UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

þ		QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 000-33373

COMMUNITY CENTRAL BANK CORPORATION

(Exact name of small business issuer as specified in its charter)

Michigan		38-3291744
(State or other jurisdiction of incorporation		(IRS Employer Identification No.)
or organization)

100 North Main Street, PO Box 7, Mount Clemens, MI 48046-0007
(Address of principal executive offices and zip code)

(586) 783-4500

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer o		Non-accelerated filer o		Smaller reporting company þ
				(Do not check if a smaller reporting company)

Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

	Class			Outstanding at November 12, 2010
	Common Stock			3,739,881 Shares

 

 

PART I

Item 1.		Financial Statements

Consolidated Balance Sheet

		September 30,				December 31,
		2010				2009
		(Unaudited)
		(In thousands)
Assets
Cash and due from banks		$	35,052			$	33,115
Federal funds sold			5,680				1,048
Cash and Cash Equivalents			40,732				34,163
Securities available for sale, at fair value			46,931				65,903
Securities held to maturity, at amortized cost			3,083				3,467
FHLB stock			5,877				5,877
Residential mortgage loans held for sale			6,449				3,497
Loans
Commercial real estate			271,074				273,578
Commercial and industrial			44,121				48,782
Residential real estate			46,630				51,101
Home equity lines of credit			21,633				21,889
Consumer loans			6,445				6,961
Credit card loans			873				856
Total Loans			390,776				403,167
Allowance for credit losses			(19,566	)			(12,957	)
Net Loans			371,210				390,210
Net property and equipment			10,124				9,106
Accrued interest receivable			1,807				1,878
Other real estate			8,301				9,300
Goodwill			638				638
Intangible assets, net of amortization			40				57
Cash surrender value of Bank Owned Life Insurance			11,451				11,285
Other assets			7,092				8,465
Total Assets		$	513,735			$	543,846

(continued)

Consolidated Balance Sheet

		September 30,				December 31,
		2010				2009
		(Unaudited)
		(In thousands)
Liabilities
Deposits
Noninterest bearing demand deposits		$	53,165			$	45,716
NOW and money market accounts			26,515				41,872
Savings deposits			7,720				8,800
Time deposits			308,855				304,743
Total Deposits			396,255				401,131
Repurchase agreements			36,299				41,106
Federal Home Loan Bank advances			63,398				65,700
Accrued interest payable			1,020				618
Other liabilities			3,364				2,937
Subordinated debentures at fair value option			1,250				8,366
Total Liabilities			501,586				519,858
Stockholders’ Equity
Preferred stock (1,000,000, no par value, shares authorized; 7,775 shares and 7,265 issued and outstanding at September 30, 2010 and December 31, 2009, respectively)			7,645				7,146
Common stock (No par value; 9,000,000 shares, authorized, and 3,739,881 and 3,737,181 issued and outstanding at September 30, 2010 and December 31, 2009, respectively)			32,302				32,214
Retained deficit			(28,035	)			(15,536	)
Accumulated other comprehensive gain			237				164
Total Stockholders’ Equity			12,149				23,988
Total Liabilities and Stockholders’ Equity		$	513,735			$	543,846

Consolidated Statements of Income
(Unaudited)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
		(In thousands, except per share data)
Interest Income
Loans (including fees)		$	5,998			$	6,510			$	17,855			$	19,423
Taxable securities			358				645				1,270				2,304
Tax exempt securities			20				74				73				272
Federal funds sold and interest bearing balances			25				9				81				22
Total Interest Income			6,401				7,238				19,279				22,021
Interest Expense
NOW and money market accounts			31				55				124				205
Savings deposits			10				13				36				44
Time deposits			1,960				2,297				6,487				7,472
Repurchase agreements and fed funds purchased			290				327				874				959
Federal Home Loan Bank advances			542				1,015				1,978				3,286
Subordinated debentures			311				311				934				924
Total Interest Expense			3,144				4,018				10,433				12,890
Net Interest Income			3,257				3,220				8,846				9,131
Provision for Credit Losses			4,550				4,400				16,750				9,650
Net Interest Expense after Provision for Credit Losses			(1,293	)			(1,180	)			(7,904	)			(519	)
Noninterest Income
Fiduciary income			64				80				195				245
Deposit service charges			97				110				288				300
Net realized security gain			68				80				277				436
Change in fair value of assets/liabilities carried at fair value under SFAS 159			584				1,313				7,116				2,383
Mortgage banking income			897				623				2,342				2,384
Other income			309				251				1,057				715
Total Noninterest Income			2,019				2,457				11,275				6,463
Noninterest Expense
Salaries, benefits and payroll taxes			2,084				2,050				6,588				6,231
Net occupancy expense			445				424				1,337				1,304
Other operating expense			3,025				2,439				7,682				5,708
Total Noninterest Expense			5,554				4,913				15,607				13,243
Loss Before Taxes			(4,828	)			(3,636	)			(12,236	)			(7,299	)
Provision for Income Tax (Benefit)			—				(1,271	)			—				(2,588	)
Net Loss		$	(4,828	)		$	(2,365	)		$	(12,236	)		$	(4,711	)
Dividends declared on preferred shares			53				107				253				263
Net Loss available on common shares		$	(4,881	)		$	(2,472	)		$	(12,489	)		$	(4,974	)
Per share data:
Basic loss		$	(1.31	)		$	(0.66	)		$	(3.34	)		$	(1.33	)
Diluted loss		$	(1.31	)		$	(0.66	)		$	(3.34	)		$	(1.33	)
Cash dividends		$	—			$	—			$	—			$	—

Consolidated Statements of Comprehensive Income
(Unaudited)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
		(In thousands)								(In thousands)
Net Loss as Reported		$	(4,828	)		$	(2,365	)		$	(12,236	)		$	(4,711	)
Other Comprehensive Income (Loss)
Change in unrealized net gain (loss) on securities available for sale			(267	)			428				73				487
Comprehensive Loss		$	(5,095	)		$	(1,937	)		$	(12,163	)		$	(4,224	)

Consolidated Statements of Cash Flow
(Unaudited)

