-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KBrYQaZ8+b2KVwIoLhlJj9l7pPS6mjg8KXOroTkBgLLeZqhQetFPPTeP9hgGaRJb b01SiG7QBz6cQ818Jgt82Q== 0000950124-03-003681.txt : 20031114 0000950124-03-003681.hdr.sgml : 20031114 20031114092204 ACCESSION NUMBER: 0000950124-03-003681 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMMUNITY SHORES BANK CORP CENTRAL INDEX KEY: 0001070523 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 383423227 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 333-63769 FILM NUMBER: 031000515 BUSINESS ADDRESS: STREET 1: 1838 RUDDIMAN DR CITY: NORTH MUSKEGON STATE: MI ZIP: 49445 BUSINESS PHONE: 2317801800 MAIL ADDRESS: STREET 1: 1838 RUDDIMAN DR CITY: NORTH MUSKEGON STATE: MI ZIP: 49445 10QSB 1 k80594e10qsb.txt FORM 10-QSB U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2003 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . Commission File No. 333-63769 COMMUNITY SHORES BANK CORPORATION (Exact name of small business issuer as specified 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) (231) 780-1800 (Issuer's telephone number) Check whether the issuer (1) 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___ At October 31, 2003, 1,430,000 shares of Common Stock of the issuer were outstanding. Transitional Small Business Disclosure Format: Yes ___ No X Community Shores Bank Corporation Index
Page No. -------- PART I. Financial Information Item 1. Financial Statements..................................... 1 Item 2. Management's Discussion and Analysis ..................... 12 Item 3. Controls and Procedures................................... 21 PART II. Other Information Item 1. Legal Proceedings......................................... 21 Item 2. Changes in Securities .................................... 22 Item 3. Defaults upon Senior Securities........................... 22 Item 4. Submission of Matters to a Vote of Security Holders....... 22 Item 5. Other Information......................................... 22 Item 6. Exhibits and Reports on Form 8-K.......................... 22 Signatures......................................................... 23
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) COMMUNITY SHORES BANK CORPORATION CONSOLIDATED BALANCE SHEETS
September 30, December 31, 2003 2002 ------------- ------------- (unaudited) ASSETS Cash and due from financial institutions $ 6,255,882 $ 2,722,565 Interest-bearing deposits in other financial institutions 1,568,412 59,429 Federal funds sold 0 0 ------------- ------------- Cash and cash equivalents 7,824,294 2,781,994 Securities Available for sale (at fair value) 25,139,269 26,043,017 Held to maturity (fair value of $296,947 at September 30, 2003 and $255,178 at December 31, 2002) 294,297 252,567 ------------- ------------- Total securities 25,433,566 26,295,584 Loans held for sale 622,800 579,400 Loans 146,168,979 141,453,620 Less: Allowance for loan losses 1,931,635 1,898,983 ------------- ------------- Net loans 144,237,344 139,554,637 Federal Home Loan Bank stock 425,000 425,000 Premises and equipment, net 2,657,203 2,910,237 Accrued interest receivable 623,579 661,136 Other assets 1,361,512 257,956 ------------- ------------- Total assets $ 183,185,298 $ 173,465,944 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Deposits Non-interest bearing $ 13,062,690 $ 10,368,525 Interest bearing 128,734,704 122,356,854 ------------- ------------- Total deposits 141,797,394 132,725,379 Federal funds purchased and repurchase agreements 17,705,364 19,466,513 Federal Home Loan Bank advances 8,000,000 6,000,000 Notes payable 2,550,000 3,600,000 Accrued expenses and other liabilities 724,179 608,179 ------------- ------------- Total liabilities 170,776,937 162,400,071 Shareholders' equity Preferred stock, no par value 1,000,000 Shares authorized, none issued 0 0 Common stock, no par value; 9,000,000 shares authorized; 2003-1,430,000 shares issued and 2002-1,330,000 shares issued 12,922,314 12,123,585 Accumulated deficit (536,694) (1,367,911) Accumulated other comprehensive income 22,741 310,199 ------------- ------------- Total shareholders' equity 12,408,361 11,065,873 ------------- ------------- Total liabilities and shareholders' equity $ 183,185,298 $ 173,465,944 ============= =============
See accompanying notes to consolidated financial statements. - 1 - COMMUNITY SHORES BANK CORPORATION CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Three Months Nine Months Nine Months Ended Ended Ended Ended September 30, September 30, September 30, September 30, 2003 2002 2003 2002 ----------- ----------- ----------- ----------- Interest and dividend income Loans, including fees $ 2,283,122 $ 2,348,426 $ 6,893,526 $ 6,771,187 Securities and FHLB dividends 201,639 285,012 674,942 946,231 Federal funds sold and other income 780 19,356 19,706 103,080 ----------- ----------- ----------- ----------- Total interest income 2,485,541 2,652,794 7,588,174 7,820,498 Interest expense Deposits 803,792 1,028,614 2,591,671 3,149,254 Repurchase agreements, federal funds purchased, and other debt 46,990 73,180 181,092 230,210 Federal Home Loan Bank advances and notes payable 129,707 143,456 392,134 423,916 ----------- ----------- ----------- ----------- Total interest expense 980,489 1,245,250 3,164,897 3,803,380 ----------- ----------- ----------- ----------- NET INTEREST INCOME 1,505,052 1,407,544 4,423,277 4,017,118 Provision for loan losses 94,347 154,400 456,337 442,140 ----------- ----------- ----------- ----------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,410,705 1,253,144 3,966,940 3,574,978 Noninterest income Service charges on deposit accounts 143,334 138,308 418,852 365,661 Mortgage loan referral fees 13,432 5,603 25,818 74,519 Gain on sale of loans 41,410 45,825 158,088 60,108 Gain on disposition of securities 0 0 62,681 0 Other 48,095 44,967 162,864 135,578 ----------- ----------- ----------- ----------- Total noninterest income 246,271 234,703 828,303 635,866 Noninterest expense Salaries and employee benefits 767,888 713,852 2,289,675 1,990,638 Occupancy 71,117 71,268 221,570 212,569 Furniture and equipment 111,867 113,167 339,399 336,165 Advertising 14,768 23,470 55,037 60,348 Data processing 74,228 63,673 221,872 181,359 Professional services 79,106 46,120 224,909 195,425 Other 261,180 220,585 772,529 662,257 ----------- ----------- ----------- ----------- Total noninterest expense 1,380,154 1,252,135 4,124,991 3,638,761 ----------- ----------- ----------- ----------- INCOME BEFORE FEDERAL INCOME TAXES 276,822 235,712 670,252 572,083 Federal income tax expense/(benefit) 93,751 0 (160,965) 0 ----------- ----------- ----------- ----------- NET INCOME $ 183,071 $ 235,712 $ 831,217 $ 572,083 =========== =========== =========== =========== Comprehensive Income $ 2,423 $ 293,261 $ 543,759 $ 479,765 =========== =========== =========== =========== Weighted average shares outstanding 1,430,000 1,269,402 1,403,626 1,215,861 =========== =========== =========== =========== Diluted average shares outstanding 1,431,804 1,269,402 1,403,626 1,215,861 =========== =========== =========== =========== Basic earnings per share $ 0.13 $ 0.19 $ 0.59 $ 0.47 =========== =========== =========== =========== Diluted earnings per share $ 0.13 $ 0.19 $ 0.59 $ 0.47 =========== =========== =========== ===========
See accompanying notes to consolidated financial statements. - 2 - COMMUNITY SHORES BANK CORPORATION CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
Accumulated Other Total Common Accumulated Comprehensive Shareholders' Shares Stock Deficit Income (Loss) Equity ------ ----- ------- ------------- ------ BALANCE AT JANUARY 1, 2002 1,170,000 $ 10,871,211 $(2,190,931) $453,808 $ 9,134,088 Proceeds from sale of stock, net of offering costs 103,750 804,381 804,381 Comprehensive income: Net Income 572,083 572,083 Unrealized loss on securities available-for-sale, net (92,318) (92,318) ----------- Total comprehensive income 479,765 --------- ------------ ----------- -------- ----------- BALANCE, SEPTEMBER 30, 2002 1,273,750 $ 11,675,592 $(1,618,848) $361,490 $10,418,234 ========= ============ =========== ======== =========== BALANCE AT JANUARY 1, 2003 1,330,000 $ 12,123,585 $(1,367,911) $310,199 $11,065,873 Proceeds from the sale of stock, net of offering costs 100,000 798,729 798,729 Comprehensive income: Net income 831,217 831,217 Unrealized loss on securities available-for-sale, net (287,458) (287,458) ----------- Total comprehensive income 543,759 --------- ------------ ----------- -------- ----------- BALANCE AT SEPTEMBER 30, 2003 1,430,000 $ 12,922,314 $ (536,694) $ 22,741 $12,408,361 ========= ============ =========== ======== ===========
See accompanying notes to consolidated financial statements. - 3 - COMMUNITY SHORES BANK CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Nine Months Nine Months Ended Ended September 30, September 30, 2003 2002 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 831,217 $ 572,083 Adjustments to reconcile net income to net cash from operating activities Provision for loan losses 456,337 442,140 Depreciation and amortization 265,872 291,963 Net (accretion)/amortization of securities 56,399 (51,652) Net realized gain on disposition of securities (62,681) 0 Net realized gain on sale of loans (158,088) (60,108) Loan originations (14,681,710) (9,552,780) Proceeds from loan sales 14,796,398 8,706,888 Net change in: Accrued interest receivable and other assets (917,915) (31,852) Accrued interest payable and other liabilities 115,998 65,051 ------------ ------------ Net cash from operating activities 701,827 381,733 CASH FLOWS FROM INVESTING ACTIVITIES Activity in available-for-sale securities: Sales 2,271,377 0 Maturities, prepayments and calls 29,401,506 28,062,888 Purchases (31,248,694) (26,681,307) Activity in held-to-maturity securities Maturities 8,571 8,571 Purchases 0 (146,041) Loan originations and payments, net (5,139,044) (16,809,711) Additions to premises and equipment (12,838) (119,728) ------------ ------------ Net cash used in investing activities (4,719,122) (15,685,328) CASH FLOW FROM FINANCING ACTIVITIES Net change in deposits 9,072,015 24,996,006 Net change in federal funds purchased and repurchase agreements (1,761,149) (125,962) Federal Home Loan Bank advance activity: New advances 2,000,000 1,500,000 Maturities and payments 0 (1,500,000) Draws (paydown) on note payable (1,050,000) 200,000 Net proceeds from stock offering 798,729 804,381 ------------ ------------ Net cash from financing activities 9,059,595 25,874,425 ------------ ------------ Net change in cash and cash equivalents 5,042,300 10,570,830 Beginning cash and cash equivalents 2,781,994 2,270,921 ------------ ------------ ENDING CASH AND CASH EQUIVALENTS $ 7,824,294 $ 12,841,751 ============ ============ Supplemental cash flow information: Cash paid during the period for Interest $ 3,198,809 $ 3,707,881 Cash paid for federal income tax $ 240,000 $ 0
