UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2004
--------------
Commission File No. 000-33373
COMMUNITY CENTRAL BANK CORPORATION
----------------------------------
(Exact name of small business issuer as specified in its charter)
Michigan 38-3291744
-------- ----------
(State or other jurisdiction of incorporation (IRS Employer Identification No.)
or organization)
100 North Main Street, PO Box 7, Mount Clemens, MI 48046-0007
-------------------------------------------------------------
(Address of principal executive offices and zip code)
(586) 783-4500
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(Issuer's telephone number)
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Class Outstanding at May 14, 2004
----- ---------------------------
Common Stock, $5 stated value 2,726,175 Shares
Transitional Small Business Disclosure Format:
Yes No X
--- ---
PART I
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
2004 2003
--------- ---------
Assets (In thousands)
Cash and due from banks $ 7,653 $ 5,127
Federal funds sold 500 1,100
--------- ---------
Cash and Cash Equivalents 8,153 6,227
--------- ---------
Securities available for sale, at fair value 44,995 57,135
Securities held to maturity, at amortized cost 858 895
FHLB stock 3,142 3,103
Residential mortgage loans held for sale 5,606 7,241
Loans
Residential mortgage loans 76,928 71,263
Commercial loans 208,150 189,099
Installment loans 11,544 10,466
--------- ---------
Total Loans 296,622 270,828
Allowance for credit losses (3,699) (3,573)
--------- ---------
Net Loans 292,923 267,255
--------- ---------
Net property and equipment 4,111 3,977
Accrued interest receivable 1,469 1,305
Other real estate owned 260 363
Goodwill 743 743
Core deposit intangible, net of amortization 218 248
Cash surrender value of Bank owned life insurance 7,313 7,222
Other assets 2,245 2,162
--------- ---------
Total Assets $ 372,036 $ 357,876
========= =========
(continued)
2
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
2004 2003
--------- ---------
Liabilities (In thousands, except share data)
Deposits
Noninterest bearing demand deposits $ 30,197 $ 33,814
NOW and money market accounts 40,120 41,484
Savings deposits 10,683 6,389
Time deposits 191,020 173,669
--------- ---------
Total deposits 272,020 255,356
--------- ---------
Repurchase agreements 11,518 12,836
Federal Home Loan Bank advances 52,374 54,374
Accrued interest payable 513 511
Other liabilities 624 752
ESOP note payable 253 271
Subordinated debentures 10,310 10,000
--------- ---------
Total Liabilities 347,612 334,100
--------- ---------
Stockholders' Equity
Common stock -- $5 stated value; 9,000,000 shares
authorized; 2,721,875 shares issued and
outstanding at 3-31-2004 and at 12-31-2003 13,609 13,609
Additional paid-in capital 5,308 5,308
Retained earnings 5,637 5,225
Unearned employee benefit (253) (271)
Accumulated other comprehensive income 123 (95)
--------- ---------
Total Stockholders' Equity 24,424 23,776
--------- ---------
Total Liabilities and Stockholders' Equity $ 372,036 $ 357,876
========= =========
3
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
2004 2003
------ ------
(In thousands, except per share data)
Interest Income
Loans (including fees) $4,147 $3,294
Securities 499 540
Federal funds sold 22 19
------ ------
Total Interest Income 4,668 3,853
------ ------
Interest Expense
Deposits 1,301 1,159
Short term borrowings 24 30
Advances from FHLB 450 445
ESOP loan interest expense 3 3
Interest expense of guaranteed preferred
beneficial interest in Corporation's
subordinated debentures 127 128
------ ------
Total Interest Expense 1,905 1,765
------ ------
Net Interest Income 2,763 2,088
Provision for credit losses 125 50
------ ------
Net Interest Income after Provision 2,638 2,038
------ ------
Noninterest Income
Deposit service charges 68 51
Net realized security gain 137 154
Mortgage banking income 1,254 1,278
Other income 139 33
------ ------
Total Noninterest Income 1,598 1,516
------ ------
Noninterest Expense
Salaries, benefits, and payroll taxes 1,859 1,861
Premises and fixed asset expense 361 288
Other operating expense 1,267 738
------ ------
Total Noninterest Expense 3,487 2,887
------ ------
Income Before Taxes 749 667
Provision for income taxes 201 193
------ ------
Net Income $ 548 $ 474
====== ======
(continued)
4
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Per share data:
Basic earnings $ 0.20 $ 0.18
Diluted earnings $ 0.20 $ 0.18
======== ========
Cash Dividends $ 0.05 $ 0.05
======== ========
5
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended
March 31,
2004 2003
----- -----
