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 June 30, 2006
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 Identification
or organization) 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, or a non-accelerated filer. See definition of "accelerated
filer" and "large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
One):
Large accelerated filer Accelerated filer Non-accelerated filer X
--- --- ---
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 August 11, 2006
----- ------------------------------
Common Stock 3,851,790 Shares
1
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
PART I
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
June 30,
2006 December 31,
(Unaudited) 2005
----------- --------------
(In thousands)
Assets
Cash and due from banks $ 9,025 $ 8,000
Federal funds sold 1,000 3,000
-------- --------
Cash and Cash Equivalents 10,025 11,000
-------- --------
Securities available for sale, at fair value 93,988 84,177
Securities held to maturity, at amortized cost 1,049 1,094
FHLB stock 4,630 4,331
Residential mortgage loans held for sale 3,166 4,286
Loans
Commercial loans 254,680 228,101
Residential loans 100,750 93,146
Installment loans 13,053 13,704
-------- --------
Total Loans 368,483 334,951
Allowance for loan losses (3,670) (3,580)
-------- --------
Net Loans 364,813 331,371
-------- --------
Net property and equipment 9,111 8,753
Accrued interest receivable 2,364 2,122
Other real estate 81 112
Goodwill 1,381 1,381
Intangible assets, net of amortization 175 210
Cash surrender value of Bank Owned Life insurance 10,053 9,820
Other assets 3,601 3,355
-------- --------
Total Assets $504,437 $462,012
======== ========
(continued)
2
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
CONSOLIDATED BALANCE SHEETS
June 30,
2006 December 31,
(Unaudited) 2005
----------- ------------
(In thousands, except
share data)
Liabilities
Deposits
Noninterest bearing demand deposits $ 36,412 $ 31,979
NOW and money market accounts 35,982 41,167
Savings deposits 11,604 12,832
Time deposits 268,582 228,395
-------- --------
Total deposits 352,580 314,373
-------- --------
Repurchase agreements and fed funds purchased 10,790 13,184
Federal Home Loan Bank advances 92,545 86,545
Accrued interest payable 1,290 938
Other liabilities 1,052 982
ESOP note payable 121 148
Subordinated debentures 10,310 10,310
-------- --------
Total Liabilities 468,688 426,480
-------- --------
Stockholders' Equity
Common stock -- 9,000,000 shares authorized;
3,851,790 shares issued and outstanding at
6-30-2006 and 3,648,885 at 12-31-2005 33,472 31,154
Retained earnings 4,022 5,245
Unearned employee benefit (121) (148)
Accumulated other comprehensive (loss) income (1,624) (719)
-------- --------
Total Stockholders' Equity 35,749 35,532
-------- --------
Total Liabilities and Stockholders' Equity $504,437 $462,012
======== ========
3
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
2006 2005 2006 2005
------ ------ ------- -------
(In thousands, except per share data)
Interest Income
Loans (including fees) $6,710 $5,152 $12,738 $ 9,973
Taxable securities 809 556 1,580 1,028
Tax exempt securities 321 146 599 234
Federal funds sold 24 48 61 94
------ ------ ------- -------
Total Interest Income 7,864 5,902 14,978 11,329
------ ------ ------- -------
Interest Expense
Deposits 3,275 1,842 5,975 3,396
Short term borrowings 95 39 188 78
Advances from FHLB 1,029 647 1,988 1,210
ESOP loan interest expense 2 3 5 6
Interest expense of subordinated debentures 232 182 447 347
------ ------ ------- -------
Total Interest Expense 4,633 2,713 8,603 5,037
------ ------ ------- -------
Net Interest Income 3,231 3,189 6,375 6,292
Provision for credit losses 125 -- 175 100
------ ------ ------- -------
Net Interest Income after Provision 3,106 3,189 6,200 6,192
------ ------ ------- -------
Noninterest Income
Fiduciary income 65 -- 132 --
Deposit service charges 88 78 170 148
Net realized security gain (loss) -- 20 -- 50
Mortgage banking income 966 914 1,820 1,616
Other income 183 164 382 308
------ ------ ------- -------
Total Noninterest Income 1,302 1,176 2,504 2,122
------ ------ ------- -------
Noninterest Expense
Salaries, benefits, and payroll taxes 2,066 1,765 4,171 3,519
Premises and fixed asset expense 447 397 913 753
Other operating expense 1,128 1,039 1,973 1,818
------ ------ ------- -------
Total Noninterest Expense 3,641 3,201 7,057 6,090
------ ------ ------- -------
Income Before Taxes 767 1,164 1,647 2,224
Provision for income taxes 136 334 313 642
------ ------ ------- -------
Net Income $ 631 $ 830 $ 1,334 $ 1,582
====== ====== ======= =======
(continued)
4
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Per share data:
Basic earnings $0.16 $0.23 $0.35 $0.46
Diluted earnings $0.16 $0.23 $0.34 $0.44
----- ----- ----- -----
Cash Dividends $0.06 $0.05 $0.12 $0.10
===== ===== ===== =====
* Per share data has been retroactively adjusted for 2006 stock dividend.
5
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
2006 2005 2006 2005
------ ------ ------ ------
(In thousands)
Net Income as Reported $ 631 $ 830 $1,334 $1,582
Other Comprehensive Income, Net of Tax
Change in unrealized losses on securities
Available for sale (777) 231 (905) (140)
------ ------ ------ ------
Comprehensive Income ($146) $1,061 $ 429 $1,442
====== ====== ====== ======
6
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
Six Months Ended June 30,
-------------------------
2006 2005
-------- --------
(In thousands)
Operating Activities
Net income $ 1,334 $ 1,582
Adjustments to reconcile net income to net cash flow
from operating activities:
Net amortization of security premium 107 146
Net gain on sales and call of securities -- (49)
Provision for credit losses 175 100
Depreciation expense 338 251
Deferred income tax expense 100 130
SFAS 123R option expense 12 --
ESOP compensation expense 27 25
Decrease in accrued interest receivable (242) (257)
(Increase) decrease in other assets (58) 1
Increase in accrued interest payable 352 287
Increase in other liabilities 70 37
Decrease in loans held for sale 1,121 2,405
-------- --------
Net Cash Provided by Operating Activities 3,336 4,658
Investing Activities
Maturities, calls, sales and prepayments of securities
available for sale 4,788 15,760
Purchase of securities available for sale (16,049) (25,805)
Maturities, calls, and prepayments of held to maturity
securities 83 34
Purchases of held to maturity securities (354) (401)
Increase in loans (33,618) (16,924)
Purchases of property and equipment (696) (1,808)
-------- --------
Net Cash Used in Investing Activities (45,846) (29,144)
Financing Activities
Net (decrease) increase in demand and savings deposits (1,980) 1,137
Net increase in time deposits 40,187 22,846
Net decrease in short term borrowings (2,394) (2,502)
Increase in FHLB advances 6,000 7,200
Rights/Public stock offering -- 5,275
Payment of ESOP debt (27) (25)
Stock option exercise/award 203 103
Cash dividends paid (454) (342)
-------- --------
Net Cash Provided by Financing Activities 41,535 33,692
-------- --------
(Decrease) increase in Cash and Cash Equivalents (975) 9,206
Cash and Cash Equivalents at the Beginning of the Year 11,000 7,183
-------- --------
Cash and Cash Equivalents at the End of the Period $ 10,025 $ 16,389
======== ========
Supplemental Disclosure of Cash Flow Information:
Interest Paid $ 8,251 $ 5,037
Federal Taxes Paid $ 185 $ 450
======== ========
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 June 30,
2006 and December 31, 2005, and Consolidated Statements of Income and
Comprehensive Income for the six month periods ended June 30, 2006 and
2005, and Consolidated Statements of Cash Flow for the six months ended
June 30, 2006 and 2005. 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, 2005.