See accompanying notes to consolidated financial statements. - 4 - COMMUNITY SHORES BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION: The unaudited, consolidated financial statements as of and for the three months and nine months ended September 30, 2003 include the condensed consolidated results of operations of Community Shores Bank Corporation ("Company") and its wholly-owned subsidiaries, Community Shores Bank ("Bank") and Community Shores Financial Services, and a wholly-owned subsidiary of the Bank, Community Shores Mortgage Company ("Mortgage Company"). These condensed consolidated financial statements have been prepared in accordance with the instructions for Form 10-QSB and Item 310(b) of Regulation S-B and do not include all disclosures required by generally accepted accounting principles for a complete presentation of the Company's financial condition and results of operations. In the opinion of management, the information reflects all adjustments (consisting only of normal recurring adjustments) which are necessary in order to make the financial statements not misleading and for a fair representation of the results of operations for such periods. The results for the period ended September 30, 2003 should not be considered as indicative of results for a full year. For further information, refer to the condensed consolidated financial statements and footnotes included in the Company's annual report on Form 10-KSB for the period ended December 31, 2002. Some items in the prior year financial statements were reclassified to conform to the current presentation. 2. STOCK COMPENSATION Employee compensation expense under stock options is reported using the intrinsic value method. No stock-based compensation cost is reflected in net income, as all options granted had an exercise price equal to or greater than the market price of the underlying common stock at date of grant. The following table illustrates what the effect on the net income and the basic and diluted earnings per share would be if expense were measured using the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation.
Three Months Three Months Nine Months Nine Months Ended Ended Ended Ended September 30, September 30, September 30, September 30, 2003 2002 2003 2002 ----------- ----------- ----------- ----------- Net income as reported $ 183,071 $ 235,712 $ 831,217 $ 572,083 Deduct: stock-based compensation expense determined under fair value based method 52,687 14,708 66,006 14,708 ----------- ----------- ----------- ----------- Pro forma net income 130,384 221,004 765,211 557,375 Basic earnings per share as reported $ 0.13 $ 0.19 $ 0.59 $ 0.47 Diluted earnings per share as reported $ 0.13 $ 0.19 $ 0.59 $ 0.47 Pro forma basic earnings per share $ 0.09 $ 0.17 $ 0.55 $ 0.46 Pro forma diluted earnings per share $ 0.09 $ 0.17 $ 0.55 $ 0.46
- 5 - COMMUNITY SHORES BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 2. STOCK COMPENSATION-continued The pro forma effects are computed using option pricing models, using the following weighted-average assumptions as of grant date.
Assumptions: 2003 2002 ---- ---- Risk-free interest rate 3.61% 3.90% Expected option life 8 years 7 years Expected stock price volatility 36% 40% Dividend yield 0% 0% Computed fair value $4.88 $3.58
3. SECURITIES The following tables represent the securities held in the Company's portfolio at September 30, 2003 and at December 31, 2002:
Gross Gross Amortized Unrealized Unrealized Fair September 30, 2003 Cost Gains Losses Value ------------------ ---- ----- ------ ----- Available for sale: US Government and federal agency $ 33,240 $ (67,012) $ 12,974,042 Municipal securities 15,776 0 235,435 Mortgage-backed securities 106,187 (53,733) 11,929,792 ------------ ------------ ------------ $ 155,203 $ (120,745) $ 25,139,269 Held to maturity: Municipal securities $ 294,297 $ 2,665 $ (15) $ 296,947
Gross Gross Amortized Unrealized Unrealized Fair December 31, 2002 Cost Gains Losses Value Available for sale: US Government and federal agency $ 190,701 $ (2,490) $ 17,669,155 Municipal securities 13,572 0 233,200 Mortgage-backed securities 268,215 0 8,140,662 ------------ ------------ ------------ $ 472,488 $ (2,490) $ 26,043,017 Held to maturity: Municipal securities $ 252,567 $ 2,611 $ 0 $ 255,178
4. LOANS Loans increased $4,715,359 since December 31, 2002. The components of the outstanding balances, their percentage of the total portfolio and the percentage increase from the end of 2002 to September 30, 2003 were as follows: - 6 - COMMUNITY SHORES BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 4. LOANS-continued
Percent September 30, 2003 December 31, 2002 Increase/ Balance % Balance % (Decrease) ---------------------- --------------------- ---------- Commercial $ 64,038,651 43.8% $ 62,751,937 44.3% 2.0% Real Estate: Commercial 48,458,663 33.1 44,681,761 31.6 8.4 Residential 6,388,933 4.4 5,819,289 4.1 9.8 Construction 2,790,976 1.9 1,853,099 1.3 50.6 Consumer 24,609,164 16.8 26,437,827 18.7 (6.9) ---------- ---- ---------- ---- 146,286,387 100.0% 141,543,913 100.0 ----------- ===== ----------- ===== Less: allowance for loan losses 1,931,635 1,898,983 Net deferred loan fees 117,408 90,293 ------- ------ $ 144,237,344 $ 139,554,637 ============= =============
5. ALLOWANCE FOR LOAN LOSSES The following is a summary of activity in the allowance for loan losses account for the three and nine month periods ended September 30, 2003 and 2002:
Three Months Three Months Nine Months Nine Months Ended Ended Ended Ended 09/30/03 09/30/02 09/30/03 09/30/02 -------- -------- -------- -------- Beginning Balance $ 2,004,119 $ 1,771,825 $ 1,898,983 $ 1,535,543 Charge-offs (178,378) (99,487) (608,864) (177,547) Recoveries 11,547 6,754 185,179 33,356 Provision for loan losses 94,347 154,400 456,337 442,140 ----------- ----------- ----------- ----------- Ending Balance $ 1,931,635 $ 1,833,492 $ 1,931,635 $ 1,833,492 =========== =========== =========== ===========
6. DEPOSITS Deposit balances increased $9,072,015 since December 31, 2002. The components of the outstanding balances, their percentage of the total portfolio and the percentage increase from the end of 2002 through September 30, 2003 were as follows:
Percent September 30, 2003 December 31, 2002 Increase/ Balance % Balance % (Decrease) ----------------- ---------------- ---------- Non-interest bearing Demand $13,062,690 9.2% $ 10,368,525 7.8% 26.0% Interest bearing Checking 23,114,399 16.3 21,103,272 15.9 9.5 Money Market 36,088,448 25.4 27,704,511 20.9 30.3 Savings 3,912,495 2.8 3,475,918 2.6 12.6 Time, under $100,000 24,207,622 17.1 36,823,915 27.7 (34.3) Time, over $100,000 41,411,740 29.2 33,249,238 25.1 24.5 ------------- ----- ------------ ----- Total Deposits $ 141,797,394 100.0% $132,725,379 100.0% ============= ===== ============ =====
- 7 - COMMUNITY SHORES BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 7. SHORT-TERM BORROWINGS Both federal funds purchased and repurchase agreements were outstanding at December 31, 2002. At September 30, 2003, the Company's short-term borrowings were made up of repurchase agreements only. Since year-end 2002, repurchase agreements decreased $811,149. The September 30, 2003 and December 31, 2002 information was as follows:
Repurchase Federal Funds Agreements Purchased Outstanding at September 30, 2003 $17,705,364 $ 0 Average interest rate at period end 1.14% 0.00% Average balance during period 15,078,693 1,265,217 Average interest rate during period 1.33% 1.52% Maximum month end balance during period 20,166,404 6,200,000 Outstanding at December 31, 2002 $18,516,513 $ 950,000 Average interest rate at year end 1.45% 1.80% Average balance during year 15,756,905 767,397 Average interest rate during year 1.88% 1.82% Maximum month end balance during year 18,988,514 2,000,000
8. FEDERAL HOME LOAN BANK BORROWINGS The Bank was approved in the first quarter of 1999 to be a member of the Federal Home Loan Bank of Indianapolis. Based on its current Federal Home Loan Bank Stock holdings the Bank has the capacity to borrow $8,500,000. Each borrowing requires a direct pledge of cash, securities or loans. At September 30, 2003, the Bank has $1,500,000 on deposit at the Federal Home Loan Bank, in addition to securities with a market value of $7,534,668 pledged to support current borrowings. Details of the Bank's outstanding borrowings at both September 30, 2003 and December 31, 2002 are:
Current Maturity Date Interest Rate 2003 2002 - ------------- ------------- ---- ---- November 3, 2003 1.53 $2,000,000 $ 0 March 24, 2010 5.99 1,500,000 1,500,000 November 3, 2010 5.95 2,000,000 2,000,000 December 13, 2010 5.10 2,500,000 2,500,000 ---------- ---------- $8,000,000 $6,000,000
- 8 - COMMUNITY SHORES BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 9. NOTES PAYABLE Since June 28, 2000, the Company has borrowed a total of $3,600,000 from four of its Directors and Community Shores LLC, paying back a portion in the first quarter of this year. Community Shores LLC (the "LLC") was formed by 7 of the Company's Directors for the purpose of obtaining and lending money to the Company. The members of the LLC are David C. Bliss, Gary F. Bogner, Robert L. Chandonnet, Dennis L. Cherette, Bruce J. Essex, Michael D. Gluhanich and Jose A. Infante. Two of the LLC members, Mr. Gluhanich and Mr. Chandonnet, lent money directly as well as taking part in the LLC. The balance of this debt at September 30, 2003 was $2,550,000. A summary of the outstanding note liabilities is given below:
Loan from: Aggregate Principal Amount Current Rate Maturity ------ ------------ -------- Robert L. Chandonnet $ 200,000 5.50% June 30, 2009 Michael D. Gluhanich $ 100,000 5.50% June 30, 2009 Donald E. Hegedus $ 500,000 5.50% June 30, 2009 John L. Hilt $ 750,000 5.50% June 30, 2009 Community Shores LLC $1,000,000 5.50% June 30, 2009 ---------- Total $2,550,000 ==========
The rate on the above notes is floating and is officially defined as 1.50% over the US Bank, N.A. Prime rate. US Bank's current prime rate is 4.00%. Interest is owed quarterly in arrears on the fifteenth of April, July, October and January until the principal of these Notes is paid or made available for payment. The notes may be prepaid without any prepayment penalty with at least one day's prior written notice. The principal and interest related to these Notes is expressly subordinated to any and all senior debt of the Company. The proceeds from these Notes were used by the Company to cover general operating expenses and to infuse capital into the Bank to maintain sufficient capital ratios to comply with banking regulations. 10. INCOME TAXES There were no federal taxes accrued in the first nine months of 2002 however there was a federal tax benefit of $161,000 for the similar period in the current year. During the first quarter of 2003, management concluded that the Company's valuation allowance for deferred tax assets was no longer needed, resulting in a net federal tax benefit of $327,000 being recognized. During the Company's first years of operation, losses were recorded but no tax benefit was reflected. Since becoming profitable the Company has used this deferred tax valuation allowance to offset the federal tax liability and expense that otherwise would have been recorded. - 9 - COMMUNITY SHORES BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 11. COMMITMENTS AND OFF-BALANCE SHEET RISK Some financial instruments are used to meet financing needs and to reduce exposure to interest rate changes. These financial instruments include commitments to extend credit and standby letters of credit. These involve, to varying degrees, credit and interest-rate risk in excess of the amount reported in the financial statements. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the commitment, and generally have fixed expiration dates. Standby letters of credit are conditional commitments to guarantee a customer's performance to another party. Exposure to credit loss if the customer does not perform is represented by the contractual amount for commitments to extend credit and standby letters of credit. Collateral or other security is normally obtained for these financial instruments prior to their use, and many of the commitments are expected to expire without being used. A summary of the notional and contractual amounts of outstanding financing instruments with off-balance-sheet risk as of September 30, 2003 and December 31, 2002 follows:
September 30, December 31, 2003 2002 ---- ---- Unused lines of credit and letters of credit $ 31,750,148 $ 33,779,249 Commitments to make loans 115,006 541,138
Commitments to make loans generally terminate one year or less from the date of commitment and may require a fee. Since many of the above commitments on lines of credit and letters of credits expire without being used, the above amounts related to those categories do not necessarily represent future cash commitments. No losses are anticipated as a result of these transactions. 12. REGULATORY MATTERS The Company and Bank are subject to regulatory capital requirements administered by the federal banking agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off- balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings, and other factors, and 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, including well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulator approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and plans for capital restoration are required. - 10 - COMMUNITY SHORES BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 12. REGULATORY MATTERS-continued
Capital to risk weighted assets Tier 1 Capital Total Tier 1 to average assets ------------ ----------- ----------------------- Well capitalized 10% 6% 5% Adequately capitalized 8 4 4 Undercapitalized 6 3 3
Actual capital levels and minimum required levels at September 30, 2003 for the Company and Bank were:
Minimum Required to Be Well Capitalized Minimum Required Under Prompt For Capital Corrective Action Actual Adequacy Purposes Provisions ------ ----------------- ---------- Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- September 30, 2003 Total Capital (Tier 1 and Tier 2) to risk weighted assets Consolidated $ 16,867,255 10.63% $ 12,699,646 8.00% $ 15,874,557 10.00% Bank 16,684,931 10.51 12,696,336 8.00 15,870,420 10.00 Tier 1 (Core) Capital weighted assets Consolidated 12,385,620 7.80 6,349,823 4.00 9,524,734 6.00 Bank 14,753,295 9.30 6,348,168 4.00 9,522,252 6.00 Tier 1 (Core) Capital average assets Consolidated 12,385,620 6.71 7,382,753 4.00 9,228,441 5.00 Bank 14,753,295 8.00 7,381,179 4.00 9,226,473 5.00
The Company and the Bank were in the well-capitalized category at September 30, 2003. The Company is closely monitoring the Bank's growth and for the foreseeable future expects to infuse additional capital as necessary to maintain at least a 10% (well capitalized) total capital to risk weighted assets ratio. Capital contributions may be made to the Bank from the remaining proceeds received by the Company from the private sales of Company stock made between May 2002 and March 2003 or an increase in the LLC note payable. There is an additional $1.0 million available from these resources. - 11 - COMMUNITY SHORES BANK CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS The discussion below details the financial results of the Company and its wholly owned subsidiaries, the Bank and Community Shores Financial Services, and the Bank's subsidiary, the Mortgage Company through September 30, 2003 and is separated into two parts which are labeled, Financial Condition and Results of Operations. The part labeled Financial Condition compares the financial condition at September 30, 2003 to that at December 31, 2002. The part labeled Results of Operations discusses the three month and nine month periods ended September 30, 2003 as compared to the same periods of 2002. Both parts should be read in conjunction with the interim condensed consolidated financial statements and footnotes included in Item 1 of this Form 10-QSB. This discussion and analysis and other sections of this 10-QSB 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 Company, the Bank, the Mortgage Company and Community Shores Financial Services. Words such as "anticipates", "believes", "estimates", "expects", "forecasts", "intends", "is likely", "plans", "projects", variations of such words and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are intended to be covered by the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions ("Future Factors") that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. The Company undertakes no obligation to update, amend, or clarify forward looking statements, whether as a result of new information, future events (whether anticipated or unanticipated), or otherwise. Future Factors include changes in interest rates and interest rate relationships; demand for products and services; the degree of competition by traditional and non-traditional competitors; changes in banking regulation; changes in tax laws; changes in prices, levies, and assessments; the impact of technological advances; governmental and regulatory policy changes; the outcomes of contingencies; trends in customer behavior as well as their ability to repay loans; changes in the national and local economy; and other factors, including risk factors, referred to from time to time in filings made by the Company with the Securities and Exchange Commission. These are representative of the Future Factors that could cause a difference between an ultimate actual outcome and a preceding forward-looking statement. FINANCIAL CONDITION Total assets increased to $183.2 million from $173.5 million at December 31, 2002. This is a 6% increase in assets during the first nine months of 2003. Asset growth was funded by deposit growth and Federal Home Loan Bank advances and was reflected by an increase in loan volume as well as higher balances held at other financial institutions. Management continues to focus on small- to medium-sized business customers, the original strategy since opening in January 1999. Cash and cash equivalents increased by $5.0 million to $7.8 million at September 30, 2003 from $2.8 million at December 31, 2002. This increase was the result of an additional $3.5 - 12 - COMMUNITY SHORES BANK CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS million being held at other financial institutions. The increase in balances held in the Bank's correspondent account is mostly reflective of the difference in the size of the daily deposit made to the lead correspondent on September 30, 2003 compared to that made on December 31, 2002. The daily deposit consists of checks drawn on other banks that have been deposited by customers and are in the process of clearing. Typically as the Bank's customer base increases one would see a natural growth in the daily deposit. Finally, there was an additional $1.5 million held in an interest bearing account at the Federal Home Loan Bank. The Federal Home Loan Bank is the primary safekeeping agent for the Bank's investments. The Bank's account balance increased by the proceeds of securities that matured or were called and had not been reinvested. Total loans climbed to $146.2 million at September 30, 2003 from $141.5 million at December 31, 2002. The $4.7 million increase experienced was comprised of commercial and commercial real estate loan growth being offset by a net decline in consumer, residential real estate and construction loans. The "wholesale" or commercial banking focus applied since opening in 1999 continued during the first nine months of 2003. Presently, the commercial category of loans comprises 77% of the Bank's total loan portfolio. There are five experienced commercial lenders on staff devoted to pursuing and originating these types of loans. For a majority of the first nine months of 2003, both the national and local economies as a whole were relatively weak. During that time, loan volume was soft in spite of the favorable interest rate environment. Management believes that recent economic indicators are pointing to marketplace recovery. As a result Management is optimistic about future opportunities in the Bank's market. The loan portfolio is reviewed and analyzed on a regular basis for the purpose of estimating probable incurred credit losses. The allowance for loan losses is adjusted accordingly to maintain an adequate level based on that analysis. At September 30, 2003, the allowance totaled $1.9 million or 1.32% of gross loans outstanding. Management has determined that this is an appropriate level based on their detailed review of the loan portfolio including comparison of allowance levels to those maintained by other institutions with similar, but seasoned loan portfolios. The allocation of the allowance at September 30, 2003 was as follows:
September 30, 2003 December 31, 2002 ------------------ ----------------- Percent of Percent of Allowance Allowance Balance at End of Period Applicable to: Related to Related to Amount Loan category Amount Loan category ------ ------------- ------ ------------- Commercial $ 981,201 50.8% $ 862,436 45.4% Real estate: Commercial 561,206 29.0 663,579 34.9 Residential 31,945 1.7 43,645 2.3 Construction 32,096 1.7 24,090 1.3 Consumer 308,679 16.0 305,233 16.1 Unallocated 16,508 0.8 0 0.0 ---------- ----- ---------- ----- Total $1,931,635 100.0% $1,898,983 100.0% ========== ===== ========== =====
- 13 - COMMUNITY SHORES BANK CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS Management continues to monitor the allocation and make necessary adjustments to the provision and the allowance based on portfolio concentration levels, actual loss experience, past due balances and the financial condition of the borrowers. As such, an additional $456,000 was added to the allowance in the first nine months of 2003. At the end of September 2003, loans 30-59 days past due totaled $479,000 down from $629,000 at December 31, 2002. This change of $150,000 is the result of an increase in commercial loan past due balances of $63,000 being offset by a $213,000 decrease in retail past dues. There was a total of $740,000 past due 60-89 days and $317,000 past due more than 89 days at the end of 2002 compared to $166,000 past due 60-89 days and $476,000 past due more than 89 days after the first nine months of 2003. There is one commercial loan for $198,000 that is past due more than 89 days and the Bank is beginning foreclosure. Based on recent appraisals, the property is well collateralized and the Bank does not anticipate incurring a loss. At September 30, 2003, the Bank had eight non-accrual loans with an aggregate principal balance of $650,000. The Bank reported non-accrual loans at the end of December 2002 totaling $521,000. There were net charge-offs of $144,000 recorded for the first nine months of 2002 compared to $424,000 for the same period in 2003. Although the Banks non-accrual notes and charge offs have increased since opening, Management believes it to be related to the natural seasoning of the portfolio coupled with the weak economic environment of the last eighteen months. Other assets increased $1.1 million primarily due to the Company and the Bank adjusting their deferred tax accounts to recognize the future benefit of temporary existing differences and eliminate the previously recorded valuation allowance no longer deemed needed. Another component is other real estate owned which has increased $300,000. Deposit balances were $141.8 million at September 30, 2003 up from $132.7 million at December 31, 2002. Non-interest bearing checking increased $2.7 million or 26% since 2002 year-end. The growth in accounts of this type is partially due to a marketing campaign that is targeted towards small business customers. Since April there have been eighty-six new small business account relationships established as a result. The marketing campaign is scheduled to continue through year-end. Management believes that initiatives of this type, if successful, will be significant in lowering the Bank's cost of funds and improving its net interest margin. Interest bearing accounts increased $6.4 million (5%) in the first nine months of 2003. Interest bearing checking and money market accounts reflected a $10.4 million increase, which was partially offset by a decrease in time and savings deposits of $4.0 million. The growth in the money market accounts is a result of current customers keeping higher balances on deposit on September 30 and of time deposit customers using maturing certificate monies to open new money market accounts. In the current rate environment, the money market product offers liquidity and a rate of return similar to time deposits without a withdrawal penalty. The migration from time deposits is expected to continue until the market rates offered on time deposits begin to increase. - 14 - COMMUNITY SHORES BANK CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS A favorable outcome of the increase in local deposits is that management is able to report a decrease in the concentration of brokered deposits from 30% at year-end 2002 to 27% at September 30, 2003. Brokered deposits are time deposits obtained from depositors located outside of the Bank's market area and are placed with the Bank by a deposit broker. It is a goal of management to actively work towards reducing brokered deposit concentration levels. Repurchase agreements and federal funds purchased together decreased $1.8 million since December 31, 2002. No federal funds were purchased on September 30, 2003 compared to $950,000 purchased at year-end 2002. The remaining decline is attributable to existing repurchase customers decreasing their carrying balances from those held at year-end. The Bank had four Federal Home Loan Bank ("FHLB") advances outstanding on September 30, 2003, totaling $8.0 million compared to three totaling $6.0 million at December 31, 2002. On May 6, 2003, the Bank increased its borrowings outstanding by $2.0 million. The note evidencing the $2.0 million increase is at a fixed rate of 1.53% for six months. The advance was used to offset a reduction in customer repurchase account balances. As of September 30, 2003, the Company had outstanding borrowings of $2,550,000 from some of its Directors and Community Shores LLC which the Company had used for the purpose of infusing capital into the Bank and to provide cash for the operating expenses of the Company. All of this debt is subordinated to all senior debt of the Company. The notes evidencing the borrowings bear interest at a floating rate and are currently accruing interest at 5.50% per annum. Interest payments are due quarterly on the fifteenth of the month. The next scheduled interest payment is due on January 15, 2004. During 2003's first quarter, the Company chose to prepay its borrowings from Community Shores LLC in the amount of $1,050,000. A portion of the cash used for the paydown came from stock offering proceeds. It is the intention of management that all of the outstanding notes maintain a maturity that is five years or longer for favorable tier two risk based capital treatment. As such each note was extended in the third quarter for an additional year to 2009. During the first nine months of 2003, the Company's shareholders' equity increased $1.3 million. Part of this increase resulted from March 14, 2003's sale of 100,000 shares of unregistered common stock to one investor. The sale was made at a price of $8.00 per share in cash. This strategy for increasing capital has been used by the Company several times since May 2002. Funds resulting from these stock sales are often contributed to the Bank to maintain a well-capitalized risk based capital ratio but another use is the above mentioned subordinated debt paydown. In any quarter that the Bank's risk weighted asset growth rate exceeded its growth in capital, the Company contributed equity. These equity contributions enable the Bank to maintain a well- capitalized regulatory capital ratio. During the first nine months of 2003, $200,000 was contributed to the Bank's equity account to maintain a well-capitalized risk based capital position. RESULTS OF OPERATIONS The net income for the first nine months of 2003 was $831,000, which compares favorably to the net income of $572,000 recorded in the first three quarters of 2002. The increase in earnings of $259,000 in the first three quarters of 2003 was an improvement of 45% over - 15 - COMMUNITY SHORES BANK CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS reported net income for the same nine months of last year. A substantial factor in driving the improvement was the recognition of a tax benefit of $327,000 during the first quarter as management determined the Company no longer needed to carry a valuation allowance with respect to the future tax benefit of temporary differences. The Company's consolidated earnings are now fully taxable. As such the net income for the third quarter of 2003 was $183,000 after taxes of $94,000 while income for the same period in 2002 was $236,000 with no taxes. On a pretax basis the Company's third quarter earnings improved $41,000 or 17% from 2002 to 2003. For the third quarter and first nine months of 2003, the annualized return on the Company's average total assets was .40% and .60% respectively. The Company's return on average equity was 5.91% for the third quarter of 2003 and 9.19% for the first nine months. At September 30, 2003, the ratio of average equity to average assets was 6.71% for the third quarter and 6.57% for the first nine months of 2003. The Company's retained deficit was $537,000 at September 30, 2003 compared to $1.4 million at December 31, 2002. The main contributing factor to the above results is the tax benefit recorded in the first quarter of 2003. The following table sets forth certain information relating to the Company's consolidated average interest earning assets and interest bearing liabilities and reflects the average yield on assets and average cost of liabilities for the periods indicated. Such yields and costs are derived by dividing annualized income or expenses by the average daily balance of assets or liabilities, respectively, for the periods presented.