		Nine Months Ended September 30,
		2010				2009
		(In thousands)
Operating Activities
Net loss		$	(12,236	)		$	(4,711	)
Adjustments to reconcile net income to net cash flow from operating activities:
Net amortization of security premium			603				320
Net loss on available for sale securities			(277	)			(436	)
Net gain on instruments at fair value			(7,116	)			(2,383	)
Provision for credit losses			16,750				9,650
Depreciation expense			527				483
Deferred income tax (benefit) expense			—				(1,927	)
Fair value of employee stock option expense			75				67
Decrease in accrued interest receivable			70				289
(Increase) decrease in other assets			(1,990	)			2,147
Decrease (increase) in accrued interest payable			401				(302	)
Increase (decrease) in other liabilities			505				(1,163	)
(Increase) decrease in loans sold held for sale			(2,952	)			677
Decrease (increase) in other real estate			999				(3,615	)
Net Cash Used in Operating Activities			(4,641	)			(904	)
Investing Activities
Sales, maturities, calls and prepayments of securities available for sale			61,434				89,201
Purchases of securities available for sale			(42,640	)			(79,824	)
Maturities, calls, sales and prepayments of trading securities			—				24,700
Transfer and purchase of trading securities			—				(7,237	)
Maturities, calls, and prepayments of held to maturity securities			370				143
Purchases of held to maturity securities			—				(2,088	)
Increase (decrease) in loans			5,202				(7,693	)
Purchases of property and equipment			(1,545	)			(55	)
Net Cash Provided by Investing Activities			22,821				17,147
Financing Activities
Net (decrease) increase in demand and savings deposits			(8,977	)			24,506
Net increase (decrease) in time deposits			4,112				(11,253	)
Net (increase) decrease in short term borrowings			(4,807	)			5,377
FHLB advances			10,000
FHLB advance repayments			(12,302	)			(20,500	)
Preferred stock issuance			499				500
Preferred Stock dividend paid			(136	)			(263	)
Repurchase of stock			—				623
Net Cash Used in Financing Activities			(11,611	)			(1,010	)
Increase in Cash and Cash Equivalents			6,569				15,233
Cash and Cash Equivalents at the Beginning of the Period			34,163				16,162
Cash and Cash Equivalents at the End of the Period		$	40,732			$	31,395
Supplemental Disclosure of Cash Flow Information:
Interest paid		$	10,031			$	13,192
Federal taxes paid		$	0			$	0
Supplemental Noncash Disclosure:
Loans transferred to other real estate owned		$	2,033			$	5,746

Notes to Consolidated Financial Statements
(unaudited)

Principles of Consolidation:

1. The financial statements of Community Central Bank Corporation (the “Corporation”) include the consolidation of its wholly-owned subsidiaries: Community Central Bank (the “Bank”) and Community Central Mortgage Company, LLC (the “Mortgage Company”).

The Corporation’s Consolidated Balance Sheets are presented as of September 30, 2010 and December 31, 2009, and Consolidated Statements of Income and Comprehensive Income for the nine month periods ended September 30, 2010 and 2009, and Consolidated Statements of Cash Flow for the nine months ended September 30, 2010 and 2009. These unaudited financial statements are for interim periods and do not include all disclosures normally provided with annual financial statements. The interim statements should be read in conjunction with the financial statements and footnotes contained in the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009.

In the opinion of management, the interim statements referred to above contain all adjustments (consisting of normal, recurring items) necessary for a fair presentation of the financial statements. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.

Critical Accounting Policies:

2. The accounting and reporting policies of the Corporation conform to accounting principles generally accepted in the United States of America and general practices within the banking industry. The following describes the critical accounting policies employed in the preparation of financial statements.

Allowance for Loan Losses: The allowance for loan losses is maintained at a level considered by management to be adequate to absorb losses inherent in existing loans and loan commitments. The adequacy of the allowance is based on evaluations that take into consideration such factors as prior loss experience, changes in the nature and volume of the portfolio, overall portfolio quality, loan concentrations, specific impaired or problem loans and commitments, current economic conditions that may affect the borrower’s ability to pay and other subjective factors. The determination of the allowance is also based on regulatory guidance. This guidance includes, but is not limited to, generally accepted accounting principles and guidance issued from other regulatory bodies, such as the joint policy statement issued by the Federal Financial Institutions Examination Council.

Fair Value Option for Financial Assets and Financial Liabilities: Under ASC 825, Financial Instruments, Fair Value Option, an entity is permitted 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. As a result of the Corporation’s adoptions, certain financial instruments were valued at fair value using the fair value option. The Corporation adopted ASC 820, Fair Value Measurements and Disclosures.

The Corporation utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Additionally, from time to time, the Corporation may be required to record at fair value other assets on a nonrecurring basis, such as loans held for sale, loans held for investment and certain other assets. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.

Income Taxes: Income tax expense is the sum of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

We recognize a tax position as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. We recognize interest and/or penalties related to income tax matters in income tax expense.

The realization of deferred tax assets (net of a recorded valuation allowance) is largely dependent upon future taxable income, future reversals of existing taxable temporary differences and the ability to carry back losses to available tax years. In assessing the need for a valuation allowance, we consider all positive and negative evidence, including taxable income in carry back years, scheduled reversals of deferred tax liabilities, expected future taxable income and tax planning strategies.

Subordinated Debenture:

3. On February 13, 2007, Community Central Bank Corporation issued $18.0 million aggregate liquidation amount of cumulative trust preferred securities through Community Central Capital Trust II, a statutory trust formed by the Corporation for the purpose of issuing the securities (the “Trust II Securities”). The Trust II Securities bear a fixed distribution rate of 6.71% per annum through March 6, 2017, and thereafter will bear a floating distribution rate equal to 90-day LIBOR plus 1.65%. The Trust II Securities are redeemable at the Corporation’s option, in whole or in part, at par beginning March 6, 2017, and if not sooner redeemed, mature on March 6, 2037. The Trust II Securities were sold in a private transaction exempt from registration under the Securities Act of 1933, as amended.

Fair Value Option for Financial Assets and Financial Liabilities:

4. The Corporation utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Additionally, from time to time, the Corporation may be required to record at fair value other assets on a nonrecurring basis, such as loans held for sale, loans held for investment and certain other assets. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.

Fair Value Hierarchy

Under ASC 820, Fair Value Measurements and Disclosures, the Corporation groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

Level 1 Valuation is based upon quoted prices for identical instruments traded in active markets.

Level 2 Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

Level 3 Valuation contains unobservable input(s) and is used to the extent observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity. Level 3 instruments typically include, in addition to unobservable or Level 3 components, observable components.

Management has elected the fair value option for the following reasons for each of the eligible items or group of similar eligible items.

Investment Securities:

In the first quarter of 2009, the Corporation elected to sell substantially all of the investment securities recorded as trading securities, and to unwind the hedging interest rate swap position with the counterparty which resulted in realizing a combined net loss of $400,000 in 2009. This was based on management’s determination that the combination of the securities and interest rate swap would no longer provide a benefit to the Corporation in the current historically low interest rate environment. The Corporation had held the securities and interest rate swap for an extended amount of time under ASC 825, Financial Instruments, Fair Value Option.

Subordinated Debentures:

Management elected the fair value option for its subordinated debenture. Management considers the subordinated debenture a critical component for future growth and wished to utilize interest rate swaps at that point in time to hedge the risk of this longer term liability. Management elected the fair value option accounting treatment for interest rate swaps because it was less complex than alternative methods and therefore suitable for a community bank with limited resources. Management has elected the fair value option on the subordinated debenture which was issued on February 13, 2007 for $18.6 million. Additionally, an interest rate swap for a like kind notional value was secured, in part, to reduce any volatility associated with the recognition of the fair value option under ASC 825, Financial Instruments, Fair Value Option.

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. In the first quarter of 2009, the Corporation elected to unwind the interest rate swap position with the counterparty which resulted in realizing $3.3 million, which represented substantially all of the unrealized gains which had been recorded as noninterest income, under the fair value option through December 31, 2008. This was based on management’s determination that the interest rate swap would no longer provide a benefit to the Corporation.

