-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SZ5Y3+rmDxQ3BepdWsmlsMPfxR5PeKPUrzMAlAXGSiJuxsUrkL2qshuyozrbBEQ9 NXPAh09gQoEMuN7rrNge+w== 0000950124-08-001631.txt : 20080331 0000950124-08-001631.hdr.sgml : 20080331 20080331091327 ACCESSION NUMBER: 0000950124-08-001631 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20071231 FILED AS OF DATE: 20080331 DATE AS OF CHANGE: 20080331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMMUNITY CENTRAL BANK CORP CENTRAL INDEX KEY: 0001014133 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 383291744 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-33373 FILM NUMBER: 08721727 BUSINESS ADDRESS: STREET 1: P O BOX 7 CITY: MOUNT CLEMENS STATE: MI ZIP: 48046-0007 BUSINESS PHONE: 5867834500 MAIL ADDRESS: STREET 1: P O BOX 7 CITY: MOUNT CLEMENS STATE: MI ZIP: 48046-0007 10-K 1 k24561e10vk.txt FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2007 Commission File No. 000-33373 COMMUNITY CENTRAL BANK CORPORATION (Exact name of registrant as specified in its charter) Michigan 38-3291744 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.)
100 N. Main Street, Mount Clemens, Michigan 48043-5605 (Address of principal executive offices and zip code) (586) 783-4500 (Registran's telephone number, including area code) Securities registered under Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED - -------------------------- ----------------------------------------- COMMON STOCK, NO PAR VALUE NASDAQ GLOBAL MARKET
Securities registered under Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X] Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes [ ] No [X] Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-Kis not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one): Non- accelerated filer [ ] Large (Do not check if a Smaller accelerated Accelerated smaller reporting reporting filer [ ] Filer [ ] company) company [X] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). [ ] Yes [X] No The aggregate market value of voting and non-voting common equity of the registrant held by nonaffiliates was approximately $24.4 million as of June 29, 2007 based on the price at which the common stock was last sold $9.45 on that date. As of March 24, 2008, 3,732,081 shares of Common Stock of the issuer were outstanding. DOCUMENTS INCORPORATED BY REFERENCE: Parts I and II - Portions of Stockholder Report of the issuer for the year ended December 31, 2007. Part III - Portions of the Proxy Statement of the issuer for its April 15, 2008 Annual Meeting. COMMUNITY CENTRAL BANK CORPORATION FORM 10-K (continued) DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS This report contains forward-looking statements throughout 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 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. 2 COMMUNITY CENTRAL BANK CORPORATION FORM 10-K (continued) PART I ITEM 1. BUSINESS Community Central Bank Corporation is the holding company for Community Central Bank (the "Bank") in Mount Clemens, Michigan. The Bank opened for business in October 1996 and serves businesses and consumers across Macomb, Oakland, St. Clair and Wayne counties with a full range of lending, deposit, trust, wealth management, and Internet banking services. The Bank operates three full service facilities, in Mount Clemens, Rochester Hills and Grosse Pointe, Michigan. Community Central Mortgage Company, LLC, a subsidiary of the Corporation and the Bank, operates locations servicing the Detroit metropolitan area and northwest Indiana. River Place Trust and Community Central Wealth Management are divisions of Community Central Bank. Community Central Insurance Agency, LLC is a wholly owned subsidiary of Community Central Bank. The Corporation is subject to regulation by the Board of Governors of the Federal Reserve System. The Bank is subject to extensive regulation by the Michigan Office of Financial and Insurance Services ("OFIS") and by the Federal Deposit Insurance Corporation ("FDIC"). The Bank's deposits are insured up to the applicable limits by the FDIC. (See "-Regulation and Supervision" below.) 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 the interest income we earn on interest-earning assets, which comprise primarily commercial and residential real estate loans, and to a lesser extent commercial business and consumers loans, and the interest we pay on interest-bearing liabilities, which are primarily deposits and borrowings. Management strives to match the repricing characteristics of the interest-earning assets and interest-bearing liabilities to protect net interest income from changes in market interest rates and changes in the shape of the yield curve. Our results of operations may also be affected by local and general economic conditions. The largest geographic segment of our customer base is in Macomb County, Michigan. The economic base of the County continues to diversify from the automotive service sector although the impact of the restructuring of the American automobile companies has a direct impact on southeastern Michigan. A slowdown in the local and statewide economy has produced increased financial strain on segments of our customer base. We have experienced increased delinquency levels and losses in our loan portfolio, primarily with residential developer loans, residential real estate loans and home equity and consumer loans. Further downturns in the local economy may affect the demand for commercial loans and related small to medium business related products. This could have a significant impact on how we deploy earning assets. The competitive environment among the Bank, other financial institutions and financial service providers in the Macomb, Oakland, Wayne and St. Clair counties of Michigan may affect the pricing levels of various deposit products. The impact of competitive rates on deposit products may increase our cost of funds and thus negatively impact net interest income. See "Management's Discussion and Analysis and Results of Operations" contained in our Annual Stockholder Report included as Exhibit 13 to this 10-K. 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. The addition of a new branch location in Grosse Pointe Woods, Michigan, which is anticipated to open this spring, will represent the second branch location in this upscale market of southeastern Michigan. The Corporation continues to work on cost controls throughout our organization as evidenced by total noninterest expense decreasing 4.5% in 2007. In 2007, the mortgage company subsidiary closed loan production offices in Rockford, Illinois and Raleigh, North Carolina whose origination activity was not commensurate with the level of overhead. The Bank and Corporation are both "well-capitalized" and have regulatory capital available for growth. 3 COMMUNITY CENTRAL BANK CORPORATION FORM 10-K (continued) EFFECT OF GOVERNMENT MONETARY POLICIES. The earnings of the Corporation are affected by domestic economic conditions and the monetary and fiscal policies of the United States Government, its agencies, and the Federal Reserve Board. The Federal Reserve Board's monetary policies have had, and will likely continue to have, an important impact on the operating results of commercial banks through its power to implement national monetary policy. Monetary policy is used to, among other things, attempt to curb inflation or combat a recession. The policies of the Federal Reserve Board have a major effect upon the levels of bank loans, investments and deposits through its open market operations in United States Government securities, and through its regulation of, among other things, the discount rate on borrowings of member banks and the reserve requirements against member bank deposits. It is not possible to predict the nature and impact of future changes in monetary and fiscal policies. REGULATION AND SUPERVISION. Financial institutions and their holding companies are extensively regulated under federal and state law. Consequently, the growth and earnings performance of the Corporation and the Bank can be affected not only by management decisions and general economic conditions, but also by the statutes administered by, and the regulations and policies of, various governmental regulatory authorities. Those authorities include, but are not limited to, the Board of Governors of the Federal Reserve System, the FDIC, OFIS, the Securities and Exchange Commission, the Internal Revenue Service, and federal and state taxing authorities. The effect of such statutes, regulations and policies can be significant, and cannot be predicted with a high degree of certainty. There can be no assurance that future legislation or government policy will not adversely affect the banking industry or the operations of the Corporation or the Bank. Federal economic and monetary policy may affect the Bank's ability to attract deposits, make loans and achieve satisfactory interest spreads. Federal and state laws and regulations generally applicable to financial institutions and their holding companies regulate, among other things, the scope of business, investments, reserves against deposits, capital levels relative to operations, lending activities and practices, the nature and amount of collateral for loans, the establishment of branches, mergers, consolidations and dividends. The system of supervision and regulation applicable to the Corporation and the Bank establishes a comprehensive framework for their respective operations and is intended primarily for the protection of the FDIC's deposit insurance funds, the depositors of the Bank, and the public, rather than shareholders of the Bank or the Corporation. Federal law and regulations establish supervisory standards applicable to the lending activities of the Bank including internal controls, credit underwriting, loan documentation, and loan-to-value ratios for loans secured by real property. The Bank is in compliance with these requirements. The Corporation is subject to the periodic reporting requirements of the Securities Exchange Act of 1934, as amended, and files reports and proxy statements pursuant to such Act with the Securities and Exchange Commission. EMPLOYEES. As of December 31, 2007, the Corporation and its subsidiaries employed 81 full-time equivalent employees. COMPETITION. All phases of the business of the Bank are highly competitive. The Bank competes with numerous financial institutions, including other commercial banks, in Macomb County and the metropolitan Detroit area. The Bank, along with other commercial banks, competes with respect to its lending activities, and competes in attracting demand deposits with savings banks, savings and loan associations, insurance companies, small loan companies, credit unions and with the issuers of commercial paper and other securities, such as various mutual funds. Many of these institutions are substantially larger and have greater financial resources than the Bank. The competitive factors among financial institutions can be classified into two categories; competitive rates and competitive services. Interest rates are widely advertised and thus competitive, especially in the area of time deposits. From a service standpoint, financial institutions compete against each other in types and quality of services. The Bank is generally competitive with other financial institutions in its area with respect to interest rates paid on time and savings deposits, fees charged on deposit accounts, and interest rates charged on loans. With respect to services, the Bank offers a customer service oriented atmosphere which management believes is better suited to its customers' needs than that which is offered by other institutions in the local market. 4 COMMUNITY CENTRAL BANK CORPORATION FORM 10-K (continued) EXECUTIVE OFFICERS. The following is a list of the executive officers of the Corporation and the Bank, together with their ages and their positions at December 31, 2007. Executive officers of the Corporation are elected annually by the Board of Directors to serve for the ensuing years and until their successors are elected and qualified.
Name and Position Position Held Since Age ----------------- ------------------- --- David A. Widlak President and CEO of Community Central 2003 59 Bank Corporation President and CEO Community Central Bank 2007 Ray T. Colonius CFO and Corporate Treasurer of 1999 50 Community Central Bank Corporation and Community Central Bank Sam A. Locricchio Executive. Vice President & Sr. Loan Officer of Community Central Bank 2003 58
ITEM 1A. RISK FACTORS You should carefully consider the following risk factors, together with the other information provided in the Stockholder Report on Form 10-K. CHANGES IN ECONOMIC CONDITIONS OR INTEREST RATES MAY NEGATIVELY AFFECT OUR EARNINGS, CAPITAL AND LIQUIDITY. The results of operations for financial institutions, including our bank, may be materially and adversely affected by changes in prevailing local and national economic conditions, including declines in real estate market values, rapid increases or decreases in interest rates and changes in the monetary and fiscal policies of the federal government. Our profitability is heavily influenced by the spread between the interest rates we earn on investments and loans and the interest rates we pay on deposits and other interest-bearing liabilities. Substantially all our loans are to businesses and individuals in southeastern Michigan and any decline in the economy of this area could adversely affect us. Like most banking institutions, our net interest spread and margin will be affected by general economic conditions and other factors that influence market interest rates and our ability to respond to changes in these rates. At any given time, our assets and liabilities may be such that they are affected differently by a given change in interest rates. OUR CREDIT LOSSES COULD INCREASE AND OUR ALLOWANCE FOR CREDIT LOSSES MAY NOT BE ADEQUATE TO COVER ACTUAL LOAN LOSSES. The risk of nonpayment of loans is inherent in all lending activities and nonpayment, if it occurs, may have a material adverse affect on our earnings and overall financial condition as well as the value of our common stock. We make various assumptions and judgments about the collectibility of our loan portfolio and provide an allowance for potential losses based on a number of factors. If our assumptions are wrong, our allowance for credit and lease losses may not be sufficient to cover our losses, thereby having an adverse effect on our operating results, and may cause us to increase the allowance in the future. The actual amount of future provisions for credit losses cannot now be determined and may exceed the amount of past provisions. Additionally, federal banking regulators, as an integral part of their supervisory function, periodically review our allowance for credit losses. These regulatory agencies may require us to increase our provision for credit losses or to recognize further loan or lease charge-offs based upon their judgments, which may be different from ours. Any increase in the allowance for credit losses could have a negative effect on our net income, financial condition and results of operations. 5 COMMUNITY CENTRAL BANK CORPORATION FORM 10-K (continued) A DOWNTURN IN THE REAL ESTATE MARKET COULD HURT OUR BUSINESS. Downturns in the real estate market hurt our business because many of our loans are secured by real estate. Our ability to recover on defaulted loans by selling the real estate collateral is diminished, and we are more likely to suffer losses on defaulted loans. As of December 31, 2007, approximately 89% of the book value of our loan portfolio consisted of loans secured by various types of real estate. Substantially all of our real property collateral is located in Michigan. If there is a further decline in real estate values, especially in Michigan, the collateral for our loans will provide less security. REPAYMENT OF OUR COMMERCIAL REAL ESTATE LOANS AND OUR COMMERCIAL AND INDUSTRIAL LOANS IS OFTEN DEPENDENT ON THE BORROWER'S BUSINESS, ITS CASHFLOW AND OUR COLLATERAL. Commercial real estate lending typically involves higher principal amounts than other types of lending, and the repayment of these loans may be dependent, in part, on sufficient income from the properties securing the loans to cover operating expenses and debt service. Because payments on loans secured by commercial real estate often depend upon the successful operation and management of the properties, repayment of such loans may be affected by factors outside the borrower's control, such as adverse conditions in the real estate market or the economy or changes in government regulation. If the cash flow from the project is reduced, the borrower's ability to repay the loan and the value of the security for the loan may be impaired. Repayment of our commercial and industrial loans is often dependent on cash flow of the borrower, which may be unpredictable, and collateral securing these loans may fluctuate in value. Our commercial loans are primarily made based on the cash flow of the borrower and secondarily on the value of the underlying collateral provided by the borrower. Most often, this collateral is accounts receivable, inventory, equipment or real estate. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers. Other collateral securing loans may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business. Adverse changes in local economic conditions impacting our business borrowers can be expected to have a negative effect on our results of operations and capital. DECLINE IN THE AVAILABILITY OF OUT-OF-AREA DEPOSITS COULD CAUSE LIQUIDITY OR INTEREST RATE MARGIN CONCERNS, OR LIMIT OUR GROWTH. We have utilized and expect to continue to utilize out-of-area or wholesale deposits to support our asset growth. These deposits are generally a lower cost source of funds when compared to the interest rates that we would have to offer in our local markets to generate a commensurate level of funds. In addition, the overhead costs associated with wholesale deposits are considerably less than the overhead costs we would incur to obtain and administer a similar level of local deposits. A decline in the availability of these wholesale deposits would require us to fund our growth with more costly funding sources, which could reduce our net interest margin, limit our growth, reduce our asset size or increase our overhead costs. WE MAY EXPERIENCE DIFFICULTIES IN GENERATING OR RAISING SUFFICIENT CAPITAL TO SUPPORT OUR GROWTH. To sustain our continued growth, we require additional capital to fund our expanding lending and deposit gathering activities. New branches often experience a period of unprofitability due to the impact of overhead expenses and the start-up costs of generating loans and deposits. To the extent that we continue to open additional branches, we may experience the effects of higher operating expenses relative to operating income from the new operations, which may have an adverse effect on our levels of net income, return on average equity and return on average assets. In addition, we may acquire banks and related businesses that we believe provide a strategic fit with our business. To the extent that we grow through acquisitions, we cannot assure you that we will be able to adequately or profitably manage such growth. Acquiring other banks and businesses involves risks, including (i) dilution of existing stockholders; (ii) additional leverage and decreased liquidity; (iii) integration risks; (iv) performance risks of the business acquired; (v) diverting management's focus away from our core business; and (vi) entering into new markets or offering new products and services with which management has limited prior experience. 6 COMMUNITY CENTRAL BANK CORPORATION FORM 10-K (continued) WE RELY HEAVILY ON OUR MANAGEMENT AND OTHER KEY PERSONNEL, AND THE LOSS OF ANY OF THEM MAY ADVERSELY EFFECT OUR OPERATIONS. The Corporation and subsidiaries continue to be dependent upon the services of our management team, including the executive officers named in Part I of this Form 10-K and other senior managers and commercial lenders. Losing one or more members of management could adversely affect our operations. The Corporation has key man life insurance in the form of Bank Owned Life Insurance on selected executive officers, but this insurance is only applicable on the death of one or more of these individuals. OUR FUTURE SUCCESS IN DEPENDENT ON OUR ABILITY TO COMPETE EFFECTIVELY IN THE HIGHLY COMPETITIVE BANKING INDUSTRY. We face substantial competition in all phases of our operations from a variety of different competitors. Our future growth and success will depend on our ability to compete effectively in this highly competitive environment. We compete for deposits, loans and other financial services with numerous Michigan-based and out-of-state banks, thrifts, credit unions, investment banks and other financial institutions as well as other entities which provide financial services. Some of the financial institutions and financial services organizations with which we compete are not subject to the same degree of regulation as we are. Most of our competitors have been in business for many years, have established customer bases, are larger, and have substantially higher lending limits than we do. The financial services industry is also likely to become more competitive as further technological advances enable more companies to provide financial services. These technological advances may diminish the importance of depository institutions and other financial intermediaries in the transfer of funds between parties. WE ARE SUBJECT TO SIGNIFICANT GOVERNMENT REGULATION, AND ANY REGULATORY CHANGES MAY ADVERSELY AFFECT US. The banking industry is heavily regulated under both federal and state law. These regulations are primarily intended to protect customers, not our creditors or shareholders. As a bank holding company, we are also subject to extensive regulation by the Federal Reserve, in addition to other regulatory and self-regulatory organizations. Our ability to establish new facilities or make acquisitions is conditioned upon the receipt of the required regulatory approvals from these organizations. Regulations affecting banks and financial services companies undergo continuous change, and we cannot predict the ultimate effect of such changes, which could have a material adverse effect on our profitability or financial condition. WE CONTINUALLY ENCOUNTER TECHNOLOGICAL CHANGES, AND WE MAY HAVE FEWER RESOURCES THAN OUR COMPETITORS TO CONTINUE TO INVEST IN TECHNOLOGICAL IMPROVEMENTS. The banking industry is undergoing rapid technological changes with frequent introductions of new technology-driven products and services. In addition to better serving customers, the effective use of technology increases efficiency and enables financial institutions to reduce costs. The Corporation's future success will depend, in part, on our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands for convenience as well as to create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements. There can be no assurance that we will be able to effectively implement new technology-driven products and services or be successful in marketing such products and services to our customers. OUR ARTICLES OF INCORPORATION AND BY-LAWS AND MICHIGAN LAWS CONTAIN CERTAIN PROVISIONS THAT COULD MAKE A TAKEOVER MORE DIFFICULT. Our articles of incorporation and by-laws, and the laws of Michigan, include provisions which are designed to provide our board of directors with time to consider whether a hostile takeover offer is in the best interest of the Corporation and our shareholders. These provisions, however, could discourage potential acquisition proposals and could delay or prevent a change in control. The provisions also could diminish the opportunities for a holder of our common stock to participate in tender offers, including tender offers at a price above the then-current price for our common stock. These provisions could also prevent transactions in which our shareholders might otherwise receive a premium for their shares over then current market prices, and may limit the ability of our shareholders to approve transactions that they may deem to be in their best interests. 7 COMMUNITY CENTRAL BANK CORPORATION FORM 10-K (continued) The Michigan Business Corporation Act contains provisions intended to protect shareholders and prohibit or discourage certain types of hostile takeover activities. In addition to these provisions and the provisions of our articles of incorporation and by-laws, Federal law requires the Federal Reserve Board's approval prior to acquisition of "control" of a bank holding company. All of these provisions may have the effect of delaying or preventing a change in control at the company level without action by our shareholders, and therefore, could adversely affect the price of our common stock. OUR ABILITY TO PAY DIVIDENDS IS LIMITED BY LAW AND CONTRACT. We are a holding company and substantially all of our assets are held by our bank. Our ability to continue to make dividend payments to our shareholders will depend primarily on available cash resources at the holding company and dividends from our bank. Dividend payments or extensions of credit from our bank are subject to regulatory limitations, generally based on capital levels and current and retained earnings, imposed by regulatory agencies with authority over our bank. The ability of our bank to pay dividends is also subject to its profitability, financial condition, capital expenditures and other cash flow requirements. We are also prohibited from paying dividends on our common stock if the required payments on our subordinated debentures have not been made. We cannot assure you that our bank will be able to pay dividends to us in the future. THERE IS A LIMITED TRADING MARKET FOR OUR COMMON STOCK. The price of our common stock has been, and will likely continue to be, subject to fluctuations based on, among other things, economic and market conditions for bank holding companies and the stock market in general, as well as changes in investor perceptions of our company. The issuance of new shares of our common stock also may affect the market for our common stock. Our common stock is traded on the NASDAQ Global Market under the symbol "CCBD." The development and maintenance of an active public trading market depends upon the existence of willing buyers and sellers, the presence of which is beyond our control. While we are a publicly-traded company, the volume of trading activity in our stock is still relatively limited. Even if a more active market develops, there can be no assurance that such a market will continue, or that our shareholders will be able to sell their shares at or above the offering price. ITEM 2. PROPERTIES The Corporation owns two facilities, its main branch office facility and its corporate and bank headquarters, located in the downtown business district of Mount Clemens, Michigan. The main branch office location contains a full service branch and houses our IT operations. The corporate headquarters houses our executive officers and administrative office staff, as well as commercial lending, trust, wealth management and the mortgage company operations. The Corporation leases two operational full service branch locations in Rochester Hills and Grosse Pointe Farms, Michigan and recently started leasing an additional site location located in Grosse Pointe Woods, Michigan for its newest full service branch, which is expected to open in the second quarter of 2008. The Corporation will have two full service branches located within the Grosse Pointe, Michigan area. The Rochester Hills branch lease has 6 years remaining on its initial term, with a 10 year renewal option. The Grosse Pointe branch location which opened in June 2006 has a 10 year lease with a 10 year renewal option. The lease for the new Grosse Pointe Woods location is for a 10 year term with a 10 year renewal option. The mortgage company, a subsidiary of the Corporation and the Bank, has a loan production office located in Mount Clemens, to serve the Detroit metropolitan areas. Additionally, the mortgage company operates an office in Merrillville, Indiana, with a short-term lease. ITEM 3. LEGAL PROCEEDINGS From time to time, the Corporation and the Bank may be involved in various legal proceedings that are incidental to their business. In the opinion of management, neither the Corporation nor the Bank is a party to any current legal proceedings that are material to the financial condition of the Corporation or the Bank, either individually or in the aggregate. 8 COMMUNITY CENTRAL BANK CORPORATION FORM 10-K (continued) ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. The information shown under the caption "Stockholder Information" on page 65 of the Stockholder Report filed as Exhibit 13 to this Form 10-K is incorporated herein by reference. See Part III, Item 12 of the Form 10-K for information regarding securities authorized for issuance under our equity compensation plans. STOCK REPURCHASES The following table sets forth information about the Corporation's purchases of its outstanding Common Stock during the quarter ended December 31, 2007.