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. 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.
The trust preferred securities may constitute up to 25% of tier I capital.
Any amount in excess of this limit may be included as tier 2 capital. At
June 30, 2006, the total allowable trust preferred issuance of $10 million
was included in the Corporation's tier 1 capital.
4. In December 2004, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 (revised 2004), Sharebased
Payment, (SFAS 123R), which requires entities to measure the cost of
employee services received in exchange for an award of equity instruments
based on the grant-date fair value of the award (with limited exceptions).
The cost is recognized as an expense over the period during which the
employee is required to provide service in exchange for the award, which is
usually the vesting period. As
8
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
required by SFAS 123R, as with SFAS 123, the Corporation is required to
estimate the fair value of all stock options on each grant date, using an
appropriate valuation approach such as the Black-Scholes option pricing
model. The provisions of this statement are effective for the Corporation
beginning January 1, 2006.
The Corporation did not issue options during the six months ended June 30,
2006 or 2005. The total amount of options outstanding at June 30, 2006 was
282,417 shares at a weighted average exercise price of $9.10 per share.
During the six months ended June 30, 2006, 17,866 options were exercised at
an exercise price of $7.67 per share. The Corporation recognized
compensation expense, using the Black Scholes option-pricing model, of
$6,000 and $12,000 for the second quarter and six months ended June 30,
2006, respectively for the options vesting in 2006 based on the fair market
value of the grant date. The net income and earnings per share for the
second quarter and six months ended June 30, 2005, on a pro forma basis,
are disclosed for comparison below.
Three Months Six Months
Ended Ended
June 30, June 30,
------------- ---------------
2006 2005 2006 2005
----- ----- ------ ------
(in thousands, except
per share data)
Net income, as reported $ 631 $ 830 $1,334 $1,582
Add: Stock-based employee compensation expense,
net of related tax effects, included in
reported net income (6) -- (12) --
Deduct: Total stock-based employee and director
compensation expense under fair value based
methods of awards, net of related tax effects 6 (31) 12 (62)
----- ----- ------ ------
Pro forma net income $ 631 $ 799 $1,334 $1,520
===== ===== ====== ======
Earnings per share
Basic - as reported $0.16 $0.23 $ 0.35 $ 0.46
Basic - pro forma $0.16 $0.22 $ 0.35 $ 0.44
Diluted - as reported $0.16 $0.23 $ 0.34 $ 0.44
Diluted - pro forma $0.16 $0.22 $ 0.34 $ 0.43
9
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
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 2006 and 2005.
Three Months Six Months
Ended Ended
June 30, June 30,
----------------- -----------------
2006 2005 2006 2005
------- ------- ------- -------
Dividend yield or expected dividends 2.07% 1.38% 2.01% 1.41%
Risk free interest rate 5.10% 4.20% 5.10% 4.20%
Expected life 10 yrs. 10 yrs. 10 yrs. 10 yrs.
Expected volatility 22.6% 24.7% 22.6% 24.7%
10
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 June 30, 2006 and December 31, 2005 and the
results of operations for the three and six months ended June 30, 2006 and 2005.
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.
EXECUTIVE SUMMARY
Community Central Bank Corporation is the holding company for Community Central
Bank in Mount Clemens, Michigan. The Bank opened for business in October 1996
and serves businesses and consumers across Macomb, Oakland, 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, central and northwest
Indiana, northern Illinois, and Raleigh, North Carolina. River Place Trust and
Community Central Wealth Management are divisions of Community Central Bank.
Community Central Insurance Agency, LLC is a wholly owned subsidiary of
Community Central Bank. The Corporation's common shares trade on The NASDAQ
Global Market under the symbol "CCBD."
Our results of operations depend largely on net interest income. Net interest
income is the difference in interest income the Corporation earns 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 the Corporation pays 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.
The results of our operations may also be affected by local and general economic
conditions. The largest geographic segment of our customer base is in Macomb
County, Michigan. The economic base of the County continues to diversify from
the automotive service sector. This trend should lessen the impact on the County
of future economic downturns in the automotive sector of the economy. Macomb
County's proximity to major highways and affordable
11
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
housing has continued to spur economic growth in the area. Changes 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 the
Corporation deploys earning assets. The competitive environment among other
financial institutions and financial service providers and the Bank in the
Macomb, Oakland, Wayne and St. Clair counties of Michigan may affect the pricing
levels of various deposit products. The impact of competitive rates on deposit
products may increase the relative cost of funds for the Corporation and thus
negatively impact net interest income.
The Corporation continues to see competitive deposit rates offered from local
financial institutions within the geographic proximity of the Bank which could
have the effect of increasing the costs of funds to a level higher than
management projects. The Corporation continues to utilize wholesale forms of
funding earning assets through the FHLB and brokered certificates of deposit to
balance both interest rate risk and the overall cost of funds. Brokered and
internet certificates of deposit are based on a nationwide interest rate
structure, typically at what is considered to be a premium interest rate. The
local competition for certificates of deposit products has intensified and the
Bank has found this type of wholesale funding to often effectively compete with
the rates offered for similar term retail certificates of deposit products of
local community and regional banks.
Net income during the first six months of 2006 was affected by startup,
expansion and operational costs including those related to the new wealth and
trust management division as well as the new branch in Grosse Pointe, Michigan.
In early June of 2006, the Bank opened a full service branch located in Grosse
Pointe Farms, Michigan. Grosse Pointe Farms, Michigan is an upscale, suburban
community on the shores of Lake St. Clair in southeastern Michigan. The Bank has
appointed a regional President for the Grosse Pointe region who is a veteran
banker who has ties to the local community. The branch facility is staffed with
a branch manager and customer service representatives, as well as a commercial
loan officer. The upscale demographics of the surrounding area appear to be well
suited for establishing new relationships for trust and wealth management.