Management has the intent to utilize the fair value option on selected financial assets and liabilities on a go forward basis.

The valuations of the instruments measured under ASC 820, Fair Value Measurements and Disclosures, for 2007 were measured under a market approach using matrix pricing for investment securities and the income approach using observable data for the liabilities reported under ASC 825, Financial Instruments, Fair Value Option. The inputs were observable for the asset and liability yields on commonly quoted intervals based on similar assets and liabilities for level 2 instruments. The Corporation does not have a credit rating through any major credit research credit rating facility. The trust preferred market from which a basis for pricing on the subordinated debenture is arrived at is reflective of changes in the commercial banking environment. The determination of fair value of the subordinated debenture is considered by management to be reflective of the current assessments as to the market for fixed rate trust preferred and subordinated debentures of similar duration and characteristics. During several quarterly periods, the trust preferred market reflected only a small base of participants in the market place. The disarray in the credit markets contributed to the lack of market transactions in this financial instrument. Under ASC 820, Fair Value Measurements and Disclosures, management evaluated factors to determine whether there has been a significant decrease in volume of activity for the liability compared to normal market activity. Based on the factors observable to management contained in ASC 820, Fair Value Measurements and Disclosures, management concluded that quoted prices may not be determinative of fair value. Management also evaluated the circumstances to determine whether the issuance of subordinated debentures and trust preferred securities was orderly based on the weight of evidence available. Based on the factors contained in ASC 820, Fair Value Measurements and Disclosures, management concluded the market for bank subordinated debentures and trust preferred securities was not orderly. Management has used all observable data available, including the market data for subordinated debentures and trust preferred securities traded as assets, to obtain additional observable information. The inputs and valuation techniques used by management to determine fair value included pricing models for like type financial instruments priced to a yield to maturity of that instrument. Management uses market surveys for like type instruments in aiding the valuation process. Management also considers market data for the issuance of subordinated debentures in evaluating the appropriate fair value of the instrument. Multiple inputs are used in the valuation process including assumptions on credit spreads, projected yield curves and other modeling techniques used in pricing financial instruments to determine the fair value after incorporating all known factors and adjustments which may be significant. A determination was made, based upon the significance of unobservable parameters as of September 30, 2010 to the overall fair value measurement, to continue to report the subordinated debentures under level 3 significant unobservable inputs. In addition to the unobservable components, or level 3 components, observable components that can be validated to external sources are part of the validation methodology. The net change in fair value associated with all instruments recorded under ASC 825, Financial Instruments, Fair Value Option, totaled $7.1 million for the first nine months of 2010, versus $2.4 million for the first nine months of 2009. The significant increase was primarily related to larger gains recorded in the fair market value of the subordinated debenture connected with the issuance of trust preferred securities. Significantly affecting the valuation of the debenture was the worsening financial condition of the Bank and the suspension and deferral of interest payments by the Corporation, which was announced on May 14, 2010. The fair value was based in part on the relative market value ascribed to debt and trust preferred instruments traded within the same geographic area as assets in the marketplace and with financial institutions of similar financial condition. The use of a discounted cash flow analysis was integral in the determination of the fair value of this instrument. An assumption used in the discounted cash flow analysis, in addition to those described above, was the forecasted deferral of interest payments by the Corporation on its subordinated debenture.

Changes in market credit spreads for this instrument impact the relative fair value of this financial liability. Changes in credit spreads are not easily predictable and may cause adverse changes in the fair value of this instrument and a possible loss of income in the future.

Securities Available for Sale, at Fair Value:

The fair values of securities available for sale are determined by matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (level 2 inputs).

The following table presents the fair value measurement at September 30, 2010 using the identified valuations and the changes in fair value for the nine month period ended September 30, 2010, and September 30, 2009.

														Changes in fair value for
						Fair Value Measurement at								nine months ended Sept
						September 30, 2010								30, 2010, measured at fair
						Significant Other				Significant				value pursuant to election
		Fair Value				Observable				Unobservable				of the fair value option
		Measurements				Inputs				Inputs				Other Gains or Losses in
Description		09/30/10				(Level 2)				(Level 3)				pretax income
						(In thousands)
Assets
Securities available for sale
U.S. agency mortgage backed securities		$	37,870			$	37,870			$	—			$	—
U.S. agency collateralized mortgage obligations			7,803				7,803				—				—
Municipal securities			491				491				—				—
Mutual fund and trust preferred securities			767				767				—				—
Liabilities
Subordinated debentures			1,250				—				1,250				7,116
														$	7,116

														Changes in fair value for
						Fair Value Measurement at								nine months ended Sept 30,
						September 30, 2009								2009, measured at fair value
						Significant Other				Significant				pursuant to election of the
		Fair Value				Observable				Unobservable				fair value option
		Measurements				Inputs				Inputs				Other Gains or Losses in
Description		09/30/09				(Level 2)				(Level 3)				pretax income
						(In thousands)
Assets
Trading securities		$	—			$	—			$	—			$	(132	)
Securities available for sale
U.S. treasury notes			3,000				3,000
U.S. agency mortgage backed securities			35,414				35,414				—				—
U.S. agency collateralized mortgage obligations			21,354				21,354				—				—
Municipal securities			4,489				4,489				—				—
Mutual fund and trust preferred securities			718				718				—				—
Interest rate swap hedging securities			—				—				—				(75	)
Liabilities
Subordinated debentures			9,842				—				9,842				2,915
Interest rate swap hedging subordinated debentures			—				—				—				(325	)
														$	2,383

Interest income and interest expense of the respective financial instruments have been recorded in the consolidated statements of income based on the category of financial instrument.

Changes in level 3 recurring fair value measurements

The table below includes a roll forward of the balance sheet amounts for the three and nine month period ended September 30, 2010 and the three and nine month period ended September 30, 2009 (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 table 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
(In thousands)

Changes in unrealized

gains and (losses) related

Total realized /

Purchases,

Transfers

to financial instruments for

For the three months

Fair Value

unrealized

issuances

in and / or

Fair Value

the three months ended

ended Sept 30, 2010

July 1, 2010

gains / losses

settlements, net

out of Level 3

September 30, 2010

held at Sept 30, 2010

(In thousands)

Subordinated Debentures

$

1,834

$

584

$

—

$

—

$

1,250

$

584

Changes in unrealized

gains and (losses) related

Total realized /

Purchases,

Transfers

to financial instruments for

For the nine months

Fair Value

unrealized

issuances

in and / or

Fair Value

the nine months ended held

ended Sept 30, 2010

January 1, 2010

gains / losses

settlements, net

out of Level 3

September 30, 2010

at Sept 30, 2010

(In thousands)

Subordinated Debentures

$

8,366

$

7,116

$

—

$

—

$

1,250

$

7,116

Changes in unrealized

gains and (losses) related

Total realized /

Purchases,

Transfers

to financial instruments for

For the three months

Fair Value

unrealized

issuances

in and / or

Fair Value

the three months ended

ended Sept 30, 2009

July 1, 2009

gains / losses

settlements, net

out of Level 3

September 30, 2009

held at Sept 30, 2009

(In thousands)

Subordinated Debentures

$

11,155

$

1,313

$

—

$

—

$

9,842

$

1,313

Changes in unrealized

gains and (losses) related

Total realized /

Purchases,

Transfers

to financial instruments for

For the nine months

Fair Value

unrealized

issuances

in and / or

Fair Value

the nine months ended held

ended Sept 30, 2009

January 1, 2009

gains / losses

settlements, net

out of Level 3

September 30, 2009

at Sept 30, 2009

(In thousands)

Subordinated Debentures

$

12,757

$

2,915

$

—

$

—

$

9,842

$

2,915

Assets Measured at Fair Value on a Nonrecurring Basis

Residential Mortgages Held for Sale

Residential mortgages held for sale are reported at the lower of cost or fair value. The fair value of the residential mortgages held for sale is based on binding quotes from investors.

