10KSB40 1 k61024e10ksb40.txt FORM 10-KSB 1 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------ FORM 10-KSB [X] Annual report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2000 Commission File No. 333-63769 COMMUNITY SHORES BANK CORPORATION (Name of small business issuer in its charter) MICHIGAN 38-3423227 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 1030 W. NORTON AVENUE, MUSKEGON, MICHIGAN 49441 (Address of principal executive offices) (616) 780-1800 (Issuer's telephone number) Securities registered under Section 12(b) of the Act: NONE Securities registered under Section 12(g) of the Act: NONE Check whether the issuer (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 ----- ----- Check if disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will 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-KSB or any amendment to this Form 10-KSB. [X] Issuer's revenue for its most recent fiscal year was approximately $8,901,000. The aggregate market value of voting stock of the registrant held by nonaffiliates was approximately $6,400,000 as of March 1, 2001; based on the average of the closing bid and asked prices ($5.47) on that date. As of March 26, 2001, 1,170,000 shares of Common Stock of the issuer were outstanding. DOCUMENTS INCORPORATED BY REFERENCE: Parts I, II and III Portions of 2000 Annual Report to the Shareholders of the issuer. Part III Portions of the Proxy Statement of the issuer for its April 19, 2001 Annual Meeting Transitional Small Business Disclosure Format YES NO X ------ ------- 2 PART I ITEM 1. DESCRIPTION OF BUSINESS GENERAL Community Shores Bank Corporation (the "Company") is a bank holding company organized in 1998 under Michigan law. The Company owns all of the common stock of Community Shores Bank (the "Bank"). The Bank was organized and commenced operations in January, 1999 as a Michigan chartered bank with depository accounts insured by the FDIC to the extent permitted by law. The Bank provides a full range of commercial and consumer banking services primarily in the communities of Muskegon County and Northern Ottawa County. The Bank's services include checking and savings accounts, certificates of deposit, safe deposit boxes, courier service, and loans for commercial, mortgage and consumer purposes. As of year-end 2000, the Company had total assets of $125 million. Significant events in 2000 include growing to over $100 million in assets, becoming profitable on a monthly basis beginning mid year and achieving our first quarterly consolidated profit in the final quarter of the year. In October plans to open a second branch in North Muskegon at the beginning of 2001 were finalized and the branch opened for business on January 16, 2001. The Company's main office is located at 1030 W. Norton Avenue, Muskegon, Michigan, 49441 and its telephone number is (231) 780-1800. PRODUCTS AND SERVICES The Bank offers a broad range of deposit services, including checking accounts, savings accounts and time deposits of various types. Transaction accounts and time certificates are tailored to the principal market area at rates competitive with those offered in the area. All qualified deposit accounts are insured by the FDIC up to the maximum amount permitted by law. The Bank solicits these accounts from individuals, businesses, schools, associations, churches, nonprofit organizations, financial institutions and government authorities. The Bank may also use alternative funding sources as needed, including advances from Federal Home Loan Bank. Additionally, the Bank offers mutual funds and annuities, which are non-insured, through an alliance with the Independent Community Financial Services Association. Real Estate Loans. The Bank originates residential mortgage loans, which are generally long-term with either fixed or variable interest rates. The Bank's general policy, which is subject to review by management due to changing market and economic conditions and other factors, is to sell all loans on a servicing released basis in the secondary market, regardless of term or product. The Bank, based on its lending guidelines, may periodically elect to underwrite and retain certain mortgages, the majority of which are variable rate loans, in its portfolio. The Bank also offers fixed rate home equity loans and variable rate home equity lines of credit, which are retained in its portfolio. The retention of variable rate loans in the Bank's loan portfolio helps to reduce the Bank's exposure to fluctuations in interest rates. However, such loans generally pose credit risks different from the risks inherent in fixed rate loans, primarily because as interest rates rise, the underlying payments from the borrowers rise, thereby increasing the potential for default. Personal Loans and Lines of Credit. The Bank makes personal loans and lines of credit available to consumers for various purposes, such as the purchase of automobiles, boats and other recreational vehicles, home improvements and personal investments. The Bank's current policy is to retain substantially all of these loans in its portfolio. 2 3 Commercial Loans. Commercial loans are made primarily to small and mid-sized businesses. These loans are and will be both secured and unsecured and are made available for general operating purposes, acquisition of fixed assets including real estate, purchases of equipment and machinery, financing of inventory and accounts receivable, as well as any other purposes considered appropriate. The Bank generally looks to a borrower's business operations as the principal source of repayment, but will also receive, when appropriate, mortgages on real estate, security interests in inventory, accounts receivable and other personal property and/or personal guarantees. Although the Bank takes a progressive and competitive approach to lending, it stresses high quality in its loans. On a regular basis, the Board of Directors is asked to approve loans above the legal lending limit of the Executive Loan Board. In addition, a loan committee of the Board of Directors of the Bank (the "Executive Loan Board") also reviews larger loans for prior approval when the loan request exceeds the established limits for the lending officers. The Bank hires an independent company to perform loan review, to help monitor asset quality of the Bank. Any past due loans and identified problem loans are reviewed with the Board of Directors on a regular basis. Regulatory and