MAXIMUM NUMBER (OR TOTAL NUMBER OF APPROXIMATE DOLLAR SHARES (OR UNITS) VALUE) OF SHARES PURCHASED AS PART (OR UNITS) THAT TOTAL NUMBER OF OF PUBLICLY MAY YET BE PURCHASED SHARES (OR UNITS) AVERAGE PRICE PAID ANNOUNCED PLANS UNDER THE PLANS OR PERIOD PURCHASED (1) PER SHARE (OR UNIT) OR PROGRAMS (2) PROGRAMS (2) ------ ----------------- ------------------- ----------------- -------------------- October 1, 2007 - October 31, 2007 -- -- -- 18,568 November 1, 2007 - November 30, 2007 2,498 7.41 2,498 16,070 December 1, 2007 - December1 31, 2007 3,000 7.16 3,000 13,070
(c) All shares reported in the above table were purchased in the open market through publicly announced share repurchase programs. (2) On June 7, 2007, the Corporation announced a share repurchase program to repurchase up to 5% (193,289 shares) of its outstanding common stock in the open market or privately negotiated transactions over the next twelve month period. No stock repurchase plans or programs expired or were terminated by the Corporation during the quarter. ITEM 6. SELECTED FINANCIAL DATA The information presented under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 46 and 47 of the Stockholder report filed as Exhibit 13 to this Form 10-K is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information presented under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 43 to 64 of the Stockholder Report filed as Exhibit 13 to this Form 10-K is incorporated herein by reference. 9 COMMUNITY CENTRAL BANK CORPORATION FORM 10-K (continued) ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. The information presented under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 62 to 64 of the Stockholder report filed as Exhibit 13 to this Form 10-K is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information presented under the captions "Consolidated Balance Sheet," "Consolidated Statement of Income," "Consolidated Statement of Comprehensive Income," "Consolidated Statement of Changes in Stockholders' Equity," "Consolidated Statement of Cash Flow," and "Notes to Consolidated Financial Statements," on pages 1 through 42 of the Stockholder Report filed as Exhibit 13 to this Form 10-K, as well as the Report of Independent Registered Public Accounting Firm of Plante & Moran, PLLC, dated March 17, 2008, included in the Stockholder Report, are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There are no changes in or disagreements with accountants on accounting and financial disclosure. ITEM 9A. CONTROLS AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures: An evaluation of the Corporation's disclosure controls and procedures (as defined in Section 13a-15(e) of the Securities Exchange Act of 1934 (the "Exchange Act")) as of December 31, 2007, was carried out under the supervision and with the participation of the Corporation's Chief Executive Officer, Principal Financial Officer and several other members of the Corporation's senior management. The Corporation's Chief Executive Officer and Principal 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 Exchange Act is (i) accumulated and communicated to the Corporation's management (including the Chief Executive Officer and Principal 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. 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 disclosure controls and procedures. (b) Management's Report on Internal Control Over Financial Reporting: Management of Community Central Bank Corporation and its subsidiary (the "Corporation") is responsible for establishing and maintaining an effective system of internal control over financial reporting. The Corporation's system of internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. There are inherent liabilities in the effectiveness of any system of internal control over financial reporting, including the possibility of human error and circumvention or overriding of controls. Accordingly, even an effective system of internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. Management assessed the Corporation's systems of internal control over financial reporting as of December 31, 2007. This assessment was based on criteria for effective internal control over financial reporting described in Internal Control * Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management believes that, as of December 31, 2007, the Corporation maintained effective internal control over financial reporting based on those criteria. 10 COMMUNITY CENTRAL BANK CORPORATION FORM 10-K (continued) (c) Changes in Internal Control Over Financial Reporting: There have been no changes in our internal control over financial reporting (as defined in 13a-15(f) of the Exchange Act) that occurred during the quarter ended December 31, 2007, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION None PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. DIRECTORS. The information presented under the caption "Election of Directors - Information about Directors and Nominees as Directors" in the Proxy Statement of the Corporation for its Annual Meeting of Stockholders to be held on April 15, 2008, (the "Proxy Statement"), a copy of which has been filed with the Securities and Exchange Commission, is incorporated herein by reference. EXECUTIVE OFFICERS. Information concerning Executive Officers of the Corporation is presented under the caption "Executive Officers" in Part I of this Form 10-K and is incorporated herein by reference. AUDIT COMMITTEE FINANCIAL EXPERT. Information concerning the Corporation's "audit committee financial expert" is presented under the caption "Board Meetings, Board Committees and Corporate Governance Matters - `Independent' Directors" in the Proxy Statement and is incorporated herein by reference. COMPLIANCE WITH SECTION 16(A). Based solely on our review of copies of reports filed pursuant to Section 16(a) of the Securities Exchange Act of 1934, as amended or written representations from persons required filing such reports, we believe that all filings required to be made were timely made in accordance with the requirements of the Securities Exchange Act of 1934. CODE OF ETHICS. We have adopted a written Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer, and persons performing similar functions, and to all of our other employees and our directors. A copy of the Corporation's Code of Business Conduct and Ethics was filed with the SEC as Exhibit 14 to the Corporation's Annual Report on Form 10-KSB for the year ended December 31, 2003 and is posted on the shareholder relations section of our our web site at www.communitycentralbank.com. ITEM 11. EXECUTIVE COMPENSATION. The information presented under the captions "Executive Compensation," and "Director Compensation" in the Proxy Statement is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. The information presented under the caption "Stock Ownership of Certain Beneficial Owners and Management" in the Proxy Statement is incorporated herein by reference. 11 COMMUNITY CENTRAL BANK CORPORATION FORM 10-K (continued) The following table provides information as of December 31, 2007 with respect to shares of Corporation's common stock that may be issued under our existing equity compensation plans and arrangements, which include the Corporation's 1996 Employee Stock Option Plan, 1999 Stock Option Plan for Directors, 2000 Employee Stock Option Plan and 2002 Incentive Plan, as amended. Each of these plans has been approved by the Corporation's stockholders and filed with the SEC. All amounts in the table have been adjusted to reflect the effects of stock dividends paid by the Corporation.
Number of Number of securities securities remaining available for to be issued Weighted-average future issuance under upon exercise of exercise price of equity compensation plans. outstanding Option, outstanding options, (excluding securities warrants and rights. warrants and rights. reflected in column (a)). Plan Category (a) (b) (c) - ------------- -------------------- --------------------- -------------------------- Equity Compensation plans approved by security holders 286,993 $9.10 110,561 Equity compensation plans not approved by security holders None None None ------- ----- ------- Total 286,993 $9.10 110,561
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. The information presented under the captions "Board Meetings, Board Committees and Corporate Governance Matters" and "Certain Transactions" in the Proxy Statement is incorporated herein by reference. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES. The information presented under the caption "Selection and Relationship with Independent Auditor" in the Proxy Statement is incorporated herein by reference. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a)(1) Financial Statements. The following financial statements and reports of Independent Registered Public Accounting Firm of Community Central Bank Corporation are filed as part of this report: Reports of Independent Registered Public Accounting Firm dated March 17, 2008 Consolidated Balance Sheet - December 31, 2007 and 2006 Consolidated Statement of Income for each of the three years in the period ended December 31, 2007 Consolidated Statement of Comprehensive Income for each of the three years in the period ended December 31, 2007 Consolidated Statements of Changes in Stockholders' Equity for each of the three years in the period ended December 31, 2007 12 COMMUNITY CENTRAL BANK CORPORATION FORM 10-K (continued) Consolidated Statement of Cash Flow for each of the three years in the period ended December 31, 2007 Notes to Consolidated Financial Statements, the financial statements, the notes to financial statements, and the report of independent registered public accounting firm listed above are incorporated by reference in Item 8 of this report. (a)(2) Financial Statement Schedules Not applicable. (a)(3) See Exhibits below (B) EXHIBITS The exhibits to this report on Form 10-K are listed below. 3.1 Articles of Incorporation are incorporated by reference to Exhibit 3.1 of the Corporation's Registration Statement on Form SB-2 (SEC File No. 333-04113). 3.2 Bylaws, as amended, of the Corporation are incorporated by reference to Exhibit 3 of the Corporation's Current Report on Form 8-Kfiled on September 19, 2007 (SEC File No. 000-33373). 4.1 Specimen stock certificate of Community Central Bank Corporation is incorporated by reference to Exhibit 4.2 of the Corporation's Registration Statement on Form SB-2 (SEC File No. 333-04113). 10.1 1996 Employee Stock Option Plan is incorporated by reference to Exhibit 10.1 of the Corporation's Registration Statement on Form SB-2 (SEC File No. 333-04113). 10.2 2000 Employee Stock Option Plan is incorporated by reference to Exhibit 10.6 of the Corporation's Annual Report on Form 10-KSB for the year ended December 31, 2000 (SEC File No. 000-33373).10.3 2002 Incentive Plan is incorporated by reference to Exhibit 10.7 of the Corporation's Annual Report on Form 10-KSB for the year ended December 31, 2001 (SEC File No. 000-33373).10.4 Community Central Bank Supplemental Executive Retirement Plan, as amended, and Individual Particpant Agreements are incorporated by reference to Exhibit 10.6 of the Corporation's Annual Report on Form 10-K for the year ended December 31, 2006 (SEC File No. 000-33373). 10.5 Community Central Bank Death Benefit Plan, as amended, is incorporated by reference to Exhibit 10.7 of the Corporation's Annual Report on Form 10-K for the year ended December 31, 2006 (SEC File No. 000-33373). 10.6 Form of Incentive Stock Option Agreement incorporated by reference to Exhibit 99.1 of the Corporation's Current Report on Form 8-K filed on March 25, 2005. (SEC File No. 000-33373) 10.7 Form of Non-qualified Stock Option Agreement 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) 10.8 Summary of Current Director Fee Arrangements is incorporated by reference to Exhibit 10.10 of the Corporation's Annual Report on Form 10-KSB for the year ended December 31, 2004. (SEC File No. 000-33373) 10.9 Form of Separation Agreement entered into between Community Central Bank and Ronald Reed is incorporate by reference to Exhibit 10.11 of the Corporation's Current Report on Form 8-K filed on Auguast 14, 2008. (SEC File No. 000-33373) 11 Computation of Per Share Earnings 13 2007 Stockholder Report (Except for the portions of the 2007 Stockholder Report that are expressly incorporated by reference in this Annual Report on Form 10-K, the 2007 Stockholder Report of the Corporation shall not be deemed filed as a part hereof.) 13 COMMUNITY CENTRAL BANK CORPORATION FORM 10-K (continued) 14 Code of Business Conduct and Ethics is incorporated by reference to Exhibit 14 of the Corporation's Form 10-KSB for the year ended December 31, 2003 (SEC File No. 000-33373). 21 List of subsidiaries of the Corporation 23 Consent of Independent Registered Public Accounting Firm 31.1 Rule 13a - 14(a) Certification (Chief Executive Officer) 31.2 Rule 13a - 14(a) Certification (Chief Financial Officer) 32 Rule 1350 Certifications 14 COMMUNITY CENTRAL BANK CORPORATION FORM 10-K (continued) SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 31, 2008: COMMUNITY CENTRAL BANK CORPORATION /S/ DAVID A. WIDLAK ---------------------------------------- David A. Widlak; President and Chief Executive Officer (Duly authorized officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 31, 2008: /S/ GEBRAN S. ANTON /S/ JAMES T. MESTDAGH - ------------------------------------- ---------------------------------------- Gebran S. Anton; Director James T. Mestdagh; Director /S/ JOSEPH CATENACCI /S/ DEAN S. PETITPREN - ------------------------------------- ---------------------------------------- Joseph Catenacci; Director Dean S. Petitpren; Chairman Director /S/ SALVATORE COTTONE /S/ JOHN W. STROH, III - ------------------------------------- ---------------------------------------- Salvatore Cottone; Director John W. Stroh, III; Director /S/ CELESTINA GILES /S/ DAVID A. WIDLAK - ------------------------------------- ---------------------------------------- Celestina Giles; Director David A. Widlak; President and Chief Executive Officer and Director (principal executive officer) /S/ JOSEPH F. JEANNETTE - ------------------------------------- Joseph F. Jeannette; Director /S/ RAY T. COLONIUS - ------------------------------------- Ray T. Colonius, CFO and Treasurer (principal financial and accounting officer) 15 COMMUNITY CENTRAL BANK CORPORATION FORM 10-K (continued) EXHIBIT INDEX
EXHIBIT NUMBER EXHIBIT DESCRIPTION - ------- ---------------------------------------------------------------------- 11 Computation of Per Share Earnings 13 2007 Stockholder Report. Except for the portions of the 2007 Stockholder Report that are expressly incorporated by reference in this Annual Report on Form 10-K, the 2007 Stockholder Report of the Corporation shall not be deemed filed as a part hereof. 21 List of subsidiaries of the Corporation 23 Consent of Independent Registered Public Accounting Firm 31.1 Rule 13a - 14(a) Certification (Chief Executive Officer) 31.2 Rule 13a - 14(a) Certification (Chief Financial Officer) 32 Rule 1350 Certification
16 EX-11 2 k24561exv11.txt COMPUTATION OF PER SHARE EARNINGS . . . EXHIBIT 11 COMPUTATION OF PER SHARE EARNINGS
Year Ended December 31, ------------------------ 2007 2006 2005 ------ ------ ------ (In thousands, except per share data) BASIC Net Income $ 724 $2,096 $3,073 / Weighted Average Shares 3,833 4,014 3,822 Basic Earnings Per Share $ 0.19 $ 0.52 $ 0.80 ====== ====== ====== DILUTED Net Income $ 724 $2,096 $3,073 / Weighted Average Shares 3,875 4,081 3,920 Diluted Earnings Per Share $ 0.19 $ 0.51 $ 0.78 ====== ====== ======
Per share data has been retroactively adjusted for stock dividend. Notes: - - Where applicable, diluted share computations include the effects of outstanding stock options. EX-13 3 k24561exv13.txt 2007 STOCKHOLDER REPORT Exhibit 13 COMMUNITY CENTRAL BANK CORPORATION Report of Independent Registered Public Accounting Firm and Stockholder Report December 31, 2007 (PLANTE & MORAN, PLLC LOGO) PLANTE & MORAN, PLLC Suite 500 2601 Cambridge Court Auburn Hills, MI 48326 Tel: 248.375.7100 Fax: 248.375.7101 plantemoran.com Report of Independent Registered Public Accounting Firm Board of Directors and Stockholders Community Central Bank Corporation We have audited the accompanying consolidated balance sheet of Community Central Bank Corporation as of December 31, 2007 and 2006, and the related consolidated statements of income, comprehensive income, changes in stockholders' equity, and cash flows for the years ended December 31, 2007, 2006 and 2005. These consolidated financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Corporation is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Corporation's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Community Central Bank Corporation as of December 31, 2007 and 2006, and the results of its operations for the years ended December 31, 2007, 2006 and 2005, in conformity with accounting principles generally accepted in the United States of America. As disclosed in Note 21 to the consolidated financial statements, the Corporation adopted Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, in 2007. Our audit was conducted for the purpose of forming an opinion on the consolidated basic financial statements taken as a whole. The information contained in Notes 4 and 5, pertaining to 2004 and 2003, is presented for the purpose of additional analysis and is not a required part of the consolidated basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the consolidated basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the consolidated basic financial statements taken as a whole. /s/ PLANTE & MORAN, PLLC Auburn Hills, Michigan March 17, 2008 (PRAXITY MEMBER LOGO) COMMUNITY CENTRAL BANK CORPORATION CONSOLIDATED BALANCE SHEET
December 31, ------------------- Assets 2007 2006 - ------ -------- -------- (In thousands) Cash and Cash Equivalents Cash and due from banks (Note 2) $ 6,183 $ 11,026 Federal funds sold 3,000 13,700 -------- -------- Total Cash and Cash Equivalents 9,183 24,726 Trading securities at fair value option (Note 3) 20,115 -- Securities available for sale, at fair value (Note 3) 66,809 80,916 Securities held to maturity, at amortized cost (Note 3) 977 1,017 FHLB stock 5,527 4,540 Residential mortgage loans held for sale 4,848 3,441 Loans (Note 4) Commercial real estate 264,685 236,399 Commercial and industrial 33,039 28,393 Residential real estate 60,799 72,517 Home equity lines of credit 20,906 17,614 Consumer loans 9,754 11,666 Credit card loans 729 693 -------- -------- Total Loans 389,912 367,282 Allowance for credit losses (Note 5) (6,403) (3,815) -------- -------- Net Loans 383,509 363,467 Net property and equipment (Note 6) 8,704 9,225 Accrued interest receivable 2,535 2,599 Other real estate 854 108 Goodwill (Note 1) 1,381 1,381 Intangible assets, net of amortization (Note 1) 107 145 Cash surrender value of Bank Owned Life Insurance (Note 13) 10,514 10,163 Other assets (Note 16) 5,242 3,300 -------- -------- Total Assets $520,305 $505,028 ======== ========
The accompanying notes are an integral part of the financial statements. COMMUNITY CENTRAL BANK CORPORATION CONSOLIDATED BALANCE SHEET
December 31, --------------------------------- Liabilities 2007 2006 - ----------- ------- -------- (In thousands, except share data) Deposits Noninterest bearing demand deposits $ 31,647 $ 33,331 NOW and money market accounts 53,467 59,339 Savings deposits 9,326 10,569 Time deposits (Note 7) 234,195 252,617 -------- -------- Total Deposits 328,635 355,856 Repurchase agreements (Note 8) 32,659 15,688 Federal Home Loan Bank advances ($5.0 million at fair value option at 12-31-2007) (Note 9) 104,495 83,528 Accrued interest payable 1,018 1,257 Other liabilities (Note 13) 2,637 1,629 ESOP note payable (Note 10) 36 95 Subordinated debentures (at fair value option at 12-31-2007) (Note 11) 17,597 10,310 -------- -------- Total Liabilities 487,077 468,363 Stockholders' Equity (Note 12) Common stock (No par value; 9,000,000 shares, authorized, and 3,733,081 and 4,021,246 issued and outstanding at December 31, 2007 and December 31, 2006, respectively) 32,071 33,220 Retained earnings 1,797 4,303 Unearned employee benefit (Note 13) (36) (95) Accumulated other comprehensive loss (604) (763) -------- -------- Total Stockholders' Equity 33,228 36,665 -------- -------- Total Liabilities and Stockholders' Equity $520,305 $505,028 ======== ========
The accompanying notes are an integral part of the financial statements. 2 COMMUNITY CENTRAL BANK CORPORATION CONSOLIDATED STATEMENT OF INCOME
Year Ended December 31, ------------------------------------- 2007 2006 2005 ------- ------- ------- (In thousands, except per share data) Interest Income Loans (including fees) $27,904 $26,732 $21,120 Taxable securities 3,018 3,203 2,294 Tax exempt securities 1,402 1,241 613 Federal funds sold 601 299 203 ------- ------- ------- Total Interest Income 32,925 31,475 24,230 Interest Expense NOW and money market accounts 2,335 1,176 612 Savings deposits 308 299 343 Time deposits 11,495 12,111 6,733 Repurchase agreements and fed funds purchased 912 432 245 Federal Home Loan Bank advances 4,059 3,936 2,865 ESOP loan interest expense 6 10 11 Subordinated debentures 1,620 928 746 ------- ------- ------- Total Interest Expense 20,735 18,892 11,555 ------- ------- ------- Net Interest Income 12,190 12,583 12,675 Provision for credit losses (Note 5) 3,600 550 100 ------- ------- ------- Net Interest Income after provision for credit losses 8,590 12,033 12,575 Noninterest Income Fiduciary income 437 289 133 Deposit service charges 419 357 297 Net realized security (loss) gain (Note 3) (74) 8 56 Change in fair value of assets/liabilities carried at fair value 1,392 -- -- Mortgage banking income 2,365 3,376 3,752 Other income 1,153 905 571 ------- ------- ------- Total Noninterest Income 5,692 4,935 4,809 Noninterest Expense Salaries, benefits and payroll taxes (Note 13) 7,898 8,768 7,689 Net occupancy expense (Note 14) 1,806 1,865 1,635 Other operating expense (Note 15) 4,149 3,876 3,808 ------- ------- ------- Total Noninterest Expense 13,853 14,509 13,132 ------- ------- ------- Income Before Taxes 429 2,459 4,252 Provision for Income Tax (Benefit) Expense (Note 16) (295) 363 1,179 ------- ------- ------- Net Income $ 724 $ 2,096 $ 3,073 ======= ======= =======
The accompanying notes are an integral part of the financial statements. 3 COMMUNITY CENTRAL BANK CORPORATION CONSOLIDATED STATEMENT OF INCOME (continued)
Year Ended December 31, ------------------------------------- 2007 2006 2005 ----- ----- ----- (In thousands, except per share data) Per share data:* Basic earnings $0.19 $0.52 $0.80 Diluted earnings $0.19 $0.51 $0.78 Cash Dividends $0.24 $0.24 $0.21
* Per share data has been retroactively adjusted to reflect the issuance of stock dividends. 4 COMMUNITY CENTRAL BANK CORPORATION CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year Ended December 31, ------------------------- 2007 2006 2005 ----- ------- ------- (In thousands) Net Income as Reported $ 724 $2,096 $3,073 Other Comprehensive Income Change in unrealized net gain (loss) on securities available for sale, net of tax of ($70) in 2007, ($7) in 2006, and ($328) in 2005 (136) (44) (630) ----- ------ ------ Comprehensive Income $ 588 $2,052 $2,443 ===== ====== ======