Impaired Loans

The Corporation does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management

measures impairment in accordance with ASC 310, Accounting for Creditors for Impairment of a Loan. The fair value of impaired loans is estimated primarily using collateral value. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. The fair value of the collateral is based on an observable market price, current appraised value and management’s estimates of the value of the collateral and other market conditions. Due to the lack of market transactions, volatility in pricing and other factors, some of which may be unobservable, the Corporation recorded the impaired loans as nonrecurring level 3.

Other Real Estate Owned

Other real estate owned assets are adjusted to fair value, less costs of sale, upon transfer of the loans to foreclosed assets. Subsequently, other real estate owned assets are carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. The fair value of the collateral is based on an observable market price, a current appraised value, or management’s estimates. Due to the lack of transactions, volatility in pricing and other factors, some of which may be unobservable, the Corporation recorded other real estate owned as nonrecurring level 3.

The following table presents assets measured at fair value on a nonrecurring basis for the three and nine month period ended September 30, 2010 and the three and nine month period ended September 30, 2009.

						Quoted Prices in
						Active Markets				Significant Other				Significant
						for Identical Assets				Observable Inputs				Unobservable Inputs
Assets:		Fair Value				(Level 1)				(Level 2)				(Level 3)
																		Total Losses for the
																		three months ended
																		September 30, 2010
September 30, 2010
Impaired loans		$	49,513			$	—			$	—			$	49,513			$	3,937
Other real estate owned		$	8,301			$	—			$	—			$	8,301			$	530
																		Total Losses for the
																		nine months ended
																		September 30, 2010
September 30, 2010
Impaired loans		$	49,513			$	—			$	—			$	49,513			$	12,215
Other real estate owned		$	8,301			$	—			$	—			$	8,301			$	1,632
																		Total Losses for the
																		three months ended
																		September 30, 2009
September 30, 2009
Impaired loans		$	30,517			$	—			$	—			$	30,517			$	3,766
Other real estate owned		$	6,528			$	—			$	—			$	6,528			$	691
																		Total Losses for the
																		nine months ended
																		September 30, 2009
September 30, 2009
Impaired loans		$	30,517			$	—			$	—			$	30,517			$	7,048
Other real estate owned		$	6,528			$	—			$	—			$	6,528			$	1,127

In accordance with ASC 825, Financial Instruments, Fair Value Option, the carrying amounts and estimated fair values of financial instruments, at September 30, 2010 and December 31, 2009 are as follows:

		September 30, 2010								December 31, 2009
		Carrying				Estimated				Carrying				Estimated
		Amount				Fair Value				Amount				Fair Value
		(In thousands)
Financial Assets
Cash and cash equivalents		$	40,732			$	40,732			$	34,163			$	34,163
Securities available for sale, at fair value			46,931				46,931				65,903				65,903
Securities held to maturity, at amortized cost			3,083				3,154				3,467				3,469
FHLB stock			5,877				5,877				5,877				5,877
Residential mortgages held for sale			6,449				6,449				3,497				3,497
Loans, net of allowance			371,210				386,889				390,210				402,500
Accrued interest receivable			1,807				1,807				1,878				1,878
Financial Liabilities
Demand and savings deposits			87,400				87,400				96,388				96,388
Time deposits			308,855				316,135				304,743				311,102
Repurchase agreements			36,299				36,299				41,106				41,106
Federal Home Loan Bank advances			63,398				65,620				65,700				66,883
Accrued interest payable			1,020				1,020				618				618
Subordinated debentures (a)			1,250				1,250				8,366				8,366

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 above 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: The fair value of the securities portfolio is based on matrix pricing where similar securities are used to interpolate fair value of the subject instruments and as such is considered a level 2 valuation. The carrying value of FHLB stock approximates 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.

Subordinated debentures: Subordinated debentures are carried at fair value under ASC 825, Financial Instruments, Fair Value Option.

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.

5. Under the Community Central Bank Death Benefit Plan, the Bank is liable for a death benefit payable to the estate or beneficiary of David A. Widlak, the deceased President and Chief Executive Officer of the Bank and Corporation. The amount of this benefit liability is approximately $2.3 million. The Bank provided informal funding of this benefit by purchasing bank owned life insurance (BOLI). The insurance proceeds, net of the cash surrender value carried on the balance sheet and net of the death benefit payable, is expected to provide a net gain of $1.7 million to the Corporation. The Corporation filed a claim for life insurance in October 2010, when the body was discovered. Due to uncertainty regarding some factors, including time of death, the Corporation will record the transaction in the fourth quarter of 2010. The estimated net effect of these transactions, when recorded on the Corporation’s Consolidated Balance Sheet and Consolidated Statement of Income would result in an increase in total assets of $2.9 million, an increase in total liabilities of $1.2 million and an increase in total capital and net income of $1.7 million.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion compares the financial condition of the Corporation and its wholly owned subsidiaries at September 30, 2010 and December 31, 2009 and the results of operations for the three months and nine months ended September 30, 2010 and 2009. This discussion should be read in conjunction with the financial statements and statistical data presented elsewhere in this report.

SAFE HARBOR REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements that are based on management’s beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy, and about the Corporation and the Bank. Words such as anticipates, believes, estimates, expects, forecasts, intends, is likely, plans and projects, and 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 forward-looking statements are based on the Corporation’s expectations and are subject to risks and uncertainties that cannot be predicted or quantified and are beyond the Corporation’s control, including the potential that (1) the Corporation may not be able to continue as a going concern, (2) the Bank may not be able to comply with the Consent Order that it recently entered into with the Michigan Office of Financial and Insurance Regulations and the Federal Deposit Insurance Corporation, and (3) because of our “significantly undercapitalized” status, our regulators may initiate additional enforcement actions against us, which could include placing the Bank under conservatorship or into receivership.