(In thousands)
Net Income as Reported $ 548 $ 474
Other Comprehensive Income, Net of Tax
Change in unrealized gain on securities
available for sale 218 (162)
----- -----
Comprehensive Income $ 766 $ 312
===== =====
6
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
Three Months Ended March 31,
2004 2003
-------- --------
(In thousands)
Operating Activities
Net income $ 548 $ 474
Adjustments to reconcile net income to net cash flow
from operating activities:
Net premium of security discount 80 231
Net gain on sales and call of securities (137) (154)
Provision for credit losses 125 50
Depreciation expense 117 93
Deferred income tax expense 200 (51)
ESOP compensation expense 18 12
(Increase) in accrued interest receivable (164) 11
(Increase) decrease in other assets (43) 463
Decrease (increase) in accrued interest payable 2 (2)
Decrease in other liabilities (128) (261)
Decrease (increase) in loans held for sale 1,635 (1,897)
-------- --------
Net Cash Provided by (Used in) Operating Activities 2,253 (1,031)
Investing Activities
Maturities, calls, sales and prepayments of securities available for sale 28,512 31,252
Purchase of securities available for sale (16,024) (35,427)
Maturities, calls, and prepayments of investment securities 37 193
Purchases of investment securities -- (100)
(Increase) in loans (25,793) (12,634)
Purchases of property and equipment (251) (1,717)
-------- --------
Net Cash Used in Investing Activities (13,519) (18,433)
Financing Activities
Net (decrease) increase in demand and savings deposits (687) 8,764
Net increase in time deposits 17,351 12,055
Net decrease in short term borrowings (1,318) 1,445
(Decrease) increase in FHLB advances (2,000) 2,000
Repayment of capitalized lease obligation -- (951)
Payment of ESOP debt (18) (13)
Stock option exercise/award -- 318
Cash dividends paid (136) (134)
Repurchase of common stock -- (196)
-------- --------
Net Cash Provided by Financing Activities 13,192 23,288
-------- --------
Increase in Cash and Cash Equivalents 1,926 3,824
Cash and Cash Equivalents at the Beginning of the Year 6,227 9,405
-------- --------
Cash and Cash Equivalents at the End of the Period $ 8,153 $ 13,229
======== ========
Supplemental Disclosure of Cash Flow Information:
Interest Paid $ 1,903 $ 1,767
Federal Taxes Paid $ -- $ --
======== ========
7
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").
Following are the Corporation's Consolidated Balance Sheets as of March
31, 2004 and December 31, 2003, and Consolidated Statements of Income and
Comprehensive Income for the three month periods ended March 31, 2004 and
2003, and Consolidated Statements of Cash Flow for the three months ended
March 31, 2004 and 2003. These unaudited financial statements are for
interim periods, and do not include all disclosures normally provided with
annual financial statements. The interim statements should be read in
conjunction with the financial statements and footnotes contained in the
Corporation's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2003.
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 Credit Losses: The allowance for credit 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 and anticipated
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.
8
3. The Corporation did not issue incentive options during the three months
ended March 31, 2004, and the first quarter of 2003. If the Corporation
had used the fair value method of accounting, using the Black Scholes
option pricing model and recognizing compensation cost for the plan based
on the fair market value of the grant date, net income and earnings per
share on a pro forma basis would have been as follows:
Three Months Ended
March 31,
2004 2003
------- -------
(in thousands, except per share data)
Net income, as reported $ 548 $ 474
Deduct: Total stock-based employee and director
compensation expense under fair value based
methods of awards, net of related tax effects (18) (28)
------- -------
Pro forma net income $ 530 $ 446
======= =======
Earnings per share
Basic - as reported $ 0.20 $ 0.18
Basic - pro forma $ 0.20 $ 0.17
Diluted - as reported $ 0.20 $ 0.18
Diluted - pro forma $ 0.19 $ 0.18
The fair value of each option grant is estimated on the date of grant using the
Black Scholes option pricing model with the following weighted average
assumptions. The assumptions listed below were used in 2003, with no practical
changes during the first three months of each respective period.
Three Months Ended
March 31,
2004 2003
----- -----
Dividend yield or expected dividends 1.49% 2.03%
Risk free interest rate 4.00% 4.00%
Expected life 7 - 10 yrs. 10 yrs.
