
All other assets 23,908 22,966
-------- --------
Total Assets $545,602 $511,188
======== ========
Liabilities and Equity
NOW and money market accounts $ 54,121 294 2.18 $ 61,359 596 3.94
Savings deposits 11,022 50 1.82 13,863 90 2.63
Time deposits 253,067 3,037 4.81 242,056 3,034 5.08
FHLB advances, repurchase agreements
and fed funds purchased 137,844 1,456 4.24 101,710 1,081 4.31
ESOP note payable 32 -- 6.00 89 2 9.11
Subordinated debentures 17,819 291 6.55 19,834 394 8.06
-------- ------ ---- -------- ------ ----
Total Interest Bearing Liabilities/
Total Interest Expense / Average Rate Paid 473,905 5,128 4.34 438,911 5,197 4.80
-------- ------ ---- -------- ------ ----
Noninterest bearing demand deposits 34,151 33,000
All other liabilities 3,843 2,783
Stockholders' equity 33,703 36,494
-------- --------
Total Liabilities and Stockholder's Equity $545,602 $511,188
======== ========
Net Interest Income $2,673 $2,911
====== ======
Net Interest Spread 1.75% 2.02%
==== ====
Net Interest Margin (Net Interest
Income/Total Earning Assets) 2.09% 2.44%
==== ====
Net Interest Margin
(fully taxable equivalent) 2.18% 2.59%
==== ====
26
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
PROVISION FOR LOAN LOSSES
A $2.1 million provision for loan losses was taken in the first quarter of 2008,
based upon management's review of the risks inherent in the loan portfolio and
the level of our allowance for loan losses. Net charge-offs for the first
quarter of 2008 totaled $1.6 million, or 1.70% of total average loans on an
annualized basis. A substantial portion of the loan charge-offs related to
builder developer loans for which specific reserves had been established in
prior quarter periods. Total nonperforming assets as a percentage of total
assets was 4.28% at March 31, 2008, compared to 3.56% at December 31, 2007. The
allowance for loan losses at March 31, 2008 was $6.9 million, or 1.75% of total
loans and 32.6% of nonperforming loans, versus $6.4 million, or 1.64% and 36.2%
at December 31, 2007, respectively.
NONINTEREST INCOME
Noninterest income in the first quarter of 2008 was $3.2 million, an increase of
$1.8 million, or 125.7%, compared to the first quarter of 2007. The increase was
primarily related to a net increase in the fair market value of assets and
liabilities as measured under Statement of Financial Accounting Standards (SFAS
159), principally the increase attributable to the fair value of the
subordinated debenture connected with the February 2007 Trust Preferred
Issuance. The net change in fair value associated with the subordinated
debenture and the corresponding interest rate swap totaled $2.1 million in
unrealized gains for the first quarter, as recorded in other income. The
dramatic widening of market credit spreads for the trust preferred securities
experienced in the first quarter of 2008 increased the relative fair value of
this financial liability dramatically. The Corporation hedges against changes in
interest rates with an interest rate swap, which is also accounted for under
SFAS 159. The hedge does not cover changes in credit spreads, which typically
occur over much longer periods of time than we are currently experiencing.
Changes in credit spreads are not easily predictable and may cause adverse
changes in the fair value of this instrument and a possible loss of income in
the future.
Fiduciary income from trust services totaled $108,000 for the first quarter of
2008, an increase of $21,000 or 24.1% from the first quarter of 2007 as the
Corporation continued to increase the level of assets under management from the
expanding trust operations. Deposit service charge income of $132,000 for the
first quarter of 2008, increased $44,000, or 50.0%, from compared to the first
quarter of 2007, primarily from increased service charge fees and a broadened
branch base. Mortgage banking income decreased $304,000 or 40.3% to $450,000 for
the first quarter of 2008 compared $754,000 for the comparable quarter last
year. The decrease in mortgage banking income was the result of fewer
residential loan originations and lower gains on the sale of residential
mortgage loans in the secondary market. The slow down in new home purchases
contributed to this decline. Net realized gains from the sale of securities was
$61,000 for the first quarter of 2008 and was attributable to restructuring
activities in the available for sale security portfolio. Other interest income
totaled $310,000 for the first quarter of 2008, increasing $49,000 or 18.8% from
the comparable quarter in 2007,primarily from increases in the cash surrender
value of Bank Owned Life Insurance and fee income from wealth management
services.
NONINTEREST EXPENSE
Noninterest expense was $3.6 million for the first quarter of 2008, increasing
$97,000 or 2.8% from the first quarter of 2007. Salary and benefit totaled $1.8
million for the first three months of 2008, a decrease of $311,000 or 14.5%
compared to the same time period last year. The decrease in salary and benefits
was due to reductions in staffing levels throughout the organization. The
decrease in salary and benefits was offset by an increase in other operating
expense. Other operating expense totaled $1.3 million for the first quarter of
2008, an increase of $399,000 or 46.1%, compared to the first quarter of 2007.