Nine months ended September 30: ------------------------------- 2003 2002 ---------------------------------- ------------------------------------ Average Average Average Average Balance Interest Yield/Rate Balance Interest Yield/Rate ------- -------- ---------- ------- -------- ---------- Assets Federal funds sold and interest- bearing deposits with banks $ 2,389,829 $ 19,706 1.10% $ 8,100,029 $ 103,080 1.70% Securities (including FHLB stock) 26,129,019 674,942 3.44 23,945,942 946,231 5.27 Loans(1) 148,298,434 6,893,526 6.20 128,085,640 6,771,187 7.05 ------------ ----------- ---- ------------- ---------- ---- 176,817,282 7,588,174 5.72 160,131,611 7,820,498 6.51 Other assets 6,780,167 6,524,190 ------------ ------------- $183,597,449 $ 166,655,801 ============ ============= Liabilities and Shareholders' Equity Interest bearing deposits $ 131,406,435 $ 2,591,671 2.63 $ 121,161,755 $3,149,254 3.47 Federal funds purchased and repurchase agreements 17,843,903 181,092 1.35 15,497,033 230,210 1.98 Note Payable and Federal Home Loan Bank Advances 9,976,557 392,134 5.24 9,611,722 423,916 5.88 ------------ ----------- ---- ------------- ---------- ---- 159,226,895 3,164,897 2.65 146,270,510 3,803,380 3.47 ---------- ---------- Non-interest bearing deposits 11,584,244 10,031,176 Other liabilities 731,466 691,766 Shareholders' Equity 12,054,844 9,662,349 ------------- ------------- $ 183,597,449 $ 166,655,801 ============= ============= Net interest income $4,423,277 $ 4,017,118 ========== =========== Net interest spread on earning assets 3.07% 3.04% ====== ====== Net interest margin on earning assets 3.34% 3.34% ====== ====== Average interest-earning assets to Average interest-bearing liabilities 111.05% 109.48% ====== ======
- -------- (1) Includes loans held for sale and non-accrual loans. - 16 - COMMUNITY SHORES BANK CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS The net interest spread on average earning assets increased 3 basis points to 3.07% since September 30, 2002, however the net interest margin remained flat at 3.34% for both September 30, 2002 and 2003. Year to date net interest income was $4.4 million in 2003 compared to a figure of $4.0 million for the same nine months in 2002, an increase of $406,000 or 10%. The average rate earned on interest earning assets was 5.72% for the nine months ended September 30, 2003 compared to 6.51% for the same period in 2002. The main underlying factor was an 85 basis point decrease in the yield on loans, the Bank's largest earning asset category. A portion of the decrease can be attributed to differences in the Bank's internal prime rate. There was a more than 50 basis point difference in the internal prime rate between the two periods shown above. All changes, no matter what direction, to the Bank's internal prime rate affect interest earned on variable rate loans and new loan volume. Additionally, the prolonged, low rate environment has prompted many established fixed rate customers to request a rate reduction. Management gives careful consideration to each request and takes into account the total relationship (loans and deposits) at stake. All requests granted to retain the relationship adversely affect the overall yield on the loan portfolio. This outcome may sometimes be offset when the customers' associated deposits are at a rate lower than current market rates. Interest expense incurred on deposits, repurchase agreements, federal funds purchased, Federal Home Loan Bank advances and Notes Payable decreased 17% for the first nine months of 2003 compared to the first nine months of 2002. This category totaled $3.2 million through September 30, 2003, which was a $638,000 reduction over the total recorded for the same period in 2002. The favorable change in the yield on interest bearing liabilities was achieved as the Bank successfully secured a lower cost of funds in a declining rate environment. The average rate paid on interest-bearing products was 82 basis points less than what was paid a year earlier. The Bank will continue to monitor local competitor's deposit rates and adjust its offering rates as it deems appropriate. The quarter to quarter comparison of consolidated average interest earning assets and interest bearing liabilities and average yield on assets and average cost of liabilities for the third quarter ended September 30, 2003 and 2002 is in the table below. An analysis of the net interest income shows that the Bank was able to decrease its interest expense by more than its reduction in interest income. Thus, net interest income improved by $98,000. In spite of this positive outcome, there was a decrease in the Bank's net interest margin of 11 basis points from the third quarter of 2002 to the same period in 2003. Much of the explanation lies in the 75 basis point internal prime rate difference that existed between the quarters. - 17 - COMMUNITY SHORES BANK CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS
Three months ended September 30: -------------------------------- 2003 2002 ---------------------------------------- --------------------------------------- Average Average Average Average Balance Interest Yield/Rate Balance Interest Yield/Rate ------- -------- ---------- ------- -------- ---------- Assets Federal funds sold and interest- bearing deposits with banks $ 729,584 $ 780 .43% $ 4,576,060 $ 19,356 1.69% Securities (including FHLB stock) 26,705,189 201,639 3.02 22,254,005 285,012 5.12 Loans(1) 149,459,855 2,286,122 6.12 133,562,972 2,348,426 7.03 ------------ ------------ ---- ------------ ------------ ---- 176,894,628 2,488,541 5.62 160,393,037 2,652,794 6.62 Other assets 7,805,796 5,949,343 ------------ ------------ $184,700,424 $166,342,380 ============ ============ Liabilities and Shareholders' Equity Interest bearing deposits $131,338,660 $ 803,792 2.45 $120,067,131 $ 1,028,614 3.43 Federal funds purchased and repurchase agreements 16,343,910 46,990 1.15 15,054,306 73,180 1.94 Note Payable and Federal Home Loan Bank Advances 10,550,000 129,707 4.92 9,600,000 143,456 5.98 ------------ ------------ ---- ------------ ------------ ---- 158,232,570 980,489 2.48 144,721,437 1,245,250 3.44 ------------ ------------ Non-interest bearing deposits 13,173,021 10,575,151 Other liabilities 902,359 765,594 Shareholders' Equity 12,392,474 10,280,198 ------------ ------------ $184,700,424 $166,342,380 ============ ============ Net interest income $ 1,505,052 $ 1,407,544 ============ ============ Net interest spread on earning assets 3.15% 3.17% ======= ======= Net interest margin on earning assets 3.40% 3.51% ======= ======= Average interest-earning assets to Average interest-bearing liabilities 111.8% 110.8% ======= =======
Determining whether prime rate changes on the loan side of the balance sheet can be fully offset by similar changes to deposit rates is possible through analysis of the Bank's interest rate sensitivity position. In general, asset liability management is an important tool for assessing and monitoring liquidity and interest rate sensitivity within the Bank's balance sheet. Rate environments such as the one that this country has experienced since 2001 makes asset liability management especially challenging. Liquidity management involves the ability to meet the cash flow requirements of the Company's customers. These customers may be either borrowers with credit needs or depositors wanting to withdraw funds. Management of interest rate sensitivity attempts to avoid widely varying net interest margins and achieve consistent net interest income through periods of changing interest rates. Asset liability management assists the Company in achieving reasonable and predictable earnings and liquidity by maintaining a balance between interest-earning assets and interest-bearing liabilities. The Company uses a sophisticated computer program to perform analysis of interest rate risk, assist with asset liability management, and model and measure interest rate sensitivity. Interest rate sensitivity varies with different types of earning assets and interest-bearing liabilities. Overnight investments, on which rates change daily, and loans tied to the prime - -------- (1) Includes loans held for sale and non-accrual loans. - 18 - COMMUNITY SHORES BANK CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS rate, differ considerably from long term investment securities and fixed rate loans. Interest bearing checking and money market accounts are more interest sensitive than long term time deposits and fixed rate FHLB advances. Comparison of the repricing intervals of interest earning assets to interest bearing liabilities is a measure of interest sensitivity gap. Balancing this gap is a continual challenge in a changing rate environment. Details of the repricing gap at September 30, 2003 were:
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 $ 1,568,412 $ 0 $ 0 $ 0 $ 1,568,412 Federal funds sold 0 0 0 0 0 Securities (including FHLB stock) 660,247 1,864,500 19,783,062 3,550,757 25,858,566 Loan held for sale 0 0 0 622,800 622,800 Loans 88,692,753 12,134,401 43,504,105 1,837,720 146,168,979 ------------ ------------ ------------ ------------ ------------ 90,921,412 13,998,901 63,287,167 6,011,277 174,218,757 Interest-bearing liabilities Savings and checking 63,115,342 0 0 0 63,115,342 Time deposits <$100,000 5,376,866 7,912,824 10,917,932 0 24,207,622 Time deposits >$100,000 2,241,313 12,675,297 26,495,130 0 41,411,740 Repurchase agreements and Federal funds purchased 17,705,364 0 0 0 17,705,364 Notes payable and Federal Home Loan bank advances 10,550,000 0 0 0 10,550,000 ------------ ------------ ------------ ------------ ------------ 98,988,885 20,588,121 37,413,062 0 156,990,068 Net asset (liability) repricing gap $ (8,067,473) $ (6,589,220) $ 25,874,105 $ 6,011,277 $ 17,228,689 ============ ============ ============ ============ ============ Cumulative net asset (liability) Repricing gap $ (8,067,473) $(14,656,693) $ 11,217,412 $ 17,228,689 ============ ============ ============= =============