Expected volatility 9.60% 21.92%
9
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, 2004 and December 31, 2003 and the
results of operations for the three months ended March 31, 2004 and 2003. 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 include changes in interest rate and interest rate relationships;
demand for products and services; the degree of competition by traditional and
non-traditional competitors; changes in banking regulation; changes in tax laws;
changes in accounting standards; changes in prices, levies, and assessments; the
impact of technological advances; governmental and regulatory policy changes;
the outcomes of contingencies; trends in customer behavior as well as their
ability to repay loans; changes in the national and local economy; our ability
to successfully integrate acquisitions into our existing operations, and the
availability of new acquisition's that build shareholder value; and other
factors, including risk factors, referred to from time to time in filings made
by the Corporation with the Securities and Exchange Commission.
10
ASSETS
The Corporation's total assets increased by $13.8 million, to $371.7 million at
March 31, 2004, compared to $357.9 million at December 31, 2003. The largest
segment of asset growth occurred in the loan portfolio which increased $25.8
million from December 31, 2003. Loan growth was comprised of both commercial and
industrial loans and commercial real estate loans increasing $7.7 million and
$11.3 million, respectively. Loan growth occurred in the first quarter primarily
from the expanded pipeline from 2003 as a result of increased focus on
structured calling programs and closing approved loans.
The security portfolio decreased by $12.2 million to $45.9 million at March 31,
2004, compared to $58.0 million at December 31, 2003. The decrease in the
security portfolio was primarily due to a restructuring program resulting in
sales of securities available for sale to reduce the overall duration of the
portfolio.
The following table shows the amortized cost and estimated fair value of the
Corporation's security portfolio as of the dates indicated. On the balance
sheet, securities that the Corporation has the ability and intent to hold to
maturity are stated at cost, adjusted for amortization of premium or accretion
of discount. Securities available for sale are shown on the balance sheet at
estimated fair value.
March 31, 2004
------------------------------------------------------------------
Amortized Unrealized Fair
Cost Gains Losses Value
--------- ------- ------- -------
(in thousands)
Securities Available for Sale
United States Government agencies $15,460 $ 16 $ -- $15,476
Mortgage backed securities 4,321 9 (29) 4,301
Collateralized mortgage obligations 13,801 98 (36) 13,863
Municipal securities 10,728 154 (31) 10,851
Mutual fund 500 4 -- 504
------- ------- ------- -------
Total Securities Available for Sale 44,810 281 (96) 44,995
------- ------- ------- -------
Held to Maturity Securities
Mortgage backed securities 858 70 -- 928
------- ------- ------- -------
Total Held to Maturity Securities 858 70 -- 928
------- ------- ------- -------
Total Securities $45,668 $ 351 $ (96) $45,923
======= ======= ======= =======
11
December 31, 2003
------------------------------------------------------------------
Amortized Unrealized Fair
Cost Gains Losses Value
--------- ------- ------- -------
(in thousands)
Securities Available for Sale
United States Government agencies $21,797 $ 25 $ (130) $21,692
Mortgage backed securities 7,916 85 (54) 7,947
Collateralized mortgage obligations 15,400 21 (85) 15,336
Municipal securities 11,666 133 (135) 11,664
Mutual fund 500 -- (4) 496
------- ------- ------- -------
Total Securities Available for Sale 57,279 264 (408) 57,135
------- ------- ------- -------
Held to Maturity Securities
Mortgage backed securities 895 53 -- 948
------- ------- ------- -------
Total Held to Maturity Securities 895 53 -- 948
------- ------- ------- -------
Total Securities $58,174 $ 317 $ (408) $58,083
======= ======= ======= =======
12
Mortgage loans held for sale totaled $5.6 million at March 31, 2004 compared to
$7.2 million at December 31, 2003. The mortgage loans were originated by the
Bank's mortgage subsidiary, which started operations July 9, 2001. Loans closed
generally remain in loans held for sale for less than 30 days in duration. Loans
are normally committed for sale before funding takes place.
The Corporation makes loans to customers primarily in Macomb County, Michigan.
Although the Corporation has a diversified loan portfolio, a substantial portion
of the local economy has traditionally been dependent on the automotive
industry. Accordingly, a downturn in the automotive industry could adversely
affect a borrower's ability to repay its loan. Additionally, the Corporation had
approximately $53.6 million in outstanding loans at March 31, 2004, to borrowers
in the real estate rental and property management industries, representing
approximately 26% of the total commercial loan portfolio.