The accompanying notes are an integral part of the financial statements. 5 COMMUNITY CENTRAL BANK CORPORATION CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Accumulated Unearned Other Common Retained Employee Comprehensive Total Stock Earnings Benefits Income (Loss) Equity ------- -------- -------- ------------- ------- (In thousands) Balance January 1, 2005 $20,774 $ 5,111 ($205) ($ 89) $25,591 Cash dividend -- (742) -- -- (742) Stock options exercised/awards 108 -- -- -- 108 Rights Offering 5,275 -- -- -- 5,275 Stock dividend (Note 12) 2,197 (2,197) -- -- -- Net income for 2005 -- 3,073 -- -- 3,073 Release of ESOP shares 50 -- 57 -- 107 RPFC merger 2,750 -- -- -- 2,750 Other comprehensive income -- -- -- (630) (630) ------- ------- ----- ----- ------- Balance December 31, 2005 $31,154 $ 5,245 ($148) ($719) $35,532 Cash dividend -- (918) -- -- (918) Stock options exercised/awards 252 -- -- -- 252 Compensation-stock options 23 -- -- -- 23 Stock dividend (Note 12) 2,120 (2,120) -- -- -- Net income for 2006 -- 2,096 -- -- 2,096 Release of ESOP shares 22 -- 53 -- 75 Repurchase of common stock (351) -- -- -- (351) Other comprehensive income -- -- -- (44) (44) ------- ------- ----- ----- ------- Balance December 31, 2006 $33,220 $ 4,303 ($ 95) ($763) $36,665 Cumulative effect of adoption of SFAS 159 -- (420) -- 295 (125) Cash dividend -- (931) -- -- (931) Stock options exercised/awards 341 -- -- -- 341 Compensation-stock options 31 -- -- -- 31 Stock dividend (Note 12) 1,879 (1,879) -- -- -- Net income for 2007 -- 724 -- -- 724 Release of ESOP shares -- -- 59 -- 59 Repurchase of common stock (3,400) -- -- -- (3,400) Other comprehensive income -- -- -- (136) (136) ------- ------- ----- ----- ------- Balance December 31, 2007 $32,071 $ 1,797 ($ 36) ($604) $33,228 ======= ======= ===== ===== =======
The accompanying notes are an integral part of the financial statements. 6 COMMUNITY CENTRAL BANK CORPORATION CONSOLIDATED STATEMENT OF CASH FLOW
Year Ended December 31, --------------------------------- 2007 2006 2005 --------- --------- --------- (In thousands) Operating Activities Net income $ 724 $ 2,096 $ 3,073 Adjustments to reconcile net income to net cash flow from operating activities: Net amortization of security premium 207 187 309 Net loss on available for sale securities 74 (8) (56) Net gain on instruments at fair value (1,392) -- -- Provision for credit losses 3,600 550 100 Depreciation expense 705 718 560 Deferred income tax (benefit) expense (950) (24) (305) ESOP compensation expense 59 75 107 Compensation-stock options 31 23 -- Decrease (increase) in accrued interest receivable 64 (477) (731) (Increase) decrease in other assets (1,651) (187) (1,200) (Decrease) increase in accrued interest payable (239) 319 158 Increase in other liabilities 1,008 647 38 Loans originated held for sale (109,956) (119,934) (142,072) Loans sold held for sale 108,548 120,779 144,277 (Increase) decrease in other real estate (746) 4 569 --------- --------- --------- Net Cash Provided By Operating Activities 86 4,768 4,827 Investing Activities Sales, maturities, calls and prepayments of securities available for sale 55,952 33,537 23,320 Purchases of securities available for sale (41,999) (30,506) (55,169) Maturities, calls, sales and prepayments of trading securities 13,606 -- -- Transfer and purchase of trading securities (33,402) -- -- Maturities, calls, and prepayments of held to maturity securities 36 158 65 Purchases of held to maturity securities (987) (295) (1,085) Increase in loans (23,641) (32,646) (28,727) Purchases of property and equipment (184) (1,190) (2,392) Proceeds from sale of property and equipment 60 -- -- Purchase of Bank Owned Life Insurance -- -- (2,000) --------- --------- --------- Net Cash Used in Investing Activities (30,559) (30,942) (65,988) Financing Activities Net (decrease) increase in demand and savings deposits (8,799) 17,261 (7,087) Net (decrease) increase in time deposits (18,422) 24,222 42,604 Net increase in short term borrowings 16,971 2,504 1,692 Issuance of subordinate debentures 18,557 -- -- Redemption of subordinate debentures (10,310) -- -- FHLB advances 43,000 38,700 50,900 FHLB advance repayments (22,018) (41,717) (27,715) Payment of ESOP debt (59) (53) (57) Rights/Public Stock Offering -- -- 5,275 Stock options exercised 341 252 108 Cash dividends paid (931) (918) (742) Repurchase of stock (3,400) (351) -- --------- --------- --------- Net Cash Provided by Financing Activities 14,930 39,900 64,978 Increase (decrease) in Cash and Cash Equivalents (15,543) 13,726 3,817 Cash and Cash Equivalents at the Beginning of the Period 24,726 11,000 7,183 --------- --------- --------- Cash and Cash Equivalents at the End of the Period $ 9,183 $ 24,726 $ 11,000 ========= ========= ========= Supplemental Disclosure of Cash Flow Information Interest paid $ 20,974 $ 18,892 $ 11,555 Federal Taxes Paid $ 300 $ 175 $ 1,740 Loans transferred to other real estate owned $ 878 $ 263 $ 555 ========= ========= =========
7 COMMUNITY CENTRAL BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2007 and 2006 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting and reporting policies of Community Central Bank Corporation (the "Corporation") conform to accounting principles generally accepted in the United States of America. Management is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates and assumptions. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of foreclosed real estate, and deferred tax assets. PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of the Corporation and its wholly-owned subsidiaries, Community Central Bank (the "Bank") and Community Central Mortgage Company, LLC ("the Mortgage Company"). All significant intercompany transactions are eliminated in consolidation. The ownership structure of the Mortgage Company consists of two members, Community Central Bank and Community Central Bank Corporation, owning 99% and 1% of the Mortgage Company, respectively. NATURE OF OPERATIONS: Community Central Bank Corporation is the bank 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, Wayne and St. Clair counties with a full range of lending, deposit, trust, wealth management and Internet banking services. The Bank operates three full service facilities in Mount Clemens, Rochester Hills and Grosse Pointe, Michigan. Community Central Mortgage Company, LLC, a subsidiary of the Corporation and Bank, operates locations servicing the Detroit metropolitan area and northwest Indiana. River Place Trust and Community Central Wealth Management are divisions of Community Central Bank. Community Central Insurance Agency, LLC is a wholly owned subsidiary of Community Central Bank. TRADING SECURITIES: Those securities the Corporation has elected to report at fair value under the fair value option are reported as trading securities pursuant to SFAS 159 even though management did not acquire the securities principally for the purpose of selling them in the near term. The change in the fair value of these securities is recorded in current earnings. SECURITIES: On the balance sheet, securities held to maturity are stated at cost, adjusted for amortization of premium and accretion of discount. Securities classified as available for sale are those that may be sold in the future to meet investment objectives of quality, liquidity and yield, and to avoid significant market deterioration. Securities available for sale are reported at estimated fair value. Unrealized gain or loss on securities available for sale is recorded (net of tax) as a component of other comprehensive income in the equity section of the balance sheet. Gain or loss on sales or calls of securities is computed based on the amortized cost of the specific security. FEDERAL HOME LOAN BANK STOCK: Federal Home Loan Bank Stock ("FHLB Stock") is considered a restricted investment security and is carried at cost. Purchases and sales of FHLB stock are made directly with the FHLB at par value. LOANS: Loans are generally reported at the principal amount outstanding. Non-refundable loan origination fees and certain direct loan origination costs are deferred and included in interest income over the term of the related loan as a yield adjustment. Interest on loans is accrued and credited to income based upon the principal amount outstanding. The accrual of interest on loans is discontinued when, in the opinion of management, there is an indication that the borrower may be unable to meet payments as they become due. Upon such discontinuance, all unpaid interest accrued is reversed. Interest accruals are generally resumed when all delinquent principal and/or interest has been brought current or the loan becomes both well secured and in the process of collection. LOANS HELD FOR SALE: Loans held for sale consist of residential mortgage loans with maturities of 15 to 30 years. Such loans are recorded at the lower of aggregate cost or estimated fair value. 8 COMMUNITY CENTRAL BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ALLOWANCE FOR CREDIT LOSSES: The allowance for credit losses is maintained at a level considered by management to be adequate to absorb probable 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, and current economic conditions that may affect the borrower's ability to pay. FORECLOSED ASSETS: Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value as of the date of the foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in net expenses from foreclosed assets. PROPERTY AND EQUIPMENT: Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation, generally computed using a declining balance method, is charged to operations over the estimated useful lives of the assets. Leasehold improvements are amortized over the terms of their respective leases or the estimated useful lives of the improvements, whichever is shorter. GOODWILL: Goodwill results from business acquisitions and represents the excess of the purchase price over the fair value of the acquired tangible assets and liabilities and identifiable intangible asset. Goodwill is assessed annually for impairment and any such impairment will be recognized in the period identified. As of December 31, 2007, the goodwill intangible asset of $1,381,000 had no impairment at December 31, 2007 and 2006. INTANGIBLES: The core deposit intangible of $5,000 as of December 31, 2007 consists of core deposit intangible assets arising from an acquisition. The assets were measured at fair value and are being amortized on an accelerated method over their estimated useful lives. Amortization expense of $15,000 was recognized in 2007. Under accelerated amortization, the core deposit intangible is expected to be fully amortized by 2008. OTHER INTANGIBLE ASSETS: The other intangible assets of $102,000 as of December 31, 2007 consist of an intangible generated from an acquisition. The intangible is associated with customer relationships, which will be amortized straight-line over their estimated useful lives. Amortization expense of $23,000 was recognized in 2007. Under the straight-line method, the intangible asset is expected to be fully amortized by 2012. INTEREST RATE SWAPS: The Corporation utilizes interest rate swaps to better manage certain risks including interest rate risk and the risks associated with hedging on balance sheet financial assets and financial liabilities accounted for under the SFAS 157 and SFAS 159, the Fair Value Measurement and the Fair Value Option for Financial Assets and Financial Liabilities. The interest rate swaps are also accounted for under SFAS 157 and SFAS 159. STOCK OPTION PLAN AND ADOPTION OF SFAS 123R: In December 2004, the Financial Accounting Standards Board ("FASB") issued Statement No. 123R "Share-based Payment" ("SFAS 123R"), a revision to Statement No. 123, "Accounting for Stock-Based Compensation." This standard requires the Corporation to measure the cost of employee services received in exchange for equity awards, including stock options, based on the grant date fair calculated value of the awards. The Corporation adopted the provisions of SFAS 123R as of January 1, 2006. The standard provides for a modified prospective application. Under this method, the Corporation began recognizing compensation cost for equity based compensation for all new or modified grants after the date of adoption. In addition, the Corporation is recognizing the unvested portion of the grant date fair value of awards issued prior to adoption based on the fair values previously calculated for disclosure purposes. Prior periods have not been restated. EARNINGS PER SHARE: Basic earnings per share are based on the weighted average number of shares outstanding during the period. For earnings per share, committed-to-be-released and allocated shares of the "ESOP" are considered outstanding. Diluted earnings per share are adjusted for the dilutive effects of stock options, where applicable. All share amounts have been retroactively adjusted to reflect the issuance of stock dividends. 9 COMMUNITY CENTRAL BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Weighted average shares reconciliation is as follows:
Year Ended December 31, ------------------------ 2007 2006 2005 ------- ----- ------ (In thousands of shares) Basic 3,833 4,014 3,822 Effect of stock options 42 67 98 ----- ----- ----- Diluted 3,875 4,081 3,920 ===== ===== =====
COMPREHENSIVE INCOME: Accounting principles generally require that recognized revenue, expense, gain and loss be included in net income. Certain changes in assets and liabilities, such as unrealized gain or loss on securities available for sale, are reported as a separate component of equity. Such items, along with net income, are components of comprehensive income. Accumulated other comprehensive income at December 31, 2007, 2006 and 2005 consisted solely of unrealized gain and losses on available for sale securities, net of tax. RECENT ACCOUNTING PRONOUNCEMENTS: EMERGING ISSUES TASK FORCE ISSUE 06-4 - ACCOUNTING FOR DEFERRED COMPENSATION AND POSTRETIREMENT BENEFIT ASPECTS OF ENDORSEMENT SPLIT-DOLLAR LIFE INSURANCE ARRANGEMENTS - In September 2006, the Emerging Issues Task Force Issue 06-4 (EITF 06-4), Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements was ratified. EITF 06-4 Addresses accounting for separate agreements which split life insurance policy benefits between an employer and employee. The Issue requires the employer to recognize a liability for future benefits payable to the employee under these agreements. The effects of applying EITF 06-4 must be recognized through either a change in accounting principle through an adjustment to equity or through the retrospective application to all prior periods. For calendar year companies, EITF 06-4 is effective beginning January 1, 2008. The Corporation is currently evaluating the impact of the adoption of this accounting pronouncement. The Corporation does not have split-dollar life insurance arrangements. 10 COMMUNITY CENTRAL BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (2) CASH AND DUE FROM BANKS The Bank is required to maintain cash on hand or noninterest bearing deposits with the Federal Reserve Bank, based on a percentage of the Bank's deposits. The requirement is met using a combination of vault cash and deposits made using a pass-through relationship with a correspondent bank. As of December 31, 2007, $25,000 in reserves was required. (3) SECURITIES The following table shows the amortized cost and estimated fair value of the Corporation's security portfolios as of the dates indicated:
December 31, 2007 ------------------------------------- Unrealized Amortized --------------- Fair Cost Gains Losses Value --------- ----- ------- ------- (In thousands) Securities Available for Sale United States Government agencies $ 5,669 $ 85 $ -- $ 5,754 Mortgage backed securities 25,150 81 (143) 25,088 Collateralized mortgage obligations 6,773 12 (106) 6,679 Municipal securities 29,632 26 (861) 28,797 Mutual fund 500 -- (9) 491 ------- ---- ------- ------- Total Securities Available for Sale 67,724 204 (1,119) 66,809 ------- ---- ------- ------- Held to Maturity Securities Municipal securities 95 3 -- 98 Trust Preferred securities 250 -- -- 250 Mortgage backed securities 632 1 (7) 626 ------- ---- ------- ------- Total Held to Maturity Securities 977 4 (7) 974 ------- ---- ------- ------- Total Securities $68,701 $208 ($1,126) $67,783 ======= ==== ======= =======
The following table shows those securities the Corporation has elected to report at fair value under the fair value option are reported as trading securities pursuant to SFAS 159 even though management did not acquire the securities principally for the purpose of selling them in the near term. The change in the fair value of these securities is recorded in current earnings.
December 31, 2007 ----------------- Fair Value ----------------- Trading Securities United States Government agencies $13,396 Collateralized mortgage obligations 6,719 ------- Total Trading Securities Held at Fair Value $20,115 =======
11 COMMUNITY CENTRAL BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006 ------------------------------------- Unrealized Amortized --------------- Fair Cost Gains Losses Value --------- ----- ------- ------- (In thousands) Securities Available for Sale United States Government agencies $19,453 $-- ($243) $19,210 Mortgage backed securities 19,331 21 (293) 19,059 Collateralized mortgage obligations 11,273 17 (182) 11,108 Municipal securities 31,515 25 (486) 31,054 Mutual fund 500 -- (15) 485 ------- --- ------- ------- Total Securities Available for Sale 82,072 63 (1,219) 80,916 ------- --- ------- ------- Held to Maturity Securities Municipal securities 105 3 -- 108 Trust Preferred securities 250 -- (10) 240 Mortgage backed securities 662 1 (18) 645 ------- --- ------- ------- Total Held to Maturity Securities 1,017 4 (28) 993 ------- --- ------- ------- Total Securities $83,089 $67 ($1,247) $81,909 ======= === ======= =======
December 31, 2005 ------------------------------------- Unrealized Amortized --------------- Fair Cost Gains Losses Value --------- ----- ------- ------- (In thousands) Securities Available for Sale United States Government agencies $24,170 $ -- ($355) $23,815 Mortgage backed securities 25,503 35 (372) 25,166 Collateralized mortgage obligations 10,936 5 (214) 10,727 Municipal securities 24,168 61 (249) 23,980 Mutual fund 500 -- (11) 489 ------- ---- ------- ------- Total Securities Available for Sale 85,277 101 (1,201) 84,177 ------- ---- ------- ------- Held to Maturity Securities Municipal securities 115 4 -- 119 Trust Preferred securities 250 -- (6) 244 Mortgage backed securities 729 2 (9) 722 ------- ---- ------- ------- Total Held to Maturity Securities 1,094 6 (15) 1,085 ------- ---- ------- ------- Total Securities $86,371 $107 ($1,216) $85,262 ======= ==== ======= =======
For the years ended December 31, 2007, 2006 and 2005, proceeds from sales of securities available for sale amounted to $9.4 million, $11.8 million and $15.2 million, respectively. Gross realized gains amounted to $23,000, $54,000 and $90,000, respectively. Gross realized losses amounted to $97,000, $46,000 and $34,000, respectively. 12 COMMUNITY CENTRAL BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table shows information pertaining to securities with gross unrealized losses at December 31, 2007 and 2006, aggregated by investment category and length of time that individual security has been in continuous loss position. Unrealized losses on securities have not been recognized into income because the issuers' bonds are of high credit quality. We have the intent and ability to hold the securities for the foreseeable future and the decline in fair value is primarily due to increased market interest rates.
December 31, 2007 ------------------------------------------- Less than 12 Months Over 12 Months -------------------- -------------------- Gross Gross Unrealized Fair Unrealized Fair Losses Value Losses Value ---------- ------- ---------- ------- (In thousands) Securities Available for Sale United States Government agencies $ -- $ -- $ -- $ -- Mortgage backed securities (56) 8,297 (87) 8,589 Collateralized mortgage obligations (5) 1,965 (101) 2,509 Municipal securities (465) 9,213 (396) 14,781 Mutual funds -- -- (9) 491 ------ ------- ------ ------- Total Securities Available for Sale ($526) $19,475 ($593) $26,370 ====== ======= ====== =======
As of December 31, 2007, the unrealized loss on held to maturity securities was $6,000 and was in an unrealized loss position for over twelve months.
December 31, 2006 ------------------------------------------- Less than 12 Months Over 12 Months -------------------- -------------------- Gross Gross Unrealized Fair Unrealized Fair Losses Value Losses Value ---------- ------- ---------- ------- (In thousands) Securities Available for Sale United States Government agencies $ -- $ -- ($243) $18,255 Mortgage backed securities (5) 779 (288) 15,935 Collateralized mortgage obligations -- 289 (182) 8,052 Municipal securities (181) 12,532 (305) 14,125 Mutual funds -- -- (15) 485 ------ ------- ------- ------- Total Securities Available for Sale ($186) $13,600 ($1,033) $56,852 ====== ======= ======= =======
As of December 31, 2006, the unrealized loss on held to maturity securities was $28,000 and was in an unrealized loss position for less than twelve months. 13 COMMUNITY CENTRAL BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Maturity distribution of the investment portfolio as of December 31, 2007, 2006 and 2005 with weighted average yields to maturity. This schedule does not include those trading securities carried at fair value.
2007 2006 2005 ------------------------- ------------------------- ------------------------- Amortized Fair Yield Amortized Fair Yield Amortized Fair Yield Cost Value (%) Cost Value (%) Cost Value (%) --------- ------- ----- --------- ------- ----- --------- ------- ----- (In thousands) U.S. Government debentures One year or less 2,102 2,123 5.40% 4,099 4,067 4.14% 7,358 7,253 3.26% Over 1 year through five years 2,606 2,643 4.88% 12,122 11,958 4.64% 9,984 9,840 4.47% Over 5 years through 10 years 961 988 5.32% 3,232 3,185 5.32% 6,828 6,722 5.34% Over ten years -- -- -- -- -- -- ------- ------- ---- ------- ------- ---- ------- ------ ---- 5,669 5,754 5.15% 19,453 19,210 4.65% 24,170 23,815 4.35% State and political subdivisions * One year or less 697 696 4.60% 753 743 4.55% 140 140 6.28% Over 1 year through five years 2,964 2,952 4.54% 3,700 3,632 4.78% 2,179 2,141 4.81% Over 5 years through 10 years 4,323 4,292 5.79% 4,871 4,849 5.87% 4,398 4,367 5.90% Over ten years 21,743 20,955 6.26% 22,296 21,938 6.66% 17,566 17,451 6.60% ------- ------- ---- ------- ------- ---- ------- ------ ---- 29,727 28,895 5.98% 31,620 31,162 6.27% 24,283 24,099 6.31% U.S. government mortgage-backed and collateralized mortgage obligations 32,555 32,393 5.12% 31,266 30,812 4.92% 37,168 36,615 4.40% Mutual Fund (CRA Qualified) 500 491 4.20% 500 485 3.98% 500 489 3.98% Trust Preferred securities 250 250 8.50% 250 240 8.50% 250 244 8.50% ------- ------- ---- ------- ------- ---- ------- ------- ---- Total securities $68,701 $67,783 5.50% $83,089 $81,909 5.38% $86,371 $85,262 5.02% ======= ======= ==== ======= ======= ==== ======= ======= ==== Memo: Total variable rate securities Included above 8,687 8,671 9,918 9,797 12,625 12,419
* weighted yield on state and political subdivisions is calculated on a taxable equivalent basis and is based on yield to maturity of the instruments. The preceding table shows securities generally by contractual maturity. Actual maturities may differ from contractual maturities because issuers (or underlying borrowers) may have the right to call or prepay obligations. Investment securities of $45.6 million were pledged at December 31, 2007 to secure short term repurchase agreements and partially secure Federal Home Loan Bank advances. 14 COMMUNITY CENTRAL BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (4) LOANS Certain directors and executive officers of the Corporation and their associates are loan customers of the Bank. Such loans were made in the ordinary course of business and do not involve more than a normal risk of collectibility. The outstanding loan balance for these persons amounted to $7,371,000 and $7,678,000 at December 31, 2007 and 2006, respectively. The total unused commitments related to these loans were $3,072,000 at December 31, 2007. During 2007, new loans and advances were $1,952,000, while repayments totaled $2,259,000. The Bank grants loans to customers who reside primarily in Macomb, St. Clair and Oakland Counties. Although the Bank has a diversified loan portfolio, a substantial portion of the local economy has traditionally been dependent upon the automotive industry. Additionally, the Bank had approximately $144.5 million in outstanding loans at December 31, 2007, to commercial borrowers in the real estate rental and property management industry. LOAN PORTFOLIO The following table sets forth the composition of our loan portfolios as of the dates indicated. The loan amounts in the table reflect amounts before deductions for loans in process, deferred loan fees and discounts and allowance for credit losses.