Currently the Bank has a negative twelve month repricing gap which indicates that the Bank is liability sensitive. This position implies that increases or decreases to the national federal funds rate would have more of an impact on interest expense than on interest income if there were a parallel shift in rates. Theoretically, a parallel shift in rates means that if the Bank's internal prime rate goes up or down by 25 basis points, every interest earning asset and interest bearing liability on the Bank's September 30, 2003 balance sheet will adjust simultaneously by the same 25 basis points. The above table illustrates what the Bank is contractually able to change in certain timeframes. Management believes that certain deposit rates are reaching the bottom limit of what can be paid in today's marketplace and future downward changes to national federal funds rates may not be readily realized by reduced deposit rates. The provision for loan losses for the third quarter and the first nine months of 2003 were $94,000 and $456,000 compared to figures of $154,000 and $442,000 for the same periods in 2002. Management believes that the allowance level is adequate and justifiable based on the factors discussed earlier (see Financial Condition). Management will continue to review the allowance with the intent of maintaining it at an appropriate level. The provision may be - 19 - COMMUNITY SHORES BANK CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS increased or decreased in the future as management continues to monitor the loan portfolio and actual loan loss experience. Non-interest income recorded in the third quarter totaled $246,000 and represented an increase of 5% over last year's third quarter. Through September 30, 2003, non-interest income was $828,000 compared to a figure of $636,000 for the first nine months of 2002. Service charge income was $53,000 higher for the first nine months of 2003. About $30,000 of the year over year increase was related to non-sufficient funds charges which is typically a symptom of a weak economic environment. Increases experienced in this type of fee income are not guaranteed and should not be counted on for significant contributions to future earnings. The other portion of the increase is from service charges on deposits. Management believes that increases to fee income of this type will continue to increase as a result of growth in the number of deposit accounts. On a year to date basis, mortgage loan referral fees and gain on loan sales totaled $184,000 compared to $135,000 being recorded through September 30 of 2002, an increase of 37%. It is difficult to predict future contributions of mortgage related fee income to non-interest income because of its dependence on interest rates, which are subject to market forces. At this time mortgage rates have risen and reduced mortgage loan applications. Fee income from this source is anticipated to be very modest in the remaining quarter of 2003. During the first quarter of 2003 four securities were sold for a gain of $62,681. The securities sold totaled approximately $2.3 million. The Bank chose to sell the securities when a repurchase agreement customer with a balance of nearly $3 million opted to permanently transfer the entire balance to a money market account. Once the switch was made the securities were no longer needed for pledging purposes and the Bank liquidated the securities to fund expected loan growth. Other non-interest income consists of a variety of categories that are volume based transactions (including wire transfer, debit card, and ACH fees). As the customer base of the Bank grows these fees are expected to increase. Fees of this type increased just over $27,000 when comparing the first nine months of 2003 to that of 2002. Non-interest expenses for the first nine months of 2003 increased 13% over the same period in 2002. The figure for 2003 was $4.1 million compared to a total of $3.6 million for 2002. Of the $486,000 total increase, salaries and benefits comprised 62%. In addition to the rising cost of benefits and annual salary adjustments there were an average of 2.5 more full-time equivalent employees between the same nine month periods of 2002 and 2003. Additions to staff are made to support the growth of the Bank from both a sales and operational standpoint. Total data processing expenses for the third quarter and first nine months of 2003 were $74,000 and $222,000 compared to $64,000 and $181,000 for the similar periods in 2002. Data processing expenses, which are transaction based, have increased as a result of the Bank's expanding customer base as well as the addition of an internet banking product. On September 30, 2003 the Bank had 514 personal and business internet customers which is 209 more than the number reported at September 30, 2002. The operational expense of internet and telephone banking transactions falls in the data processing category. In general, data - 20 - COMMUNITY SHORES BANK CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS processing expenses are a permanent component of a financial institution's overhead and would be expected to increase with the general growth of the Bank. Professional services expenses were $225,000 for the first nine months of 2003 compared to $195,000 for the first nine months of 2002. Beginning in January of 2003, the Company separated its internal and external audit functions, as required by the Sarbanes-Oxley Act of 2002, thus retaining two public accounting firms. This change in processes is partially responsible for the increase. In general, these costs are also expected to increase as the Bank ages and becomes a more mature and complex financial institution. The line item showing other non-interest expenses for the first nine months of 2003 has increased $110,000 compared to the same period in 2002. Repo and collection fees, one of the expenses in this category, was responsible for a large portion of the increase. As the loan portfolio seasons and the weak economy persists, it is logical that more money would be spent to address problem loans. As mentioned earlier, the Bank has taken measures to enhance its collection process, including the hiring of a full time collection officer. Repo and collection fees were $72,000 for the first nine months of 2003 compared $35,000 for the first nine months of 2002. There were no federal taxes accrued in the first nine months of 2002 however there was a Federal tax benefit of $161,000 for the similar period in the current year. During the first quarter of 2003, management concluded that the Company's valuation allowance for deferred tax assets was no longer needed, resulting in a net Federal tax benefit of $327,184 being recognized. During the Company's first years of operation, losses were recorded but no tax benefit was reflected. Since becoming profitable the Company has used this deferred tax valuation allowance to offset the federal tax liability and expense that otherwise would have been recorded. The gross benefit received in the first quarter of 2003 was reduced by the second and third quarter's Federal tax expense of $166,000, or 34% of its earnings in those quarters. ITEM 3. CONTROLS AND PROCEDURES An evaluation was carried out under the supervision and with the participation of the Company's management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of September 30, 2003. Based on the evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures were, to the best of their knowledge, effective as of September 30, 2003 with respect to information required to be disclosed by the Company in reports that it files or submits under the Exchange Act. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS From time to time, the Company, the Bank, the Mortgage Company or Community Shores Financial Services may be involved in various legal proceedings that are incidental to their business. In the opinion of management, the Company, the Bank, the Mortgage Company and Community Shores Financial Services are not a party to any current legal proceedings that are material to their financial condition, either individually or in the aggregate. - 21 - ITEM 2. CHANGES IN SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION Not applicable. ITEM 6. 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 (Commission File No. 333-63769) that became effective on December 17, 1998. 3.2 Bylaws of Community Shores Bank Corporation (as amended and restated October 29, 2003) that became effective on October 29, 2003. 10.1 First Amendment to Community Shores Bank Corporation Floating Rate Subordinated Note due June 30, 2008 and Subordinated Note Purchase Agreement between Community Shores Bank Corporation and John L. Hilt, acting through his IRA, dated August 27, 2003. 10.2 First Amendment to Community Shores Bank Corporation Floating Rate Subordinated Note due June 30, 2008 and Subordinated Note Purchase Agreement between Community Shores Bank Corporation and Donald E. Hegedus dated August 27, 2003. 10.3 First Amendment to Community Shores Bank Corporation Floating Rate Subordinated Note due June 30, 2008 and Subordinated Note Purchase Agreement between Community Shores Bank Corporation and Michael D. Gluhanich dated August 27, 2003. 10.4 First Amendment to Community Shores Bank Corporation Floating Rate Subordinated Note due June 30, 2008 and Subordinated Note Purchase Agreement between Community Shores Bank Corporation and Robert L. Chandonnet dated August 27, 2003.
- 22 - 10.5 First Amendment to Community Shores Bank Corporation Floating Rate Subordinated Note due June 30, 2008 and Subordinated Note Purchase Agreement between Community Shores Bank Corporation and Community Shores LLC dated August 27, 2003. 31.1 Rule 15d-14(a) Certification of the principal executive officer. 31.2 Rule 15d-14(a) Certification of the principal financial officer. 32.1 Section 1350 Certification of Chief Executive Officer. 32.2 Section 1350 Certification of Chief Financial Officer.
(b) Reports on Form 8-K. During the third quarter of 2003, the Company filed the following reports on Form 8-K: (i) Form 8-K dated October 2, 2003, reporting a change in the organizational structure of the Company's bank subsidiary. (ii) Form 8-K dated October 23, 2003 reporting the Company's earnings and other financial results for its third quarter of 2003. - 23 - SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on November 14, 2003. COMMUNITY SHORES BANK CORPORATION By: /s/ Jose' A. Infante -------------------------------------------- Jose' A. Infante Chairman of the Board and Chief Executive Officer (principal executive officer) By: /s/ Tracey A. Welsh --------------------------------------------- Tracey A. Welsh Chief Financial Officer and Vice President (principal financial and accounting officer) - 24 - 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 (Commission File No. 333-63769) that became effective on December 17, 1998. 3.2 Bylaws of Community Shores Bank Corporation (as amended and restated October 29, 2003) that became effective on October 29, 2003. 10.1 First Amendment to Community Shores Bank Corporation Floating Rate Subordinated Note due June 30, 2008 and Subordinated Note Purchase Agreement between Community Shores Bank Corporation and John L. Hilt, acting through his IRA, dated August 27, 2003. 10.2 First Amendment to Community Shores Bank Corporation Floating Rate Subordinated Note due June 30, 2008 and Subordinated Note Purchase Agreement between Community Shores Bank Corporation and Donald E. Hegedus dated August 27, 2003. 10.3 First Amendment to Community Shores Bank Corporation Floating Rate Subordinated Note due June 30, 2008 and Subordinated Note Purchase Agreement between Community Shores Bank Corporation and Michael D. Gluhanich dated August 27, 2003. 10.4 First Amendment to Community Shores Bank Corporation Floating Rate Subordinated Note due June 30, 2008 and Subordinated Note Purchase Agreement between Community Shores Bank Corporation and Robert L. Chandonnet dated August 27, 2003. 10.5 First Amendment to Community Shores Bank Corporation Floating Rate Subordinated Note due June 30, 2008 and Subordinated Note Purchase Agreement between Community Shores Bank Corporation and Community Shores LLC dated August 27, 2003. 31.1 Rule 15d-14(a) Certification of the principal executive officer. 31.2 Rule 15d-14(a) Certification of the principal financial officer. 32.1 Section 1350 Certification of Chief Executive Officer. 32.2 Section 1350 Certification of Chief Financial Officer.