The increase in other operating expense primarily resulted from valuation costs
associated with property obtained in foreclosure and legal expense on loan
workouts, which in the aggregate represented $246,000 of the increase. Net
occupancy expense totaled $461,000 for the first three months of 2008, a $9,000
or 2.0% increase compared to the first three months of 2007. Other increases in
expense were associated with an increase in FDIC insurance of $78,000 for the
first three months of 2008 compared to 2007.
27
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
PROVISION FOR INCOME TAXES
We had a federal income tax benefit of $24,000 for the first quarter of 2008
compared to a federal income tax expense of $161,000 in the first quarter of
2007. The change was primarily attributable to a lower level of pretax income,
primarily from the large loan loss provision for the first quarter of 2008
compared to the first quarter of 2007. Additionally, permanent differences
arising from tax exempt income 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.
ASSET/LIABILITY MANAGEMENT
The Asset Liability Management Committee ("ALCO"), which meets at least
quarterly, is responsible for reviewing interest rate sensitivity position and
establishing policies to monitor and limit exposure to interest rate risk.
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.
28
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
The following table presents an analysis of our interest-sensitivity static gap
position at March 31, 2008. All interest-earning assets and interest-bearing
liabilities are shown based on the earlier of their contractual maturity or
repricing date adjusted by forecasted repayment and decay rates. Asset
prepayment and liability decay rates are selected after considering the current
rate environment, industry prepayment and decay rates and our historical
experience. At March 31, 2008, we are considered asset sensitive in the time
interval of the first three months. We are also considered to be slightly
liability sensitive at the one year accumulated gap position.
After Three After One
Within Months But Year But After
Three Within One Within Five
Months Year Five Years Years Total
-------- ----------- ---------- ------- --------
(Dollars in thousands)
Interest earning assets:
Federal funds sold and
interest bearing cash $ 16,500 $ -- $ -- $ -- $ 16,500
Securities 29,154 8,745 20,471 37,203 95,573
FHLB stock -- 5,727 -- -- 5,727
Portfolio loans and
held for resale 126,430 72,941 158,560 37,239 395,170
-------- --------- -------- ------- --------
Total 172,084 87,413 179,031 74,442 $512,970
-------- --------- -------- ------- ========
Interest bearing liabilities:
NOW and money market
accounts 29,382 7,530 12,167 1,779 $ 50,858
Indexed money market
accounts
Savings deposits 702 3,041 7,955 -- 11,698
Jumbo time deposits 58,300 81,990 71,625 200 212,115
Time deposits < $100,000 6,386 21,735 7,163 902 36,186
Repurchase agreements 10,906 19,000 -- -- 29,906
FHLB advances 5,005 6,810 76,500 26,200 114,515
ESOP payable 23 -- -- -- 23
Subordinated debentures 18,557 -- -- -- 18,557
-------- --------- -------- ------- --------
Total 129,261 140,106 175,410 29,081 $473,858
-------- --------- -------- ------- ========
Interest rate sensitivity gap $ 42,823 ($52,693) $ 3,621 $45,361
Cumulative interest rate
sensitivity gap ($9,870) ($6,249) $39,112
Interest rate sensitivity gap
ratio 1.33 0.62 1.02 2.56
Cumulative interest rate
sensitivity gap ratio 0.96 0.99 1.08
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.
29
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
On a quarterly basis, the net interest income simulation model is used to
quantify the effects of hypothetical changes in interest rates on the Bank's net
interest income over a projected twelve-month period. The model permits
management to evaluate the effects of shifts in the Treasury Yield curve, upward
and downward, on net interest income expected in a stable interest rate
environment.
As of March 31, 2008, 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 (2.86%)
Interest rates up 200 basis points (1.05%)
Interest rates up 100 basis points (0.40%)
Base case --
Interest rates down 100 basis points 1.04%
Interest rates down 200 basis points 5.01%
Interest rates down 300 basis points (3.12%)
ITEM 3. CONTROLS AND PROCEDURES
An evaluation of the Corporation's disclosure controls and procedures (as
defined in Rule 13a-15(e) of the Securities and Exchange Act of 1934 ("Act")) as
of March 31, 2008, was carried out under the supervision and with the
participation of the Corporation's Chief Executive Officer, Chief Financial
Officer and several other members of the Corporation's senior management. The
Corporation's Chief Executive Officer and Chief Financial Officer concluded that
the Corporation's disclosure controls and procedures as currently in effect are
effective in ensuring that the information required to be disclosed by the
Corporation in the reports it files or submits under the Act is (i) accumulated
and communicated to the Corporation's management (including the Chief Executive
Officer and Chief Financial Officer) in a timely manner, and (ii) recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms.
There have been no changes in our internal control over financial reporting (as
defined in Rule 13a-15(f) of the Act) that occurred during the quarter ended
March 31, 2008, that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
The Corporation intends to continually review and evaluate the design and
effectiveness of its disclosure controls and procedures and to improve its
controls and procedures over time and to correct any deficiencies that it may
discover in the future. The goal is to ensure that senior management has timely
access to all material non-financial information concerning the Corporation's
business. While the Corporation believes the present design of its disclosure
controls and procedures is effective to achieve its goal, future events
affecting its business may cause the Corporation to modify its disclosures and
procedures.