2007 2006 2005 2004 2003 -------- -------- -------- -------- -------- (In thousands) Commercial real estate (1) $264,685 $236,399 $201,348(2) $166,686 $149,769 Commercial and industrial 33,039 28,393 26,753(2) 40,614 39,330 Residential real estate 60,799 72,517 74,601 64,240 60,046 Home equity lines 20,906 17,614 18,545 18,864 11,217 Consumer loans 9,754 11,666 13,054 14,377 9,844 Credit cards 729 693 650 658 622 -------- -------- -------- -------- -------- Total loans $389,912 $367,282 $334,951 $305,439 $270,828 ======== ======== ======== ======== ========
(1) Included in the category of commercial real estate in the above table are real estate construction loans totaling $47.8 million, $42.4 million, $40.6 million, $18.2 million and $13.2 million for the years ended 2007, 2006, 2005, 2004 and 2003, respectively. (2) Approximately $12 million of the commercial and industrial loan portfolio was reclassified during the first quarter of 2005 as commercial real estate loans. Commercial (and multi-family) real estate loans make up the largest component of our loan portfolio. Loans secured by commercial and multi-family real estate properties are generally larger and involve a greater degree of risk than one- to four-family residential mortgage loans. Commercial and multi-family real estate loans typically involve large balances to single borrowers or groups of related borrowers. Because payments on loans secured by commercial and multi-family real estate properties are often dependent on the successful operation or management of the properties, repayment of such loans may be subject to adverse conditions in the real estate market or the economy. If the cash flow from the project is reduced (for example, if leases are not obtained or renewed), the borrower's ability to repay the loan may be impaired. We attempt to minimize the risks associated with these transactions by generally limiting our commercial real estate lending to well-known customers or new customers whose businesses have an established profitable history. In many cases, risk is further reduced by limiting the amount of credit to any one borrower to an amount less than our legal lending limit and avoiding certain types of commercial real estate financing. Our commercial and industrial business lending activities have encompassed loans with a variety of purposes and security, including loans to finance inventory and equipment. Commercial and industrial business loans generally involve different risks than residential and commercial mortgage loans. Commercial and industrial business loans are of higher risk and typically are made on the basis of the borrower's ability to make repayment from the cash flow of the borrower's business. As a result, the availability of funds for the repayment of commercial business loans may be substantially dependent on the success of the business itself, rather than on the value of the real estate that secures mortgage loans. 15 COMMUNITY CENTRAL BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table illustrates the nominal interest rate sensitivity of selected loan portfolios at December 31, 2007. Loans which have adjustable or renegotiable interest rates are shown as maturing in the period during which the contract is due. The table does not reflect the effects of interest rate adjustments and possible repayments. Commercial and industrial loans due during the years ending December 31,
(In thousands) -------------- 2008 $15,473 2009 to 2012 15,983 2013 and thereafter 1,583 ------- Total loans $33,039 =======
The total amount of commercial and industrial loans due after December 31, 2008 which have fixed interest rates is $15.1 million, while the total amount of these loans due after such date which have floating or adjustable interest rates is $2.5 million. Some of these loans may have floor interest rate levels which are reported as fixed interest rate loans. Real estate construction loans due during the years ending December 31,
(In thousands) -------------- 2008 $29,783 2009 to 2012 18,065 2013 and thereafter -- ------- Total loans $47,848 =======
The total amount of construction loans due after December 31, 2008 which have fixed interest rates is $12.5 million and $5.6 million in loans due after such date which have floating or adjustable interest rates. 16 COMMUNITY CENTRAL BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (5) ALLOWANCE FOR CREDIT LOSSES A summary of the activity in the allowance for credit losses is as follows:
2007 2006 2005 2004 2003 ------ ------ ------ ------ ------ (Dollars, in thousands) Balance at beginning of the period $3,815 $3,580 $3,377 $3,573 $3,377 Charge-offs: Commercial real estate 338 -- 181 -- -- Commercial and industrial 110 248 57 2,040 38 Residential real estate 106 21 103 61 18 Home equity lines 131 21 -- -- -- Consumer loans 382 40 171 71 64 Credit cards 33 13 12 44 3 ------ ------ ------ ------ ------ Total charge-offs 1,100 343 524 2,216 123 ------ ------ ------ ------ ------ Recoveries: Commercial real estate -- -- 1 -- -- Commercial and industrial 12 14 606 1 19 Residential real estate -- 8 -- -- -- Home equity lines -- -- -- -- -- Consumer loans 69 5 18 18 24 Credit cards 7 1 2 1 1 ------ ------ ------ ------ ------ Total recoveries 88 28 627 20 44 ------ ------ ------ ------ ------ Net charge-offs 1,012 315 (103) 2,196 79 ------ ------ ------ ------ ------ Provision charged to earnings 3,600 550 100 2,000 275 ------ ------ ------ ------ ------ Balance at the end of the period $6,403 $3,815 $3,580 $3,377 $3,573 ====== ====== ====== ====== ====== As a percentage of total portfolio loans 1.64% 1.04% 1.07% 1.11% 1.32% Ratio of net charge-offs (net recoveries) during the period to average loans during the period 0.27% 0.09% (0.03%) 0.74% 0.03%
The loan portfolio has been reviewed and analyzed for the purpose of estimating probable credit losses inherent in the loan portfolio. The Corporation performs a detailed quarterly review of the allowance for credit 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 Corporation uses factors such as, historical portfolio losses, national and local economic trends and levels of delinquency to determine the appropriate level and allocation of the allowance for loans in this grouping. The Corporation's policy dictates that specifically identified credit losses be recognized immediately by a charge to the allowance for credit losses. Management believes that the present allowance is adequate, based on the broad range of considerations listed above. 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 mortgage loans and consumer loans) are considered impaired. The Corporation had $18.5 million in loans and other real estate owned classified as nonperforming at December 31, 2007 and $4.8 million at December 31, 2006. 17 COMMUNITY CENTRAL BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ANALYSIS OF ALLOWANCE FOR CREDIT LOSSES The following table contains reserve allocations for types of loans for the years presented.
Commercial Commercial Residential Home Equity Consumer Credit Real Estate and Industrial Real Estate Lines Loans Cards Unallocated Total ----------- -------------- ----------- ----------- -------- ------ ----------- ------ (Dollars in thousands) Balances: December 31, 2007 $4,360 $ 302 $ 824 $396 $314 $ 50 $ 157 $6,403 % of loans in category 67.8% 8.5% 15.6% 5.4% 2.5% 0.2% 100.0% December 31, 2006 $1,741 $ 499 $ 931 $436 $155 $ 26 $ 27 $3,815 % of loans in category 64.4% 7.7% 19.7% 4.8% 3.2% 0.2% 100.0% December 31, 2005 $1,526 $ 594 $ 993 $138 $154 $ 24 $ 151 $3,580 % of loans in category 60.1% 8.0% 22.3% 5.5% 3.9% 0.2% 100.0% December 31, 2004 $ 805 $1,673 $ 441 $ 94 $205 $ 30 $ 129 $3,377 % of loans in category 54.6% 13.3% 21.0% 6.2% 4.7% 0.2% 100.0% December 31, 2003 $2,015 $1,025 $ 181 $ 8 $ 80 $ 17 $ 247 $3,573 % of loans in category 55.3% 14.5% 22.2% 4.1% 3.6% 0.3% 100.0%
LEGAL LENDING LIMIT Pursuant to state regulations, the Bank is limited in the amount that it may lend to a single borrower. As of December 31, 2007, the legal lending limit was approximately $4.8 million or 15% of capital and surplus of the Bank; however, that limit can be increased (for individual loans) to approximately $8.0 million or 25% of capital and surplus, with two-thirds approval of the Board of Directors. 18 COMMUNITY CENTRAL BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NONPERFORMING ASSETS The table below sets forth the amounts and categories of nonperforming assets in our loan portfolio. See "Loans" and "Allowance for Credit Losses" under Notes 4 and 5 of Notes to Consolidated Financial Statements. For all years presented, we have had no troubled debt restructuring, which involve forgiving a portion of interest or principal on any loans or making loans at a rate materially less than market rates.
December 31, ------------------------------------------ 2007 2006 2005 2004 2003 ------- ------ ------ ------ ----- (In thousands) Nonaccrual loans Commercial real estate $14,379 $2,711 $1,637 $ 220 $ 277 Commercial and industrial 146 646 985 305 88 Residential real estate 2,053 -- 67 16 -- Home equity lines 354 -- -- -- -- Consumer loans 30 -- -- -- -- Credit cards -- -- -- -- -- ------- ------ ------ ------ ----- Total 16,962 3,357 2,689 541 365 Accruing loans delinquent more than 90 days Commercial real estate $ -- $ -- $ -- $ -- $ -- Commercial and industrial -- -- -- -- -- Residential real estate 654 876 621 100 116 Home equity lines 44 336 -- -- -- Consumer loans -- 160 1 124 1 Credit cards 25 1 1 10 2 ------- ------ ------ ------ ----- Total 723 1,373 623 234 119 ------- ------ ------ ------ ----- Total nonperforming loans 17,685 4,730 3,312 775 484 Other real estate owned Commercial real estate 319 -- -- 681 363 Residential real estate 535 108 112 -- -- ------- ------ ------ ------ ----- Total 854 108 112 681 363 ------- ------ ------ ------ ----- Total nonperforming assets $18,539 $4,838 $3,424 $1,456 $ 847 ======= ====== ====== ====== ===== Total nonperforming loans as a percentage of total loans 4.54% 1.29% 0.99% 0.25% 0.18% Total nonperforming assets as a percentage of total assets 3.56% 0.96% 0.74% 0.37% 0.24%
The Corporation did not recognize any interest income in 2007, 2006 and 2005 on those loans classified as nonaccruing for the period ended December 31, 2007, 2006 and 2005. The amount of interest that would have been recognized on those loans classified as nonaccruing, if the loans were in accrual status during that same time period was $332,000, $140,000 and $39,000 during the periods of 2007, 2006 and 2005, respectively. Nonperforming loans without a related allowance for credit losses totaled $3.4 million and $68,000 for the periods ended December 31, 2007 and 2006, respectively. Nonperforming loans with a related allowance for credit losses totaled $13.5 million and $3.3 million for the periods ended December 31, 2007 and 2006, respectively. The related allowance for nonperforming loans for the period ended December 31, 2007 and 2006 was $3.8 million and $208,000, respectively. Total nonperforming loans averaged $16.7 million in 2007, $3.4 million in 2006 and $1.8 million in 2005. 19 COMMUNITY CENTRAL BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (6) PROPERTY AND EQUIPMENT A summary of property and equipment as of December 31 is as follows:
2007 2006 ------ ------ (In thousands) Land $1,340 $1,340 Buildings and improvements 5,883 5,869 Building construction in process 93 -- Leasehold improvements 746 585 Furniture and equipment 4,435 4,533 Vehicles 42 56 ------ ------ 12,539 12,383 Less accumulated depreciation and amortization 3,835 3,158 ------ ------ Net property and equipment $8,704 $9,225 ====== ======
(7) TIME DEPOSITS As of December 31, 2007, scheduled maturities of all time deposits are as follows:
Year ending December 31, (In thousands) - ------------------------ -------------- 2008 $158,586 2009 48,991 2010 25,325 2011 1,035 2012 258 Subsequent years -- -------- Total time deposits $234,195 ========
The following table depicts the maturity distribution of certificates of deposit with balances of $100,000 or more at December 31, 2007.
(In thousands) -------------- Three months or less $ 37,070 Over three months to twelve months 90,252 Over one year to three years 67,278 Over three years 200 -------- Total time deposits of $100,000 or more $194,800 ========
20 COMMUNITY CENTRAL BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (8) SHORT TERM BORROWINGS Short term borrowings at December 31, 2007, consisted of short term FHLB advances of $23.8 million and short term securities sold with an agreement to repurchase of $13.7 million. Repurchase agreements generally mature within one day. Following are details of short term borrowings for the dates or periods indicated: During the first quarter of 2007, the Corporation borrowed $19 million in a wholesale structured repurchase agreement with an interest rate tied to the three month Libor rate, less 250 basis points adjusted quarterly, until March 3, 2008 when the borrowing changes to a fixed interest rate of 4.95% until March 2, 2017. The repurchase agreement is callable quarterly after March 2, 2008.
2007 2006 2005 ------- ------- ------- (Dollars in thousands) Amount outstanding at end of year Short-term Repurchase agreements $13,659 $15,688 $13,184 Short-term FHLB advances $23,795 $14,000 $26,700 Weighted average interest rate on ending balance Short-term Repurchase agreements 3.00% 3.15% 2.50% Short-term FHLB advances 4.14% 3.92% 3.60% Maximum amount outstanding at any month end during the year Short-term Repurchase agreements $14,932 $21,832 $21,711 Short-term FHLB advances $23,795 $26,700 $26,700 Average amount outstanding during the year Short-term Repurchase agreements $13,330 $13,443 $11,668 Short-term FHLB advances $19,831 $11,500 $22,775 Weighted average interest rate Short-term Repurchase agreements 3.10% 2.91% 1.99% Short-term FHLB advances 4.16% 3.76% 3.22%
21 COMMUNITY CENTRAL BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (9) FHLB ADVANCES In June of 2001, the Corporation started to borrow long-term advances from the FHLB to fund fixed rate instruments and to attempt to minimize the interest rate risk associated with certain fixed rate commercial mortgage loans and investment securities. The advances are collateralized by residential and commercial mortgage loans under a blanket collateral agreement totaling approximately $233.3 million and $132.1 million at December 31, 2007 and 2006, respectively. The advances are also secured by specific investment securities with an amortized cost of $11.0 million and $28.0 million and fair market values of $11.1 million and $27.6 million at December 31, 2007 and 2006, respectively. All advances at December 31, 2007, with the exception of variable rate advances representing $12 million, were short-term and had prepayment penalties. All advances have final maturities without callable provisions. FHLB advances outstanding were as follows:
December 31, 2007 December 31, 2006 --------------------------- -------------------------- Ending Average rate Ending Average rate Balance at end of period Balance at end of period -------- ---------------- ------- ---------------- (Dollars in thousands) Short-term FHLB advances $ 23,795 4.14% $14,000 3.92% Long-term FHLB advances $ 80,700 4.70% 69,528 4.73% -------- ---- ------- ---- $104,495 4.57% $83,528 4.60%
Long-term advances were comprised of 36 advances with maturities ranging from June 2009 to June 2016. The principal maturities of long-term advances outstanding at December 31, 2007 are as follows:
Year ending December 31, (In thousands) - ------------------------ -------------- 2009 $19,000 2010 21,000 2011 5,500 2012 7,000 Subsequent years 28,200 ------- Total $80,700 =======
Effective January 1, 2007, the Corporation has elected early adoption of SFAS 159 for all FHLB advances maturing in 18 months from January 1, 2007, which represented originally $16 million in total. At December 31, 2007, the fair value of the selected advances reported at fair value was $4,986,000 (face value $5.0 million). The overall weighted yield of these FHLB advances was 3.73% at December 31, 2007. Management believed that the selected instruments at the initial election partially served as a hedge for those securities recorded as trading from the transfer from available for sale under SFAS 159. 22 COMMUNITY CENTRAL BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (10) ESOP NOTE PAYABLE In 1999, the ESOP entered into a 10 year variable rate note payable with an outside financial institution as a part of the Bank's employee stock ownership plan ("ESOP"). The dividends paid by the Corporation to date on unearned shares of common stock held by the ESOP can and have been used to repay the note, resulting in expected maturity of the note in 2008. In addition, the note is floating at prime rate which was 7.25% at December 31, 2007. The Corporation has guaranteed the loan, with the ESOP stock pledged as collateral. In addition, the Bank has issued a letter of credit supporting the note payable. Since ESOP debt is guaranteed by the Corporation, it is reflected on the consolidated balance sheet as a liability with a related amount shown as a reduction in the stockholders' equity. Dividends paid by the Corporation on unallocated shares of common stock held by the ESOP can be used to repay the loan used to purchase the Corporation's common stock at the discretion of the plan administrator. In 2007, $9,000 was paid from accumulated dividends on unallocated shares on the ESOP note payable in addition to the scheduled loan payments. As of December 31, 2007, scheduled maturities of the ESOP note payable are as follows:
(In thousands) -------------- 2008 $36 --- $36 ===
23 COMMUNITY CENTRAL BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (11) SUBORDINATED DEBENTURES On February 13, 2007, Community Central Capital Trust II (Trust II), a statutory trust formed by the Corporation for the purpose of issuing trust preferred securities, issued $18,000,000 aggregate liquidation amount of cumulative trust preferred securities. The Trust II securities bear a fixed distribution rate of 6.71% per annum through March 6, 2017, and thereafter will bear a floating distribution rate equal to 90-day LIBOR plus 1.65%. The Trust II securities are redeemable at the Corporation's option, in whole or in part, at par beginning March 6, 2017, and if not sooner redeemed, mature on March 6, 2037. The Trust II securities were sold in a private transaction exempt from registration under the Securities Act of 1933, as amended. The gross proceeds of the offering were used to purchase junior subordinated debentures from the Corporation totaling $18,557,000. On June 29, 2007, the Corporation redeemed $10.0 million of the subordinated debentures issued to Community Central Capital Trust I (and as a result the Trust I preferred securities). 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 December 31, 2007, $10.7 million of the trust preferred issuance was included in the Corporation's tier 1 capital, with the remaining $7.3 million included in tier 2 capital. (12) STOCKHOLDERS' EQUITY The Corporation and the Bank are subject to various regulatory capital requirements administered by Federal banking agencies. Failure to meet these requirements can initiate certain mandatory (and possible additional discretionary) actions by regulators. These actions, if undertaken, could have a material effect on the Corporation's financial position. Under capital adequacy guidelines, the Corporation and the Bank must meet specific capital requirements that involve quantitative measures of assets, liabilities, and certain off-balance sheet items. Capital amounts are also subject to qualitative judgments by the regulators about individual components, risk-weightings, and other factors. Quantitative measures established by regulation require the Corporation and the Bank to maintain minimum amounts and ratios of Tier I capital and total capital (as defined in the regulations) to risk-weighted assets. The Corporation and the Bank are also subject to a minimum Tier I leverage ratio expressed as a percentage of quarterly average assets (as defined). The Corporation is further subject to leverage ratios consisting of primary capital and total capital as a percentage of assets at period end. Management believes, as of December 31, 2007, that the Corporation and the Bank meet all capital adequacy requirements to which they are subject and is considered "well capitalized". On April 17, 2007, Community Central Bank Corporation declared a 5% stock dividend, payable on June 1, 2007 to stockholders of record on May 1, 2007. The outstanding numbers of shares, earnings per share, exercise price data and common stock price data have been adjusted to reflect this dividend. Retained earnings and common stock were adjusted to reflect the stock dividend as indicated in the Consolidated Statement of Changes in Stockholders' Equity. 24 COMMUNITY CENTRAL BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table shows the Corporation's and the Bank's actual capital amounts and ratios as of December 31, as well as certain minimum requirements:
2007 2006 Minimum Ratio Ratio -------------- -------------- for Capital to be Capital Ratio Capital Ratio Adequacy Purposes "Well Capitalized" ------- ----- ------- ----- ----------------- ------------------ (In thousands) Tier I capital to risk-weighted assets Consolidated $42,932 10.29% $45,878 11.68% 4% NA Bank only 42,889 10.32% 43,677 11.14% 4% 6% Total capital to risk-weighted assets Consolidated 55,430 13.28% 49,693 12.65% 8% NA Bank only 48,199 11.57% 47,486 12.11% 8% 10% Tier I capital to average assets Consolidated 42,932 8.37% 45,878 9.01% 4% NA Bank only 42,889 8.39% 43,671 8.60% 4% 5%
25 COMMUNITY CENTRAL BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (13) BENEFIT PLANS DEFINED CONTRIBUTION PLAN - The Corporation has a 401(k) defined contribution savings plan for employees. Employer contributions are discretionary and are determined annually by the Board of Directors. Employer contributions of $69,000, $72,000 and $72,000 were paid or accrued for the periods ended December 31, 2007, 2006 and 2005. EMPLOYEE STOCK OWNERSHIP PLAN - During the second quarter of 1999, the Bank established an employee stock ownership plan ("ESOP") for the benefit of eligible employees. As of December 31, 2007, the plan had a total of 76,190 shares of the Corporation's stock. This represented both committed-to-be released shares and unearned shares. Under the plan, the shares of stock committed-to-be released into all participants' accounts are directly proportional to the ratio of the principal reductions to the total original principal amount. Dividends paid by the Corporation on common stock held by the ESOP, as committed-to-be released, are allocated proportionately to the number of shares of each participant. Dividends paid by the Corporation on unearned shares of common stock held by the ESOP can be used to repay the loan or used to purchase the Corporation's common stock at the discretion of the plan administrator. Under Statement of Position 93-6, "Employer's Accounting for Employee Stock Ownership Plans", the compensation expense recognized was based on the fair value of the committed-to-be released shares which was $60,000 for 2007. As of December 31, 2007, 69,020 shares were committed-to-be released, with 7,170 remaining unearned. The value of unearned shares as of December 31, 2007, was $45,000. The ESOP borrowed $500,000 from a bank to purchase shares of the Corporation stock (see Note 10). The ESOP intends to repay the loan (plus interest) using Bank contributions. Information regarding the ESOP transactions for the years ended December 31 is as follows:
2007 2006 2005 ---- ---- ---- (In thousands) Amounts paid by ESOP for: Debt repayment * $59 $53 $57 Interest $ 6 $10 $11 Other $ 4 $12 $11 Amounts received from the Corporation as: Contributions $69 $72 $72
- ---------- * Includes debt repayment in 2007, 2006 and 2005 from cash contained in ESOP from accumulated dividends. 26 COMMUNITY CENTRAL BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN - The Corporation sponsors a non-qualifying defined benefit plan to provide supplemental retirement benefits for certain key executives. The plan which started in April 2003, benefiting two current and one former executive officers, has a minimum benefit upon retirement for each participant of $75,000 and the maximum benefit is 50% of the average of the three highest years of compensation. Effective August 2005, the Corporation added two additional executive officers to the plan. The benefit payable upon retirement for these two additional executives is $50,000 each. The following table sets forth the plan activity and other information as of and for the year ended December 31, 2007.
2007 -------------- (In thousands) Plan assets at fair value $ -- Benefit obligation 1,676 -------- Overfunded (underfunded) status ($1,676) ======== Pension liability -------- Net pension costs $ 356 -------- Change in minimum liability $ 356 ======== Actuarial comparisons: Weighted average discount rate 7.0% Increase in future compensation levels 5.0%
To fund the supplemental retirement benefit obligation, the Corporation has purchased insurance policies on the lives of the participants with the Corporation as the owner and beneficiary of the policies. At December 31, 2007, the cash surrender value of all bank owned life insurance policies on the participants amounted to $10.5 million. There were no supplemental retirement benefits paid by the plan during 2007. STOCK OPTION PLANS - The Corporation currently has three active stock plans. Under the 1996 and 2000 Employee Stock Option Plans ("Employee Plans"), the Corporation is authorized to grant options to key employees for up to 58,564 and 66,000 shares of common stock, respectively. No options are presently available for grant under the 1996 and 2000 Employee Stock Option Plan although options to purchase 52,839 shares of Corporation common stock were outstanding and unexercised as of December 31, 2007. Under the 2002 Incentive Plan, as amended in 2005, up to 46,305 shares were available for grant to directors and 341,195 for grant to employees. In December 2007, 47,500 stock options were granted to employees with terms of 10 years under the 2002 Incentive Plan. As part of the annual stock award provision of the 2002 Incentive Plan, 300 shares of common stock were awarded to each Director for a total of 2,700 shares. At December 31, 2007, 82,961 shares were available to employees and 27,600 shares to directors under all remaining plans. The shares awarded were recorded as director and employee compensation expense, respectively. Under all plans, the exercise price of each option equals the market price of the Corporation's common stock at the date of grant. 27 COMMUNITY CENTRAL BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Corporation recognizes compensation expense using the Black Scholes option pricing model. The volatility assumption used in the Black Scholes formula is based on the volatility of Community Central Bank Corporation common stock, which is traded on the NASDAQ Global Market. The weighted average assumptions used in the Black Scholes model are noted in the table at the bottom of the page. The Corporation uses historic data to estimate option exercise and employee termination within the valuation model. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. The Corporation has estimated the fair value of the options issued in December 2007 at $2.43 per share. The options become exercisable on January 1, 2008 for 20% of shares covered under the agreement and for an additional 20% of the shares annually thereafter. Compensation expense connected with these options will be recognized at an annual rate of $27,000 from 2008 through 2012 for a total of $111,000. The forfeiture rate is assumed to be 4.00% of the total compensation expense. The Corporation will recognize compensation expense evenly over the requisite service period in future years through 2012. Options issued in 2005 and 2004 had an estimated fair value of $4.66 and $4.44 per share, respectively, The Corporation recognized $31,000 in compensation expense for those options vesting after the date of adoption of SFAS No. 123R under the modified prospective method. There is no remaining compensation expense associated with this group of options in future years since they are fully vested. No tax expense was recognized as the options were incentive stock options.