supervisory loan-to-value limits are established pursuant to Section 304 of the Federal Deposit Insurance Corporation Improvement Act of 1991 "FDICIA" for loans secured by, or used to build on or improve, real estate. The Bank's internal limitations follow those limits and in certain cases are more restrictive than those required by the regulators. The Bank has established relationships with correspondent banks and other independent financial institutions to provide other services requested by its customers, including loan participations where the requested loan amounts exceed the Bank's policies or legal lending limits. COMPETITION The Company's primary market area is Muskegon County and Northern Ottawa County. Northern Ottawa County primarily consists of the cities of Grand Haven, Ferrysburg, Spring Lake and the townships surrounding these areas. There are a number of banks, thrift and credit union offices located in the Company's market area. Most are branches of larger financial institutions and are not 100% locally owned, with the exception of some credit unions. Competition with the Company also comes from other areas such as finance companies, insurance companies, mortgage companies, brokerage firms and other providers of financial services. All of the Company's competitors have been in business a number of years longer than the Company and, for the most part, have established customer bases. The Company competes with these older institutions, through its ability to provide quality customer service, along with competitive products and services. EFFECT OF GOVERNMENT MONETARY POLICIES The earnings of the Company 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 in order to, among other things, curb inflation or avoid 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. 3 4 REGULATION AND SUPERVISION The Corporation, as a bank holding company under the Bank Holding Company Act, is required to file an annual report with the Federal Reserve Board and such additional information as the Federal Reserve Board may require pursuant to the Bank Holding Company Act, and is subject to examination by the Federal Reserve Board. The Bank Holding Company Act limits the activities which may be engaged in by the Company and its subsidiary to those of banking and the management of banking organizations, and to certain non-banking activities, including those activities which the Federal Reserve Board may find, by order or regulation, to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. The Federal Reserve Board is empowered to differentiate between activities by a bank holding company, or a subsidiary, and activities commenced by acquisition of a going concern. With respect to non-banking activities, the Federal Reserve Board has, by regulation, determined that certain non-banking activities are closely related to banking within the meaning of the Bank Holding Company Act. These activities include, among other things, operating a mortgage company, finance company, credit card company or factoring company, performing certain data processing operations, providing certain investment and financial advice, acting as an insurance agent for certain types of credit related insurance, leasing property on a full-payout, nonoperating basis; and, subject to certain limitations, providing discount securities brokerage services for customers. The Company has no current plans to engage in non-banking activities. The Bank is subject to certain restrictions imposed by federal law on any extension of credit to the Company, on investments in stock or other securities of the Company, and on the taking of such stock or securities as collateral for loans to any borrower. Federal law prevents the Company from borrowing from the Bank unless the loans are secured in designated amounts. With respect to the acquisition of banking organizations, the Company is required to obtain the prior approval of the Federal Reserve Board before it can acquire all or substantially all of the assets of any bank, or acquire ownership or control of any voting shares of any bank, if, after such acquisition, it will own or control more than 5% of the voting shares of such bank. Acquisitions across state lines are subject to certain state and Federal Reserve Board restrictions. LOAN POLICY The Bank makes loans primarily to individuals and businesses located within the Bank's market area. The loan policy of the Bank states that the function of the lending operation is to provide a means for the investment of funds at a profitable rate of return with an acceptable degree of risk, and to meet the credit needs of qualified businesses and individuals who become customers of the Bank. The Board of Directors of the Bank recognizes that, in the normal business of lending, some losses on loans will be inevitable. These losses will be carefully monitored and evaluated and are recognized as a normal cost of conducting business. The Bank's loan policy anticipates that priorities in extending loans will change from time to time as interest rates, market conditions and competitive factors change. The policy is designed to assist the Bank in managing the business risk involved in extending credit. It sets forth guidelines on a nondiscriminatory basis for lending in accordance with applicable laws and regulations. The policy describes criteria for evaluating a borrower's ability to support debt, including character of the borrower, evidence of financial responsibility, knowledge of collateral type, value and loan to value ratio, terms of repayment, source of repayment, payment history, and economic conditions. 