Although we believe that our plans, intentions and expectations, as reflected in these forward-looking statements are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved or realized. Our actual results, performance, or achievements may differ materially from those suggested, expressed, or implied by forward-looking statements as a result of a wide variety or range of factors including, but not limited to: the risk that the Bank will be placed into conservatorship or receivership as result of being “significantly undercapitalized” under the Prompt Corrective Action (“PCA”) regulations or because the Corporation is not able to improve its capital position; the possibility that the Bank will not be able to comply with the conditions imposed by the Consent Order, including but not limited to its ability to increase capital, or to comply with statutory obligations applicable to “significantly undercapitalized” institutions under PCA, or comply with other regulatory requirements which could result in the imposition of further enforcement action imposing additional restrictions on our operations or placing the Bank into conservatorship or receivership at any time; risk that continued negative publicity regarding our financial condition will have an adverse effect on our operations; credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs; changes in general economic conditions, either nationally or in our market areas; changes in the levels of general interest rates, deposit interest rates, our net interest margin and funding sources; fluctuations in the demand for loans, the number of unsold homes and other properties and fluctuations in real estate values in our market areas; results of examinations of us by the Federal

Deposit Insurance Corporation, Michigan Office of Financial and Insurance Regulation or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our reserve for loan losses or to write-down assets; our ability to control operating costs and expenses; our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we have acquired or may in the future acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto; our ability to manage loan delinquency rates; our ability to retain key members of our senior management team; costs and effects of litigation, including settlements and judgments; increased competitive pressures among financial services companies; changes in consumer spending, borrowing and savings habits; legislative or regulatory changes that adversely affect our business; adverse changes in the securities markets; inability of key third-party providers to perform their obligations to us; changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the Financial Accounting Standards Board; other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services and other risks detailed in the Corporation’s reports filed with the Securities and Exchange Commission.

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. We caution readers not to place undue reliance on any forward-looking statements.

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 four full service facilities in Mount Clemens, Rochester Hills, Grosse Pointe Farms and Grosse Pointe Woods, Michigan. Community Central Mortgage Company, LLC, a subsidiary of the Bank, operates locations servicing the Detroit metropolitan area and central 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 currently trade on The NASDAQ Capital Market under the symbol “CCBD.”

On September 20, 2010, David A. Widlak, the CEO of the Corporation and the Bank disappeared and was later found dead. The impact of the media coverage surrounding this tragic event also led to negative news reports discussing our current financial situation. These reports and public disclosures involving the recently issued Consent Order, discussed below, may have a negative impact on our business by eroding customer confidence in the Bank. Even though our deposits are insured by the FDIC, customers may choose to withdraw their deposits, and new customers may choose to do business elsewhere. In addition, we may find that our service providers will be reluctant to commit to long-term projects with us. Even if we are able to improve our current financial situation, we may be the object of negative publicity and speculation about our future, which may adversely affect our business, financial condition, liquidity and results of operations. Additionally, our ability to continue as a going concern is in substantial doubt as a result of our significant net loss from operations for the three and nine months ended September 30, 2010, deterioration in the credit quality of the loan portfolio, and the decline in the level of our regulatory capital to support operations. Mr. Widlak played a critical role in our ability to identify and consummate a strategic transaction, including a capital infusion, a merger or sale of the Corporation or Bank. Unless we return to profitability or identify and execute a viable strategic alternative, it is unlikely that we will be able to continue as a going concern.

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 commercial real estate, residential developer loans within the commercial real estate loan portfolio, with commercial and industrial loans, and with residential real estate loans. Further downturns in the local economy may affect the demand for, and performance of, commercial loans and related small to medium sized 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, St. Clair and Wayne counties of Michigan may affect the pricing levels of various loan and deposit products. The impact of competitive rates on deposit products may increase the relative cost of funds for the Corporation and thus negatively impact net interest income.

The weakness in the economy continues to affect parts of our loan portfolio requiring a higher provision for loan losses. We recorded a $4.6 million provision for loan losses in the third quarter of 2010 and $16.8 million for the first nine months of 2010. The provision is based upon management’s review of the risks inherent in the loan portfolio and the level of our allowance for loan losses. In addition, net charge-offs for the first nine months of 2010 totaled $10.1 million, or 3.41% of total average loans on an annualized basis. Total nonaccruing loans and loans past due 90 days or more and still accruing interest totaled $39.8 million, or 10.19% of total loans at September 30, 2010 compared to $22.9 million, or 5.68% at December 31, 2009. The allowance for loan losses at September 30, 2010 was $19.6 million, or 5.01% of total loans, versus $13.0 million, or 3.21% at December 31, 2009.

We continue to focus on strategies to preserve and increase capital, and emphasize segments of operations that are capital efficient, such as our mortgage banking operations, our branch deposit operations as well as our Trust and Wealth divisions. An ongoing effort to increase our core deposits has translated to a reduction in our cost of funds. During the first nine months of 2010, our deposits decreased $4.9 million. Deposits decreased during the third quarter of 2010 $32.6 million. The decrease was attributable to withdrawals of deposits by customers concerned about the financial stability of the Bank from the media coverage of the disappearance and death of the Corporation’s and Bank’s CEO. The Bank was able to utilize a non-brokered internet time deposit service and an advance from the Federal Home Loan Bank of Indianapolis to offset the loss in deposits (non-brokered) during the first two weeks following our CEO’s disappearance. The total amount of internet time deposits gathered from September 20, 2010 to September 30, 2010 represented approximately $30.8 million. The Bank increased Federal Home Loan Bank advances by $10 million during the aforementioned time frame. Management is reducing the brokered time deposits for the foreseeable future. Management plans to reduce total assets to help increase the capital ratios. Net interest income of the Corporation will be negatively affected by the planned decrease in earning assets. The decrease in earning assets should not have a negative effect on net interest margin as the reduction in wholesale funds is a relatively high cost of funds producing relatively compressed interest rate spreads at levels smaller than the current net interest margin.

The Bank is currently subject to a Consent Order and is “significantly undercapitalized” under PCA and accordingly is operating under significant operating restrictions. The Consent Order is with the Federal Deposit Insurance Corporation (FDIC) and the Michigan Office of Financial and Insurance Regulation (OFIR). The order requires Community Central Bank to take corrective measures in a number of areas to strengthen and improve the Bank’s financial condition and operations. The Consent Order is effective as of November 1, 2010. By entering into the Consent Order, the Bank is directed and has agreed to increase board oversight and conduct an independent study of management, improve regulatory capital ratios, charge-off certain classified assets, reduce its level of loan delinquencies and problem assets, limit lending to certain borrowers, revise lending and collection policies, adopt and implement new profit, strategic and liquidity plans, and correct loan underwriting and credit administration deficiencies. The Consent Order also requires the Bank to obtain prior regulatory approval before the payment of cash dividends or the appointment of any senior executive officers or directors. The Bank also is not allowed to accept brokered deposits without a waiver from the FDIC and must comply with certain deposit rate restrictions. The Consent Order could significantly effect our ability to renew or replace existing deposit accounts and may negatively impact many areas of our operations. Our ability to retain and attract management and employees could result in significant deficiencies in areas critical to our continued operations.

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. The Corporation and the Bank are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance sheet items. Capital amounts and classifications are also subject to qualitative judgments about components, risk weightings, and other factors in which the regulators can lower classifications in certain cases. Failure to

meet various capital requirements can initiate regulatory action that could have a direct material effect on the financial statements. The prompt corrective action regulations provide five classifications, consisting of “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” and “critically undercapitalized,” although these terms are not used to represent the overall financial condition of the Corporation or the Bank. As a “significantly undercapitalized” Bank, regulatory approval is required to accept or renew brokered deposits.