Additionally, the first six months of 2006 reflected additional costs related to
expansion of mortgage loan production offices in Ohio, North Carolina and
Florida. The Corporation continued to experience a slight compression in net
interest margin during the second quarter of 2006 compared with the first
quarter of 2006. This was the result of competitive pricing pressure in both
loans and deposit generation. Additionally, the continuation of a flat treasury
yield curve has resulted in overall lower interest rate spreads than in other
reporting periods.
12
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
ASSETS
At June 30, 2006, the Corporation's total assets were $504.4 million, an
increase of $42.4 million, or 9.2%, from December 31, 2005. The largest segment
of asset growth for the first six months ended June 30, 2006, occurred in our
loan portfolio, which increased $33.5 million. Total investment securities
available for sale increased $9.8 million for the first six months of 2006.
The largest portion of loan growth occurred in the commercial real estate
portfolio, which increased $26.4 million. This growth is consistent with the
Corporation's commercial lending focus. Commercial and industrial loans
increased $207,000 for the first six months of 2006 as the focus continues to be
on commercial real estate. Loan growth during the first six months was largely
due to a pipeline of loans developed during prior quarterly periods. The
Corporation added two new commercial loan officers in 2005 and one new
commercial loan officer in 2006 to increase the commercial lending program and
service the expected growth in the portfolio. The residential mortgage portfolio
was $81.2 million at June 30, 2006, an increase of $6.6 million from December
31, 2005. Most of the residential mortgage portfolio comprises adjustable rate
mortgages, which represented $54.9 million, or 68%, of the total residential
portfolio. Those residential mortgage loans the Corporation considered to be
held for investment in the residential portfolio comprise both banking
relationships and other attributes deemed to match with the Corporation's
interest rate risk profile. Home equity lines of credit ("HELOC") totaled $19.6
million at June 30, 2006, an increase of $1.0 million from December 31, 2005.
This portfolio product is tied to Wall Street Journal prime interest rate. These
loans are fully secured by real estate and are generally originated with loan to
values (including prior liens) up to 95% of the appraised value of the real
estate. The consumer portfolio ended June 30, 2006 at $12.3 million, a decrease
of $722,000, primarily from pay downs in the portfolio. The largest portion of
the installment loan portfolio comprises loans for marine craft. The
Corporation's geographic proximity to Lake St. Clair and the lending experience
in this area have been contributors to this segment of the portfolio. In 2005,
the Corporation offered less competitive interest rates on marine craft loans to
reduce exposure in the area. This change contributed to the decline in the
overall installment portfolio. At June 30, 2006, loans for marine craft
comprised approximately $11.9 million, or 96.7% of the installment portfolio and
3.2% of total loans. Credit card loans totaled $721,000 at June 30, 2006, which
increased $71,000 from December 31, 2005. The Corporation continues to book
credit card loans as a customer accommodation and does not actively market this
product.
Additionally, the Corporation had approximately $87.1 million in outstanding
loans at June 30, 2006, to borrowers in the real estate rental and properties
management industries, representing approximately 38.3% of the total commercial
real estate portfolio.
The major components of the loan portfolio for loans held for sale and loans in
the portfolio are as follows:
June 30, Percentage December 31, Percentage Net Net
2006 of total loans 2005 of total loans Change Change %
-------- -------------- ------------ -------------- -------- --------
(Dollars in thousands)
Loans held for sale:
Residential real estate $ 3,166 $ 4,286 ($1,120) (26.1%)
======== ======== ======== =====
Loans held in the portfolio:
Commercial real estate $227,720 61.8% $201,348 60.1% $ 26,372 13.1%
Commercial and industrial 26,960 7.3 26,753 8.0 207 0.8
Residential real estate 81,190 22.0 74,601 22.3 6,589 8.8
Home equity lines 19,560 5.3 18,545 5.5 1,015 5.5
Consumer loans 12,332 3.3 13,054 3.9 (722) (5.5)
Credit cards 721 0.2 650 0.2 71 10.9
-------- ----- -------- ----- -------- -----
$368,483 100.0% $334,951 100.0% $ 33,532 10.0%
======== ===== ======== ===== ======== =====
Total securities available for sale increased $9.8 million from December 31,
2005 to $94.0 million at June 30, 2006. The increase was comprised of the
purchases of $7.4 million in bank qualified tax-exempt municipal bonds and $1.1
million in mortgage backed securities. All other categories of the available for
sale portfolio remained relatively
13
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
unchanged. The bank qualified tax-exempt municipal bonds comprise primarily AAA
ratings through an underlying or insured basis. Total mortgage backed securities
are comprised of both fixed rate and variable rate instruments. Variable rate
mortgage backed securities represented 37% of the mortgage backed security
portfolio. At June 30, 2006, the available for sale portfolio had net unrealized
losses of $2.5 million or approximately 2.5% of the aggregate portfolio. At
December 31, 2005, the net unrealized losses in the available for sale portfolio
ended at $1.2 million. Unrealized losses have not been recognized into income
because of the issuer's bonds are of high credit quality. The Corporation has
the intent and ability to hold the securities for the foreseeable future and the
decline in the fair value is primarily due to increased market interest rates.
14
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
A summary of nonperforming assets is as follows:
June 30, December 31,
2006 2005
-------- ------------
(Dollars in thousands)
Nonaccrual loans:
Commercial real estate $1,504 $1,637
Commercial and industrial 869 985
Residential real estate -- 67
Home equity lines -- --
Consumer loans -- --
Credit cards -- --
------ ------
Total nonaccrual loans 2,373 2,689
Accruing loans delinquent more than 90 days:
Commercial real estate $ -- $ --
Commercial and industrial -- --
Residential real estate 316 621
Home equity lines -- --
Consumer loans -- 1
Credit cards 20 1
------ ------
Total accruing loans delinquent more than 90 days 336 623
------ ------
Total nonperforming loans 2,709 3,312
Other real estate owned
Commercial real estate -- 112
Residential real estate 81 --
------ ------
Total other real estate owned 81 112
------ ------
Total nonperforming assets $2,790 $3,424
====== ======
Total nonperforming loans as a
percentage of total loans 0.74% 0.99%
====== ======
Total nonperforming assets as a percentage
of total assets 0.55% 0.74%
====== ======
At June 30, 2006, nonperforming loans, which represents nonaccruing loans and
those loans past due 90 days or more and still accruing interest, totaled $2.7
million compared to $3.3 million at December 31, 2005, a decrease of $602,000.