4 5 The Bank provides oversight and monitoring of lending practices and loan portfolio quality through the use of an Officers Loan Committee (the "Loan Committee"). The Loan Committee members include all commercial lenders, the Senior Vice President and Senior Lender, the Chairman of the Board, President and Chief Executive Officer, and other designated lending personnel. The Loan Committee is presently permitted to approve requests for loans in an amount not exceeding $750,000. The Loan Committee may recommend that requests exceeding this amount be approved by a Committee of the Board of Directors (the "Executive Loan Board") whose lending authority is approximately $1,500,000. Loan requests in excess of the Executive Loan Board limit require the approval of the Board of Directors. The Board of Directors has the maximum lending authority permitted by law. However, generally, the loan policy establishes an "in house" limit slightly lower than the actual legal lending limit. The Bank's general legal lending limit, as of December 31, 2000, was approximately $1,500,000, subject to a higher legal lending limit of approximately $2,500,000 in specific cases with approval by two-thirds of the Bank's Board of Directors. This limit is expected to change as the Bank's capital changes. In addition to the lending authority described above, the Bank's Board of Directors delegates significant authority to officers of the Bank. The Board believes this empowerment enables the Bank to be more responsive to its customers. The Chairman of the Board, President and Chief Executive Officer, and the Senior Vice President and Senior Lender have been delegated authority, where they deem it appropriate, to approve loans up to the limit authorized for the Executive Loan Board. Other officers have been delegated authority to approve loans of lesser amounts, where they deem it appropriate, without approval by the Loan Committee. The loan policy outlines the amount of funds that may be loaned against specific types of collateral. The loan to value ratios for first mortgages on residences are expected to comply with the guidelines of secondary market investors. First mortgages held within the Bank's portfolio are expected to mirror secondary market requirements. In those instances where loan to value ratio exceeds 80%, it is intended that private mortgage insurance will be obtained to minimize the Bank's risk. Loans secured by a second or junior lien generally will be limited to a loan to value ratio of 100%. Loans for improved residential real estate lots generally will not exceed a loan to value ratio of 80%, and loans for unimproved residential sites generally will not exceed a loan to value ratio of 75%. For certain loans secured by real estate, an appraisal of the property offered as collateral, by a state licensed or certified independent appraiser, will be required. The loan policy also provides general guidelines as to collateral, provides for environmental policy review, contains specific limitations with respect to loans to employees, executive officers and directors, provides for problem loan identification, establishes a policy for the maintenance of a loan loss reserve, provides for loan reviews and sets forth policies for mortgage lending and other matters relating to the Bank's lending practices. LENDING ACTIVITY Commercial Loans. The Bank's commercial lending group originates commercial loans primarily in the Western Michigan Counties of Muskegon and Northern Ottawa. Commercial loans are originated by experienced lenders, including the Chairman of the Board, President and Chief Executive Officer, and the Senior Vice President and Senior Lender. Loans are originated for general business purposes, including working capital, accounts receivable financing, machinery and equipment acquisition and commercial real estate financing, including new construction and land development. Working capital loans that are structured as a line of credit are reviewed periodically in connection with the borrower's year end financial reporting. These loans generally are secured by assets of the borrower and have an interest rate tied to the prime rate. Loans for machinery and equipment purposes typically have a 5 6 maturity of five to seven years and are fully amortizing. Commercial real estate loans may have an interest rate that is fixed to maturity or floats with a margin tied to the prime rate or a U.S. Treasury Index. The Bank evaluates many aspects of a commercial loan transaction in order to minimize credit and interest rate risk. Underwriting commercial loans requires an assessment of management, products, markets, cash flow, capital, income and collateral. The analysis includes a review of historical and projected financial results. On certain transactions, where real estate is the primary collateral, and in some cases where equipment is the primary collateral, appraisals are obtained from licensed or certified appraisers. In certain situations, for creditworthy customers, the Bank may accept title reports instead of requiring lenders' policies of title insurance. Commercial real estate lending involves more risk than residential lending, because loan balances are greater and repayment is dependent upon the borrower's operations. The Bank attempts to minimize risk associated with these transactions by generally limiting its exposure to owner operated properties of well known customers or new customers with an established profitable history. In certain cases, risk may be further reduced by (i) limiting the amount of credit to any one borrower to an amount less than the Bank's legal lending limit, and (ii) avoiding certain types of commercial real estate financing. Single Family Residential Real Estate Loans. The Bank originates first mortgage residential real estate loans in its market area according to secondary market underwriting standards. These loans are likely to provide borrowers with a fixed or adjustable interest rate with terms up to 30 years. A majority of the single family residential real estate loans are expected to be sold on a servicing released basis in the secondary market with all interest rate risk and credit risk passed to the purchaser. The Bank may periodically elect to underwrite certain residential real estate loans, generally with maturities of seven years or less, to be held in its own loan portfolio. Consumer Loans. The Bank originates consumer loans for a variety of personal financial needs. Consumer loans are likely to include fixed home equity and equity lines of credit, new and used automobile loans, boat loans, personal unsecured lines of credit, credit cards (through third-party providers to minimize risk) and overdraft protection for checking account customers. Consumer loans generally have shorter terms and higher interest rates than residential mortgage loans and, except for home equity lines of credit, usually will involve greater credit risk due to the type and nature of the collateral securing the debt. Strong emphasis is placed on the amount of the down payment, credit quality, employment stability and monthly income. Hazard insurance is obtained (in favor of the Bank) on certain loan types, including automobiles and boats. Consumer loans are generally