A summary of nonperforming assets is as follows:
March 31, December 31,
2004 2003
--------- ------------
Impaired loans: (In thousands)
Nonaccrual
Commercial $2,194 $ 365
Residential real estate -- --
Installment -- --
------ ------
Total nonaccrual loans 2,194 365
Loans past due 90 days and still accruing interest:
Commercial -- --
Residential real estate 116 116
Installment -- 3
------ ------
Total loans past due 90 days and
still accruing interest 116 119
------ ------
Other real estate owned 260 363
------ ------
Total nonperforming assets $2,570 $ 847
====== ======
Total nonperforming loans as a
percentage of total loans 0.78% 0.18%
====== ======
Total nonperforming assets as a percentage
of total assets 0.69% 0.24%
====== ======
The increase in nonperforming loans was primarily due to loans acquired at a
discount from the purchase and assumption of North Oakland Community Bank. The
Corporation considers a loan impaired when it is probable that not all of the
interest and principal will be collected in accordance with the contractual
terms of the loan agreement. Consistent with this definition, all nonaccrual and
reduced-rate loans (with the exception of residential mortgages and consumer
loans) are considered impaired. At March 31, 2004, loans totaling $2.6 million,
with $2.1 million to a single borrower, are not referenced in the above table
where known information about possible credit problems of the borrowers caused
management to have serious doubts as to the ability of the borrowers to fully
comply with the present loan repayment terms and which may result in disclosure
of such loans in the future. The $2.1 million loan relationship to single
borrower is secured by real estate and contract receivables. In May of 2004, the
Bank became aware that the borrower has severe financial difficulties. The
portion of the relationship collateralized by contract receivables had been
reported as a "Watch" loan credit. Loans secured by contract receivables
typically carry more risk than other types of collateral. Management and Board
will continue to monitor and manage this loan relationship.
13
The following table shows an analysis of the allowance for credit losses:
March 31, December 31,
2004 2003
------- -------
(Dollars in thousands)
Allowance for credit losses at
beginning of period $ 3,573 $ 3,377
Provision charged to expense 125 275
Loans charged off (3) (123)
Loans recovered 4 44
------- -------
Allowance for credit losses at end of period $ 3,699 $ 3,573
======= =======
Allowance for credit losses as a percentage
of total loans 1.25% 1.32%
The allowance for credit losses as a percentage of total loans, was 1.25% at
March 31, 2004, versus 1.32% at December 31, 2003. In each accounting period,
management evaluates the problems and potential losses in the loan portfolio.
Consideration is also given to off-balance sheet items that may involve credit
risk, such as commitments to extend credit and financial guarantees.
Management's evaluation of the allowance is further based on consideration of
actual loss experience, the present and prospective financial condition of
borrowers, adequacy of collateral, industry concentrations within the portfolio,
and general economic conditions. Management believes that the present allowance
is adequate, based on the broad range of considerations listed above.
The primary risk element considered by management regarding each installment and
residential real estate loan is lack of timely payment. Management has a
reporting system that monitors past due loans and has adopted policies to pursue
its creditor's rights in order to preserve the Bank's position. The primary risk
elements concerning commercial loans are the financial condition of the
borrower, the sufficiency of collateral, and lack of timely payment. Management
has a policy of requesting and reviewing financial statements from its
commercial loan customers, and periodically reviews the condition and value of
the collateral securing the loans.
Although management believes that the allowance for credit losses is adequate to
absorb losses as they arise, there can be no assurance that the Corporation will
not sustain losses in any given period that could be substantial in relation to
the size of the allowance for credit losses.
14
LIABILITIES
During the three months ended March 31, 2004, total deposits increased $16.6
million to $272.0 million. The increase in deposits was attributable to
increases in certificates of deposit and savings accounts of $17.4 million and
$4.3 million, respectively. This growth was partially offset by decreases in
demand, money market and NOW accounts of $5.0 million. The growth in
certificates of deposit was aided by increases in local municipal deposits and
the use of brokered deposits and internet based certificates of deposit. At
March 31, 2004 the Corporation had $38.2 million in brokered certificates of
deposit and $24.6 million in internet certificates of deposit. See "Liquidity
and Capital Resources" below. The Corporation has been utilizing Federal Home
Loan Bank ("FHLB") advances to better match against interest rate risk as
described below.