Nonaccruing loans of $2.4 million remains relatively unchanged from December 31,
2005 and is primarily comprised of two commercial relationships, a marina with
collateral comprising commercial real estate and marine craft, and a tool and
die manufacturer, being partially guaranteed by the Small Business
Administration and secured by commercial real estate.
15
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
The following table shows an analysis of the allowance for loans losses:
Six Months Ended Year Ended
June 30, December 31,
2006 2005
---------------- ------------
(Dollars in thousands)
Balance as beginning of the period $3,580 $3,377
Charge-offs:
Commercial real estate -- 181
Commercial and industrial 78 57
Residential real estate 21 103
Home equity lines 1 --
Consumer loans 7 171
Credit cards 1 12
------ ------
Total charge-offs $ 108 $ 524
------ ------
Recoveries:
Commercial real estate -- 1
Commercial and industrial 12 606
Residential real estate 8 --
Home equity lines -- --
Consumer loans 3 18
Credit cards -- 2
------ ------
Total recoveries $ 23 $ 627
------ ------
Net charge-offs (recoveries) 85 (103)
------ ------
Provision charged to earnings 175 100
------ ------
Balance at end of the period $3,670 $3,580
====== ======
Net charge-offs (net recoveries) during the period to
to average loans outstanding during the period 0.05% (0.03%)
Allowance as a percentage of total portfolio loans 1.00% 1.07%
The allowance for loan losses as a percentage of total loans was 1.00% at June
30, 2006, compared to 1.07% at December 31, 2005, with changes in the percentage
of the allowance to total loans attributable to the quarterly analysis of the
allowance for loan losses. Net loan charge offs comprised 5 basis points through
the first six months of 2006 on an annualized basis. 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 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.
16
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
LIABILITIES
During the six months ended June 30, 2006, total deposits increased $38.2
million to $352.6 million. The increase in deposits was attributable to
increases in time deposits $100,000 and over, with local municipal certificates
of deposit increasing $5.0 million, coupled with brokered time deposits and
internet time deposits increasing $26.2 million. Noninterest bearing demand
deposits increased $4.4 million for the first six months of 2006 primarily due
to increased growth in commercial loans during the same time period. The new
commercial loans had related compensating balances in noninterest bearing demand
deposits. Additionally, demand deposits have seasonally been at higher levels in
the second quarter of the year than at the end of the year period. NOW accounts
decreased $3.9 million during the same time period. Money market savings
deposits totaled $18.1 million and decreased $1.3 million. To stem the loss of
these money market savings accounts the Corporation increased the interest rate
paid on this deposit product in response to higher competitive interest rates.
Total savings accounts decreased $1.2 million as customers moved to higher rate
deposit products during the quarter. Total time deposits under $100,000
decreased $3.4 million. The decrease in overall core deposits for the period
ended June 30, 2006 in the categories of NOW, money market, savings and time
deposits below $100,000 is the result of a variety of factors. Some of the
decreases in money market deposit category was due to the customers preferences
for higher interest rates. Time deposits of $100,000 and over increased $43.6
million during the first six months of 2006. Brokered, municipal and internet
based time deposits represented $31.2 million of this growth, with the remaining
$12.4 million attributable to the migration of the aforementioned interest
bearing transaction accounts to higher yield time deposits with the deposit base
of the Bank. 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 could have the
affect of increasing the cost of funds to a level higher than management
projects. 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 Bank 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:
June 30, Percentage December 31, Percentage Net Net
2006 of total deposits 2005 of total deposits Change Change %
-------- ----------------- ------------ ----------------- ------- --------
(Dollars in Thousands)
Noninterest bearing demand $ 36,412 10.3% $ 31,979 10.2% $ 4,433 13.9%
NOW accounts-interest
bearing checking 17,864 5.1 21,767 6.9 (3,903) (17.9)
Money market 18,118 5.1 19,400 6.2 (1,282) (6.6)
Savings 11,604 3.3 12,832 4.1 (1,228) (9.6)
Time deposits under $100,000 51,433 14.6 54,853 17.4 (3,420) (6.2)
Time deposits $100,000 and
over 217,149 61.6 173,542 55.2 43,607 25.1
-------- ------ -------- ----- ------- -----
Total deposits 352,580 100.00% 314,373 100.0% 38,207 12.2%
======== ====== ======== ===== ======= =====
17
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
Short term borrowings at June 30, 2006 consisted of short term FHLB advances of
$15.0 million and securities sold with an agreement to repurchase them the
following day of $10.8 million. Following are details of our short term
borrowings for the dates indicated:
June 30, December 31,
2006 2005
-------- ------------
(Dollars in thousands)
Amount outstanding at end of period
Repurchase agreements $10,790 $13,184
Short-term FHLB advances $15,000 $26,700
Weighted average interest rate on ending balance
Repurchase agreements 3.15% 2.50%
Short-term FHLB advances 3.61% 3.60%
Maximum amount outstanding at any month end
during the period
Repurchase agreements $13,217 $21,711
Short-term FHLB advances $26,700 $26,700
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 mortgage instruments and investment securities. These
advances are secured under a blanket security agreement by first mortgage loans
and the pledging of certain securities. Long-term advances comprised 35 advances
with maturities from July 2007 to June 2016.
FHLB advances outstanding at June 30, 2006 were as follows:
Ending Average rate
Balance at end of period
------- ----------------
(Dollars in thousands)
Short-term FHLB advances $15,000 3.61%
Long-term FHLB advances 77,545 4.67%
------- -----
$92,545 4.50%
18
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 in deposits, and to take advantage of other
investment opportunities. Funding of loan requests, providing for possible
deposit outflows, and managing interest rate risk require continuous analysis to
match the maturities of specific categories of loans and investments with
specific types of deposits and borrowings. Bank liquidity depends upon the mix
of the banking institution's potential sources and uses of funds. 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 $40.5 million in available
unsecured federal funds borrowing facilities, and a $100.0 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 June 30, 2006,
unused commitments comprised $80.8 million. The Bank has $201.1 million in time
deposits coming due within the next twelve months from June 30, 2006, which
includes brokered, internet and municipal time deposits. At June 30, 2006, the
Bank had $133.8 million in brokered certificates of deposit, of which $93.5
million is due within one year or less. Additionally, at June 30, 2006,
municipal time deposits and internet time deposits were $35.1 million and $8.1
million, respectively. Municipal time deposits typically have maturities less
than three months. $4.6 million of internet certificates of deposit mature in
one year or less.