repaid on a monthly basis with the source of repayment tied to the borrower's periodic income. It is recognized that consumer loan delinquency and losses are dependent on the borrower's continuing financial stability. Job loss, illness and personal bankruptcy may adversely affect repayment. In many cases, repossessed collateral (on a secured consumer loan) may not be sufficient to satisfy the outstanding loan balance. This is a common occurrence due to depreciation of the underlying collateral. The Bank believes that the generally higher yields earned on consumer loans compensate for the increased credit risk associated with such loans. Consumer loans are expected to be an important component in the Bank's efforts to meet the credit needs of the communities and customers that it serves. INVESTMENTS The principal investment of the Company is its investment in the common stock of the Bank. Funds retained by the Company from time to time may be invested in various debt instruments, including but not limited to obligations of or guaranteed by the United States, general obligations of a state or political 6 7 subdivision or agency, banker's acceptances or certificates of deposit of United States commercial banks, or commercial paper of United States issuers rated in the highest category by a nationally-recognized investment rating service. Although the Company is permitted to make limited portfolio investments in equity securities and to make equity investments in subsidiary corporations engaged in certain non-banking activities which may include real estate-related activities, such as mortgage banking, community development, real estate appraisals, arranging equity financing for commercial real estate, and owning and operating real estate used substantially by the Bank or acquired for its future use, the Company has no present plans to make any such equity investment. The Company's Board of Directors may alter the Company's investment policy without shareholder approval. The Bank may invest its funds in a wide variety of debt instruments and may participate in the federal funds market with other depository institutions. Subject to certain exceptions, the Bank is prohibited from investing in equity securities. Under one such exception, in certain circumstances and with the prior approval of the FDIC, the Bank could invest up to 10% of its total assets in the equity securities of a subsidiary corporation engaged in certain real estate-related activities. The Bank has no present plans to make such an investment. Real estate acquired by the Bank in satisfaction of or foreclosure upon loans may be held by the Bank, subject to a determination by a majority of the Bank's Board of Directors at least annually of the advisability of retaining the property, for a period not exceeding 60 months after the date of acquisition, or such longer period as the Commissioner of the Michigan Office of Financial and Insurance Services may approve. The Bank is also permitted to invest an aggregate amount not in excess of two-thirds of the capital and surplus of the Bank in such real estate as is necessary for the convenient transaction of its business. The Bank's Board of Directors may alter the Bank's investment policy without shareholder approval. ENVIRONMENTAL MATTERS The Company does not believe that existing environmental regulations will have any material effect upon the capital expenditures, earnings and competitive position of the Company. EMPLOYEES As of December 31, 2000, the Bank had 32 full-time and 11 part-time employees. No area of the Bank is represented by collective bargaining agents. SELECTED STATISTICAL DATA AND RETURN ON EQUITY AND ASSETS Selected statistical data for the Company is shown for 2000 and 1999 only. The bank did not commence banking operations until January 18, 1999. 7 8 SELECTED STATISTICAL DATA
2000 1999 --------------------------------- CONSOLIDATED RESULTS OF OPERATIONS: Interest income $ 8,483,976 $ 2,960,088 Interest expense 5,389,643 1,502,123 --------------------------------- Net interest income 3,094,333 1,457,965 Provision for loan losses 504,000 852,000 Non interest income 417,068 153,391 Non interest expense 3,386,366 2,561,138 --------------------------------- Income (loss) before income tax expense (378,965) (1,801,782) Income tax expense 0 0 --------------------------------- Net income (loss) (378,965) (1,801,782) CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents $ 6,262,326 $ 1,966,574 Securities available for sale 19,858,021 10,767,804 Gross loans 95,650,524 56,798,379 Allowance for loan losses 1,269,050 852,000 Other assets 4,648,615 4,018,170 Deposits 97,887,140 55,976,077 Federal funds purchased and repurchase agreements 9,986,742 6,934,491 Notes payable and Federal Home Loan Bank Advances 8,005,000 0 Other 778,308 1,253,597 Shareholders' equity 8,493,246 8,534,762 CONSOLIDATED FINANCIAL RATIOS: Return on average assets -0.36% -4.28% Return on average shareholders' equity -4.60% -20.07% Average equity to average assets 7.90% 21.35% Dividend payout ratio N/A N/A Non performing loans to total loans 0.00% 0.00% Tier 1 leverage capital 7.92% 20.60% Tier 1 leverage risk-based capital 7.76% 13.39% Total risk-based capital 10.84% 14.57% PER SHARE DATA: Net Income: Basic $ (0.32) $ (1.55) Diluted (0.32) (1.55) Book value at end of period 7.26 7.29 Dividends declared N/A N/A
8 9 NET INTEREST EARNINGS The following table provides the average balances of both interest-earning assets and interest-bearing liabilities as well as the yield earned on each. The net interest margin at December 31, 2000 and 1999 was 3.13% and 3.73%. Net Interest Earning Table
Years Ended December 31: 2000 1999 Average Average Average Average balance Interest rate balance Interest rate ------------------------------------------ -------------------------------------- Assets Federal funds sold and interest- bearing deposits with banks $ 2,253,145 $ 143,105 6.35 % $ 3,436,825 $ 184,670 5.37 % Securities-available for sale 18,011,318 1,187,093 6.59 7,531,762 412,957 5.48 Loans 78,554,917 7,153,778 9.11 28,102,643 2,362,461 8.41 ------------------------------------------ -------------------------------------- 98,819,380 8,483,976 8.59 39,071,230 2,960,088 7.58 Other assets 5,404,935 2,988,201 ----------------- ------------- $ 104,224,315 $ 42,059,431 ================= ============= Liabilities and Shareholders' Equity Interest-bearing deposits $ 75,337,902 $ 4,631,222 6.15 $ 29,018,213 $ 1,415,714 4.88 Federal funds purchased and repurchase agreements 11,331,081 555,723 4.90 1,865,645 86,409 4.63 Note Payable and Federal Home Loan Bank Advances 2,741,026 202,698 7.39 0 0 ------------------------------------------ -------------------------------------- 89,410,009 5,389,643 6.03 30,883,858 1,502,123 4.86 Noninterest-bearing deposits 6,067,819 2,089,131 Other liabilities 513,731 108,323 Shareholders' Equity 8,232,756 8,978,119 ----------------- ------------- $ 104,224,315 $ 42,059,431 ================= ============= Net interest income $ 3,094,333 $ 1,457,965 ============ ============ Net interest spread 2.56 % 2.72 % ======== ======== Net interest margin 3.13 % 3.73 % ======== ========