-25- EX-3.2 3 k80594exv3w2.txt BYLAWS Exhibit 3.2 AS PROPOSED TO BE AMENDED AND RESTATED OCTOBER 29, 2003 BYLAWS OF COMMUNITY SHORES BANK CORPORATION (AS AMENDED AND RESTATED OCTOBER 29, 2003) ARTICLE I. OFFICES SECTION 1. PRINCIPAL OFFICE. The principal office shall be in Roosevelt Park, State of Michigan. SECTION 2. OTHER OFFICES. The Corporation may also have offices at such other places both within and without the State of Michigan as the board of directors may from time to time determine or the business of the Corporation may require. ARTICLE II. MEETINGS OF SHAREHOLDERS SECTION 1. TIMES AND PLACES OF MEETINGS. All meetings of the shareholders shall be held at such times and places, within or without the State of Michigan, as may be fixed from time to time by the board of directors. If no designation of the place of a meeting is made, such meeting shall be held at the principal office of the Corporation in Roosevelt Park, Michigan. SECTION 2. ANNUAL MEETINGS. Annual meetings of the shareholders shall be held each year at such time on such business day in the month of April or May as may be designated by the board of directors, or if no such designation is made, at 2 p.m. on the second Thursday in May, or if that day is a legal holiday, then on the next succeeding business day at such place and hour as shall be fixed by the board of directors. SECTION 3. SPECIAL MEETINGS. Special meetings of the shareholders may be called by resolution of a majority of the board of directors or by the Chairman of the Board and shall be held on a date fixed by the board of directors or the Chairman of the Board. SECTION 4. NOTICE OF MEETINGS. Written notice of the date, time, place, if any, and purposes of a shareholder meeting shall be given not less than 10 nor more than 60 days before the date of the meeting, either personally, by mail, or, if authorized by the board of directors, by a form of electronic transmission to which the shareholder has consented, to each shareholder of record entitled to vote at the meeting. For the purposes of these bylaws, "electronic transmission" means any form of communication that does not directly involve the physical transmission of paper, that creates a record that may be retained and retrieved by the recipient and that may be reproduced in paper form by the recipient through an automated process. Notice of the purposes of the meeting shall include notice of any shareholder proposals that are proper subjects for shareholder action and are intended to be presented by shareholders who have notified the corporation in writing of their intention to present the proposals at the meeting in accordance with these bylaws. Notice of a meeting need not be given to any shareholder who signs a waiver of notice before or after the meeting. Attendance of a shareholder at a meeting shall constitute both (a) a waiver of notice or defective notice except when the shareholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to holding the meeting or transacting any business because the meeting has not been lawfully called or convened, and (b) a waiver of objection to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, except when the shareholder objects to considering the matter when it is presented. SECTION 5. SHAREHOLDER PROPOSALS. Except as otherwise provided by statute, the Corporation's Articles of Incorporation, or these bylaws: (a) No matter may be presented for shareholder action at an annual or special meeting of shareholders unless such matter is: (i) specified in the notice of the meeting (or any supplement to the notice) given by or at the direction of the board of directors; (ii) otherwise presented at the meeting by or at the direction of the board of directors; (iii) properly presented for action at the meeting by a shareholder in accordance with the notice provisions set forth in this Section and any other applicable requirements; or (iv) a procedural matter presented, or accepted for presentation, by the chairman of the meeting in his sole discretion. (b) For a matter to be properly presented by a shareholder, the shareholder must have given timely notice of the matter in writing to the Secretary of the Corporation. To be timely, the notice must be delivered to or mailed to and received at the principal executive offices of the Corporation not less than 120 calendar days prior to the date corresponding to the date of the Corporation's proxy statement or notice of meeting released to shareholders in connection with the last preceding annual meeting of shareholders in the case of an annual meeting (unless the Corporation did not hold an annual meeting within the last year, or if the date of the upcoming annual meeting changed by more than 30 days from the date of the last preceding meeting, then the notice must be delivered or mailed and received not more than 10 days after the earlier of the date of the notice of the meeting or public disclosure of the date of the meeting), and not more than 10 days after the earlier of the date of the notice of the meeting or public disclosure of the date of the meeting in the case of a special meeting. The notice by the shareholder must set forth: (i) a brief description of the matter the shareholder desires to present for shareholder action; (ii) the name and record address of the shareholder proposing the matter for shareholder action; (iii) the class and number of shares of capital stock of the Corporation that are beneficially owned by the shareholder; and (iv) any material interest of the shareholder in the matter proposed for shareholder action. For -2- purposes of this Section, "public disclosure" means disclosure in a press release reported by the Dow Jones News Service, Associated Press or other comparable national financial news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14, or 15 of the Securities Exchange Act of 1934, as amended. SECTION 6. SHAREHOLDER LIST. The officer or agent who has charge of the stock ledger of the Corporation shall prepare and make a complete list of the shareholders entitled to vote at each meeting, arranged by class or series of shares in alphabetical order, showing the address of and the number of shares registered in the name of each shareholder. The list shall be produced and kept at the time and place of the meeting and may be inspected during the whole time of the meeting by any shareholder who is present at the meeting. SECTION 7. QUORUM. Unless a greater or lesser quorum is provided in the Articles of Incorporation or bylaw, shares entitled to cast a majority of the votes at a meeting constitute a quorum at the meeting. Except when the holders of a class or series of shares are entitled to vote separately on an item of business, shares of all classes and series entitled to vote shall be combined as a single class and series for the purpose of determining a quorum. When the holders of a class or series of shares are entitled to vote separately on an item of business, shares of that class or series entitled to cast a majority of the votes of that class or series at a meeting constitute a quorum of that class or series at the meeting, unless a greater or lesser quorum is provided in the Articles of Incorporation or by law. If there is no quorum, the officer of the Corporation presiding as chairman of the meeting shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present, when any business may be transacted which might have been transacted at the meeting as first convened had there been a quorum. However, if the adjournment is for more than thirty (30) days, or if after the adjournment the board fixes a new record date for the adjourned meeting, notice of the time, place and purposes of such meeting shall be given to each shareholder of record on the new record date. Once a quorum is determined to be present, the shareholders present in person or by proxy at such meeting may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. If a meeting is adjourned solely for the purpose of receiving the results of voting by shareholders, such meeting need not be reconvened. If not reconvened, such meeting shall stand adjourned pending submission of the results of voting to the Secretary of the Corporation, whereupon such meeting shall stand adjourned until the next regular or special meeting of shareholders. SECTION 8. VOTE REQUIRED. When a quorum is present at a meeting, any action to be taken by a vote of the shareholders, other than the election of directors, shall be authorized by a majority of the votes cast by the holders of shares entitled to vote on the action, unless a greater vote is required by the Articles of Incorporation or express provision of statute. Except as otherwise provided by the Articles of Incorporation, directors shall be elected by a plurality of the votes cast at an election. SECTION 9. VOTING RIGHTS. Except as otherwise provided by the Articles of Incorporation or the resolution or resolutions of the board of directors creating any class of stock, -3- each shareholder shall at every meeting of the shareholders be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such shareholder. SECTION 10. PROXIES. A shareholder entitled to vote at a shareholder meeting or to express consent or dissent without a meeting may authorize one or more other persons to act for the shareholder by proxy only by one of the following methods: (a) The execution of a writing authorizing another person or persons to act for the shareholder as proxy. Execution may be accomplished by the shareholder or by an authorized officer, director, employee, or agent of the shareholder by either signing the writing or causing his or her signature to be affixed to the writing by any reasonable means including, but not limited to, facsimile signature; or (b) Transmitting or authorizing the transmission of a telegram, cablegram, or other means of electronic transmission to the person who will hold the proxy or to a proxy solicitation firm, proxy support service organization, or similar agent fully authorized by the person who will hold the proxy to receive that transmission. Any telegram, cablegram, or other means of electronic transmission must either set forth or be submitted with information from which it can be determined that the telegram, cablegram, or other electronic transmission was authorized by the shareholder. If a telegram, cablegram, or other electronic transmission is determined to be valid, the inspectors, or, if there are no inspectors, the persons making the determination shall specify the information upon which they relied. A copy, facsimile telecommunication, or other reliable reproduction of the writing or transmission created pursuant to subsections (a) or (b) may be substituted or used in lieu of the original writing or transmission for any purpose for which the original writing or transmission could be used, if the copy, facsimile telecommunication, or other reproduction is a complete reproduction of the entire original writing or transmission. A proxy is not valid after the expiration of three years from its date unless otherwise provided in the proxy. A proxy must be filed with the Corporation at or before the meeting. SECTION 11. CONDUCT OF MEETINGS. Meetings of shareholders generally shall follow accepted rules of parliamentary procedure, subject to the following: (a) The chairman of the meeting shall have absolute authority over matters of procedure, and there shall be no appeal from the ruling of the chairman. If, in his or her absolute discretion, the chairman deems it advisable to dispense with the rules of parliamentary procedure as to any meeting of shareholders or part thereof, he or she shall so state and shall clearly state the rules under which the meeting or appropriate part thereof shall be conducted. (b) If disorder should arise which, in the absolute discretion of the chairman, prevents the continuation of the legitimate business of the meeting, the chairman may quit the chair and announce the adjournment of the meeting, and upon his or her so -4- doing, the meeting is immediately adjourned without the necessity of any vote or further action of the shareholders. (c) The chairman may require any person who is