The largest uses and sources of cash and cash equivalents for the Corporation
for the six months ended June 30, 2006, as noted in the Consolidated Statement
of Cash Flow, were centered primarily on the uses of cash in investing
activities and the net cash provided by financing activities. The uses of cash
in investing activities were largely due to the increase in loans of $33.6
million and the purchase of securities of $16.4 million, offset by maturities,
calls and sales of securities totaling $4.9 million. Offsetting the uses of cash
in investing activities, was the area of cash provided from financing activities
which included net increases in time deposits and FHLB advances of $40.2 million
and $6.0 million, respectively. The deposit categories of demand, savings and
short term borrowings reduced the cash from financing activities by $4.4 million
in aggregate over the respective six month period. The total net cash provided
in operating activities was $3.3 million and was largely attributable to net
income of $1.3 million and cash provided by a decrease in loans held for sale of
$1.1 million. Total cash and cash equivalents at the end of June 30, 2006
decreased to $10.0 million from the year ended December 31, 2005, which was
$11.0 million.
On May 17, 2006, the Corporation's Board of Directors declared the Corporation's
seventeenth consecutive quarterly cash dividend of $0.06 per common share,
payable April 3, 2006, to shareholders of record March 1, 2006.
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.
December 31, Minimum Ratio
June 30, 2006 2005 for Capital
--------------- --------------- Adequacy Ratio to be
Capital Ratio Capital Ratio Purposes "Well Capitalized"
------- ----- ------- ----- ------------- ------------------
Total capital to risk-weighted assets
Consolidated $49,461 12.68% $48,229 13.79% 8% NA
Bank only 46,666 11.99% 46,271 12.98% 8% 10%
Tier I capital to risk-weighted assets
Consolidated $45,791 11.74% $44,649 12.77% 4% NA
Bank only 42,996 11.04% 41,691 11.95% 4% 6%
Tier I capital to average assets
Consolidated $45,791 9.25% $44,649 9.94% 4% NA
Bank only 42,996 8.71% 41,691 9.30% 4% 5%
19
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
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. Management currently has no plans to
raise additional capital.
The following table shows the changes in stockholders' equity for the three
months ended June 30, 2006:
Unearned Accumulated Other
Common Retained Employee Comprehensive Total
Stock Earnings Benefits Income/(Loss) Equity
------- -------- -------- ----------------- -------
Beginning balance, January 1, 2006 $31,154 $ 5,245 ($148) ($719) $35,532
Cash dividend -- (454) -- -- (454)
Stock dividend 2,103 (2,103) -- -- --
Stock option exercise 203 -- -- -- 203
SFAS 123R expensing of options 12 -- -- -- 12
Net income -- 1,334 -- -- 1,334
Release of ESOP shares -- -- 27 -- 27
Change in unrealized gain/loss -- -- -- (905) (905)
------- ------- ----- ------- -------
Balance June 30, 2006 $33,472 $ 4,022 ($121) ($1,624) $35,749
======= ======= ===== ======= =======
Stockholder's equity was $35.7 million as of June 30, 2006. This was an increase
of $217,000 from December 31, 2005. The change in stockholder's equity was
primarily attributable to net income for the six months ended June 30, 2006 of
$1.3 million, offset by cash dividends of $454,000. The proceeds from stock
options exercised added $203,000 to equity. Additionally, the release of ESOP
shares, at fair market value, contributed $27,000 to total equity. The change in
other comprehensive income of $905,000 was due to the net change in after tax
decreases in the available for sale security portfolio. Unrealized losses have
not been recognized into income because the issuer's bonds are of high credit
quality. The Corporation has the intent and the ability to hold the securities
for the foreseeable future and the decline in the fair value during the first
quarter of 2006 was primarily due to increased market interest rates.
NET INTEREST INCOME
Net interest income was $3.2 million during the second quarter of 2006, an
increase of $42,000 over the second quarter of 2005. The net interest income
when measured on a taxable equivalent basis increased $131,000, or 4.0%, over
the same time period. The increase was attributable to growth in earning assets,
primarily loans, and offset by net interest margin compression. Net interest
margin for the second quarter of 2006 was 2.77%, or 2.91% on a taxable
equivalent basis, compared with 3.25%, or 3.32% on a tax equivalent basis for
the second quarter of 2005. The decrease in net interest margin was primarily
the result of higher deposit funding costs in a highly competitive deposit
pricing environment. During the first six months of 2006, the decrease in core
deposit accounts was one of the primary drivers of net interest margin
compression. Additionally, the flat treasury yield curve produced an interest
rate environment that results in lower incremental interest rate spreads on new
loan and investment growth. The increase in interest income for the second
quarter of 2006 compared to the second quarter of 2005 was primarily due to
higher average outstanding balances in the loan and securities portfolio, as
well as higher yields on loans. Increased yields on the investment portfolio
were not as much a factor as the majority of the investment portfolio is fixed
rate in nature. Increases in various categories of interest expense were
primarily driven by increases in interest rates paid on deposits and other
borrowings. The largest increase in interest expense was associated with time
deposits. Increases in interest expense on time deposits represented 72.0% of
the overall increase in interest expense due to an increase in the rate paid on
and the volume of deposits, with the increase in rate accounting for
approximately 53% of the overall increase. Conversely, the increase in interest
expense due to other borrowings was primarily due to increases in volume and
secondarily due to increases in rates, as the duration of the FHLB advances is
much longer than other categories of deposits and borrowed funds.
20
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
Net interest income was $6.4 million for the first six months of 2006, an
increase of $83,000 over the first six months of 2005. The net interest income,
when measured on a taxable equivalent basis increased $271,000 or 4.2% over the
same time period. Net interest margin for the six months ended June 30, 2006 was
2.82%, or 2.96% on a taxable equivalent basis, compared with 3.29%, or 3.35% on
a taxable equivalent basis for the six months ended June 30, 2005. The increase
in net interest income, as well as the compression in net interest margin, for
the first six months of 2006 was due to primarily the same factors detailed
above for the second quarter of 2006.
21
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 Six Months Ended
June 30, 2006 vs. 2005 June 30, 2006 vs. 2005
---------------------------- ----------------------------
Increase (Decrease) Increase (Decrease)
Due to Changes In Due to Changes In
------------------- -------------------
Volume Volume
Total and Both Rate Total and Both Rate
------ -------- ------ ------ -------- ------
(In thousands)
Earning Assets - Interest Income
Loans $1,558 $ 838 $ 720 $2,765 $1,407 $1,358
Securities 428 353 75 917 756 161
Federal funds sold (24) (45) 21 (33) (92) 59
------ ------ ------ ------ ------ ------
Total 1,962 1,146 816 3,649 2,071 1,578
------ ------ ------ ------ ------ ------
Deposits and Borrowed Funds - Interest Expense
NOW and money market accounts 90 1 89 174 5 169
Savings deposits (40) (46) 6 (77) (98) 21
Time deposits 1,383 647 736 2,482 1,113 1,369
FHLB and repo sweeps 437 290 147 888 564 324
ESOP -- (1) 1 (1) (2) 1
Subordinated debentures 50 -- 50 100 -- 100
------ ------ ------ ------ ------ ------
Total 1,920 891 1,029 3,566 1,582 1,984
------ ------ ------ ------ ------ ------
Net Interest Income $ 42 $ 255 ($213) $ 83 $ 489 ($406)
====== ====== ====== ====== ====== ======
The average yield earned on interest earning assets for the second quarter of
2006 was 6.75% compared to 6.01% for the second quarter of 2005. The average
yield earned on the total loan portfolio, which contains both loans held for
sale and investment for 2006 was 7.35% compared to 6.45% during the second
quarter of 2005. The overall increase in the loan portfolio yield was partially
tied to the increase in the prime interest rate during that time period. The
commercial, commercial real estate and home equity line loans that repriced with
prime interest rate changes totaled approximately $167 million at June 30, 2006.