30
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
PART II
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 1A. RISK FACTORS
No change from 10-K
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
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.
Stock Repurchases - The following table sets forth information about the
Corporation's purchases of its outstanding Common Stock during the quarter ended
March 31, 2008.
MAXIMUM NUMBER (OR
APPROXIMATE DOLLAR
TOTAL NUMBER OF VALUE) OF SHARES (OR
SHARES (OR UNITS) UNITS) THAT MAY YET
TOTAL NUMBER OF PURCHASED AS PART OF BE PURCHASED UNDER
SHARES (OR UNITS) AVERAGE PRICE PAID PUBLICLY ANNOUNCED THE PLANS OR
PERIOD PURCHASED (1) PER SHARE (OR UNIT) PLANS OR PROGRAMS(2) PROGRAMS(2)
------ ----------------- ------------------- -------------------- --------------------
January 1, 2008 - January 31, 2008 1,000 6.95 1,000 12,070
February 1, 2008 - February 29, 2008 -- -- -- 12,070
March 1, 2008 - March 31, 2008 -- -- -- 12,070
(1) All shares reported in the above table were purchase in the open market
through publicly announced share repurchase
(2) On June 7, 2007, the Corporation announced a share repurchase program to
repurchase up to 5% (193,289 shares), of its outstanding common stock in
the open market or privately negotiated transactions over the next twelve
month period. No stock repurchase plans or programs expired or were
terminated by the Corporation during the quarter.
Cash Dividend - On February 19, 2008, the Corporation's Board of Directors
declared the Corporation's twenty-fourth quarterly cash dividend of $0.06 per
common share, payable April 1, 2008, to shareholders of record March 3, 2008.
ITEM 6. EXHIBITS.
See Exhibit Index attached.
31
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on May 15, 2008.
COMMUNITY CENTRAL BANK CORPORATION
By: S/ DAVID A. WIDLAK
------------------
David A. Widlak;
President and CEO
(Principal Executive Officer)
By: S/ RAY T. COLONIUS
------------------
Ray T. Colonius;
Treasurer
(Principal Financial and Accounting
Officer)
32
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
3.1 Articles of Incorporation are incorporated by reference to Exhibit 3.1
of the Corporation's Registration Statement on Form SB-2 (SEC File No.
333-04113).
3.2 Bylaws, as amended, of the Corporation are incorporated by reference
to Exhibit 3 of the Corporation's Current Quarterly Report on Form 8-K
filed on September 19, 2007 (SEC File No. 000-33373)
4.1 Specimen of Stock Certificate of Community Central Bank Corporation is
incorporated by reference to Exhibit 4.2 of the Corporation's
Registration Statement on Form SB-2 (SEC File No. 333-04113).
10.1 1996 Employee Stock Option Plan is incorporated by reference to
Exhibit 10.1 of the Corporation's Registration Statement on Form SB-2
(SEC File No. 333-04113).
10.2 2000 Employee Stock Option Plan is incorporated by reference to
Exhibit 10.6 of the Corporation's Annual Report filed with the SEC on
Form 10-KSB for the year ended December 31, 2000 (SEC File No.
000-33373)
10.3 2002 Incentive Plan is incorporated by reference to Exhibit 10.7 of
the Corporation's Annual Report filed with the SEC on Form 10-KSB for
the year ended December 31, 2001 (SEC File No. 000-33373)
10.4 Community Central Bank Supplemental Executive Retirement Plan, as
amended, and Individual Participant Agreements are incorporated by
reference to Exhibit 10.6 of the Corporation's Annual Report on Form
10-K filed with the SEC for the year ended December 31, 2006 (SEC File
No. 000-33373)
10.5 Community Central Bank Death Benefit Plan, as amended, is incorporated
by reference to Exhibit 10.7 of the Corporation's Annual Report on
Form 10-K for the year ended December 31, 2006 (SEC File No.
000-33373)
10.6 Form of Incentive Stock Option Agreement incorporated by reference to
Exhibit 99.1 of the Corporation's Current Report on Form 8-K filed
with the SEC on March 25, 2005. (SEC File No. 000-33373)
10.7 Form of Non-qualified Stock Option Agreement is incorporated by
reference to the Corporation's Current Report on Form 8-K filed on
January 17, 2006. (SEC File No. 000-33373)
10.8 Summary of Current Director Fee Arrangements is incorporated by
reference to Exhibit 10.10 of the Corporation's Annual Report filed
with the SEC on Form 10-KSB for the year ended December 31, 2004. (SEC
File No. 000-33373)
11 Computation of Per Share Earnings
31.1 Rule 13a - 14(a) Certification (Chief Executive Officer)
31.2 Rule 13a - 14(a) Certification (Chief Financial Officer)
32 Rule 1350 Certifications
33