The Bank’s ratio of total capital to risk-weighted assets was 4.83% and its ratio of Tier 1 capital to total assets was 2.56% as of September 30, 2010, which caused the Bank to be deemed “significantly undercapitalized” as of that date under regulatory capital guidelines. The Bank’s ratio of Tier 1 capital to risk-weighted assets was 3.53% as of September 30, 2010. In order to be “adequately capitalized” under regulatory capital guidelines, an institution’s ratios of total capital to risk-weighted assets, Tier 1 capital to risk-weighted assets and Tier 1 capital to average assets must be at least 8.0%, 4.0% and 4.0%, respectively.

As a result of the Bank’s regulatory capital ratios being below the “adequately capitalized” level, certain requirements and restrictions are imposed on the Bank under the FDIC’s prompt corrective action rules (“PCA”), including the following: (i) the Bank generally may not make any capital distributions to the Corporation; (ii) the Bank must submit a capital restoration plan to the FDIC for their review and approval, and the Corporation must guarantee the Bank’s performance under that plan; (iii) the Bank may not permit its average total assets during any calendar quarter to exceed its average total assets during the preceding calendar quarter unless (A) the FDIC has accepted the Bank’s capital restoration plan, (B) any increase in the Bank’s total assets is consistent with the plan, and (C) the Bank’s ratio of tangible equity to assets increases during the calendar quarter at a rate sufficient to enable the Bank to become “adequately capitalized” within a reasonable time; and (iv) the Bank may not acquire any interest in any company or other bank, establish or acquire any additional branch office or engage in any new line of business without prior regulatory approval. The Bank is also prohibited from accepting, renewing or rolling over brokered deposits and is restricted in the effective yield it can offer on deposits. The Bank submitted a written capital restoration plan with the FDIC on June 14, 2010.

As a result of the Bank’s “significantly undercapitalized” status as of September 30, 2010, the provisions of PCA include a number of other requirements or restrictions that can be imposed on the Corporation and the Bank in addition to those described above. These provisions: (i) prohibit the Bank from paying any bonus to a senior executive officer or providing compensation to a senior executive officer at a rate exceeding the officer’s average rate of compensation (excluding bonuses, stock options and profit-sharing) during the 12 months preceding the month in which the Bank became “undercapitalized,” without prior written approval from the FDIC; and (ii) require the FDIC to impose one or more of the following: (A) a sale of Bank shares or obligations of the Bank sufficient to return the Bank to “adequately capitalized” status; (B) if grounds exist for the appointment of a receiver or conservator for the Bank, acquisition by or a merger of the Bank with another institution; (C) additional restrictions on transactions with affiliates beyond the normal restrictions applicable to all banks; (D) restrict interest paid on deposits to prevailing rates in the Bank’s area as determined by the FDIC; (E) more stringent growth restrictions than those discussed in the immediately preceding paragraph, or a reduction of the Bank’s total assets; (F) a requirement that the Bank alter, reduce or terminate any activities the FDIC determines pose excessive risk to the Bank; (G) a new election of Bank directors; (H) the dismissal of any senior executive officer or director who held office for more than 180 days before the Bank became “undercapitalized;” (I) the employment of “qualified” senior executive officers; (J) a prohibition on acceptance, renewal or roll over of deposits from correspondent institutions; (K) a prohibition on capital distributions by the Corporation without Federal Reserve Board approval; (L) a divestiture of the Bank by the Corporation and certain other divestitures by the Bank or the Corporation; and (M) any other action by the Bank that the FDIC determines will better carry out the purposes of the statute. The FDIC must impose certain restrictions on a “critically undercapitalized” institution (which is an institution which has a ratio of tangible equity to total assets of 2.0% or less), including requiring prior regulatory approval for material transactions outside the usual course of business, extending credit for highly leveraged transactions, amending the Bank’s charter or bylaws, making a material change to accounting methods, engaging in any covered transactions with an affiliate, paying excessive compensation or bonuses, and paying interest on new or renewed liabilities at a rate that would increase the Bank’s weighted average cost of funds to a level significantly exceeding the prevailing rates on interest on deposits in the Bank’s normal market areas). In its discretion, the FDIC may impose additional restrictions on a “critically undercapitalized” institution. Within 90 days after an institution becomes “critically undercapitalized,” the FDIC must appoint itself receiver or conservator for the institution, unless it determines that another action is appropriate, but generally must appoint itself receiver or conservator within 270 days after an institution becomes “critically undercapitalized.”

While the Corporation intends to take such actions as may be necessary to enable the Bank to comply with the requirements of the Consent Order, and to withstand the potential impact of the interest rate restrictions, it is highly unlikely that the Bank will be able to comply fully with the provisions of the Consent Order or that efforts to comply with the Consent Order will not have material and adverse effects on the

operations and financial condition of the Corporation. The Corporation has determined that significant additional sources of external capital are required, which may not be available to us. Any transaction that would involve equity financing is likely to result in substantial dilution to current stockholders and could further adversely affect the price of the Corporation’s common stock.

In addition, it is unclear at this point what impact, if any, the applicable interest rate restrictions and our decreasing capital condition will have on the Bank’s continued ability to maintain adequate liquidity. As a result of the Bank’s financial condition, its regulators are continually monitoring its liquidity and capital adequacy. Based on their assessment of its ability to operate in a safe and sound manner, the Bank’s regulators at any time may take further actions, including placing the Bank into conservatorship or receivership to protect the interests of depositors insured by the FDIC.

As of September 30, 2010, due to the Corporation’s significant net loss from operations in the three and nine months ended September 30, 2010, deterioration in the credit quality of the loan portfolio, and the decline in the level of its regulatory capital to support operations, there is substantial doubt about the Corporation’s ability to continue as a going concern. Further, due to its capital condition, the Bank is prohibited from paying a dividend to the Corporation. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future, and do not include any adjustments to reflect the possible future effects on the recoverability or classification of assets, and the amounts or classification of liabilities that may result from the outcome of any regulatory action, which would affect the Corporation’s ability to continue as a going concern.

In December 2009 the Corporation raised a total of $4.2 million in capital through the sale of Series B cumulative convertible perpetual preferred stock. The Series B preferred stock can be converted into common stock of the Corporation at any time by the holders, or by the Corporation under certain circumstances, at an initial conversion price of $8.00 per share of common stock, subject to adjustment and certain limitations, as described below. A warrant to purchase shares of the Corporation’s common stock is attached to each share of Series B preferred stock. Each warrant represents the right of the holder to purchase 20 shares of the Corporation’s common stock at a purchase price of $5.00 per common share and is exercisable for ten years. Dividends on the Series B preferred stock are payable quarterly in arrears at a rate of 5.00% per annum, if and when declared by the Corporation’s Board of Directors. Dividends on the Series B preferred shares are cumulative. On or after August 1, 2010, the Series B preferred stock will be subject to mandatory conversion into common stock under certain circumstances, including the Corporation’s stock price trading at or above $10.00 per share, subject to adjustment.