The Corporation's security portfolio had an average non-tax adjusted yield of
4.58% during the second quarter of 2006, with the weighted average taxable
equivalent yield to maturity at June 30, 2006 totaling 5.25%.
The average yield on earning assets for the first six months of 2006 was 6.63%
compared to 5.92% for the first six months of 2005. The average yield on the
total loan portfolio, which contains both loans held for sale and investment for
2006 was 7.23% compared to 6.37% during the same period of 2005. The overall
increase in the loan portfolio yield was partially tied to the increase in the
prime interest rate during that period. The Corporation's security portfolio had
an average non-tax adjusted yield of 4.51% during the first six months of 2006,
compared to 4.00% for the same period in 2005, as new securities added to the
portfolio reflected the increase in market rates over that same relative period,
coupled with and secondarily, the increase in the variable rate mortgage backed
securities.
The average rate paid on interest bearing liabilities for the second quarter of
2006 was 4.39% compared to 3.12% in the second quarter of 2005. The increase in
average rate was due to the overall rate paid on interest bearing liabilities,
primarily as a result of the increase in overall market interest rates. The rate
paid on the total time deposit portfolio increased to 4.62% for the second
quarter of 2006, from 3.17% for the same time period in 2005 and was
22
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
driven by highly competitive interest rates paid among local financial
institutions. The increase in the average rate for NOW and money market accounts
for 2006 was primarily attributable to the introduction of a premium rate based
NOW account, with the average rate moving to 2.37% during the second quarter of
2006 versus 1.44% in the second quarter of 2005. The average rate paid on
savings also increased, moving to 2.06% for the second quarter of 2006 from
1.94% in the second quarter of 2005. The rate paid on FHLB advances and
repurchase agreements increased to 4.36% in the second quarter of 2006 from
3.59% in the second quarter of 2005. New advances, repricing of variable
advances and the increase in the interest rate paid on repurchase agreements
were the primary reasons for the increase. At June 30, 2006, the FHLB portfolio
had a weighted average maturity of 4.6 years and an overall weighted average
interest rate of 4.50%, which were 75 basis points below the current overnight
federal funds rate. The average rate paid on the subordinated debenture
increased in the second quarter of 2006 to 9.03% from 7.08%, closely tracking
the overall increase in short-term market interest rates during the comparable
period. This instrument is priced quarterly based on the three-month libor
interest rate.
The average rate paid interest bearing liabilities for the first six months of
2006 was 4.21% compared to 2.97% in the first six months of 2005. The increase
in average rate was due to the overall rate paid on interest bearing liabilities
and was due to the increase in overall market interest rates. The increase in
yield on time deposits was the primary reason for the overall increase in
interest bearing liability yield for the first six months of 2006 compared to
the first six months of 2005. The overall increase in interest bearing deposits
and liabilities for the first six months ended June 30, 2006 over the same time
period in 2005 was due to the same factors as mentioned above for the first
quarter of 2006.
23
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
AVERAGE BALANCE SHEET
The following tables show the Corporation's consolidated average balances of
assets, liabilities, and stockholders' equity; the amount of interest income or
interest expense and the average yield or rate for each major category of
interest earning asset and interest bearing liability, and the net interest
margin, for the three and six month periods ended June 30, 2006 and 2005.
Average loans are presented net of unearned income, gross of the allowance for
loan losses. Interest on loans includes loan fees. Effective January 1, 2006,
the Corporation began calculating yields earned on interest earning assets and
rates paid on interest bearing liabilities based on the actual number of days in
the quarter. Previously, the Corporation calculated these yields using four
equal quarterly periods. While these different methods of calculating yields and
rates may have a slight effect on yields, rates, net interest margins and net
interest rate spreads reported during the quarterly or year to date periods, it
has no effect on yields, rates, net interest margins and net interest rate
spreads reported on an annual basis. This change in methodology does not have a
material impact on the yields, rates, net interest margin or net interest rate
spreads in reported in prior periods; accordingly, this change was implemented
prospectively and as such, prior periods have not been restated.