9 10 RATE VOLUME ANALYSIS The following table displays the change in interest income and interest expense on interest earning assets and interest bearing liabilities segregated between the change due to volume and the change due to rate. Rate Volume Table
Year ended December 31, 2000 over 1999 Total Volume Rate --------------- ---------------- ---------------- Increase (decrease) in interest income Federal funds sold and interest- bearing deposits with banks ($41,565) ($71,177) $29,612 Securities-available for sale 774,136 675,964 98,172 Loans 4,791,317 4,578,886 212,431 --------------- ---------------- ---------------- Net change in interest income 5,523,888 5,183,673 340,215 Increase (decrease) in interest expense Interest-bearing deposits 3,215,508 2,740,245 475,263 Federal funds purchased and repurchase agreements 469,314 463,917 5,397 Note Payable and Federal Home Loan Bank Advances 202,698 202,698 0 --------------- ---------------- ---------------- Net change in interest expense 3,887,520 3,406,860 480,660 --------------- ---------------- ---------------- Net change in net interest income $1,636,368 $1,776,813 ($140,445) =============== ================ ================
INVESTMENT PORTFOLIO The composition of the investment portfolio is detailed in the table below. Information related to the investment's scheduled maturities and realized and unrealized losses is incorporated by reference to Note 2, of the Notes to Company's Consolidated Financial Statements at pages S-22 to S-23, of the Notice of Annual Meeting, Proxy Statement & 2000 Annual Report furnished to the Securities and Exchange Commission as Exhibit 13 to this Report.
Balance at Balance at December 31, 2000 % December 31, 1999 % ------------------------ ------- ------------------------ -------- US Government Agency $ 18,047,003 90.9 $ 8,867,790 82.4 Mortgaged-backed securities, guaranteed by GNMA 1,811,018 9.1 1,900,014 17.6 ------------------------ ------- ------------------------ -------- $ 19,858,021 100.0 $ 10,767,804 100.0 ======================== ======= ======================== ========
The weighted average yield for each reported maturity range is as follows-one year or less 6.44%, one to five years 6.74% and Mortgage-backed securities 6.95%. 10 11 LOAN PORTFOLIO The composition of the loan portfolio is detailed in the following table.
December 31, 2000 December 31, 1999 Balance % Balance % --------------------- --------------------- Commercial, financial and other $ 75,292,915 78.7 % $ 47,570,725 83.8 % Real estate-construction 3,504,764 3.7 1,445,789 2.5 Real estate-mortgages 2,946,608 3.1 1,957,393 3.4 Installment loans to individuals 13,906,237 14.5 5,824,472 10.3 --------------------- --------------------- 95,650,524 100.0 % 56,798,379 100.0 % ======== ======= Less allowance for loan losses 1,269,050 852,000 ------------- ------------- $ 94,381,474 $ 55,946,379 ============= =============
The scheduled maturities and interest rate sensitivity of the loan portfolio is summarized below.
Within Three to One to After three twelve five five months months years years Total ------------------------------------------------------------------------------- Commercial, financial and other $10,484,480 $18,691,434 $40,492,949 $5,624,052 $75,292,915 Real estate-construction 472,065 3,032,699 0 0 3,504,764 Real estate-mortgages 0 0 284,112 2,662,496 2,946,608 Installment loans to individuals 531,278 169,069 9,015,365 4,190,525 13,906,237 ------------------------------------------------------------------------------- $11,487,823 $21,893,202 $49,792,426 $12,477,073 $95,650,524 =============================================================================== Loans at fixed rates 1,699,485 4,341,505 47,830,743 7,048,499 $60,920,232 Loans at variable rates 9,788,338 17,551,697 1,961,683 5,428,574 34,730,292 ------------------------------------------------------------------------------- $11,487,823 $21,893,202 $49,792,426 $12,477,073 $95,650,524 ===============================================================================
Below are two tables that summarize the activity in and the allocation of the Allowance for Loan Losses. Analysis of the Allowance for Loan Losses:
2000 1999 ------------ ------------ Beginning Balance, January 1, $ 852,000 $ 0 Charge-offs Commercial (25,000) 0 Consumer (67,356) 0 Recoveries Consumer 5,406 0 Provision charged against operating expense 504,000 852,000 ------------ --------------- Ending Balance, December 31, $ 1,269,050 $ 852,000 ============ ===============
11 12 LOAN PORTFOLIO (CONTINUED) Allocation of the Allowance for Loan Losses:
2000 1999 Percent of Percent of allowance allowance Balance at End of Period Applicable to: related to related to Amount loan category Amount loan category --------------- --------------- -------------- ------------- Commercial $1,012,035 79.7 % $761,700 89.4 % Residential real estate 65,909 5.2 35,800 4.2 Installment 191,106 15.1 54,500 6.4 Unallocated 0 0.0 0 0.0 --------------- --------------- -------------- ------------- Total loans $1,269,050 100.0 % $852,000 100.0 % =============== =============== ============== ============-
As of both period ends, all loans in the portfolio were domestic; there were no foreign outstandings. For further discussion on the risk elements of the portfolio and the factors considered in determining the amount of the allowance for loan losses see the information on pages S-6 and S-7 of the Notice of Annual Meeting, Proxy Statement & 2000 Annual Report furnished to the Securities and Exchange Commission as Exhibit 13 to this Report, which is incorporated here by reference. DEPOSITS The following table illustrates the composite of the deposit liabilities held at year-end 2000 and 1999.