Year Ended December 31, ----------------------- 2007 2006 2005 ----- ------ ------ (In thousands, except per share data) Net income, as reported $ 724 $2,096 $3,073 Add: Stock-based employee compensation expense, net of related tax effects, included in reported net income 31 23 -- Deduct: Total stock-based employee and director compensation expense under fair value based methods of awards, net of related tax effects (31) (23) (377) ----- ------ ------ Pro forma net income $ 724 $2,096 $2,696 ===== ====== ====== Earnings per share Basic - as reported $0.19 $ 0.52 $ 0.80 Basic - pro forma $0.19 $ 0.52 $ 0.71 Diluted - as reported $0.19 $ 0.51 $ 0.78 Diluted - pro forma $0.19 $ 0.51 $ 0.69
Earnings per share have been retroactively adjusted to reflect the issuance of stock dividends. The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted average assumptions.
Year Ended December 31, --------------------------- 2007 2006 2005 ------- ------- ------- Dividend yield or expected dividends 3.24% 2.06% 1.49% Riskfree interest rate 4.20% 4.80% 4.50% Expected life 10 yrs. 10 yrs. 10 yrs. Expected volatility 34.50% 19.19% 22.66%
28 COMMUNITY CENTRAL BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Following is a summary of the stock option activity for the periods indicated and the stock options outstanding at the end of such periods:
Year Ended December 31, -------------------------------------------------------------------------------------- 2007 2006 2005 ---------------------------- -------------------------- -------------------------- Weighted Weighted Weighted Number of Average Number of Average Number of Average Shares Exercise Price Shares Exercise Price Shares Exercise Price --------- -------------- --------- -------------- --------- -------------- Outstanding, beginning of period 330,272 $ 8.93 315,510 $ 8.56 263,210 $ 7.55 Granted 47,500 7.59 48,300 10.76 66,701 12.24 Exercised (56,638) 5.57 (26,647) 6.82 (11,621) 6.58 Forfeited (34,141) 11.19 (6,891) 13.01 (2,780) 9.48 ------- ------ ------- ------ ------- ------ Outstanding, end of year 286,993(a) $ 9.10 330,272 $ 8.93 315,510 $ 8.56 ======= ====== ======= ====== ======= ======
The following table shows summary information about stock options outstanding at December 31, 2007:
Stock Options Outstanding Stock Options Exercisable - ----------------------------------------------------------------- ---------------------------- Weighted Average Weighted Range of Number Remaining Weighted Average Number of Average Exercise Exercise Prices of Shares Contractual Life Exercise Price Shares Price - --------------- --------- ---------------- ---------------- --------- ---------------- $4.30 4,534 2.0 years $ 4.30 4,534 $ 4.30 4.52 5,331 2.8 years 4.52 5,331 4.52 4.98 8,794 3.3 years 4.98 8,794 4.98 4.71 15,516 3.4 years 4.71 15,516 4.71 4.96 6,078 3.5 years 4.96 6,078 4.96 6.99 - 7.34 33,517 4.4 years 7.00 33,517 7.00 8.28 6,078 5.5 years 8.28 6,078 8.28 9.82 - 10.31 25,529 5.9 years 9.84 25,529 9.84 11.15 44,352 6.9 years 11.15 44,352 11.15 13.15 3,583 7.6 years 13.15 3,583 13.15 11.98 44,706 7.9 years 11.98 44,706 11.98 10.76 41,475 9.0 years 10.76 -- -- 7.59 47,500 9.9 years 7.59 -- -- ------- ------ ------- ------ 286,993 $ 9.10 198,018 9.11 ======= ====== ======= ======
All share number and exercise price data have been adjusted to reflect the issuance of stock dividends. (a) The aggregate intrinsic value of options outstanding and exercisable as of December 31, 2007 was ($829,000) and ($574,000), respectively, based on the share price of $6.21 for Community Central Bank Corporation common stock at December 31, 2007. The total intrinsic value of options exercised during the years ended December 31, 2007, 2006 and 2005 was $152,000, $108,000 and $70,000, respectively. The federal income tax benefit from the exercise of nonqualified stock options in 2007 was $1,000. 29 COMMUNITY CENTRAL BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (14) LEASES Operating expense includes rentals on leased facilities and certain equipment in the amount of $339,000, $422,000 and $380,000 for 2007, 2006 and 2005, respectively. Following is a schedule of future minimum rental payments required under operating leases that have remaining lease terms in excess of one year as of December 31, 2007:
Year ending December 31, (In thousands) - ------------------------ -------------- 2008 $ 245 2009 217 2010 218 2011 169 2012 165 Subsequent years 620 ------ Total minimum rental payments $1,634 ======
(15) OTHER OPERATING EXPENSE The following is a summary of significant components of other operating expense for the periods indicated:
Year Ended December 31, ------------------------ 2007 2006 2005 ------ ------ ------ (In thousands) Advertising, business development and public relations $ 528 $ 645 $ 672 Data processing 625 549 479 Professional and regulatory fees 417 425 438 Legal fees 288 316 439 Director fees 283 316 302 Printing and supplies 172 165 173 Telephone 177 214 152 Loan closing 113 171 89 Other insurance 127 131 121 Deposit insurance 283 41 35 Single business tax 128 87 97 Other 1,008 816 811 ------ ------ ------ Total other operating expense $4,149 $3,876 $3,808 ====== ====== ======
30 COMMUNITY CENTRAL BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (16) TAXES ON INCOME The Corporation and the Bank file a consolidated federal income tax return. Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Corporation's assets and liabilities. The income tax expense for the years ended December 31 consists of the following:
2007 2006 2005 ----- ---- ------ (In thousands) Current expense $ 655 $387 $1,484 Deferred (benefit) expense (950) (24) (305) ----- ---- ------ Total income expense ($295) $363 $1,179 ===== ==== ======
The temporary differences and carryforwards which comprise deferred tax assets and liabilities at December 31 are as follows:
2007 2006 ------ ------ (In thousands) Deferred tax assets Provision for loan losses $1,626 $ 722 Depreciation 82 131 SERP Expense 570 449 Unrealized net loss on securities available for sale 311 393 NOL carryforward 24 72 Intangible asset amortization 74 71 Mortgage subsidiary accumulated timing differences 232 155 Other 38 17 ------ ------ 2,957 2,010 Valuation allowance for deferred tax assets -- -- Deferred tax liabilities Financial instruments at fair value option (194) -- Original issue discount (70) (104) Accretion (35) (30) FHLB dividends (104) (104) Net deferred loan fees (6) (16) Goodwill amortization (105) (75) Other (147) (59) ------ ------ (661) (388) ------ ------ Net deferred tax asset $2,296 $1,622 ====== ======
31 COMMUNITY CENTRAL BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Corporation's effective tax rates differ from the statutory federal tax rates. The following is a summary of such differences:
Year Ended December 31, ----------------------- 2007 2006 2005 ----- ----- ------ (In thousands) Provision at statutory federal income tax rate $ 146 $ 836 $1,446 Nondeductible expenditures 62 43 47 Tax exempt municipal interest (384) (399) (212) Increase in cash surrender value of bank owned life insurance (119) (117) (102) ----- ----- ------ Provision at effective federal income tax rate ($295) $ 363 $1,179 ===== ===== ======
32 COMMUNITY CENTRAL BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (17) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS Fair values are based on quoted market prices for similar instruments or estimated using discounted cash flow analysis. The discount rates used are estimated using comparable market rates for similar types of instruments adjusted to be commensurate with the credit risk, overhead costs and optionality of such instruments. Considerable judgment is inherently required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented below do not necessarily represent amounts that the Corporation could realize in a current market exchange. The following methods and assumptions were used to estimate the fair value of financial instruments: CASH AND CASH EQUIVALENTS: For these short term instruments, the carrying amount is a reasonable estimate of fair value. SECURITIES, FEDERAL HOME LOAN BANK STOCK: For marketable debt securities, estimated fair value is based on quoted market prices or dealer quotes. The carrying value of FHLB stock approximate fair value based on their redemption provisions. LOANS: For variable rate loans with no significant change in credit risk since loan origination, the carrying amount is a reasonable estimate of fair value. For all other loans, including fixed rate loans, the fair value is estimated using a discounted cash flow analysis, using interest rates currently offered on similar loans to borrowers with similar credit ratings and for the same remaining maturities. The resulting value is reduced by an estimate of losses inherent in the portfolio. RESIDENTIAL MORTGAGES HELD FOR SALE: The estimated fair value of residential mortgages held for sale is the carrying amount. The duration of the portfolio is typically within two weeks or less and a commitment of sale has already occurred when the loans are funded. DEPOSITS: The estimated fair value of demand deposits, certain money market deposits, and savings deposits is the amount payable on demand at the reporting date. The fair value of fixed maturity time deposits is estimated using the rates currently offered for deposits of similar remaining maturities. FEDERAL HOME LOAN BANK ADVANCES: The estimated fair value of Federal Home Loan Bank advances is estimated using rates currently offered for funding sources of similar remaining maturities. REPURCHASE AGREEMENTS: The estimated fair value of short term borrowings is the carrying amount, since they mature the next day. ACCRUED INTEREST: Accrued interest receivable and payable are short term in nature; therefore, their carrying amount approximates fair value. ESOP NOTE PAYABLE: The ESOP note payable floats at prime rate; therefore, its carrying amount approximates fair value. SUBORDINATED DEBENTURES: Subordinated debentures are based on current rates for similar financing. COMMITMENTS: The fair value of commitments is estimated using the fees currently charged to enter into similar arrangements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. The majority of commitments to extend credit and letters of credit would result in loans with a market rate of interest if funded. The fair value of these commitments is not material. INTEREST RATE SWAPS: The fair value of interest rate swaps is based on pricing models, such as Bloomberg and other appropriate valuation models. 33 COMMUNITY CENTRAL BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The recorded carrying amounts and estimated fair values of the Corporation's financial instruments at December 31 are as follows:
2007 2006 --------------------- --------------------- Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value -------- ---------- -------- ---------- (In thousands) Financial Assets Cash and cash equivalents $ 9,183 $ 9,183 $ 24,726 $ 24,726 Trading securities (a) 20,115 20,115 -- -- Securities 67,786 67,783 81,933 81,909 FHLB stock 4,540 4,540 Residential mortgages held for sale 4,848 4,848 3,441 3,441 Loans, net of allowance 383,509 394,431 363,467 365,905 Accrued interest receivable 2,535 2,535 2,599 2,599 Interest rate swap 668 668 -- -- Financial Liabilities Demand and savings deposits 94,440 94,440 103,239 103,239 Time deposits 234,195 237,614 252,617 251,910 Repurchase agreements 32,659 32,659 15,688 15,688 Federal Home Loan Bank advances (b) 104,495 102,558 83,528 80,869 Accrued interest payable 1,018 1,018 1,257 1,257 ESOP note payable 36 36 95 95 Subordinated debentures (a) 17,597 17,597 10,310 10,550 Interest rate swap 541 541 -- --
(a) Carried at fair value under SFAS 159, "The Fair Value Option for Financial Assets and Liabilities" for entire category. (b) Carried at fair value under SFAS 159, "The Fair Value Option for Financial Assets and Liabilities" for specific instruments totaling $5.0 million of the category. The remaining instruments were valued under a similar method, but not recorded at fair value of the Corporation's financial statements. 34 COMMUNITY CENTRAL BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (18) OFF-BALANCE SHEET RISK The Corporation is party to financial instruments with off-balance sheet risk in the normal course of business, to meet financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit and financial guarantees. These instruments involve, to varying degrees, elements of credit and interest rate risk that are not recognized in the balance sheet. Commitments to extend credit are agreements to lend to a customer as long as there are no violations of any conditions established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Fees from issuing these commitments to extend credit are recognized over the period to maturity. Since a portion of the commitments is expected to expire without being drawn upon, the total commitments do not necessarily represent future cash requirements. The Corporation evaluates each customer's creditworthiness on a case by case basis. The amount of collateral obtained upon extension of credit is based on management's credit evaluation of customers. The Corporation also has legally binding commitments to extend credit in the form of loans that have been approved but not yet closed. These funds are normally disbursed unless the customer fails to comply with closing requirements. Standby letters of credit are issued in connection with agreements between customers and a third party. If the customer fails to comply with the agreement, the counterparty may enforce the standby letter of credit as a remedy. Credit risk arises from the possibility that the customer may not be able to repay the Corporation after the letter of credit is enforced. A summary of commitments not recorded on the balance sheet at December 31 is as follows:
2007 2006 ------- ------- (In thousands) Unused home equity lines of credit $ 9,293 8,973 Unused credit card lines 1,701 1,687 Unused portion of construction lines of credit 16,463 26,945 Unused portion of all other credit lines 52,950 55,566 Standby letters of credit 1,047 763 ------- ------- Total outstanding commitments $81,454 $93,934 ======= =======
(19) RESTRICTIONS ON DIVIDENDS, LOANS AND ADVANCES Banking regulations place certain restrictions on dividends paid and loans or advances made by the Bank to the Corporation. The total amount of dividends which may be paid at any date is generally limited to the retained earnings of the Bank. However, dividends paid by the Bank would be prohibited if the effect thereof would cause the Bank's capital to be reduced below applicable minimum standards. At December 31, 2007, the Bank's retained earnings available for the payment of dividends totaled $11.9 million. Accordingly, $32.1 million of the Corporation's investment in the Bank was restricted at December 31, 2007. Loans and advances made by the Bank to the Corporation are generally limited to 10 percent of the Bank's stock and surplus. Accordingly, at December 31, 2007, Bank funds available for loans or advances to the Corporation amounted to $3.2 million. 35 COMMUNITY CENTRAL BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (20) PARENT-ONLY FINANCIAL STATEMENTS The following condensed financial information presents the financial condition of Community Central Bank Corporation, the Parent Holding Company, (the "Parent") only, along with the results of its operations and its cash flow. The Parent has recorded its investment in the Bank and Community Central Capital Trust II at cost, plus the undistributed surplus of the Bank since it was formed. The Parent recognizes undistributed income of the Bank as noninterest income, and undistributed losses as noninterest expense. The Parent-only financial information should be read in conjunction with the Corporation's consolidated financial statements. PARENT-ONLY BALANCE SHEET
December 31, ----------------- 2007 2006 ------- ------- (In thousands) Assets Cash $ 5,764 $ 1,972 Investment in subsidiary 43,929 44,449 Investment in unconsolidated subsidiary 557 310 Other assets 1,257 801 ------- ------- Total Assets $51,507 $47,532 ======= ======= Liabilities and Stockholders' Equity Due to subsidiary $ 682 $ 557 Subordinated debentures 17,597 10,310 ------- ------- Total Liabilities 18,279 10,867 Common stock 32,071 33,220 Retained earnings 1,797 4,303 Unearned employee benefit (36) (95) Accumulated other comprehensive income (604) (763) ------- ------- Total Stockholders' Equity 33,228 36,665 ------- ------- Total Liabilities and Stockholders' Equity $51,507 $47,532 ======= =======
36 COMMUNITY CENTRAL BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PARENT-ONLY STATEMENT OF OPERATIONS
Year Ended December 31, ------------------------ 2007 2006 2005 ------ ------ ------ (In thousands) Operating Income Interest income $ 391 $ 76 $ 67 ------ ------ ------ Total Interest Income 391 76 67 Dividend from subsidiary 1,400 1,400 1,175 ------ ------ ------ Total Interest and Dividend Income 1,791 1,476 1,242 Interest Expense Subordinated debentures 1,621 929 746 ------ ------ ------ Net interest (loss) income 170 547 496 Change in fair value under SFAS 159 1,811 -- -- Other expense 865 932 972 ------ ------ ------ Total Operating Expense 865 932 972 ------ ------ ------ Loss Before Taxes and Undistributed Income of Subsidiary 1,116 (385) (476) Income tax benefit (83) (597) (561) ------ ------ ------ Loss (Income) Before Share in Undistributed Income of Subsidiary 1,199 212 85 Share of undistributed (loss) income of subsidiary (475) 1,884 2,988 ------ ------ ------ Net Income $ 724 $2,096 $3,073 ====== ====== ======
37 COMMUNITY CENTRAL BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PARENT-ONLY STATEMENT OF CASH FLOW
Year Ended December 31, ---------------------------- 2007 2006 2005 -------- ------- ------- (In thousands) Operating Activities Net income $ 724 $ 2,096 $ 3,073 Adjustments to reconcile net income to net cash flow from operating activities Net gain on instruments at fair value (1,811) -- -- Undistributed income of subsidiary 475 (1,884) (2,988) Decrease (Increase) in other assets 156 (18) 94 Increase (decrease) increase in other liabilities 125 239 75 -------- ------- ------- Net Cash (Used in) Provided by Operating Activities (331) 433 254 Investing Activities Capital contribution to subsidiaries (133) 63 (3,134) Cash paid for River Place Financial Corporation -- -- (512) -------- ------- ------- Net Cash Provided by (Used in) Investing Activities (133) 63 (3,646) Financing Activities Stock options exercised/awards 341 252 108 Rights offering -- -- 5,275 Issuance of subordinated debentures 18,557 -- -- Redemption of subordinated debentures (10,310) -- -- Cash dividend paid (932) (918) (742) Repurchase of stock (3,400) (351) -- -------- ------- ------- Net Cash (Used in) Provided by Financing Activities 4,256 (1,017) 4,641 -------- ------- ------- (Decrease) Increase in Cash 3,792 (521) 1,249 Cash at the Beginning of the Period 1,972 2,493 1,244 -------- ------- ------- Cash at the End of the Period $ 5,764 $ 1,972 $ 2,493 ======== ======= =======
38 COMMUNITY CENTRAL BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (21) FAIR VALUE OPTION FOR FINANCIAL ASSETS AND FINANCIAL LIABILITIES In February 2007, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 159 "The Fair Value Option for Financial Assets and Financial Liabilities" (SFAS 159). The statement permitted an entity to immediately elect the fair value option for existing eligible items. While not required to adopt the new standard until 2008, the Corporation elected to adopt it in the first quarter of 2007. The Corporation was also required to simultaneously adopt all the requirements under SFAS 157, Fair Value Measurements. As a result of the Corporation's adoptions, certain financial instruments were valued at fair value using the fair value option. The cumulative reduction to opening retained earnings from adopting these standards was approximately $420,000. Partially offsetting the total net charge to retained earnings was the increase in capital from the reversal of other comprehensive income from the transfer of the unrealized losses on available for sale securities which had an affect of an increase in capital of $295,000. Therefore, the total net after tax decrease in stockholder's equity was $125,000 from the early adoption of SFAS 159 and concurrent adoption of SFAS 157 as of January 1, 2007. The following table shows the balance sheet effect of the adoption of SFAS 159.