In December 2008 and February 2009, the Corporation raised a total of $3.55 million in capital through the sale of Series A noncumulative convertible perpetual preferred stock. The Series A preferred stock can be converted into common stock of the Corporation at any time by the holders, or by the Corporation under certain circumstances, at an initial conversion price of $10.00 per share of common stock, subject to adjustment and certain limitations as described below. Dividends on the Series A preferred stock are payable quarterly in arrears at a rate of 12.00% per annum, if and when declared by the Corporation’s Board of Directors and are not cumulative. The Series A preferred stock is subject to mandatory conversion into common stock under certain circumstances, including the Corporation’s stock price trading at or above $11.00 per share, subject to adjustment.

On May 14, 2010, the Corporation issued a press release announcing that, in order to preserve capital, it had deferred interest payments on its $18 million of junior subordinated notes related to its trust preferred securities and suspended dividends on its Series A and Series B preferred stock. These actions could adversely impact the ability of the Corporation to continue to raise capital. Without additional capital, the financial viability of the Bank and the Corporation could be in jeopardy.

Assets

At September 30, 2010, the Corporation’s assets totaled $513.7 million, a decrease of $30.1 million or 5.54% from December 31, 2009. Total cash and cash equivalents at September 30, 2010 were $40.7 million or an increase of $6.6 million from December 31, 2009. The cash requirements of the Bank have been affected by a requirement to pledge cash at the Federal Reserve Bank of Chicago in the amount of $10 million. The collateral requirement is related to the processing of the Bank’s check clearing and electronic deposit clearing. Management is planning on using the excess liquidity to pay down upcoming maturities of brokered time deposits. This will have the effect of reducing the total assets of the Bank and Corporation. Management plans to reduce total assets to help increase the capital ratios.

Gross loans totaling $390.8 million decreased $12.4 million for the first nine months of 2010. The majority of the decrease was due to net loan charge offs representing $10.1 million. The decrease was primarily comprised of commercial and industrial and residential mortgage loans, which decreased $4.7 million and $4.5 million respectively. At September 30, 2010, commercial and commercial real estate loans comprised 80.7% of the total loan portfolio. Lending activities during the third quarter of 2010 were curtailed and limited to servicing existing customers only as the Corporation is pursuing strategies to reduce earning assets that require higher levels of capital. At September 30, 2010, $30.7 million or 65.9% of the total residential portfolio was comprised of adjustable rate mortgages. Residential mortgage loans which the Corporation holds in portfolio comprise primarily those customers who have other banking products with the bank. The Home Equity Line of Credit (HELOC) portfolio totaled $21.6 million at September 30, 2010, a decrease of $256,000 or 1.2% from December 31, 2009. This portfolio product is tied to The Wall Street Journal prime interest rate. These loans are secured by real estate and are currently originated with loan to value ratios (including all prior liens) up to 80% of the appraised value of the real estate.

Consumer loans (excluding HELOCs and credit card loans) totaled $6.4 million at September 30, 2010, a decrease of $516,000 from December 31, 2009. 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 contributed to this segment of the portfolio. In 2005, the Corporation offered less competitive interest rates on boat loans to reduce potential credit exposure in this area. The current downturn in the local economy has adversely affected the ability of borrowers to repay the outstanding loans. At September 30, 2010, boat loans comprised approximately $5.0 million, or 77.6%, of the consumer loan portfolio and 1.3% of total loans compared to $6.4 million, or 78.1%, of the consumer portfolio and 1.59% of total loans at December 31, 2009.

Mortgage loans held for sale totaled $6.4 million at September 30, 2010 compared to $3.5 million at December 31, 2009. The mortgage loans were originated by the Bank’s mortgage subsidiary. Loans closed generally remain in loans held for sale for less than 30 days. Loans are normally committed for sale before funding takes place and are recorded at the lower of cost or estimated estimated fair value.

Additionally, the Corporation had approximately $194.8 million in outstanding loans at September 30, 2010, to borrowers in the real estate rental and properties management industries. Approximately 63.7% of all commercial real estate loans are owner occupied.

The major components of the loan portfolio are as follows:

		September 30,				Percentage				December 31,				Percentage				Net				Net
		2010				of total loans				2009				of total loans				Change				Change %
		(In thousands, except percentages)
Loans held for sale:
Residential real estate		$	6,449							$	3,497							$	2,952				84.4	%
Loans held in the portfolio:
Commercial real estate		$	271,074				69.4	%		$	273,578				67.9	%		$	(2,504	)			(0.9	%)
Commercial and industrial			44,121				11.3	%			48,782				12.1	%			(4,661	)			(9.6	%)
Residential real estate			46,630				11.9	%			51,101				12.7	%			(4,471	)			(8.7	%)
Home equity lines			21,633				5.5	%			21,889				5.4	%			(256	)			(1.2	%)
Consumer loans			6,445				1.7	%			6,961				1.7	%			(516	)			(7.4	%)
Credit cards			873				0.2	%			856				0.2	%			17				2.0	%
Total loans		$	390,776				100.0	%		$	403,167				100.0	%		$	(12,391	)			(3.1	%)

Securities available for sale totaled $46.9 million at September 30, 2010, a decrease of $19.0 million for the first nine months of 2010. The Corporation continues to decrease the size of the investment portfolio in an effort to provide liquidity for upcoming maturities of brokered time deposits and reduce the total asset size of the Bank for capital considerations. Mortgage-backed securities (“MBS”) decreased $4.0 million to $37.9 million at September 30, 2010, as a result of pay downs and sales. The majority of the MBS portfolio comprises Government National Mortgage Association (“GNMA”) securities which carry the full faith and credit of the United States Government. Collateralized mortgage obligations (“CMO”) totaled $7.8 million at September 30, 2010, a decrease of $11.0 million from a total of $18.8 million at December 31, 2009. Municipal securities in the portfolio totaled $491,000 million at September 30, 2010, a decrease of $3.9 million from December 31, 2009. The portfolio of municipal bonds was reduced for federal income tax considerations through sales, maturities and calls.

At September 30, 2010, our available for sale securities portfolio had net unrealized gains of $383,000 or 82 basis points of the total portfolio. The Corporation continues to invest in U.S. Government Agency securities, primarily mortgage-backed instruments issued by GNMA, to limit credit risk. The net realized gain from the sale of available for sale securities totaled $277,000 for the first nine months of 2010 and was the result of portfolio restructuring activity. The Corporation has approximately 2.41% of the total investment portfolio in non-agency investments.