December 31, 2000 December 31, 1999 Balance % Balance % --------------------- -------------------- Noninterest-bearing Demand $ 7,000,732 7.2 % $ 4,074,635 7.3 % Interest-bearing Checking 9,843,874 10.1 4,662,155 8.3 Money Market 8,309,449 8.5 3,068,971 5.5 Savings 925,688 0.9 565,741 1.0 Time, under $100,000 31,598,937 32.3 21,084,562 37.7 Time, over $100,000 40,208,460 41.0 22,520,013 40.2 --------------------- -------------------- Total Deposits $ 97,887,140 100.0 % $ 55,976,077 100.0 % ===================== ====================
The schedule of maturities for time deposits is shown in Note 5, page S-24, of the Notice of Annual Meeting, Proxy Statement & 2000 Annual Report furnished to the Securities and Exchange Commission as Exhibit 13 to this Report. Such schedule of maturities is incorporated here by reference. SHORT-TERM BORROWINGS At December 31, 2000, the consolidated short-term borrowings of the Company consisted of repurchase agreements only. Repurchase agreements are advances by customers that are not covered by 12 13 federal deposit insurance. This liability is secured by bank owned securities which are pledged on behalf of the repurchase account holders. At December 31, 1999, federal funds purchased were also a part the consolidated short term borrowings figure. Federal funds purchased are overnight borrowings from various correspondent banks. Details of the Company's holdings at both year-ends are as follows:
Repurchase Federal Funds Agreements Purchased ------------------------- ------------------------ Outstanding at 12/31/00 $ 9,986,742 $ 0 Average interest rate at yearend 4.75% N/A Average balance 10,809,223 521,858 Average interest rate during year 4.82% 6.61% Maximum month end balance during year $ 14,815,900 $ 2,600,000 Outstanding at 12/31/99 $ 5,134,491 $ 1,800,000 Average interest rate at yearend 4.69% 5.75% Average balance 1,841,535 24,109 Average interest rate during year 4.62% 5.49% Maximum month end balance during year $ 5,134,491 $ 1,800,000
INTEREST RATE SENSITIVITY Interest rate sensitivity varies with different types of earning assets and interest bearing liabilities. Comparison of the repricing intervals of both is referred to as a measure of interest sensitivity gap. The interest sensitivity of the Company's consolidated balance sheet at December 31, 2000 was:
Interest rate sensitivity period Within Three to One to After three twelve five five months months years years Total ---------------------------------------------------------------------------------- Earning assets Interest-bearing deposits in other financial institutions $ 29,219 $ 0 $ 0 $ 0 $ 29,219 Federal funds sold 2,700,000 0 0 0 2,700,000 Securities available for sale 1,957,727 7,205,720 8,883,556 1,811,018 19,858,021 Loans 36,429,777 4,341,505 47,830,743 7,048,499 95,650,524 ---------------------------------------------------------------------------------- 41,116,723 11,547,225 56,714,299 8,859,517 118,237,764 Interest-bearing liabilities Savings and checking 19,079,011 0 0 0 19,079,011 Time deposits < $100,000 9,450,486 16,290,119 5,858,334 0 31,598,939 Time deposits > $100,000 9,956,303 27,498,226 2,753,929 0 40,208,458 Repurchase agreements and Federal funds purchased 9,986,742 0 0 0 9,986,742 Notes payable and Federal Home Loan Bank advances 2,005,000 4,000,000 2,000,000 0 8,005,000 ---------------------------------------------------------------------------------- 50,477,542 47,788,345 10,612,263 0 108,878,150 Net asset (liability) repricing gap $ (9,360,819) $ (36,241,120) $ 46,102,036 $ 8,859,517 $ 9,359,614 ================================================================================== Cumulative net asset (liability) repricing gap $ (9,360,819) $ (45,601,939) $ 500,097 $ 9,359,614 ===================================================================
13 14 INTEREST RATE SENSITIVITY (CONTINUED) For additional discussion of interest sensitivity see pages S-11 and S-12 of the Notice of Annual Meeting, Proxy Statement & 2000 Annual Report furnished to the Securities and Exchange Commission as Exhibit 13 to this Report, which additional discussion is incorporated here by reference. ITEM 2. DESCRIPTION OF PROPERTY The Company's and Bank's main office is located at 1030 W. Norton Avenue, Roosevelt Park Michigan, a suburb of Muskegon. The building is approximately 11,500 square feet with a three lane drive-up. The lane closest to the building houses the night depository and the drive-up ATM. The Bank's second location is located at 15190 Newington Drive, Grand Haven, Michigan. The Bank secured a lease on September 1, 1999 which has a term of five years. The leased space has 2,075 square feet of office space and one drive-up lane. A stand alone ATM is also available at the Grand Haven location. The Bank signed a lease on October 18, 2000 securing space in which to open a second bank branch. The property is situated in the City of North Muskegon at 485 Whitehall Road. The premises are approximately 1200 square feet and have been customized by the Landlord to accommodate banking services. The completed location has one drive-up lane and an ATM. This branch officially opened for business on January 16, 2001. The term of the lease is sixty months which commenced thirty days after the Landlord completed the customizations. For more information on the Company's future lease commitments see Note 10 on page S-26 of the Notice of Annual Meeting, Proxy Statement & 2000 Annual Report furnished to the Securities and Exchange Commission as Exhibit 13 to this Report, which information regarding lease commitments is incorporated here by reference. ITEM 3. LEGAL PROCEEDINGS From time to time, the Company and the Bank may be involved in various legal proceedings that are incidental to their business. In the opinion of management, neither the Company nor the Bank is a party to any current legal proceedings that are material to the financial condition of the Company or the Bank, either individually or in aggregate. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted during the fourth quarter of 2000 to a vote of the Company's shareholders. 14 15 PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information listed under the caption "Shareholder Information" on page S-35 of the Notice of Annual Meeting, Proxy Statement & 2000 Annual Report furnished to the Securities and Exchange Commission as Exhibit 13 to this Report is incorporated here by reference. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The information shown under the caption "Management's Discussion and Analysis" beginning on page S-4 of the Notice of Annual Meeting, Proxy Statement & 2000 Annual Report furnished to the Securities and Exchange Commission as Exhibit 13 to this Report is incorporated here by reference. ITEM 7. FINANCIAL STATEMENTS The information presented under the captions "Consolidated Balance Sheets," "Consolidated Statements of Income," "Consolidated Statements of Changes in Shareholders' Equity," "Consolidated Statements of Cash Flows," and "Notes to Consolidated Financial Statements," as well as the Report of Independent Auditors, Crowe, Chizek and Company LLP, dated March 7, 2001, in the Notice of Annual Meeting, Proxy Statement & 2000 Annual Report furnished to the Securities and Exchange Commission as Exhibit 13 to this Report is incorporated here by reference. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT The information presented under the caption "Information about Directors, Nominees and Executive Officers in the Notice of Annual Meeting, Proxy Statement & 2000 Annual Report furnished to the Securities and Exchange Commission as Exhibit 13 to this Report is incorporated here by reference. The Company does not have a class of equity securities registered pursuant to Section 12 of the Securities Exchange Act of 1934 so information regarding compliance with Section 16(a) is not applicable. 15 16 ITEM 10. EXECUTIVE COMPENSATION The information presented under the captions "Summary Compensation Table," "Options Granted in 2000," and "Aggregated Stock Option Exercises in 2000 and Year End Option Values", and in the last paragraph under the caption "Board of Directors Meetings and Committees" in the Notice of Annual Meeting, Proxy Statement & 2000 Annual Report furnished to the Securities and Exchange Commission as Exhibit 13 to this Report is incorporated here by reference. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information presented under the caption "Stock Ownership of Certain Beneficial Owners and Management" in the Notice of Annual Meeting, Proxy Statement & 2000 Annual Report furnished to the Securities and Exchange Commission as Exhibit 13 to this Report is incorporated here by reference. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information listed under the caption "Certain Transactions" in the Notice of Annual Meeting, Proxy Statement & 2000 Annual Report furnished to the Securities and Exchange Commission as Exhibit 13 to this Report is incorporated here by reference. On October 18, 2000, the Bank signed a lease with LHR Properties in which to open a second banking branch. Donald E. Hegedus, Director of the Company is a Vice President, Director, and a 33% owner of LHR Properties. The monthly lease payments owed are approximately $2,000 with the aggregate amount owed over the life of the lease being $132,900. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS Exhibit No. EXHIBIT DESCRIPTION 3.1 Articles of Incorporation are incorporated by reference to exhibit 3.1 of the Company's Registration Statement on Form SB-2 (SEC File no. 333-63769) that become effective on December 17, 1998). 3.2 Bylaws of the Company are incorporated by reference to exhibit 3.2 of the Company's Registration Statement on Form SB-2 (SEC File No. 333-63769) which became effective on December 17, 1998. 10.1 1998 Employee Stock Option Plan is incorporated by reference to exhibit 10.1 of the Company's Registration Statement on Form SB-2 (SEC File No. 333-63769) which became effective on December 17, 1998. 10.2 Development Coordination and Construction Oversight Agreement between the Company and Investment Property Associates, Inc. is incorporated by reference to exhibit 10.2 of the Company's Registration Statement on Form SB-2 (SEC File No. 333-63769) which became effective on December 17, 1998. 16 17 10.3 First Amendment to 1998 Employee Stock Option Plan is incorporated by reference to exhibit 10.3 of the Company's Registration Statement on Form SB-2 (SEC File No. 333-63769) which became effective on December 17, 1998. 10.4 Agreement between Fiserv Solutions, Inc. and Community Shores Bank is incorporated by reference to exhibit 10.4 of the Company's Registration Statement on Form SB-2 (SEC File No. 333-63769) which became effective on December 17, 1998. 