Balance Sheet Net Balance Sheet 1/1/07 prior adjustment 1/1/07 after Description to adoption upon adoption after adoption of FVO - ----------- ------------- ------------- --------------------- (in thousands of dollars) Securities (a) $ 27,024 ($447) $ 26,577 Federal Home Loan Bank Advances (16,000) 247 (15,753) Subordinated Debentures (b) (10,055) (437) (10,492) -------- ----- -------- Pretax cumulative effect of SFAS 159 (637) Increase in deferred tax asset 217 ----- Cumulative effect of adoption of SFAS 159 (charged to retained earnings) ($420) =====
(a) Although the initial adoption of FAS 159 was made to certain available for sale securities, the impact was to decrease the Corporation's Accumulated Other Comprehensive Loss by $295,000 for the unrealized losses on the securities which were previously recognized in Accumulated Other Comprehensive Loss, net of taxes of $152,000. (b) The carrying amount includes $255,000 in unamortized deferred issuance costs on the subordinated debenture from the issuance of the Community Central Capital Trust I. As a result of the early adoption of SFAS 159 the difference between the carrying amount and the fair value was removed and included in the cumulative effect adjustment above. Management has elected the fair value option for the following reasons for each of the eligible items or group of similar eligible items. Investment Securities and FHLB Advances: The election of SFAS 159 and SFAS 157 treatment for existing eligible investment securities was based on multiple factors which included the desire to utilize the Federal Home Loan Bank advance portfolio to offset volatility with the investment portfolio. Approximately $27.0 million of investment securities were selected for early adoption of SFAS 159 based primarily on the relatively short overall duration in the selected instruments. The overall effective duration of the instruments was 1.8 years based on current market interest rates. Many of the instruments have early call provisions, which based on current interest rate expectations have a high degree of probability to be called. 39 COMMUNITY CENTRAL BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Some instruments have been pre-refunded with certainty of maturity expected. The investments selected are primarily comprised of agency debentures and short callable bank qualified tax exempt municipal bonds. The selected securities will be categorized under trading portfolio status. Management believes that it has more options of balance sheet management under the fair value option, including the management of volatility caused by the embedded options within these instruments. The short overall duration of the selected instruments, coupled with the utilization of FHLB advances as an attempt to hedge the risk, should mitigate large swings in fair values that will be recorded in the income statement as part of adoption of SFAS 159 and SFAS 157. Management cannot predict future interest rates and is reliant on forecasts and models to make decisions regarding interest rate and fair value risk. The election of SFAS 159 treatment for the selected FHLB advances was based on management's choice to provide a natural hedge against the securities selected under SFAS 159. The FHLB advances were selected for the fair value option based on the maturity ranges within the FHLB portfolio of advances. All maturities within 18 months from the early adoption date of January 1, 2007 were selected regardless of the instruments' interest rates. The selected FHLB advances had a net unrealized gain position as of January 1, 2007 and March 31, 2007 and were selected solely as a natural balance sheet hedge for the investment portfolio elected under SFAS 159. The decrease in the unrealized loss position of the selected investments and the income recognized under SFAS 159 for the first three months of 2007 was completely offset by a corresponding decrease in unrealized gains within the selected FHLB advances. In the second quarter of 2007, management reviewed the selected instruments, the changes in overall market interest rates, the treasury yield curve and the structure of the embedded call options of the investments. Management felt that FHLB advances alone would not accurately hedge the investments. In May 2007, the Corporation acquired an interest rate swap to better hedge the fair value of the portfolio. The notional value of the interest rate swap was $18 million for a duration of three years, which approximated the overall duration of the trading portfolio under SFAS 159. Under the interest rate swap, the bank receives the three month libor rate and pays a fixed rate of 5.275%, which is the average weighted yield of the hedged portfolio at the inception of the interest rate swap. During the fourth quarter of 2007, the Corporation restructured many of the instruments originally selected during the early adoption of SFAS 159. The resulting portfolio better matched the Corporation's asset liability position. Additionally, should management and the ALCO committee, believe other balance sheet strategies will better position the Bank and Corporation, other transactions could be considered including the sale of investments classified under trading status. Management has no intent to extinguish, before stated maturity, any FHLB advances. It is the intent of management for the foreseeable future to utilize fair value option on selected investment securities, or like kind dollars on disposal. Subordinated Debentures: Management elected the fair value option for both its subordinated debentures. Management considers the subordinated debentures a critical component for future growth and wishes to utilize interest rate swaps to hedge the risk of this longer term liability and critical form of regulatory capital. Management elected SFAS 159 accounting treatment for interest rate swaps because it was less complex than alternative methods and therefore suitable for a community bank with limited resources. The subordinated debenture for $10.3 million that was issued in June 2002 and maturing June 2032, callable June 30, 2007, was an eligible instrument for the early adoption of the fair value option as of January 1, 2007. The pretax accumulated adjustment from the recognition of fair value on this instrument was $437,000. The carrying amount of the instrument included $255,000 in unamortized deferred issuance costs on the subordinated debenture which is included in the aforementioned pretax adjustment. Management has elected the fair value option on the subordinated debenture which was issued on February 13, 2007 for $18.6 million. Additionally, an interest rate swap for a like kind notional value was secured, in part, to reduce any volatility associated with the recognition of the fair value option under SFAS 159. Under the interest rate swap the Corporation has agreed to receive a fixed rate of 6.71% and pay Libor plus 170 basis points. The debenture carries an interest rate fixed for 10 years at 6.71%, and was originally based on a ten year treasury interest rate swap of 5.06%, plus 165 basis points and was prior to the settlement of the interest rate swap hedging market fluctuations. Management has the intent to utilize the fair value option on selected financial assets and liabilities on a go forward basis. 40 COMMUNITY CENTRAL BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The valuations of the instruments measured under Fair Value Measurement SFAS 157 for 2007 were measured under a market approach using matrix pricing investment for investment securities and the income approach using observable data for the liabilities reported under the Fair Value Option SFAS 159. The inputs were observable for the assets and liabilities interest rate on commonly quoted intervals based on similar assets and liabilities for level 2 instruments. Community Central Bank Corporation does not have a credit rating through any major credit research credit rating facilities. The Pooled Trust Preferred Market from which a basis for pricing on the subordinated debenture is arrived at is reflective of changes in the commercial banking environment. The pricing of the subordinated debenture at 300 bps over the respective treasury swap rate is considered by management to be reflective of the current assessments as to commercial banks in general. Primarily during the last quarter of 2007, the Pooled Trust Preferred Market reflected only a small base of participants in the market place. The disarray in the credit markets contributed to the lack of market transactions in this financial instrument. A determination was made, based upon the significance of unobservable parameters as of December 31, 2007 to the overall fair value measurement, to transfer the subordinated debentures previously reported under level 2 significant other observable inputs to level 3 significant unobservable inputs. In addition to the unobservable components, or level 3 components, observable components that can be validated to external sources are part of the validation methodology. In 2007, the net change in the fair value of financial assets and liabilities, as measured under the fair value option under Statement of Financial Accounting Standards (SFAS) 159, totaled $1.4 million on a pretax basis or $919,000 after tax. This increase was primarily attributable to a net unrealized increase in fair value on the Corporation's subordinated debenture which was issued for $18 million in February of this year and was an instrument chosen for this accounting treatment as part of the early adoption of this accounting standard. The dramatic widening market credit spreads experienced in the third quarter for trust preferred security issuances in the marketplace increased the relative fair value of this financial liability. The Corporation hedges and protects itself from changes in interest rates with an interest rate swap. The hedge does not cover changes in credit spreads which typically occur over longer time periods. Changes in market conditions are not predictable and changes in credit spreads will cause changes in the fair value of this instrument and a possible loss in income. The table below contains the fair value measurement at December 31, 2007 using the identified valuations. Additionally, the changes in fair value for the twelve month period ended December 31, 2007 for items measured at fair value pursuant to election of the fair value option.
Changes in fair value for Twelve months ended December 31, 2007 measured at fair value pursuant to Fair Value Measurement at election of the December 31, 2007 fair value Option ------------------------------------------------------ --------------------- Fair Value Significant Other Significant Other Gains or Losses Measurements Observable Inputs Unobservable Inputs in noninterest income Description 12/31/2007 (Level 2) (Level 3) pretax income - ----------- ------------ ----------------- ------------------- --------------------- (in thousands of dollars) Trading Securities $20,115 $20,115 -- $ 356 Securities available for sale 66,809 66,809 Interest rate swap hedging securities (541) (541) -- (541) Federal Home Loan Bank Advances 4,986 4,986 -- (234) Subordinated Debentures 17,597 -- 17,597 960 Interest rate swap hedging subordinated debentures 668 668 -- 668 Redeemed subordinated debentures -- -- -- 183 ------- ------- ------ ------ $1,392 ======
41 COMMUNITY CENTRAL BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Interest income and interest expense of the respective financial instruments have been recorded in the consolidated statement of income based on the category of financial instrument. CHANGES IN LEVEL 3 RECURRING FAIR VALUE MEASUREMENTS The table below includes a rollforward of the balance sheet amounts for the year ended December 31, 2007 (including the change in fair value), for financial instruments classified by the Corporation within level 3 of the valuation hierarchy. When a determination is made to classify a financial instrument within level 3, the determination is based upon the significance of the unobservable parameters to the overall fair value measurement. However, level 3 financial instruments typically include, in addition to the unobservable or level 3 components, observable components (that is, components that can be validated to external sources); accordingly, the gains and losses in the table below include changes in fair value due in part to observable factors that are part of the valuation methodology. Also, the Corporation attempts to risk manage the observable components of level 3 financial instruments using derivative positions that are classified within level 2 of the valuation hierarchy; as these level 2 risk management instruments are not included below, the gains or losses in the tables do not reflect the effect of the Corporation's risk management activities related to such level 3 instruments. Fair value measurements using significant unobservable inputs (a)
Changes in unrealized Purchases gains and (losses) For the year ended Total issuances Transfers in related to financial December 31, 2007 Fair value, realized/unrealized settlements, and/or Fair value, instruments held at (in millions) January 1, 2007 gains/(losses) net out of Level 3 December 31, 2007 December 31, 2007 - ------------------ --------------- ------------------- ------------ -------------- ----------------- --------------------- Subordinated Debentures -- -- -- 17,597(a) 17,597 960
(a) Represented a net asset transfer from level 2 significant other observable inputs. 42 COMMUNITY CENTRAL BANK CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD LOOKING STATEMENTS This report contains forward-looking statements throughout 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 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. 43 COMMUNITY CENTRAL BANK CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS EXECUTIVE SUMMARY Community Central Bank Corporation is the holding company for Community Central Bank (the "Bank") in Mount Clemens, Michigan. The Bank opened for business in October 1996 and serves businesses and consumers across Macomb, Oakland, St. Clair and Wayne counties with a full range of lending, deposit, trust, wealth management, and Internet banking services. The Bank operates three full service facilities, in Mount Clemens, Rochester Hills and Grosse Pointe, Michigan. Community Central Mortgage Company, LLC, a subsidiary of the Corporation and Bank, operates locations servicing the Detroit metropolitan area, and northwest Indiana. River Place Trust and Community Central Wealth Management are divisions of Community Central Bank. Community Central Insurance Agency, LLC is a wholly owned subsidiary of Community Central Bank. The Corporation's common shares trade on The NASDAQ Global Market under the symbol "CCBD." Our results of operations depend largely on net interest income. Net interest income is the difference in interest income 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 although the impact of the restructuring of the American automobile companies has a direct impact on southeastern Michigan. A slowdown in the local and statewide economy has produced increased financial strain on segments of the Bank's customer base. The Bank has experienced increased delinquency levels and losses in its loan portfolio, primarily with residential developer loans, residential real estate loans, and home equity and consumer loans. Further downturns in the local economy may affect the demand for commercial loans and related small to medium business related products. This could have a significant impact on how 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. In 2007, the Corporation recorded a $3.6 million provision to the allowance for credit losses. A significant portion of this provision related collateral impairment, the result of declining property values reflecting Michigan's economic conditions. Several long-term local residential builders who are customers of the Bank were adversely affected by the Michigan economic downturn. Residential developer loans represented approximately 5% or $20.3 million of our total loan portfolio at December 31, 2007. The specific allowance for those loan identified requiring reserves in this group was $2.9 million. The Corporation's nonperforming assets to total assets increased to 3.56% at December 31, 2007 compared to 0.96% at December 31, 2006, primarily as the result of the classification of the residential developer loans as nonaccrual. At December 31, 2007, $9.7 million of approximately $20.3 million of the Corporation's residential developer loans were classified as nonaccrual loans. Nonaccrual residential developer loans comprised 57% of the Corporation's total nonaccrual loans at December 31, 2007. The Corporation continues to carefully monitor the performance of all of its loans. The allowance for loan losses compared to total loans was 1.64% and the allowance for loan losses to nonperforming loans was 36.21% at December 31, 2007. 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 44 COMMUNITY CENTRAL BANK CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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. A business plan objective has been the diversification of revenue from interest income. The Wealth and Trust divisions have been providing an increased source of fee income for the Corporation. Total revenue from Wealth and Trust services amounted to $686,000 in 2007 versus $328,000 in 2006, or an increase of 109%. The addition of a new branch location in Grosse Pointe Woods, Michigan, which is anticipated to open this spring, will represent the second branch location in this upscale market of Southeastern Michigan. The Corporation continues to work on cost controls throughout our organization as evidenced by total noninterest expense decreasing 4.5% in 2007. In 2007, the mortgage company subsidiary closed loan production offices in Rockford, Illinois and Raleigh, North Carolina whose origination activity was not commensurate with the level of overhead. The Bank and Corporation are both "well-capitalized" and have regulatory capital available for growth. 45 COMMUNITY CENTRAL BANK CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SELECTED FINANCIAL INFORMATION The following table sets forth the Selected Consolidated Financial Statements for the period reported. Selected Financial Condition Data
For the Year Ended December 31, ---------------------------------------------------- 2007 2006 2005 2004 2003 -------- -------- -------- -------- -------- (In thousands) Total assets $520,305 $505,028 $462,012 $391,538 $357,876 Trading securities at fair value option 20,115 -- -- -- -- Securities available for sale 66,809 80,916 84,177 51,425 57,135 Securities held to maturity 977 1,017 1,094 1,161 895 Gross loans 389,912 367,282 334,951 305,439 270,828 Allowance for credit losses 6,403 3,815 3,580 3,377 3,573 Total deposits 328,635 355,856 314,373 278,856 255,356 FHLB advances 104,495 83,528 86,545 63,360 54,374 Repurchase agreements 32,659 15,688 13,184 11,492 12,836 Subordinated debentures 17,597 10,310 10,310 10,310 10,000 Total stockholders' equity 33,228 36,665 35,532 25,591 23,776
Summary of Operations
For the Year Ended December 31, ----------------------------------------------- 2007 2006 2005 2004 2003 ------- ------- ------- ------- ------- (In thousands, except per share data) Interest income $32,925 $31,475 $24,230 $19,725 $16,420 Interest expense 20,735 18,892 11,555 7,936 7,033 ------- ------- ------- ------- ------- Net interest income 12,190 12,583 12,675 11,789 9,387 Provision for credit losses 3,600 550 100 2,000 275 Non-interest income 5,692 4,935 4,809 6,546 8,415 Non-interest expense 13,853 14,509 13,132 13,346 14,582 ------- ------- ------- ------- ------- Income before taxes 429 2,459 4,252 2,989 2,945 Provision for income tax (benefit) expense (295) 363 1,179 782 840 ------- ------- ------- ------- ------- Net income $ 724 $ 2,096 $ 3,073 $ 2,207 $ 2,105 ======= ======= ======= ======= ======= Per share data:* Basic earnings $ 0.19 $ 0.52 $ 0.80 $ 0.68 $ 0.65 Diluted earnings $ 0.19 $ 0.51 $ 0.78 $ 0.66 $ 0.64 Dividend declared $ 0.24 $ 0.24 $ 0.21 $ 0.20 $ 0.20
* Per share data has been retroactively adjusted to reflect the issuance of stock dividends. 46 COMMUNITY CENTRAL BANK CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Selected Financial Ratios
For the Year Ended December 31, ----------------------------------------- 2007 2006 2005 2004 2003 ------ ----- ------ ------ ------ Total nonperforming assets as a percentage of total assets 3.56% 0.96% 0.74% 0.37% 0.24% Total nonperforming loans as a percentage of total loans 4.54% 1.29% 0.99% 0.25% 0.18% Total allowance for credit losses as a percentage of total portfolio loans 1.64% 1.04% 1.07% 1.11% 1.32% Total allowance for credit losses as a percentage of nonperforming loans 36.21% 80.66% 108.09% 435.74% 738.22% Return on average assets 0.14% 0.42% 0.72% 0.57% 0.65% Return on average equity 2.06% 5.82% 9.43% 8.98% 9.20% Net interest margin 2.68% 2.83% 3.23% 3.31% 3.10% Dividend payout ratio 128.59% 43.8% 24.15% 25.87% 25.70% Average equity to average assets 6.86% 7.25% 7.61% 6.34% 7.06%
47 COMMUNITY CENTRAL BANK CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ASSETS At December 31, 2007, the Corporation's total assets were $520.3 million, an increase of $15.3 million, or 3.0% from December 31, 2006. The largest segment of asset growth for the year ended occurred in the loan portfolio, which increased $22.6 million. Cash and cash equivalents decreased $15.4 million with a $10.7 million decrease occurring in federal funds sold. Trading securities increased $20.1 million in 2007 upon the early adoption of SFAS 157 and 159 and was partially offset by declines in securities available for sale of $14.1 million. Commercial real estate loans increased $28.3 million in 2007 or 12.0% over 2006. The growth in the commercial real estate portfolio is consistent with the Corporation's commercial lending focus. The Corporation believes that the staff of seasoned commercial lenders and referrals from the board of directors actively involved in the local business community has contributed to the growth of the commercial real estate portfolio in a competitive lending environment. Commercial and industrial loans at December 31, 2007 totaled $33.0 million, an increase of $4.6 million or 16.4% over the year ended December 31, 2006. Commercial and industrial loans as a percentage of total loans comprised 8.5% at December 31, 2007, a slight increase from 7.7% of total loans at December 31, 2006. The Corporation has historically had a lower percentage of loans in the commercial and industrial type loans compared to commercial real estate loans as it concentrates its level of lending expertise in the commercial real estate sector. A continued downturn in the local economy may affect the demand for commercial loans and business related products. The residential mortgage loan portfolio totaled $60.8 million at December 31, 2007, a decrease of $11.7 million, or 16.2%, from 2006. The decrease in residential mortgage loans coincided with the Corporation's strategic plan to decrease the amount of relatively lower yielding residential mortgage loans and increase the level of higher yielding commercial loans. Adjustable rate loans represented $46.4 million, or 76.3%, of the total residential mortgage loan portfolio at December 31, 2007. Residential mortgage loans are made principally as an accommodation to our business banking customers. Adjustable rate residential mortgage loans are held in the loan portfolio while longer duration, 15 year and 30 year fixed residential loans are typically sold, to manage the Corporation's interest rate risk profile. The home equity lines of credit ("HELOC") totaled $20.9 million, or 5.4% of total loans, at December 31, 2007, an increase of $3.3 million from 2006. 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 all prior liens) up to 95% of the appraised value of the real estate. Consumer loans (excluding HELOCs and credit card loans) totaled $9.7 million at December 31, 2007, a decrease of $1.9 million from December 31, 2006, as management intentionally sought to reduce the Corporation's exposure in this portfolio. The largest portion of the consumer loan portfolio is comprised of boat loans. 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 boat loans to reduce potential credit exposure in the area as the current downturns in the local economy has adversely affect borrower's ability to repay the outstanding loan, coupled with the potential decrease in collateral value. At December 31, 2007, boat loans comprised approximately $8.5 million, or 87.6% of the consumer loan portfolio and 2.2% of total loans compared to $10.0 million, or 85.6% of the consumer portfolio and 3.3% of total loans at December 31, 2006. Credit card loans ended December 31, 2007 at $729,000, which was almost unchanged from $693,000 at December 31, 2006. The Corporation continues to book credit card loans as a customer accommodation and does not actively market this product. Mortgage loans held for sale totaled $4.8 million at December 31, 2007 compared to $3.4 million at December 31, 2006. The mortgage loans were originated by the Bank's mortgage subsidiary. The increase in total mortgages held for sale at December 31, 2007 compared to December 31, 2006 was due to timing differences in the final disposition and funding of sales, as the actual volume of sales activity had slowed approximately 30% in 2007 compared to 2006. The slow down in mortgage loan origination is reflective of the regional and national slowdown in refinance activity as well as the slow down of purchased homes in Southeastern Michigan. 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. 48 COMMUNITY CENTRAL BANK CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The investment security portfolio totaled $87.8 million at December 31, 2007, compared to $81.9 million at December 31, 2006, and was comprised of securities held as available for sale, held to maturity and held as trading. Total securities available for sale decreased $14.1 million from December 31, 2006 to $66.8 million at December 31, 2007. The decrease was partially attributable to the adoption of Financial Accounting Standards Fair Value Option SFAS 159. The Corporation reclassified a total of $27.0 million of available for sale securities as trading securities in the first quarter of 2007 under SFAS 159 and the classification of trading portfolio. The trading portfolio totaled $20.1 million as of December 31, 2007. This decrease in the available for sale portfolio was partially offset by the addition of mortgage backed securities from the securitization of $8.2 million in mortgages comprising 15 year fixed rate loans. At December 31, 2007, the available for sale portfolio had net unrealized losses of $915,000 or approximately 1.35% of the aggregate portfolio. At December 31, 2006, the net unrealized losses in the available for sale portfolio were $1.2 million or 1.42% of the aggregate portfolio. As of December 31, 2007, the available for sale portfolio comprised $5.8 million in US agency debentures, $28.8 million in bank qualified tax exempt municipal bonds, $31.8 million in U.S. agency mortgage backed securities, including collateralized mortgage obligations and $491,000 in a CRA fund invested in mortgage backed obligations. U.S. agencies are primarily pledged against repurchase agreements and advances from the Federal Home Loan Bank of Indianapolis. The largest net change in securities categories between 2007 and 2006 occurred in the U.S. agency debentures decreasing $13.5 million from maturities calls and sales. The reduction in these instruments intended to reduce the negative convexity of these instruments, as a result of the call features of the instruments. Unrealized losses have not been recognized into income, except for those securities classified under trading under SFAS 159 the fair value option, because of the issuers' bonds are of high credit quality. The Corporation has the intent and ability to hold the securities classified under available for sale for the foreseeable future and declines in the fair value is primarily due to increased market interest rates. The trading portfolio totaled $20.1 million as of December 31, 2007. The average effective duration of the trading portfolio as of December 31, 2007 was approximately 2.51 years and an average life of 3.14 years, with a weighted average coupon rate of 4.84%. Management decided to classify the original securities at January 1, 2007, under SFAS 159 because of the characteristics of the instruments, which included the optionality and the ability of the Corporation to hedge the instruments utilizing above market value Federal Home Loan Bank advances. Furthermore, in adopting SFAS 159, the Corporation was able to utilize the fair value option on off balance sheet hedges and account for the hedges in a manner which is less complex than was previously available under GAAP. Other reasons influencing management's decision to classify the selected instruments under SFAS 159 include overall ALCO strategies and the shape of the treasury yield curve and management expectations on short term interest rates. The trading portfolio as of December 31, 2007 comprised $13.4 million of U.S. Agency debentures with an effective duration of 2.96 years and $6.7 million in U.S. agency collateralized mortgage obligations (CMOs) with an effective duration of 1.6 years. All of the CMOs held in the trading portfolio pass the FFIEC stress test with relatively short average lives under differing rate scenarios. During the third quarter, the Corporation sold the municipal bond portfolio segment of this portfolio to reduce its exposure to alternative minimum tax considerations. In May 2007, the Corporation acquired an interest rate swap to better hedge the fair value of the portfolio. The notional value of the interest rate swap was $18 million for duration of three years, which approximated the overall duration of the trading portfolio under SFAS 159. Under the interest rate swap the bank receives the three month libor rate and pays a fixed rate of 5.275%, which is the average weighted yield of the hedged portfolio at the inception of the interest rate swap. The interest rate swap is accounted for under the Fair Value Option for Financial Assets and Liabilities (SFAS 159) and therefore no formal hedge accounting under SFAS 133 is applicable. The Corporation is currently reviewing the structure of the hedge and is considering restructuring a portion of the trading portfolio to better provide protection in a falling short term rate environment and provide protection to a lesser extent in a rising rate environment. 49 COMMUNITY CENTRAL BANK CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS At December 31, 2007, nonperforming loans, which consists of nonaccruing loans and loans past due 90 days or more and still accruing interest, totaled $17.7 million compared to $4.7 million at December 31, 2006, an increase of $13.0 million. At December 31, 2007, other real estate owned comprised $854,000. The primary reason for the increase in nonperforming loans at December 31, 2007 compared to December 31, 2006, was related to increases in nonperforming commercial real estate loans which increased $11.7 million from December 31, 2006. The majority of this increase was attributable to the classification of $9.7 million of residential developer loans in the fourth quarter of 2007. Nonaccrual residential developer loans comprised 57% of the Corporation's total nonaccrual loans at December 31, 2007. Residential developer loans represented approximately 5% or $20.3 million of the total loan portfolio at December 31, 2007. The specific allowance for those loans we identified requiring reserves in this group was $2.9 million. Nonaccrual loans in the category of commercial and industrial totaled $146,000 at December 31, 2007, and decreased $500,000 from December 31, 2007. Residential, home equity and consumer type loans had $2.1 million, $354,000 and $30,000 classified as nonaccrual at December 31, 2007 compared to no amounts in 2006. The increase in nonaccrual for these consumer based loans was indicative of the worsening economic conditions in Southeastern Michigan over the corresponding period. The Corporation's nonperforming assets to total assets increased to 3.56% at December 31, 2007 compared to 0.96% at December 31, 2006 primarily as the result of the addition of the residential developer loans. The Corporation continues to carefully monitor the performance of all of its loans. The allowance for loan losses compared to total loans at December 31, 2007 was 1.64% and the allowance for loan losses to nonperforming loans at that date was 36.21%. For additional information on our nonperforming assets, see nonperforming assets under Note 5 of the Notes to Consolidated Financial Statements. Commercial loans and lease financing receivables are to be reported as being in nonaccrual status if: (a) they are maintained on a cash basis because of deterioration in the financial position of the borrower, (b) payment in full of interest or principal is not expected, or (c) principal or interest has been in default for a period of 90 days or more. If it can be documented that the loan obligation is both well secured and in the process of collection, the loan may stay on accrual status. However, if the loan is not brought current before becoming 120 days past due, the loan should be reported as non-accrual. Any exceptions to automatic non-accrual status at 90 days must be approved in writing by the Senior Loan Officer and the Chief Financial Officer. A non-accrual asset may be restored to an accrual status when none of its principal or interest is due and unpaid, when it otherwise becomes well secured, and in the process of collection. A debt is "well-secured" if it is secured (1) by collateral in the form of liens on or pledges of real or personal property, including securities, that have a realizable value sufficient to discharge the debt (including accrued interest) in full, or (2) by the guaranty of a financially responsible party. A debt is "in the process of collection" if collection of the debt is proceeding in due course either through legal action, including judgment enforcement procedures, or, in appropriate circumstances, through collection efforts not involving legal action which are reasonably expected to result in repayment of the debt or in its restoration to a current status in the near future, generally within the next 90 days. Residential mortgages and other consumer loans may accrue interest if the principal or interest has been in default for more than 90 days if the loan is well secured and in the process of collection. The allowance for credit losses as a percentage of total loans was 1.64% at December 31, 2007 versus 1.04% at December 31, 2006. The large increase in the reserve percentage was primarily attributable to an increase in impaired loans with collateral deficiency. Management evaluates the condition of the loan portfolio on a quarterly basis to determine the adequacy of the allowance for credit losses. 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. Net loan charge offs to average loans for the year ended December 31, 2007 totaled 0.27%, compared to 0.09% for the year ended December 31, 2006. Total loan charge-offs for 2007 were $1.1 million, compared with $343,000 in loan charge-offs in 2006. Total recoveries in 2007 were $88,000 compared with total recoveries of $28,000 in 2006. The largest increase in charge offs occurred in the consumer loan area primarily attributable to boat loans. In 2007, 59% of all charge offs occurred in consumer and residential real estate loans. This is in contrast to historical trends, 50 COMMUNITY CENTRAL BANK CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS whereby consumer type loans comprised a relatively small percentage of charge offs. The increase is attributable to the worsening economic conditions in Southeastern Michigan. During 2007, we increased the reserve allocations in the allowance for credit losses for commercial real estate loans, by $2.6 million primarily as the result of the residential developer loans previously mentioned. This represented the largest increase with the exception of the category of consumer loans which more than doubled from the previous year moving up to $314,000 in total allocated reserves, despite the decrease in the total outstanding balance in this category. At December 31, 2007, the specific allowance for consumer loans was 3.22% compared to 1.33% at December 31, 2006. Again, this increase was attributable to the worsening economic conditions in Southeastern Michigan and known impairment in the portfolio. The allowance for credit losses increased $2.6 in 2007 totaling $6.4 million. These changes in reserve allocations between the types of loans were the result of changes in impairment as defined under SFAS 114 and under SFAS 5. The Corporation performs a detailed quarterly review of the allowance for credit losses. The Corporation evaluates those loans classified substandard under its internal risk rating system, on an individual basis for impairment under SFAS 114. The level of allocation of the allowance is determined primarily on management's evaluation of collateral value, less the cost of disposal, for the loans reviewed in this category. The remainder of the loan portfolio is segmented into 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. At December 31, 2007, loans totaling $14.7 million were not included in the non-performing asset table contained in Note 5 of the Notes to Consolidated Financial Statements where the known information about possible credit problems of borrowers caused management to have serious doubts as to the ability of the borrowers to fully comply with present loan repayment terms and which may result in disclosure of such loans in the future. Although management believes that the allowance for credit losses is adequate to absorb losses as they arise, there can be no assurance that the Bank will not sustain losses in any given period that could be substantial in relation to the size of the allowance for credit losses. It must be understood that inherent risks and uncertainties related to the operation of a financial institution require management to depend on estimates, appraisals and evaluations of loans to prepare the Corporation's financial statements. Changes in economic conditions and the financial prospects of borrowers may result in changes to the estimates, appraisals and evaluations used. In addition, if circumstances and losses differ substantially from management's assumptions and estimates, the allowance for loan losses may not be sufficient to absorb all future losses and net income could be significantly impacted. 51 COMMUNITY CENTRAL BANK CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIABILITIES During the year ended December 31, 2007, total deposits decreased $27.2 million to $328.6 million. The decrease in deposits was attributable to a decrease in money market accounts of $6.7 million and time deposits of $18.4 million. The decrease in money market accounts was due in part to the general declines in interest rate experienced in the fourth quarter of 2007. Customers which were sensitive to declines in interest rates withdrew funds from these accounts as they were tied to the six month Treasury bill. Time deposits decreased $18.4 million to $234.2 million at December 31, 2007. The decrease in time deposits was attributable to time deposits of $100,000 and over and was primarily due to deposits generated in the Bank's branches comprising larger jumbo deposits of individuals and municipalities. Brokered and internet deposits included in the category of time deposits over $100,000, comprised $125.0 million and $1.8 million, respectively. These deposits increased in total $13.4 million during 2007, as the Bank funded with the least expensive source of funding available. Time deposits under $100,000 decreased $6.2 million in 2007, due in part to the very competitive rate environment amongst local financial institutions. Noninterest bearing deposits, primarily business related checking accounts, decreased $1.7 million, or 5.1% at December 31, 2007 compared to December 31, 2006. This was primarily the result of timing difference, as no related decrease occurred in the total number of demand deposit accounts. 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 time 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. While the Bank will continue its focus on generating local deposits, it will continue to use Federal Home Loan Bank ("FHLB") advances and brokered certificates of deposit to fund assets growth as a viable alternative to local deposits 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 premium interest rate. The local competition for certificates of deposit products has continued to be strong and the Bank has found wholesale funding to often effectively compete with the rates offered for similar term retail certificates of deposit products of local community and regional banks. The following table shows the balance of specific deposit categories and the percentage of each category compared to total deposits.