The following tables show the amortized cost and estimated fair value of the Corporation’s security portfolios as of the dates indicated:

		September 30, 2010
		Amortized				Unrealized								Fair
		Cost				Gains				Losses				Value
		(In thousands)
Securities Available for Sale
U.S. agency mortgage backed securities		$	37,591			$	373			$	(94	)		$	37,870
U.S. agency collateralized mortgage obligations			7,703				109				(9	)			7,803
Municipal securities			504				4				(17	)			491
Mutual fund and Trust preferred securities			750				17				—				767
Total Securities Available for Sale			46,548				503				(120	)			46,931
Held to Maturity Securities
Municipal securities			460				5				(1	)			464
Trust preferred securities			250				—				—				250
U.S. agency mortgage backed securities			2,373				67				—				2,440
Total Held to Maturity Securities			3,083				72				(1	)			3,154
Total Securities		$	49,631			$	575			$	(121	)		$	50,085

		December 31, 2009
		Amortized				Unrealized								Fair
		Cost				Gains				Losses				Value
		(In thousands)
Securities Available for Sale
U.S. agency mortgage backed securities		$	41,847			$	237			$	(168	)		$	41,916
U.S. agency collateralized mortgage obligations			18,541				321				(23.00	)			18,839
Municipal securities			4,515				24				(105	)			4,434
Mutual fund and Trust preferred securities			750				—				(36	)			714
Total Securities Available for Sale			65,653				582				(332	)			65,903
Held to Maturity Securities
Municipal securities			560				4				(15	)			549
Trust preferred securities			250				—				—				250
U.S. agency mortgage backed securities			2,657				21				(8	)			2,670
Total Held to Maturity Securities			3,467				25				(23	)			3,469
Total Securities		$	69,120			$	607			$	(355	)		$	69,372

The following tables show information pertaining to securities with gross unrealized losses at September 30, 2010 and 2009, aggregated by investment category and length of time that the 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 changes in fair value are primarily due to changes in market interest rates.

		September 30, 2010
		Less than 12 Months								Over 12 Months
		Gross								Gross
		Unrealized				Fair				Unrealized				Fair
		Losses				Value				Losses				Value
		(In thousands)
Securities Available for Sale
U.S. agency mortgage backed securities		$	(94	)		$	15,206				—				—
U.S. agency collateralized mortgage obligations			(9	)			927				—				—
Municipal securities			(17	)			648				—				—
Mutual fund and trust preferred securities			—				—				—				—
Total Securities Available for Sale		$	(120	)		$	16,781			$	—			$	—

As of September 30, 2010, the unrealized loss on held to maturity securities was $1,000. All held to maturity securities have been in an unrealized loss position for over twelve months.

		December 31, 2009
		Less than 12 Months								Over 12 Months
		Gross								Gross
		Unrealized				Fair				Unrealized				Fair
		Losses				Value				Losses				Value
		(In thousands)
Securities Available for Sale
U.S. agency mortgage backed securities		$	(166	)		$	19,707			$	(2	)		$	76
U.S. agency collateralized mortgage obligations			(15	)			3,265				(8	)			662
Municipal securities			(20	)			1,026				(85	)			2,115
Mutual fund and trust preferred securities			(5	)			495				(31	)			219
Total Securities Available for Sale		$	(206	)		$	24,493			$	(126	)		$	3,072

The following table is a summary of our nonperforming loans, restructured loans, other real estate owned and repossessed property.

		September 30,				December 31,
		2010				2009
		(In thousands)
Nonaccrual loans:
Commercial real estate		$	31,673			$	16,020
Commercial and industrial			2,718				584
Residential real estate			4,687				5,673
Home equity lines			433				219
Consumer loans			308				378
Credit cards			—				—
Total			39,819				22,874
Accruing loans delinquent more than 90 days:
Commercial real estate		$	—			$	—
Commercial and industrial			—				—
Residential real estate			—				—
Home equity lines			—				—
Consumer loans			—				—
Credit cards			2				7
Total			2				7
Total nonperforming loans		$	39,821			$	22,881
Troubled debt restructured loans in accrual status
Commercial real estate		$	20,512			$	20,341
Commercial and industrial			73				83
Residential real estate			1,267				—
Total			21,852				20,424
Other real estate owned:
Commercial real estate			7,477				8,881
Residential real estate			824				419
Total			8,301				9,300
Other repossessed assets — boats			94				494
Total nonperforming loans to total loans			10.19	%			5.68	%
Allowance for loan losses to nonperforming loans			49.13	%			56.62	%

Nonaccruing loans totaled $39.8 million at September 30, 2010. This was an increase of $16.9 million, or 74.0%, from December 31, 2009. The increase occurred in the third quarter of 2010, and was attributable to commercial real estate loans and commercial and industrial loans. At September 30, 2010, commercial real estate and commercial and industrial loans in nonaccrual status totaled $34.4 million or 86.4% of total nonaccrual loans and represented 65 individual loans. Residential real estate loans totaled $4.7 million or 11.8% of total nonaccrual loans and represented 37 individual loans. Home equity and consumer loans in nonaccrual status totaled 1.9% of total nonaccrual loans.

Loans reported as troubled debt restructured loans in accrual status totaled $21.9 million, which was an increase of $1.4 million or 7.0%. The Corporation continues to work with borrowers to restructure loans typically offering concessions of a reduced interest rate or a short term interest only period or both. These loans are considered impaired and typically have an associated specific allowance for loan loss. The increase in troubled debt restructured loans was primarily attributable to residential loans. Those loans in nonaccrual status which are troubled restructured debt are reported in the table above as nonaccrual loans and totaled $16.5 million or 43.0% of the total restructured troubled debt. Of those loans reported as troubled debt restructured loans, $21.8 or 56.9% were contractually current. Troubled debt restructured loans which were past due 30 to 89 days totaled $16,000 or 0.10% of total loans reported as troubled debt restructured loans in accrual status.

Other real estate owned totaled $8.3 million at September 30, 2010, which was a decrease of $999,000 from December 31, 2010. The decrease was primarily attributable to write-downs to record the real estate at fair value. The total amount of loans transferred into other real estate for the nine months ended September 30, 2010 totaled $1.5 million. Other real estate owned comprised $7.9 million of commercial real estate or 94.6% of the total at September 30, 2010.

As part of our efforts to improve asset quality, we added seasoned professionals to our commercial lending team with an emphasis in loan workout areas. Our nonperforming loan level and other real estate levels continue to pressure our earnings. Unless and until we can substantially reduce our levels of nonperforming loans and other real estate owned, it will be difficult for us to return to profitability.

The following table shows an analysis of the allowance for loan losses:

		Nine Months Ended				Year Ended
		September 30,				December 31,
		2010				2009
		(In thousands)
Balance at beginning of the period		$	12,957			$	7,315
Charge-offs:
Commercial real estate			8,017				7,257
Commercial and industrial			586				1,205
Residential real estate			1,287				486
Home equity lines			302				538
Consumer loans			416				237
Credit cards			75				54
Total charge-offs			10,683				9,777
Recoveries:
Commercial real estate			110				72
Commercial and industrial			221				400
Residential real estate			21				23
Home equity lines			9				3
Consumer loans			179				71
Credit cards			2				—
Total recoveries			542				569
Net charge-offs (recoveries)			10,141				9,208
Provision charged to earnings			16,750				14,850
Balance at the end of the period		$	19,566			$	12,957
As a percentage of total portfolio loans			5.01	%			3.21	%
Ratio of net charge-offs during the period to average loans during the period on an annualized basis			3.41	%			2.22	%