Short term borrowings at March 31, 2004 consisted of short term FHLB advances of
$12.0 million and securities sold with an agreement to repurchase them the
following day of $11.5 million. Following are details of our short term
borrowings for the dates indicated:
March 31, December 31,
2004 2003
----------- -----------
(Dollars in thousands)
Amount outstanding at end of period $23,518 $31,836
Weighted average interest rate on ending balance 1.31% 1.39%
Maximum amount outstanding at any month end
during the period $33,093 $38,106
In June 2001, the Corporation started to borrow long-term advances from the FHLB
to fund fixed rate instruments and to minimize the interest rate risk associated
with certain fixed rate commercial mortgage loans and investment securities.
These advances are secured under a blanket security agreement by first mortgage
loans and the pledging of certain securities.
FHLB advances outstanding at March 31, 2004 were as follows:
Ending Average rate
Balance at end of period
------- ----------------
(Dollars in thousands)
Short-term FHLB advances $12,000 1.86%
Long-term FHLB advances 40,374 3.78%
------ ------
$52,374 3.34%
Long-term advances were comprised twenty-three advances with maturities ranging
from May 2005 to December 2012.
15
LIQUIDITY AND CAPITAL RESOURCES
The liquidity of a bank allows it to provide funds to meet loan requests, to
accommodate possible outflows in deposits, and to take advantage of other
investment opportunities. Funding of loan requests, providing for liability
outflows, and managing interest rate margins require continuous analysis to
match the maturities of specific categories of loans and investments with
specific types of deposits and borrowings. Bank liquidity depends upon the mix
of the banking institution's potential sources and uses of funds. 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 $22.5 million in available
unsecured federal funds borrowing facilities, and a $75.0 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, 2004,
unused commitments comprised $60.9 million. The Bank has $136.6 million in time
deposits coming due within the next twelve months from March 31, 2004. At March
31, 2004, the Bank had $38.2 million in brokered certificates of deposit, of
which $19.3 million is due within one year or less. On February 17, 2004, the
Corporation's Board of Directors declared the Corporation's ninth consecutive
quarterly cash dividend of $0.05 per common share, payable April 1, 2004, to
shareholders of record March 1, 2004.
On April 19, 2004, the Corporation's Board of Directors declared a 5% stock
dividend, payable June 1, 2004 to shareholders of record May 3, 2004.
Following are selected capital ratios for the Corporation and the Bank as of the
dates indicated, along with the minimum regulatory requirement for each item.
Capital requirements for bank holding companies are set by the Federal Reserve
Board. In many cases, bank holding companies are expected to operate at capital
levels higher than the minimum requirement.
March 31, December 31, Minimum Ratio
2004 2003 for Capital
-------------- -------------- Adequacy Ratio to be
Capital Ratio Capital Ratio Purposes "Well Capitalized"
------- ----- ------- ----- -------- ------------------
Total capital to risk-weighted assets
Consolidated $36,983 12.69% $36,266 13.39% 8% 10%
Bank only 33,604 11.53% 32,808 12.14% 8% 10%
Tier I capital to risk-weighted assets
Consolidated $31,119 10.68% $30,505 11.27% 4% 6%
Bank only 29,960 10.28% 29,427 10.89% 4% 6%
Tier I capital to average assets
Consolidated $31,119 8.38% $30,505 8.56% 4% NA
Bank only 29,960 8.08% 29,427 8.27% 4% 5%
Community Central Capital Trust I, a business trust subsidiary of the
Corporation sold 10,000 shares of cumulative preferred securities ("trust
preferred securities") at $1,000.00 per trust preferred security in June 2002.
The proceeds from the sale of the trust preferred securities were used by the
trust to purchase an equivalent amount of subordinated debentures from the
Corporation. The trust preferred securities carry a variable rate of interest at
the three month libor plus 365 basis points, have a stated maturity of 30 years,
and, in effect, are guaranteed by the Corporation. The securities are redeemable
at par after 5 years. Distributions on the trust preferred securities are
payable quarterly on March 30, June 30, September 30 and December 30. The first
distribution was paid on September 30, 2002 and distributions have been made
quarterly ever since. Under certain circumstances, distributions may be deferred
for up to 20 calendar quarters. However, during any such deferrals, interest
accrues on any unpaid distributions at the rate of the three month libor plus
365 basis points. The trust preferred securities are carried on the
Corporation's consolidated balance sheet as a liability and the interest expense
is recorded on the Corporation's consolidated statement of income.