13 Notice of Annual Meeting, Proxy Statement & 2000 Annual Report of the Company. Except for the portions of the Notice of Annual Meeting, Proxy Statement & 2000 Annual Report that are expressly incorporated by reference in this Annual Report on Form 10-KSB, the Notice of Annual Meeting, Proxy Statement & 2000 Annual Report of the Company shall not be deemed filed as a part hereof. 20 Proxy Statement of the Company for its April 19, 2001 Annual Meeting is included as part of the Notice of Annual Meeting, Proxy Statement & 2000 Annual Report of the Company (front cover through Appendix A thereof) that is set forth as Exhibit 13 to this Notice of Annual Meeting, Proxy Statement and 2000 Annual Report on Form 10-KSB. Except for the portions of the Notice of Annual Meeting, Proxy Statement & 2000 Annual Report that are expressly incorporated by reference in this Notice of Annual Meeting, Proxy Statement & 2000 Annual Report on Form 10-KSB, the Proxy Statement & 2000 Annual Report of the Company shall not be deemed filed as a part hereof. 21 Subsidiaries of the Issuer is incorporated by reference to Exhibit 21 of the Company's Annual Report on Form 10-KSB for the year ended December 31, 1998 (SEC File No. 333-63769). 23 Consent of Independent Accountants. (B) REPORTS ON FORM 8-K The Company has not filed any reports on Form 8-K during the last quarter of the period covered by this report. 17 18 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 28, 2001. COMMUNITY SHORES BANK CORPORATION /s/ Jose' A. Infante -------------------------------------- Jose' A. Infante Chairman of the Board, President and Chief Executive Officer In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant, and in the capacities indicated on March 28, 2001. /s/ David C. Bliss /s/ Michael D. Gluhanich --------------------------------- ------------------------------------------ David C. Bliss, Director Michael D. Gluhanich, Director /s/ Gary F. Bogner /s/ Donald E. Hegedus --------------------------------- ------------------------------------------ Gary F. Bogner, Director Donald E. Hegedus, Director /s/ John C. Carlyle /s/ John L. Hilt --------------------------------- ------------------------------------------ John C. Carlyle, Director John L. Hilt, Director /s/ Robert L. Chandonnet /s/ Jose' A. Infante --------------------------------- ------------------------------------------ Robert L. Chandonnet, Director Jose' A. Infante, Chairman of the Board, President and Chief Executive Officer and Director (principal executive officer) /s/ Dennis L. Cherette /s/ Joy R. Nelson --------------------------------- ------------------------------------------ Dennis L. Cherette, Director Joy R. Nelson, Director /s/ Bruce J. Essex /s/ Tracey A. Welsh --------------------------------- ------------------------------------------ Bruce J. Essex, Director Tracey A. Welsh (principal financial and accounting officer)
18 19 EXHIBIT INDEX EXHIBIT NO. EXHIBIT DESCRIPTION 3.1 Articles of Incorporation are incorporated by reference to exhibit 3.1 of the Company's Registration Statement on Form SB-2 (SEC File no. 333-63769) that become effective on December 17, 1998). 3.2 Bylaws of the Company are incorporated by reference to exhibit 3.2 of the Company's Registration Statement on Form SB-2 (SEC File No. 333-63769) which became effective on December 17, 1998. 10.1 1998 Employee Stock Option Plan is incorporated by reference to exhibit 10.1 of the Company's Registration Statement on Form SB-2 (SEC File No. 333-63769) which became effective on December 17, 1998. 10.2 Development Coordination and Construction Oversight Agreement between the Company and Investment Property Associates, Inc. is incorporated by reference to exhibit 10.2 of the Company's Registration Statement on Form SB-2 (SEC File No. 333-63769) which became effective on December 17, 1998. 10.3 First Amendment to 1998 Employee Stock Option Plan is incorporated by reference to exhibit 10.3 of the Company's Registration Statement on Form SB-2 (SEC File No. 333-63769) which became effective on December 17, 1998. 10.4 Agreement between Fiserv Solutions, Inc. and Community Shores Bank is incorporated by reference to exhibit 10.4 of the Company's Registration Statement on Form SB-2 (SEC File No. 333-63769) which became effective on December 17, 1998. 13 Notice of Annual Meeting, Proxy Statement & 2000 Annual Report of the Company. Except for the portions of the Notice of Annual Meeting, Proxy Statement & 2000 Annual Report that are expressly incorporated by reference in this Annual Report on Form 10-KSB, the Notice of Annual Meeting, Proxy Statement & 2000 Annual Report of the Company shall not be deemed filed as a part hereof. 20 Proxy Statement of the Company for its April 19, 2001 Annual Meeting is included as part of the Notice of Annual Meeting, Proxy Statement & 2000 Annual Report of the Company (front cover through Appendix A thereof) that is set forth as Exhibit 13 to this Notice of Annual Meeting, Proxy Statement and 2000 Annual Report on Form 10-KSB. Except for the portions of the Notice of Annual Meeting, Proxy Statement & 2000 Annual Report that are expressly incorporated by reference in this Notice of Annual Meeting, Proxy Statement & 2000 Annual Report on Form 10-KSB, the Proxy Statement & 2000 Annual Report of the Company shall not be deemed filed as a part hereof. 19 20 21 Subsidiaries of the Issuer is incorporated by reference to Exhibit 21 of the Company's Annual Report on Form 10-KSB for the year ended December 31, 1998 (SEC File No. 333-63769). 23 Consent of Independent Accountant. 20