Three Months Ended June 30,
-------------------------------------------------------------
2006 2005
----------------------------- -----------------------------
Average Average
Interest Rate Interest Rate
Average Income/ Earned/ Average Income/ Earned/
Balance Expense Paid Balance Expense Paid
-------- -------- ------- -------- -------- -------
(In thousands)
Assets
Loans $366,402 $6,710 7.35% $320,204 $5,152 6.45%
Securities 98,756 1,130 4.58 67,880 702 4.14
Federal funds sold 1,982 24 4.86 5,658 48 3.40
-------- ------ ---- -------- ------ ----
Total Earning Assets/
Total Interest Income 467,140 7,864 6.75 393,742 5,902 6.01
-------- ------ ---- -------- ------ ----
Cash and due from banks 6,698 7,835
All other assets 22,587 17,435
-------- --------
Total Assets $496,425 $419,012
======== ========
Liabilities and Equity
NOW and money market accounts $ 38,552 228 2.37 $ 38,464 138 1.44
Savings deposits 11,269 58 2.06 20,227 98 1.94
Time deposits 259,664 2,989 4.62 202,920 1,606 3.17
FHLB advances and repurchase agreements 103,271 1,123 4.36 76,567 686 3.59
ESOP loan 129 3 9.33 187 3 6.43
Subordinated debentures 10,310 232 9.03 10,310 182 7.08
-------- ------ ---- -------- ------ ----
Total Interest Bearing Liabilities/
Total Interest Expense / Interest Rate Spread 423,195 4,633 4.39 348,675 2,713 3.12
-------- ------ ---- -------- ------ ----
Noninterest bearing demand deposits 35,081 36,774
All other liabilities 2,451 1,873
Stockholders' equity 35,698 31,690
-------- --------
Total Liabilities and Stockholder's Equity $496,425 $419,012
======== ========
Net Interest Income $3,231 $3,189
====== ======
Net Interest Spread 2.36% 2.89%
==== ====
Net Interest Margin (Net Interest
Income/Total Earning Assets) 2.77% 3.25%
==== ====
Net Interest Margin
(fully taxable equivalent) 2.91% 3.32%
==== ====
24
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
Six Months Ended June 30,
-------------------------------------------------------------
2006 2005
----------------------------- -----------------------------
Average Average
Interest Rate Interest Rate
Average Income/ Earned/ Average Income/ Earned/
Balance Expense Paid Balance Expense Paid
-------- -------- ------- -------- -------- -------
(In thousands)
Assets
Loans $355,497 $12,738 7.23% $315,777 $ 9,973 6.37%
Securities 96,614 2,179 4.51 63,119 1,262 4.00
Federal funds sold 2,659 61 4.63 6,665 94 2.84
-------- ------- ---- -------- ------- ----
Total Earning Assets/
Total Interest Income 454,770 14,978 6.63 385,561 11,329 5.92
-------- ------- ---- -------- ------- ----
Cash and due from banks 6,325 7,299
All other assets 22,383 17,031
-------- --------
Total Assets $483,478 $409,891
======== ========
Liabilities and Equity
NOW and money market accounts $ 38,784 419 2.18 $ 38,191 245 1.29
Savings deposits 11,929 127 2.15 21,115 204 1.95
Time deposits 248,394 5,429 4.41 196,966 2,947 3.02
FHLB advances and repurchase agreements 102,101 2,176 4.30 75,448 1,288 3.44
ESOP loan 136 5 7.41 193 6 6.27
Subordinated debentures 10,310 447 8.74 10,310 347 6.79
-------- ------- ---- -------- ------- ----
Total Interest Bearing Liabilities/
Total Interest Expense / Interest Rate Spread 411,654 8,603 4.21 342,223 5,037 2.97
-------- ------- ---- -------- ------- ----
Noninterest bearing demand deposits 33,876 35,811
All other liabilities 2,266 1,746
Stockholders' equity 35,682 30,111
-------- --------
Total Liabilities and Stockholder's Equity $483,478 $409,891
======== ========
Net Interest Income $ 6,375 $ 6,292
======= =======
Net Interest Spread 2.42% 2.95%
==== ====
Net Interest Margin (Net Interest
Income/Total Earning Assets) 2.82% 3.29%
==== ====
Net Interest Margin
(fully taxable equivalent) 2.96% 3.35%
==== ====
25
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
PROVISION FOR LOAN LOSSES
A $125,000 and $175,000 provision were made to the allowance for loan losses for
the second quarter and first six months of 2006, respectively. This was based
upon management's review of the risks inherent in the loan portfolio and the
level of our allowance for loan losses. Net loan charge-offs for the first six
months of 2006 totaled $85,000, or 5 basis points on an annualized basis. Total
nonperforming loans as a percentage of total loans was 0.74% at June 30, 2006,
compared to 0.99% at December 31, 2005. The allowance for loan losses was $3.7
million at June 30, 2006, or 1.00% of total loans and 135.42% of nonperforming
loans, versus $3.6 million, or 1.07% and 108.10% at December 31, 2005,
respectively.
NONINTEREST INCOME
Noninterest income in the second quarter of 2006 was $1.3 million, an increase
of $126,000 or 10.7%, compared to the second quarter of 2005. The increase was
primarily due to fee income generated from the Bank's Trust division of $65,000
and $52,000 from an increase in mortgage banking income comprising primarily
gains on the sale of residential mortgages. The Bank acquired the Trust division
through the purchase of River Place Financial Corporation in July 2005. The
Trust and Wealth Management division of the Bank had approximately $95.4 million
in assets under management as of June 30, 2006 compared to $87.3 million at
December 31, 2005. The increase in mortgage banking income was largely due to an
increase in new loan production offices (LPOs). The increase in fee based
revenue from the LPOs did not represent incremental net income growth to the
mortgage banking subsidiary and the Corporation, as the expenses to start the
new LPOs was larger than fee income generated. Other income of $183,000
increased $19,000 for the second quarter of 2006, compared to the second quarter
of 2005, due to increased income from the purchase of additional bank owned life
insurance.
Noninterest income for the six months ended June 30, 2006 of $2.5 million
increased $382,000, or 18.0%, over the six months ended June 30, 2005. The
largest contributor to the increase was mortgage banking income of $1.8 million
which increased $204,000 from the six months ended June 30, 2005. The increase
in mortgage banking was due to gains on the sales of residential mortgages due
to an increase in origination volume and subsequent sales in the secondary
market. The additional origination volume for the first six months was due in
part to the volume generated from the Indiana LPO. Fiduciary income of $132,000
was the second largest contributor of the increase in noninterest income. Again,
as mentioned previously, the Trust division did not start until July 2005.
Deposit service charge income of $170,000 increased $22,000, or 14.9% for the
first six months of 2006 compared to 2005 for the same respective period due to
an overdraft privilege program instituted in late 2005. No net security gains
were recorded for the first six months of 2006 compared to 2005 when $50,000 in
net security gains was recorded. Net securities gains in 2005 were generated
from restructuring activities. Other income of $382,000 increased $74,000 for
the first six months of 2006, compared to the first six months of 2005, due to
increased income from the purchase of additional bank owned life insurance.
NONINTEREST EXPENSE
Noninterest expense was $3.6 million for the second quarter of 2006 compared to
$3.2 million for the second quarter of 2005, an increase of $440,000 or 13.7%.
The increase was largely due to an increase of $301,000 in salary, benefits and
payroll taxes from the new Trust and Wealth Management division, coupled with
startup and operational costs related to the new Grosse Pointe branch and
expansion into new out of state mortgage loan production offices. Net occupancy
expense of $447,000 increased $50,000, or 12.6%, due primarily to the expansion
of the Mortgage Company's LPOs, with the remaining increase attributable to
utility costs, increased depreciation expense of the new headquarters and
general costs of expanded operations of the Corporation and its subsidiaries.
Noninterest expense for the first six months of 2006 of $7.1 million increased
$967,000, or 15.9% due to the expansion into Trust, Wealth management, new LPOs
and establishment of a new branch location. The largest portion of the increase
occurred in salaries, benefits and payroll taxes of $4.2 million, which
increased $652,000 over the first six months of 2005. This increase in expense
was primarily attributable to new banking division and branch locations
described above. The largest portion of this increase was due to the acquisition
of new executive management to head the Trust and Wealth Management divisions.