16
The trust preferred securities qualify for up to 25% of tier I capital. Any
amount in excess of this limit may be included in tier 2 capital. Prior to 2004,
the trust was consolidated in the Corporation's financial statements, with the
trust preferred securities issued by the trust reported in liabilities as
"Guaranteed Preferred Beneficial Interest in the Corporation's Subordinated
Debentures" and the subordinated debentures eliminated in consolidation. Under
new accounting guidance, FASB Interpretation No. 46, as revised in December
2003, the trust is no longer consolidated with the Corporation, accordingly, the
Corporation does not report the securities issued by the trust as liabilities,
and instead reports as liabilities the subordinated debentures issued by the
Corporation and held by the trust, as these are no longer eliminated in
consolidation. Amounts previously reported as "Guaranteed preferred beneficial
interest in Corporation's subordinated debentures" in liabilities have been
recaptioned "subordinated debentures" and continue to be presented in
liabilities on the balance sheet. The effect of no longer consolidating the
trust does not significantly change the amounts reported as the Corporation's
assets, liabilities, equity, or interest expense.
17
The following table shows the changes in stockholders' equity for the three
months ended March 31, 2004:
Accumulated
Additional Unearned Other
Common Paid-In Retained Employee Comprehensive Total
Stock Capital Earnings Benefits Income/(Loss) Equity
---------- ---------- ---------- ---------- ---------- ----------
Beginning balance, January 1 $ 13,609 $ 5,308 $ 5,225 $ (271) $ (95) $ 23,776
Cash dividend -- -- (136) -- -- (136)
Net income -- -- 548 -- -- 548
Release of ESOP shares -- -- -- 18 -- 18
Change in unrealized gain/loss -- -- -- -- 218 218
---------- ---------- ---------- ---------- ---------- ----------
Balance March 31, 2004 $ 13,609 $ 5,308 $ 5,637 $ (253) $ 123 $ 24,424
========== ========== ========== ========== ========== ==========
NET INTEREST INCOME
For the quarter ended March 31, 2004, net interest income increased by 32%, or
$675,000, over the first quarter of 2003. This increase was primarily
attributable to an expanded interest earning asset base, which was aided by an
increased net interest margin. The net interest margin was positively impacted
by the growth in the loan portfolio versus a stable cost of liability funding.
During most of 2002 and 2003, the margin was negatively affected by refinancing
and the removal of interest rate floors on loans from competitive pressures. The
Corporation continues to utilize advances from the Federal Home Loan Bank to
control interest rate risk when funding longer term fixed rate loans and
investments. The net interest margin increased for the first quarter 2004 to
3.13% compared with 2.92% for the first quarter of 2003. The net interest margin
for the first quarter 2004 on a fully taxable equivalent basis was 3.19%
compared to the first quarter of 2003 at 2.99%.
18
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, 2004 vs. 2003
----------------------------------------
Increase (Decrease)
Due to Changes In
-------------------------
Volume
Total and Both Rate
---------- ---------- ----------
(in thousands)
Earning Assets - Interest Income
Federal funds sold $ 3 $ 3 $ --
Securities (41) (67) 26
Loans 853 1,040 (187)
---------- ---------- ----------
Total 815 976 (161)
---------- ---------- ----------
Deposits and Borrowed Funds - Interest Expense
NOW and money market accounts (12) 25 (37)
Savings deposits 15 9 6
Time deposits 139 318 (179)
FHLB and repo sweeps (1) 86 (87)
Lease and ESOP -- (1) 1
Subordinated debentures (1) -- (1)
---------- ---------- ----------
Total 140 437 (297)
---------- ---------- ----------
Net Interest Income $ 675 $ 539 $ 136
========== ========== ==========
19
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, 2004 and 2003. Average loans
are presented net of unearned income, gross of the allowance for credit losses.
Interest on loans includes loan fees. Average securities are based on amortized
cost.