December 31, 2007 December 31, 2006 --------------------- --------------------- Balance Percentage Balance Percentage -------- ---------- -------- ---------- (in thousands, except percent) Noninterest bearing demand $ 31,647 9.6% $ 33,331 9.4% NOW accounts-interest bearing checking 14,907 4.5 14,084 4.0% Money Market 38,560 11.7 45,255 12.7% Savings 9,326 2.8 10,569 3.0% Time deposits under $100,000 39,395 12.0 45,608 12.8% Time deposits $100,000 and over 194,800 59.4 207,009 58.1% -------- ----- -------- ----- Total deposits $328,635 100.0% $355,856 100.0% ======== ===== ======== =====
Short-term borrowings increased $7.8 million to $37.4 million at December 31, 2007 from December 31, 2006, due primarily to an increase in short term FHLB advances of $9.8 million. Repurchase agreements are based on the seasonal needs for funds to the commercial and municipal customers who utilize the program and may vary in total size dependent upon the customer's needs. At December 31, 2007, short-term FHLB advances totaled $23.8 million and short-term repurchase agreements totaled $13.7 million. The weighted average interest rate on the ending balance of the short-term borrowings at December 31, 2007 was 3.73%. In June 2001, the Corporation started to borrow long-term advances from the FHLB to fund fixed rate investments, as part of its efforts to manage the interest rate risk associated with certain fixed rate commercial mortgage loans and 52 COMMUNITY CENTRAL BANK CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS investment securities. These advances are secured under a blanket security agreement by first mortgage loans and the pledging of certain securities. The total FHLB advances were comprised of $23.8 million in short term advances with a weighted average rate of 4.14% and long term advances of $80.7 million with a weighted average rate of 4.70%. The aggregate weighted rate of the entire FHLB advance portfolio was 4.57% with a weighted average remaining maturity of 3.5 years as of December 31, 2007. Long-term advances comprised 36 advances maturing from April 2008 to June 2016. STOCKHOLDERS' EQUITY Stockholder's equity was $33.2 million as of December 31, 2007, resulting in a decrease of $3.4 million from December 31, 2006. The decrease in stockholder's equity was primarily attributable to the repurchase of common stock totaling $3.4 million for the twelve months ended December 31, 2007. Net income of $724,000 for 2007 was more than offset the decrease in retained earnings from the cash dividend. Additional decreases in stockholder's equity occurred from the $420,000 charge to retained earnings resulting from the adoption of Financial Accounting Standards "Fair Value Option" SFAS. Accumulated other comprehensive income decreased in the unrealized loss position by $159,000 as the available for sale investment portfolio increased in relative value over the respective period. Option exercised in 2007 increased stockholder's equity $341,000. The release of "ESOP" shares under the Bank plan increased stockholder's equity $59,000 in 2007. Unrealized losses have not been recognized into income because the issuers' 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 2007 was primarily due to increased market interest rates. Management believes, as of December 31, 2007, that the Corporation and the Bank meet all capital adequacy requirements to which they are subject and is considered "well capitalized." On April 17, 2007, Community Central Bank Corporation declared a 5% stock dividend, payable on June 1, 2007 to stockholders of record on May 1, 2007. The outstanding number of shares, earnings per share, exercise price data and common stock price data have been adjusted to reflect this dividend. Retained earnings, common stock and additional paid-in-capital were adjusted to reflect the stock dividend as indicated in the Consolidated Statement of Changes in Stockholders' Equity. 53 COMMUNITY CENTRAL BANK CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NET INTEREST INCOME The following table shows the dollar amount of changes in net interest income for each major category of interest earning asset and interest bearing liability, and the amount of change attributable to changes in average balances (volume) or average rates for the periods shown. Variances that are jointly attributable to both volume and rate changes have been allocated to the volume component.
Year Ended Year Ended December 31, 2007 vs. 2006 December 31, 2006 vs. 2005 -------------------------- ---------------------------- Increase Increase (Decrease) (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 $1,172 $ 731 $ 441 $5,612 $2,946 $ 2,666 Securities (24) (100) 76 1,537 1,162 375 Federal funds sold 302 305 (3) 96 (12) 108 ------ ------- ------ ------ ------ -------- Total 1,450 936 514 7,245 4,096 3,149 ------ ------- ------ ------ ------ -------- Deposits and Borrowed Funds - Interest Expense NOW and money market accounts 1,159 791 368 564 41 523 Savings deposits 9 (11) 20 (44) (115) 71 Time deposits (616) (1,671) 1,055 5,378 2,590 2,788 Other borrowings 603 667 (64) 1,258 674 584 Capitalized lease obligation and ESOP loan (4) (5) 1 (1) (5) 4 Subordinated debentures 692 820 (128) 182 -- 182 ------ ------- ------ ------ ------ -------- Total 1,843 591 1,252 7,337 3,185 4,152 ------ ------- ------ ------ ------ -------- Net Interest Income ($393) $ 345 ($738) ($92) $ 911 ($1,003) ====== ======= ====== ====== ====== ========
Net interest income was $12.2 million for the year ended December 31, 2007, a decrease of $393,000 or 3.1%, compared to the year ended December 31, 2006. Net interest margin, as measured on a tax equivalent basis, was 2.68% for 2007 compared with 2.83% in 2006. The decrease in net interest margin was primarily the result of higher deposit funding costs as a result of higher overall interest costs from February 2007 to June 2007 before the redemption of the subordinated debentures in 2007 and the reversal of interest accrued on loans placed into nonaccrual status during 2007. Additionally, the flat treasury yield curve experienced for most of 2007 produced an interest rate environment that results in lower incremental interest rate spreads on new loan and investment growth. The increase in interest income was attributable to both an increase in loan volume and in the higher overall yield earned on loans as a result of an increase in market interest rates. The slight decrease in interest income from securities for the same time period was primarily attributable to a decrease in volume, partially offset by an increase in income from an increase in the aggregate yield of the security portfolio from maturities and restructuring. The increase in interest expense from 2007 compared to 2006 was largely due to interest expense on now and money market accounts primarily related to volume and interest expense related to subordinated debentures. Interest expense increased from the subordinated debentures was due to the Corporation's issuance of an additional $18 million of subordinated debentures in February 2007 and the overall rate paid on the outstanding debentures during the year. In June of 2007, the Corporation redeemed $10 million of previously issued subordinated debentures bearing a higher interest rate than the newly issued debentures, which will help reduce the cost of funds moving forward. Interest expense associated with time deposits decreased $616,000 in 2007 compared to 2006 from volume and was offset by increase in borrowing from the FHLB which led to an increase of $692,000 from an increase in volume but a decrease in overall rate. 54 COMMUNITY CENTRAL BANK CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net interest income was $12.6 million for the year ended December 31, 2006, a decrease of $92,000 or 0.73% over the year ended December 31, 2005. Net interest margin, as measured on a tax equivalent basis, was 2.83% for 2006 compared with 3.23% in 2005. The decrease in net interest margin was primarily the result of higher deposit funding costs in a highly competitive deposit pricing environment. During 2006, the decrease in lower yielding core deposit accounts was one of the primarily drivers of net interest margin compression. Additionally, the flat 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 was attributable to both an increase in loan volume and in the higher overall yield earned on loans as a result of an increase in market interest rates. The increase in interest income from securities for the same time period was primarily attributable to an increase in volume, as most of the securities have fixed interest rates. The increase in interest expense from 2006 compared to 2005 was largely due to interest expense time deposits, which increased $5.4 million. The increase in interest expense associated with time deposits was evenly attributable to the $24.2 million increase in time deposits and the increased rates paid on time deposits that repriced during 2006. The increase in interest expense from time deposits represented 73.3% of the total increase in interest expense. The increase in interest expense from other borrowings, which primarily comprises FHLB advances, was $1.3 million with the increase attributable evenly to volume and rate. The average yield on earning assets for 2007 was 6.84% compared to 6.74% in 2006. The average yield on the total loan portfolio, which contains both loans held for sale and investment for 2007 was 7.45% compared to 7.33% in 2006. At the end of 2007, the Community Central Bank prime rate stood at 7.25%. During the fourth quarter of 2007, the Federal Open Market Committee of the Federal Reserve lowered the overnight Federal funds rate from 5.25% where it had started at the beginning of 2007 to 4.25% at the end of 2007, or a 1% reduction which did not have a material affect on the yield for the total year. The commercial, commercial real estate and home equity line loan portfolios that reprice with prime interest rate changes totaled approximately $142 million and were the primary driver for the increase in total loan yield during 2007. The Corporation's security portfolio had an average non-tax adjusted yield of 4.67% during 2007, although yield climbed through 2007, with the ending weighted average taxable equivalent yield to maturity at December 31, 2007 totaling 5.50%. At December 31, 2007, $8.7 million of the total investment portfolio was variable rate. The average rate paid on interest bearing liabilities in 2007 was 4.72% compared to 4.45% in 2006. The increase in the average rate was due to the overall rate paid on interest bearing liabilities due to the increase in overall market interest rates. The increase in the average yield for NOW and money market accounts for 2007 was primarily attributable to the introduction of a premium rate based money market account, with an average yield of 3.66% in 2007 versus 2.79% in 2006. The average yield paid on savings also increased slightly, moving to 2.50% in 2007, from 2.34% in 2006 as the result of the introduction of a high balance savings product. The average yield on time deposits increased due to the increase in market rates and the repricing characteristics of this deposit category. The yield on the total time deposit portfolio increased to 5.09% in 2007 from 4.68% in 2006. The yield on FHLB advances and repurchase agreements decreased to 4.29% in 2007 from 4.35% in 2006 due to the repricing of variable advances and the decrease in the interest rate paid on repurchase agreements from the addition of wholesale structured repurchase agreements totaling $19 million in balances. The average rate paid on the subordinated debenture decreased in 2007 to 7.76% from 9.00%, reflecting the Corporation's issuance of $18 million of subordinated debenture with an overall lower interest rate of 6.71% compared to the redemption in June of the Corporations subordinated debt which averaged 9.00% in 2006. The average yield on earning assets for 2006 was 6.74% compared to 6.03% in 2005. The average yield on the total loan portfolio, which contains both loans held for sale and investment for 2006 was 7.33% compared to 6.51% in 2005. In 2006, the Federal Open Market Committee of the Federal Reserve Bank increased the overnight federal funds rate four times. At the end of 2006, the Community Central Bank prime rate stood at 8.25%. The commercial, commercial real estate and home equity line loan portfolios that reprice with prime interest rate changes totaled approximately $140 million and the primary driver for the increase in total loan yield during 2006. The Corporation's security portfolio had an average non-tax adjusted yield of 4.59% during 2006, although yield climbed through 2006, with the ending weighted average taxable equivalent yield to maturity at December 31, 2006 totaling 5.38%. At December 31, 2006, $9.8 million of the total investment portfolio was variable rate based in nature. 55 COMMUNITY CENTRAL BANK CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The average rate paid on interest bearing liabilities in 2006 was 4.45% compared to 3.24% in 2005. The increase in the average rate was due to the overall rate paid on interest bearing liabilities due to the increase in overall market interest rates. The increase in the average yield for NOW and money market accounts for 2006 was primarily attributable to the introduction of a premium rate based NOW account, with the average yield to 2.790% in 2006 versus 1.50% in 2005. The average yield paid on savings also increased moving to 2.34% in 2006 from 1.94% in 2005, from the introduction of a high balance savings product. The average yield on time deposits increased due to the increase in market rates and the repricing characteristics of this deposit category. The yield on the total time deposit portfolio increased to 4.68% in 2006 from 3.31% in 2005. The yield on FHLB advances and repurchase agreements increased to 4.35% in 2006 from 3.66% in 2005 due to new advances, repricing of variable advances and the increase in the interest rate paid on repurchase agreements moving to 3.15% at the end of 2006 from 2.50% at the end of 2005. The average rate paid on the subordinated debenture increased in 2006 to 9.00% from 7.24%, closely tracking the overall increase in short-term market interest rates in 2005. This instrument is priced quarterly based on the three month libor rate. 56 COMMUNITY CENTRAL BANK CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table shows the Corporation's consolidated average balances of assets, liabilities, and equity. The table also details the amount of interest income or interest expense and the average yield or rate for each category of interest earning asset or interest bearing liability, and the net interest margin for the periods indicated. The average balance of securities represents amortized cost. Nonaccruing loans are included in the average loans outstanding with no yield associated with them.