Additionally, a regional president and branch management and staff were hired
for the Grosse Pointe branch during the development phases of the branch before
the opening to customers. Net occupancy expense of $913,000 increased $160,000,
or 21.2%, primarily due to the
26
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
expansion of the mortgage company's loan production offices accounting for
$121,000 of this increase, with the remaining increase attributable to utility
costs, increased depreciation expense of the new headquarters and general costs
of expanded operations of the Corporation and its subsidiaries.
The overall increase in noninterest expense of these new initiatives were the
primary reason for the overall decrease in net income for the second quarter and
six months ended June 30, 2006 compared to the same respective time periods
ended June 30, 2005.
PROVISION FOR INCOME TAXES
The provision for federal income taxes of $136,000 for the second quarter of
2006 decreased $198,000, or 59.3%, from the federal income tax provision for the
second quarter of 2005. The decrease was primarily attributable to a higher
level of tax exempt municipal bonds and bank owned life insurance (BOLI) over
the same respective time period, coupled with a lower level of pretax income.
The increase in cash surrender value of BOLI is exempt from federal income tax.
The effective tax rate for the second quarter of 2006 and 2005 was 17.7% and
28.7%, respectively. The statutory tax rate of the Corporation is 34%.
The provision for federal income taxes of $313,000 for the six months ended June
30, 2006 decreased $329,000 over the first six months of 2005. The effective tax
rate for the first six months of 2006 was 19.0% compared to 28.9% for the first
six months of 2005. The difference in the effective rates is due to the relative
percentage of tax-exempt income to the total pretax income, which would include
both taxable and tax exempt income. The tax-exempt income as a percentage of
total pretax income was 50.8%, compared to 18.2% for the six month periods ended
June 30, 2006 and 2005, respectively.
27
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
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.
Currently two quantitative tools are used 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 our
exposure to interest rate risk.
Static 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.
Static 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.
28
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
The following table presents an analysis of our interest-sensitivity static gap
position at June 30, 2006. All interest-earning assets and interest-bearing
liabilities are shown based on the earlier of their contractual maturity or
repricing date adjusted by forecasted 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 June 30, 2006, 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 $ 529 $ -- $ -- $ -- $ 529
Securities 9,238 10,295 29,638 48,576 97,747
FHLB stock -- -- -- 4,630 4,630
Portfolio loans and
held for resale 166,827 40,393 141,462 22,967 371,649
-------- --------- -------- ------- --------
Total 176,594 50,688 171,100 76,173 $474,555
-------- --------- -------- ------- ========
Interest bearing liabilities:
NOW and money market
accounts 3,055 13,515 19,412 -- $ 35,982
Savings deposits 1,160 3,365 7,079 -- 11,604
Jumbo time deposits 63,755 101,884 51,510 -- 217,149
Time deposits < $100,000 15,661 19,781 15,991 -- 51,433
Repurchase agreements 10,790 -- -- -- 10,790
FHLB advances 10,000 5,000 46,845 30,700 92,545
ESOP payable 121 -- -- -- 121
Subordinated debentures 10,310 -- -- -- 10310
-------- --------- -------- ------- --------
Total 114,852 143,545 140,837 30,700 $429,934
-------- --------- -------- ------- ========
Interest rate sensitivity gap $ 61,742 ($92,857) $ 30,263 $45,473
Cumulative interest rate
sensitivity gap ($31,115) ($852) $44,621
Interest rate sensitivity gap
ratio 1.54 0.35 1.21 2.48
Cumulative interest rate
sensitivity gap ratio 0.88 1.00 1.10
We also evaluate 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 our
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.
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 June 30, 2006, the table below reflects the impact the various
instantaneous parallel shifts in the yield curve would have on net interest
income over a twelve month period of time from the base forecast.
Percentage Change
Interest Rate Scenario In Net Interest Income
---------------------- ----------------------
Interest rates up 300 basis points 2.7%
Interest rates up 200 basis points 2.4%
Interest rates up 100 basis points 1.5%
Base case --
Interest rates down 100 basis points (0.6%)
Interest rates down 200 basis points (1.5%)
Interest rates down 300 basis points (2.9%)
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 June 30, 2006, 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
June 30, 2006, 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
Not applicable.
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.
On April 18, 2006, Community Central Bank Corporation held its Annual Meeting of
Stockholders ("Meeting"). The following matters were voted on at the Meeting.
Election of the following persons as directors of the Corporation for terms to
expire in 2009:
NOMINEE VOTES FOR VOTES WITHHELD TOTAL
------- --------- -------------- ---------
Joseph Catenacci 2,977,795 142,419 3,120,214
Celestina Giles 2,975,364 144,850 3,120,214
David A. Widlak 2,975,605 144,609 3,120,214
The following are the names of the directors (and remaining term) whose term in
office continued after the Meeting: Gebran S. Anton (2008); David E. Bonior
(2008); Salvatore Cottone (2007), Bobby L. Hill (2007); Joseph F. Jeannette
(2008); Dean S. Petitpren (2007), Ronald R. Reed (2007) and John W. Stroh, III
(2008).
Amendment to the 2002 Incentive Plan to Add 100,000 Shares to Existing Plan:
AMENDMENT VOTES FOR AGAINST ABSTAIN NON-VOTE TOTAL
--------- --------- ------- ------- --------- ---------
Amendment to the 2002 Incentive
Plan to Add 100,000 Shares
To Existing Plan 1,248,704 299,630 33,623 1,538,257 3,120,214
ITEM 5. OTHER INFORMATION.
Cash Dividend - On May 16, 2006, the Corporation's Board of Directors declared
the Corporation's seventeenth quarterly cash dividend of $0.06 per common share,
payable July 3, 2006, to shareholders of record June 1, 2006.
ITEM 6. EXHIBITS.
See Exhibit Index attached.
31
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized, on August 14, 2006.
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) which became effective on September 23, 1996
3.2 Bylaws of the Corporation are incorporated by reference to Exhibit 3.2
of the Corporation's Quarterly Report on Form 10-QSB filed with the
SEC for the quarter ended June 30, 2004 (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) 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
(SEC 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 (SEC 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 (SEC 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 (SEC 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 (SEC 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
Quarterly Report on Form 10-QSB filed with the SEC for the quarter
ended June 20, 3003 (SEC File No. 000-33373)
10.7 Community Central Bank Death Benefit Plan is incorporated by reference
to Exhibit 10.7 of the Corporation's Quarterly Report on Form 10-QSB
filed with the SEC for the quarter ended June 20, 3003 (SEC File No.
000-33373)
10.8 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)
10.9 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)
10.10 Summary of Named Executive Officer Salary and Bonus Arrangements is
incorporated by reference to Exhibit 99.1 of the Corporation's Current
Report on Form 8-K filed on January 17, 2006. (SEC File No. 000-33373)
33
COMMUNITY CENTRAL BANK CORPORATION
FORM 10-Q (continued)
10.11 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
34