Three Months Ended March 31,
---------------------------------- --------------------------------
2004 2003
---------------------------------- --------------------------------
Average Average
Interest Rate Interest Rate
Average Income/ Earned/ Average Income/ Earned/
Balance Expense Paid Balance Expense Paid
-------- -------- -------- -------- -------- --------
(In thousands)
Assets
Federal funds sold $ 7,489 $ 22 1.18% $ 6,316 $ 19 1.20%
Securities 54,051 499 3.69 61,302 540 3.52
Loans 291,751 4,147 5.69 218,598 3,294 6.03
-------- -------- -------- -------- -------- --------
Total Earning Assets/
Total Interest Income 353,291 4,668 5.29 286,216 3,853 5.38
-------- -------- -------- -------- -------- --------
Cash and due from banks 6,756 5,533
All other assets 12,466 3,378
-------- --------
Total Assets $372,513 $295,127
======== ========
Liabilities and Equity
NOW and money market accounts $ 42,527 107 1.01 $ 32,706 119 1.46
Savings deposits 8,905 25 1.12 5,612 10 0.71
Time deposits 184,259 1,169 2.54 134,100 1,030 3.07
FHLB and repurchase agreements 68,564 474 2.77 56,158 475 3.38
Capitalized lease and ESOP 264 3 4.55 337 3 3.56
Subordinated debentures 10,000 127 5.08 10,000 128 5.12
-------- -------- -------- -------- -------- --------
Total Interest Bearing Liabilities/
Total Interest Expense / Interest Rate Spread 314,519 1,905 2.42 238,913 1,765 2.96
-------- -------- -------- -------- -------- --------
Noninterest bearing demand deposits 32,525 33,276
All other liabilities 1,386 926
Stockholders' equity 24,083 22,012
-------- --------
Total Liabilities and Stockholder's Equity $372,513 $295,127
======== ========
Net Interest Income $ 2,763 $ 2,088
======== ========
Net Interest Margin (Net Interest
Income/Total Earning Assets) 3.13% 2.92%
======== ========
Net Interest Margin
(fully taxable equivalent) 3.19% 2.99%
======== ========
20
NONINTEREST INCOME
Noninterest income increased by $82,000, or 5.4%, for the first quarter of 2004
versus the first quarter of 2003. The largest component of noninterest income is
mortgage banking income. Mortgage banking income decreased $24,000, or 2.0%, to
$1.3 million for the quarter ended March 31, 2004 compared to the same period in
2003.
Net security gains of $137,000 for the first quarter of 2004 were comprised of
$191,000 in gross gains and $54,000 in security losses on securities classified
as "available for sale." Gains and losses were the result of portfolio
restructuring to shorten the overall duration of the portfolio.
NONINTEREST EXPENSE
Noninterest expense increased over the first quarter 2003 by $600,000, or 21% to
$3.5 million in the first quarter of 2004. Increases in expense were primarily
due to costs associated with operating the new Rochester Hills location of
$191,000, which was more than offset by the net interest income and other
non-interest income generated by the branch. Other increases in non-interest
expense for the quarter were attributable to other real estate owned, with
expenses related to the write down of net realizeable value and other carrying
costs representing an $82,000 increase. Additionally, increases in noninterest
expense represent increased costs associated with an expanding banking and
mortgage operations in areas such as printing and office supply, consulting,
single business tax, legal expense connected with loan workouts, and
amortization of the core deposit intangible from the North Oakland Community
Branch purchase and assumption.
21
ASSET/LIABILITY MANAGEMENT
The Corporation's Asset Liability Management Committee ("ALCO"), which meets at
least quarterly, is responsible for reviewing the interest rate sensitivity
position of the Corporation 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 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.
22
The following table presents an analysis of our interest-sensitivity gap
position at March 31, 2004. All interest-earning assets and interest-bearing
liabilities are shown based on the earlier of their contractual maturity or
repricing dated 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, 2004, the Corporation is considered asset sensitive in
the time interval of the first three months. The Corporation is 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
---------- ---------- ---------- ---------- ----------
(in thousands)
Interest earning assets:
Federal funds sold $ 500 $ -- $ -- $ -- $ 500
Securities 19,446 4,799 12,686 8,737 45,668
FHLB stock -- -- -- 3,142 3,142
Portfolio loans and
held for resale 145,044 18,734 103,785 34,665 302,228
---------- ---------- ---------- ---------- ----------
Total 164,990 23,533 116,471 46,544 $ 351,538
---------- ---------- ---------- ---------- ==========
Interest bearing liabilities:
NOW and money market
accounts 5,870 17,421 16,829 -- $ 40,120
Savings deposits 855 2,670 7,158 -- 10,683
Jumbo time deposits 65,711 38,514 24,841 2,248 131,314
Time deposits < $100,000 17,987 20,706 21,013 -- 59,706
Repurchase agreements 11,518 -- -- -- 11,518
FHLB and repo sweeps 8,000 4,000 29,874 10,500 52,374
Capitalized lease obligation
and ESOP payable 253 -- -- -- 253
Subordinated debentures 10,000 -- -- -- 10,000
---------- ---------- ---------- ---------- ----------
Total 120,194 83,311 99,715 12,748 $ 315,968
---------- ---------- ---------- ---------- ==========
Interest rate sensitivity gap $ 44,796 $ (59,778) $ 16,756 $ 33,796
Cumulative interest rate
sensitivity gap $ (14,982) $ 1,774 $ 35,570
Interest rate sensitivity gap
ratio 1.37 0.28 1.17 3.65
Cumulative interest rate
sensitivity gap ratio 0.93 1.01 1.11
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 the timing, magnitude,
and frequency of interest rate changes, changes in market conditions,
management's pricing decisions, and customer reactions to those decisions, among
other factors.