Year Ended December 31, ------------------------------------------------------------------------------------- 2007 2006 2005 --------------------------- --------------------------- --------------------------- Interest Average Interest Average Interest Average Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate Balance Expense Rate Balance Expense Rate -------- -------- ------- -------- -------- ------- -------- -------- ------- (In thousands) Assets Loans $374,502 $27,904 7.45% $364,593 $26,732 7.33% $324,290 $21,120 6.51% Securities 94,669 4,420 4.67 96,720 4,444 4.59 71,472 2,907 4.07 Federal funds sold 12,003 601 5.01 5,906 299 5.06 6,142 203 3.31 -------- ------- -------- ------- -------- ------- Total Earning Assets/ Total Interest Income/ Average Yield 481,174 32,925 6.84 467,219 31,475 6.74 401,904 24,230 6.03 ------- ------- ------ Cash and due from banks 7,173 7,308 7,441 All other assets 23,523 22,661 18,812 -------- -------- -------- Total Assets $511,870 $497,188 $428,157 ======== ======== ======== Liabilities and Equity NOW and money market accounts $ 63,773 2,335 3.66 $ 42,210 1,176 2.79 $ 40,703 612 1.50 Savings deposits 12,321 308 2.50 12,761 299 2.34 17,664 343 1.94 Time deposits 225,934 11,495 5.09 258,664 12,111 4.68 203,170 6,733 3.31 FHLB advances and repurchase Agreements 115,962 4,971 4.29 100,494 4,368 4.35 85,048 3,110 3.66 ESOP loan 67 6 8.96 121 10 8.26 179 11 6.15 Subordinated debentures 20,880 1,620 7.76 10,310 928 9.00 10,310 746 7.24 -------- ------- -------- ------- -------- ------- Total Interest Bearing Liabilities/ Total Interest Expense/Average Interest Rate Spread 438,937 20,735 4.72 424,560 18,892 4.45 357,074 11,555 3.24 -------- -------- -------- Noninterest bearing demand deposits 34,594 34,064 36,485 All other liabilities 3,234 2,540 2,002 Stockholders' equity 35,105 36,024 32,596 -------- -------- -------- Total Liabilities and Stockholders' Equity $511,870 $497,188 $428,157 ======== ======== ======== Net Interest Income $12,190 $12,583 $12,675 ======= ======= ======= Net interest rate spread 2.12% 2.29% 2.79% Net Interest Margin (Net Interest Income/Total Earning Assets) 2.53% 2.69% 3.15% Taxable equivalent 2.68% 2.83% 3.23%
57 COMMUNITY CENTRAL BANK CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS PROVISION FOR CREDIT LOSSES The provision for credit losses for the year ended December 31, 2007 was $3.6 million, an increase of $3.1 million from 2006. The increase in the provision was due primarily to impairment on residential builder loans and the continued economic softening of the southeastern area of Michigan. The provision for credit losses for the year ended December 31, 2006 was $550,000, an increase of $450,000 from 2005. See Management's Discussion and Analysis of Financial Condition and Results of Operations- Assets for a more detailed discussion. NONINTEREST INCOME Noninterest income for 2007 was $5.7 million, an increase of $757,000 or 13.3% from 2006. This increase was primarily attributable to the net change in the fair value of financial assets and liabilities as measured under the fair value option under Statement of Financial Accounting Standards (SFAS) 159, which totaled $1.4 million on a pretax basis or $919,000 after tax. The Corporation issued an $18 million subordinated debenture in February, 2007 and this instrument was chosen for fair value accounting treatment as part of the early adoption of the new accounting standard which led to the increase in income. The dramatic widening of market credit spreads experienced in the third quarter increased the relative fair value of this financial liability dramatically. The Corporation hedges and protects itself from changes in interest rates with an off balance sheet interest rate swap which is also accounted for under SFAS 159. The hedge does not cover changes in credit spreads, which typically occur over much longer periods of time then we are currently experiencing. Changes in credit spreads are not easily predictable and changes in credit spreads may cause adverse changes in the fair value of this instrument and a possible loss of income in the future. Income from the gains on the sale of residential mortgages of $2.4 million, decreased $1.0 million from 2006, or 29.9% and was reflective of the decline in home sales experienced in the Midwest region. Wealth and Trust Management income, which includes fiduciary income and fees and commission on wealth management, totaled $686,000 in 2007 versus $328,000 in 2006, or an increase of 109%. Deposit service charge income of $419,000, increased $62,000, or 17.4% from 2006 primarily from increased service charge fees and a broadened branch base. Net realized losses from the sale of securities were $74,000 for 2007 and were attributable to restructuring activities in the available for sale security portfolio. Noninterest income for 2006 of $4.9 million increased $126,000, or 2.6% from 2005 Increases in fiduciary income, deposit service charges and other fee based revenue were offset by declines in fee income experienced from mortgage banking activities. Total fiduciary income in 2006 of $289,000 increased $156,000 over 2005. The increase in 2006 was primarily due to a full year's income from this division, versus six months in 2005, as the trust operations started on June 30, 2005, upon the acquisition of River Place Financial Corporation. Total deposit service charges of $357,000 increased 20.2% over 2005 due in part to an overdraft program initiated in November of 2005. Net realized security gains were $8,000 in 2006, which was a decrease of $48,000 from 2005. Other income was $905,000 in 2006, which was an increase of $334,000 from 2005. The increase was primarily attributable to servicing income, gains on the sale of portfolio loans during 2006 and fee income from wealth management services. 58 COMMUNITY CENTRAL BANK CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NONINTEREST EXPENSE Noninterest expense was $13.9 million for 2007, a decrease of 4.5% or $656,000 from 2006. Salaries, benefits and payroll taxes of $7.9 million represented the largest decline in noninterest expense, declining $807,000, or 9.9% from 2006. This was attributable to reductions in staffing levels within the mortgage company subsidiary, coupled with an overall reduction in mortgage company origination commissions as the result of lower mortgage origination volumes. Included in total salary, benefits and payroll taxes was a $108,000 net charge recorded in the third quarter of 2007 for severance costs related to the previously disclosed departure of the Bank's President, Ronald Reed. Mr. Reed's responsibilities were assumed by Mr. Widlak, the Corporation's Chief Executive Officer. Premises and fixed asset expense of $1.8 million during 2007 decreased $59,000, or 3.2% from the prior period. The decrease in premises and fixed asset expense was attributable to a reduction in mortgage loan production offices in 2007 as the mortgage subsidiary significantly downsized operations to parallel the local and national decrease in mortgage origination activity. The decrease in lease expense and other costs associated with loan production offices were partially offset by increases in utility costs on operating branch facilities. Other operating expense of $4.2 million increased $273,000 or 7.0% during 2007. The largest increases in this category occurred in data processing costs of $625,000 which increased $76,000 primarily as a result of increased compliance with regulatory requirements and safeguards to customer information. FDIC insurance expense of $283,000 increased $242,000 from the change in the assessment period and calculation of assessment compared to 2006. This was the largest increase in other operating expense and represents the majority of the increase. Total salaries, benefits and payroll taxes in 2006, increased $1.1 million, or 14.0% over 2005. The largest component of the increase was attributable to the trust and wealth management operations, which had a respective increase in salaries, payroll and benefits of $421,000. The Corporation started the wealth management division in early 2006 with a high level executive and support staff. The increase in salary expense in the trust division was partially due to a full year's salary and benefit expense in 2006 compared to a partial year in 2005, as the trust division started July 1, 2005. Additionally, a high-level executive was added in 2006 as the replacement for the retiring division head. Additionally, the new branch location established in 2006 in Grosse Pointe, Michigan added an additional $190,000 in payroll expense in 2006 as the branch was staffed with a regional banking executive and branch staff. Salaries, benefits and payroll taxes related to the Mortgage Company decreased $229,000 in 2006, with the decrease related to reduced level of commission related expense on lower origination of mortgages from the previous year. The remainder of the increase was attributable to merit increases, increases in health care costs and an increase in the supplemental executive retirement plan over the prior year. The SERP accrual increased due in part to factors including the amount of participants accrued for over the full year. The Corporation has used Bank Owned Life Insurance to informally fund the SERP and offset the expense of providing the SERP plan to key executives. Net occupancy expense of $1.9 million, increased $230,000 or 14.1% over 2005. The increase was largely due to an increase in rent in other occupancy related costs of new mortgage loan production offices started in 2006 in different states. Additionally, the Bank opened a new branch location in Grosse Pointe, Michigan, which started operations in June 2006. Increases in utility costs during 2006, were offset by reductions in equipment service agreement costs. Total other operating expense of $3.9 million increased $68,000 or 1.8% over 2005, with the significant changes highlighted below. Data processing expense was $549,000 in 2006, which was an increase of $70,000 or 14.6%. The increase was attributable to upgrades in technology required to meet regulatory requirements and increased expense related with branch expansion. Telephone expense was $214,000 for 2006, which was an increase of $62,000 or 40.8%. The increase was attributable to costs related with the voice over IP system the Corporation has expanded to all branches and loan production offices in 2006, which should reduce these expenses in the future. Legal expenses were $316,000 in 2006, which was a reduction of $123,000 from 2005. The decrease in legal expenses in 2006 was due in part to the additional legal costs related to the River Place Financial Inc., acquisition in 2005. 59 COMMUNITY CENTRAL BANK CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INCOME TAXES We had a federal income tax benefit of $295,000 for 2007 compared to a federal income tax expense of $363,000 in 2006. The change was primarily attributable to a lower level of pretax income, primarily from the large loan loss provision in 2007 over 2006, coupled with a permanent difference arising from tax exempt income due to investments in bank qualified tax-exempt securities and the Bank's ownership in bank owned life insurance (BOLI). The increase in cash surrender value of BOLI is exempt from federal income tax. The provision for federal income taxes of $363,000 for 2006 decreased $816,000 or 69.2%, from the federal income tax provision in 2005. The decrease was primarily attributable to a lower level of pretax income in 2006 over 2005, coupled with a lower effective tax rate. The effective tax rate for 2006 and 2005 was 14.8%and 27.7%, respectively. The statutory tax rate for the Corporation is 34%. The lower effective tax rate is primarily due to investments in bank qualified tax-exempt securities and the Bank's ownership in bank owned life insurance (BOLI). The increase in cash surrender value of BOLI is exempt from federal income tax. LIQUIDITY AND CAPITAL RESOURCES; ASSET/LIABILITY MANAGEMENT The liquidity of a bank allows it to provide funds to meet loan requests, to accommodate possible outflows of deposits, and to take advantage of other investment opportunities. Funding of loan requests providing for liability outflows and managing interest rate margins require continuous analysis to attempt to match the maturities and repricing of specific categories of loans and investments with specific types of deposits and borrowings. Bank liquidity depends upon the mix of the banking institution's potential sources and uses of funds. The major sources of liquidity for the Bank have been deposit growth, federal funds sold, loans and securities which mature within one year, and sales of residential mortgage loans. Additional liquidity is provided by $27.5 million in available unsecured federal funds borrowing facilities and a $150.0 million secured line of credit with the FHLB. Large deposit balances which might fluctuate in response to interest rate changes are closely monitored. These deposits consist mainly of jumbo certificates of deposit. We anticipate that we will have sufficient funds available to meet our future commitments. As of December 31, 2007, unused commitments comprised $81.5 million. The Bank has $234.2 million in time deposits coming due within the next twelve months from December 31, 2007. At December 31, 2007, the Bank had $125.0 million in brokered certificates of deposit, of which $66.9 million is due within one year or less. The Bank will continue to use brokered certificates and other wholesale funding sources for replacement sources of matured funds. Additionally, at December 31, 2007, municipal time deposits and internet time deposits were $33.4 million and $1.8 million, respectively. Municipal time deposits typically have maturities less than three months. On February 19, 2008, the Corporation's Board of Directors declared the Corporation's twenty fourth consecutive quarterly cash dividend of $0.06 per common share, payable April 1, 2008, to shareholders of record March 3, 2008. The largest uses and sources of cash and cash equivalents for the Corporation for the year ended December 31, 2007, 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 $23.6 million, with the remaining use of funds attributable to net increase in the trading, available for sale and held to maturity investment portfolios. Somewhat offsetting the uses of cash in investing activities, was the area of cash provided from financing activities which included net increases short term borrowing of $16.7 million and increases in FHLB advances, net of repayments of $21.0 million. The issuance of subordinated debentures net of a redemption provided $8.2 million from financing activities. Partially offsetting the increases in net cash provided from financing activities was decreases in demand and savings of $8.8 million and decreases in time deposits of $18.4 million. The net cash provided in operating activities was $86,000. Total cash and cash equivalents at the end of December 31, 2007 was $9.2 million, which was a decrease of $15.5 million from December 31, 2006. 60 COMMUNITY CENTRAL BANK CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS Off-Balance Sheet Arrangements. As of December 31, 2007, we have not participated in any material unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special entities. The Corporation does have significant commitments to fund loans in the ordinary course of business. These commitments and resulting off balance sheet risk are further discussed in Note 18 of the Corporation's Consolidated Financial Statements. Contractual Obligations.
Payments Due by Period ----------------------------------------------- Less than 1-3 3.5 More than Total 1 Year Years Years 5 Years ------- --------- ----- ----- --------- (In thousands) Long term debt (1) $18,593 $ 36 $ 45 -- $18,558 Capital lease obligations -- -- -- -- -- Operating leases (2) 1,333 250 383 $289 411 Other contractual obligations (3) 384 384
(1) Includes $36,000 of long term debt from a Note payable on the Bank's employee stock ownership plan (see Note 10 to the Consolidated Financial Statements) and $18.6 million of subordinated debentures (see Note 11 to the Consolidated Financial Statements). (2) See Note 14 to the Consolidated Financial Statements. (3) Remaining contract with core processing provider for IT services. 61 COMMUNITY CENTRAL BANK CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Managing rates on earning assets and interest bearing liabilities focuses on maintaining stability in the net interest margin, an important factor in earnings growth and stability. Emphasis is placed on maintaining a controlled rate sensitivity position to avoid wide swings in margins and to manage risk due to changes in interest rates. The Corporation's Asset Liability Committee ("ALCO") meets periodically. Some of the major areas of focus of the ALCO incorporate the following overview functions: review the interest rate risk sensitivity of the Bank to measure the impact of changing interest rates on the Bank's net interest income, review the liquidity position through various measurements, review current and projected economic conditions and the corresponding impact on the Bank, ensure that capital and adequacy of the allowance for loan losses are maintained at proper levels to sustain growth, monitor the investment portfolio, recommend policies and strategies to the Board that incorporate a better balance of our interest rate risk, liquidity, balance sheet mix and yield management, and review the current balance sheet mix and proactively determine the future product mix. The Corporation currently utilizes two quantitative tools to measure and monitor interest rate risk: static gap analysis and net interest income simulation modeling. Each of these interest rate risk measurements has limitations, but management believes when these tools are evaluated together, they provide a balanced view of the exposure the Corporation has to interest rate risk. Interest sensitivity gap analysis measures the difference between the assets and liabilities repricing or maturing within specific time periods. An asset-sensitive position indicates that there are more rate-sensitive assets than rate-sensitive liabilities repricing or maturing within specific time periods, which would generally imply a favorable impact on net interest income in periods of rising interest rates and a negative impact in periods of falling rates. A liability-sensitive position would generally imply a negative impact on net interest income in periods of rising rates and a positive impact in periods of falling rates. Gap analysis has limitations because it cannot measure precisely the effect of interest rate movements and competitive pressures on the repricing and maturity characteristics of interest-earning assets and interest-bearing liabilities. In addition, a significant portion of our adjustable-rate assets have limits on their minimum and maximum yield, whereas most of our interest-bearing liabilities are not subject to these limitations. As a result, certain assets and liabilities indicated as repricing within a stated period may in fact reprice at different times and at different volumes, and certain adjustable-rate assets may reach their yield limits and not reprice. 62 COMMUNITY CENTRAL BANK CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table presents an analysis of our interest-sensitivity gap position at December 31, 2007. All interest-earning assets and interest-bearing liabilities are shown based on the earlier of their contractual maturity or repricing date adjusted by forecasted prepayment and decay rates, our historical experience, and the repricing and prepayment characteristics of portfolios acquired through acquisition.
After Three After One Within Months But Year But After Three Within Within Five Months One Year Five Years Years Total -------- ----------- ---------- -------- -------- (In thousands) Interest earning assets Federal funds sold $ 3,000 $ -- $ -- $ -- $ 3,000 Securities, at amortized cost 22,833 9,649 24,897 31,437 88,816 FHLB stock -- 5,527 -- -- 5,527 Loans (including held for sale) 142,019 64,801 151,587 36,353 394,760 -------- --------- -------- -------- -------- Total 167,852 79,977 176,484 67,790 $492,103 ======== Interest bearing liabilities NOW and money market accounts 31,742 7,732 12,065 1,928 53,467 Savings deposits 560 2,425 6,342 -- 9,327 Jumbo time deposits 37,070 90,252 67,278 200 194,800 Time deposits < $100,000 13,133 18,131 7,038 1,093 39,395 Repurchase agreements 33,039 -- -- -- 33,039 FHLB 12,000 11,810 52,500 28,200 104,510 Capitalized lease obligation and ESOP loan 36 -- -- -- 36 Subordinated debentures 18,557 -- -- -- 18,557 -------- --------- -------- -------- -------- Total 146,137 130,350 145,223 31,421 $453,131 -------- --------- -------- -------- ======== Rate sensitivity gap $ 21,715 ($ 50,373) $ 31,261 $ 36,369 ======== ========= ======== ======== Cumulative rate sensitivity gap ($ 28,658) $ 2,603 $ 38,972 ========= ======== ======== Rate sensitivity gap ratio 1.15x 0.61x 1.22x 2.16x Cumulative rate sensitivity gap ratio 0.90x 1.01x 1.09x
63 COMMUNITY CENTRAL BANK CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Bank also evaluates interest rate risk using a simulation model. The use of simulation models to assess interest rate risk is an accepted industry practice, and the results of the analysis are useful in assessing the vulnerability of the Bank's net interest income to changes in interest rates. However, the assumptions used in the model are oversimplifications and not necessarily representative of the actual impact of interest rate changes. The simulation model assesses the direction and magnitude of variations in net interest income resulting from potential changes in market interest rates. Key assumptions in the model include prepayment speeds of various loan and investment assets; cash flows and maturities of interest-sensitive assets and liabilities, and changes in market conditions impacting loan and deposit volumes and pricing. These assumptions are inherently uncertain, and subject to fluctuation and revision in a dynamic environment. Therefore, the model cannot precisely estimate future net interest income or exactly predict the impact of higher or lower interest rates. Actual results may differ from simulated results due to, among other factors, the timing, magnitude and frequency of interest rate changes, changes in market conditions and management's pricing decisions and customer reactions to those decisions. 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 December 31, 2007, the table below reflects the impact the various instantaneous parallel shifts in the yield curve would have on net interest income over a twelve month period of time from the base forecast. Interest rate risk is a potential loss of income and/or potential loss of economic value of equity. Rate sensitivity is the measure of the effect of changing interest rates on the Bank's net interest income or the net interest spread. The policy of the Bank shall be to risk no more than 10% of its net interest income in a changing interest rate scenario of +/- 200 basis points over a one-year simulation period. Furthermore, no more than 15% of net interest income can be projected at risk in a scenario of +/- 300 basis points over a one-year simulation period.
Percentage Change Interest Rate Scenario In Net Interest Income ---------------------- ---------------------- Interest rates up 300 basis points (0.94%) Interest rates up 200 basis points (0.59%) Interest rates up 100 basis points (0.38%) Base Case -- Interest rates down 100 basis points 1.56% Interest rates down 200 basis points 3.10% Interest rates down 300 basis points (2.92%)
APPLICATION OF CRITICAL ACCOUNTING POLICIES ALLOWANCE FOR CREDIT LOSSES: The Corporation performs a detailed quarterly review of the allowance for credit 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 Corporation uses factors such as, historical portfolio losses, national and local economic trends and levels of delinquency to determine the appropriate level and allocation of the allowance for loans in this grouping. The Corporation's policy dictates that specifically identified credit losses be recognized immediately by a charge to the allowance for credit losses. Inherent risks and uncertainties related to determination of adequacy of the allowance for credit losses require management to depend on estimates, appraisals and evaluations of loans to prepare the analysis. Changes in economic conditions and the financial prospects of borrowers may result in changes to the estimates, appraisals and evaluations used. In addition, if circumstances and losses differ substantially from management's assumptions and estimates, the allowance for credit losses may not be sufficient to absorb all future losses and net income could be significantly impacted. 64 COMMUNITY CENTRAL BANK CORPORATION STOCKHOLDER INFORMATION SEC FORM 10-K Copies of the Corporation's annual report on Form 10-K, as filed with the Securities and Exchange Commission are available to stockholders without charge, upon written request. Please mail your request to Ray T. Colonius; Corporate Treasurer, Community Central Bank Corporation, 120 North Main Street, Mount Clemens, MI 48043. STOCK INFORMATION The common stock of Community Central Bank Corporation trades on The NASDAQ Global Market under the ticker symbol "CCBD." At December 31, 2007, there were 3,733,081 shares of Community Central Bank Corporation common stock issued and outstanding and approximately 500 shareholders of record. The following table presents the quarterly range of high and low sales prices of Community Central Bank Corporation common stock for 2006 and 2007, as well as the dividends declared during the stated periods. The price information set forth in the table was reported by The NASDAQ Global Market. Our cash dividend payout policy is continually reviewed by management and the Board of Directors. Dividend payment decisions are made after considering a variety of factors, including earnings, financial condition, market considerations and regulatory restrictions. The Corporation relies significantly upon dividends originating from the Bank to accumulate cash for payment of dividends to our stockholders. Restrictions of dividend payments from the Bank are described in Note 19 of the Notes to Consolidated Statements included in this Annual Report.
2007 Cash --------------- Dividends Quarter High Low Declared - ------- ------ ------ --------- Fourth $ 8.99 $ 6.10 $.06 Third 9.57 7.30 .06 Second 11.35 9.00 .06 First 12.25 10.25 .06
2006 Cash --------------- Dividends Quarter High Low Declared - ------- ------ ------ --------- Fourth $11.43 $10.25 $.06 Third 11.43 9.90 .06 Second 11.29 10.79 .06 First 12.46 10.15 .06
Price information has been retroactively adjusted to reflect the issuance of stock dividends 65 COMMUNITY CENTRAL BANK CORPORATION STOCKHOLDER INFORMATION PRIMARY MARKET MAKERS Hill, Thompson, Magid & Co., Inc. Howe Barnes Hoefer and Arnett 15 Exchange Place Investment, Inc. Jersey City, NJ 07302-3912 222 South Riverside Plaza, 7th Floor Chicago, IL 60606 Knight Securities, L.P. UBS Capital Markets, L.P. 545 Washington Blvd. 111 Pavosia Avenue East Jersey City, NJ 07310 Jersey City, NJ 07310 STOCK REGISTRAR AND TRANSFER AGENT Computershare Trust Company, N.A. PO Box 43010 Providence, RI 02940-3010 Shareholder Inquiries 1-800-426-5523 www.computershare.com INDEPENDENT AUDITOR Plante & Moran, PLLC 2601 Cambridge Ct., Suite 500 Auburn Hills, MI 48326 LEGAL COUNSEL Silver, Freedman & Taff, LLP 3299 K Street, NW, Suite 100 Washington D.C. 20007 INFORMATION News media representatives and those seeking additional information about the Corporation should contact Ray T. Colonius, Corporate Treasurer, at (586) 783-4500, or by writing him at 120 North Main Street, Mount Clemens, MI 48043. ANNUAL MEETING This year's annual meeting of stockholders will be held at 9:00 a.m., on Tuesday, April 15, 2008, at Best Western Concorde Inn, 44315 Gratiot Avenue, Clinton Township, MI 48036. 66 EX-21 4 k24561exv21.txt LIST OF SUBSIDIARIES . . . EXHIBIT 21 List of Subsidiaries of Community Central Bank Corporation
NAME OF SUBSIDIARY JURISDICTION OF NAMES UNDER WHICH (AND OWNERSHIP) ORGANIZATION IT DOES BUSINESS - ----------------------------------------- --------------- ----------------------------- Community Central Bank Michigan Community Central Bank (wholly-owned subsidiary of Community Central Bank Corporation) Community Central Mortgage Company, LLC Michigan Community Central Mortgage (wholly owned subsidiary of Community Company, LLC Central Bank) Mortgage Banking Solutions Community Central Capital Trust II Delaware Community Central Capital (Business Trust, wholly owned Trust II subsidiary of Community Central Bank Corporation) Community Central Development Michigan Community Central Development Enterprise, LLC * Enterprise, LLC (wholly owned subsidiary of Community Central Bank) * Inactive Community Central Insurance Agency, LLC * Michigan Community Central Insurance (wholly owned subsidiary of Community Agency, LLC Central Bank) * Inactive
EX-23 5 k24561exv23.txt CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM EXHIBIT 23 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in the Registration Statements (File Nos. 333-90384 and 333-119180) of Community Central Bank Corporation on Form S-8 of our Report of Independent Registered Public Accounting Firm, dated March 17, 2008, on the consolidated financial statements incorporated by reference in Community Central Bank Corporation's Annual Report on Form 10-K for the year ended December 31, 2007. /s/ Plante & Moran, PLLC - ------------------------------------- Auburn Hills, Michigan March 26, 2008 EX-31.1 6 k24561exv31w1.txt RULE 13A - 14(A) CERTIFICATION (CHIEF EXECUTIVE OFFICER) EXHIBIT 31.1 RULE 13a-14(a) CERTIFICATION I, David A. Widlak, certify that: 1. I have reviewed this annual report on Form 10-K of Community Central Bank Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act rules 13a-15(f) and 15d-15(f)) for the registrant and have: a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and d. disclosed in this report any changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 31, 2008 By: S/ DAVID A. WIDLAK ------------------------------------ David A. Widlak President and CEO (Principal Executive Officer) EX-31.2 7 k24561exv31w2.txt RULE 13A - 14(A) CERTIFICATION (CHIEF FINANCIAL OFFICER) EXHIBIT 31.2 RULE 13a-14(a) CERTIFICATION I, Ray T. Colonius, certify that: 1. I have reviewed this annual report on Form 10-K of Community Central Bank Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act rules 13a-15(f) and 15d-15(f)) for the registrant and have: a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and d. disclosed in this report any changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 31, 2008 By: S/ RAY T. COLONIUS ------------------------------------ Ray T. Colonius CFO and Treasurer (Principal Financial and Accounting Officer) EX-32 8 k24561exv32.txt RULE 1350 CERTIFICATION EXHIBIT 32 RULE 1350 CERTIFICATION Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned hereby certifies in his capacity as an officer of Community Central Bank Corporation (the "Corporation") that the Annual Report of the Corporation on Form 10-K for the period ended December 31, 2007 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Corporation as of the dates and for the periods presented in the financial statements included in this report. Dated: March 31, 2008 By: S/ DAVID A. WIDLAK ------------------------------------ David A. Widlak President and CEO (Principal Executive Officer) Dated: March 31, 2008 By: S/ RAY T. COLONIUS ------------------------------------ Ray T. Colonius CFO and Treasurer (Principal Financial and Accounting Officer) -----END PRIVACY-ENHANCED MESSAGE-----