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
23
management to evaluate the effects of shifts in the Treasury Yield curve, upward
and downward, on net interest income expected in a stable interest rate
environment.
As of December 31, 2003, the most recent and available analysis, the simulation
model projects net interest income would increase by 10 basis points of the base
net interest income, assuming an instantaneous parallel shift upward in the
yield curve by 200 basis points. Conversely, if the yield curve were to decrease
by 200 basis points, the model projects net interest income would decrease by 44
basis points. This simulation projected less than one percent change in net
interest income in both the upward and downward hypothetical shift.
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, 2004, 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 report 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(b) of the Act) that occurred during the quarter ended
March 31, 2004, that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
24
PART II
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY
SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Cash Dividend - On February 17, 2004, the Corporation's Board of Directors
declared the Corporation's eighth quarterly cash dividend of $0.05 per common
share, payable April 1, 2004, to shareholders of record March 1, 2004.
Stock Dividend - On April 19, 2004, the Corporation's Board of Directors
declared a 5% stock dividend payable June 1, 2004, to shareholder of record May
3, 2004.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits: See Exhibit Index attached.
(b) Reports on Form 8-K during the quarter ended March 31, 2004: None
25
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized, on May 14, 2004.
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)
26
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
3.1 Articles of Incorporation are incorporated by reference to exhibit
3.1 of the Corporation's Registration Statement on Form SB-2
(Commission File Number 333-04113) which became effective on
September 23, 1996
3.2 Bylaws of the Corporation, as amended and currently in effect, are
incorporated by reference to exhibit 3.2 of the Corporation's
Quarterly Report filed with the SEC on Form 10-QSB for the quarter
ended March 31, 2003 (Commission File Number 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 (Commission File No. 333-4113)
which became effective on September 23, 1996
10.1 1996 Employee Stock Option Plan is incorporated by reference to
exhibit 10.1 of the Corporation's Registration Statement on Form
SB-2 (Commission File No. 333-04113) which became effective
September 23, 1996
10.2 1996 Stock Option Plan for Nonemployee Directors is incorporated by
reference to exhibit 10.2 of the Corporation's Registration
Statement on Form SB-2 (Commission File No. 333-04113) which became
effective September 23, 1996
10.3 1999 Stock Option Plan for Directors in incorporated by reference to
exhibit 10.5 of the Corporation's Annual Report filed with the SEC
on Form 10-KSB for the year ended December 31, 1999 (Commission File
No. 000-33373)
10.4 2000 Employee Stock Option Plan is incorporated by reference to
exhibit 10.6 of the Corporation's Annual Report filed with the SEC
on Form 10-KSB for the year ended December 31, 2000 (Commission File
No. 000-33373)
10.5 2002 Incentive Plan is incorporated by reference to exhibit 10.7 of
the Corporation's Annual Report filed with the SEC on Form 10-KSB
for the year ended December 31, 2001 (Commission File No. 000-33373)
10.6 Community Central Bank Supplemental Executive Retirement Plan is
incorporated by reference to exhibit 10.6 of the Corporation's Form
10-QSB filed with the SEC for the quarter ended June 20, 3003
(Commission File No. 000-3373)
10.7 Community Central Bank Death Benefit Plan is incorporated by
reference to exhibit 10.7 of the Corporation's Form 10-QSB filed
with the SEC for the quarter ended June 20, 3003 (Commission File
No. 000-3373)
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
27