not a bona fide shareholder of record on the record date, or a validly appointed proxy of such a shareholder, to leave the meeting. (d) The chairman may introduce nominations, resolutions or motions submitted by the board of directors for consideration by the shareholders without a motion or second. Except as the chairman shall direct, a resolution or motion not submitted by the board of directors shall be considered for a vote only if presented in the manner provided in Article II, Section 5, of these bylaws. (e) When all shareholders present at a meeting in person or by proxy have been offered an opportunity to vote on any matter properly before a meeting, the chairman may at his or her discretion declare the polls to be closed, and no further votes may be cast or changed after such declaration. If no such declaration is made by the chairman, the polls shall remain open and shareholders may cast additional votes or change votes until the inspectors of election have delivered their final report to the chairman. (f) When the chairman has declared the polls to be closed on all matters then before a meeting, the chairman may declare the meeting to be adjourned pending determination of the results by the inspectors of election. In such event, the meeting shall be considered adjourned for all purposes, and the business of the meeting shall be finally concluded upon delivery of the final report of the inspectors of election to the chairman at or after the meeting. (g) When the chairman determines that no further matters may properly come before a meeting, he or she may declare the meeting to be adjourned, without motion, second, or vote of the shareholders. (h) When the chairman has declared a meeting to be adjourned, unless the chairman has declared the meeting to be adjourned until a later date, no further business may properly be considered at the meeting even though shareholders or holders of proxies representing a quorum may remain at the site of the meeting. SECTION 12. INSPECTORS OF ELECTION. The board of directors or, if they shall not have so acted, the chairman, may appoint at or prior to any meeting of shareholders one or more persons (who may be directors or employees of the Corporation) to serve as inspectors of election. The inspectors so appointed shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes or ballots, hear and determine challenges and questions arising in connection with the right to vote, count and tabulate votes or ballots, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all shareholders. -5- SECTION 13. VOTING. When any vote is taken by written ballot at any meeting of shareholders, an unrevoked proxy submitted in accordance with its terms shall be accepted in lieu of, and shall be deemed to constitute, a written ballot marked as specified in such proxy. ARTICLE III. RECORD DATE SECTION 1. FIXING OF RECORD DATE BY BOARD. For the purpose of determining the shareholders entitled to notice of or to vote at any meeting of shareholders, or any adjournment thereof, or to express consent to or dissent from any corporate action in writing without a meeting, or for the purpose of determining shareholders entitled to receive payment of any dividend or the distribution or allotment of any rights or evidences of interests arising out of any change, conversion or exchange of capital stock, or for the purpose of any other action, the board of directors may fix, in advance, a date as the record date for any such determination of shareholders. Such date shall not be more than sixty (60) days nor less than ten (10) days before the date of any such meeting, nor more than sixty (60) days prior to the effectuation of any other action proposed to be taken. Only shareholders of record on a record date so fixed shall be entitled to notice of, and to vote at, such meeting or to receive payment of any dividend or the distribution or allotment of any rights or evidences of interests arising out of any change, conversion or exchange of capital stock. SECTION 2. PROVISION FOR RECORD DATE IN THE ABSENCE OF BOARD ACTION. If a record date is not fixed by the board of directors: (a) the record date for determination of shareholders entitled to notice of or to vote at a meeting of shareholders shall be the close of business on the day next preceding the day on which notice is given, or, if no notice is given, the day next preceding the day on which the meeting is held; and (b) the record date for determining shareholders entitled to express consent to corporate action in writing, without a meeting, when no prior action by the board of directors is necessary, shall be the day on which the first written consent is expressed; and (c) the record date for determining shareholders for any other purpose shall be the close of business on the day on which the resolution of the board relating thereto is adopted. SECTION 3. ADJOURNMENTS. When a determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders has been made as provided in this Article, the determination applies to any adjournment of the meeting, unless the board fixes a new record date for the adjourned meeting. ARTICLE IV. DIRECTORS SECTION 1. NUMBER AND QUALIFICATION OF DIRECTORS. Each director shall be at least twenty-one (21) years of age. A director need not be a shareholder, a citizen of the United States, or a resident of the State of Michigan. The number of directors shall be fixed by resolution of the board of directors as provided in the Articles of Incorporation. -6- SECTION 2. VACANCIES. Vacancies and newly created directorships resulting from any increase in the authorized number of directors shall be filled in the manner provided in the Articles of Incorporation. SECTION 3. POWERS. The business and affairs of the Corporation shall be managed by its board of directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Articles of Incorporation or by these Bylaws directed or required to be exercised or done by the shareholders. SECTION 4. FEES AND EXPENSES. The directors may be paid their expenses, if any, of attendance at each meeting of the board of directors and may be paid a fixed sum for attendance at each meeting of the board of directors or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. SECTION 5. RESIGNATION AND REMOVAL. Any director may resign at any time and such resignation shall take effect upon receipt of written notice thereof by the Corporation, or at such subsequent time as set forth in the notice of resignation. Directors may be removed only as provided by statute or the Articles of Incorporation. ARTICLE V. MEETINGS OF DIRECTORS SECTION 1. PLACE OF MEETINGS. The board of directors of the Corporation may hold meetings, both regular and special, either within or without the State of Michigan. SECTION 2. FIRST MEETING OF NEWLY ELECTED BOARD. The first meeting of each newly elected board of directors shall be held immediately following the annual meeting of shareholders, and no notice of such meeting shall be necessary to the newly elected directors to legally constitute the meeting, provided a quorum shall be present. In the event such meeting is not held immediately following the annual meeting of shareholders, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the board of directors, or as shall be specified in a written waiver signed by all of the directors. SECTION 3. REGULAR MEETINGS. Regular meetings of the board of directors may be held with or without notice at such time and at such place as shall from time to time be determined by the board. SECTION 4. SPECIAL MEETINGS. Special meetings of the board may be called by the Chairman of the Board or the President on two (2) days' notice to each director, either personally, by mail or by electronic transmission to which the director has consented; special -7- meetings shall be called by the Chairman of the Board or the President in like manner and on like notice on the written request of two (2) directors. SECTION 5. PURPOSE NEED NOT BE STATED. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the board of directors need be specified in the notice of such meeting. SECTION 6. QUORUM. At all meetings of the board of directors a majority of the total number of directors shall constitute a quorum for the transaction of business, and the acts of a majority of the directors present at any meeting at which there is a quorum shall be the acts of the board of directors, except as may be otherwise specifically provided by statute or by the Articles of Incorporation. If a quorum is not present at any meeting of the board of directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. SECTION 7. ACTION WITHOUT A MEETING. Any action required or permitted to be taken at a meeting of the board of directors or a committee of the board may be taken without a meeting if, before or after the action, all members of the board then in office or of the committee consent to the action in writing or by electronic transmission. The written consents shall be filed with the minutes of the board or committee. The consent has the same effect as a vote of the board or committee at a meeting duly called and held on any effective date specified in the consent or, if none, the date on which the last required consent is received by the Corporation for all purposes. SECTION 8. ELECTRONIC PARTICIPATION IN MEETING. A member of the board of directors or of a committee of the board may participate in a meeting by means of conference telephone or other means of remote communication through which all persons participating in the meeting can communicate with each other. Such participation in a meeting constitutes presence in person at the meeting. A director must be permitted to participate in a meeting by such means if the director so requests. SECTION 9. WAIVER OF NOTICE. Attendance of a director at or participation in a meeting of the board of directors or any committee constitutes a waiver of notice of the meeting, except where a director attends a meeting for the express purpose of objecting, at the beginning of the meeting or upon his or her arrival, to the meeting or the transaction of any business because the meeting has not lawfully been called or convened, and the person does not thereafter vote for or assent to any action taken at the meeting. Notice of any meeting of the board or a committee need not be given to any person entitled thereto who waives such notice in writing or by electronic transmission, either before or after the meeting. SECTION 10. EXECUTIVE SESSION. An executive session of the Board of Directors may be held at any regular or special meeting of the Board of Directors at the request of the Chairman of the Board, any Vice Chairman of the Board, or any two directors. Directors who are employees of the Corporation or any of its subsidiaries shall be excused from and not be present during an executive session. No notice of a meeting held in executive session need be given if the executive session is held during or immediately following a meeting of the Board of -8- Directors. The Chairman of the Board, any Vice Chairman of the Board, or any two Directors may call a special meeting of the Board of Directors to be held only in executive session. Notice of a special meeting to be held only in executive session shall be given to all Directors in the manner provided in these Bylaws for special meetings of the Board of Directors. The Chairman of the Board, if present, the more senior Vice Chairman of the Board present, or a director selected by the directors in executive session shall serve as chairman of the meeting in executive session. The Board of Directors meeting in executive session will be a committee of the Board of Directors which will have, and may exercise, the full power and authority of the Board of Directors, including without limitation the power and authority to declare distributions and dividends and to authorize the issuance of stock. ARTICLE VI. COMMITTEES OF DIRECTORS SECTION 1. COMMITTEES. The board of directors may from time to time appoint committees, whose membership shall consist of such members of the board of directors as it may deem advisable, to serve at the pleasure of the board. The board of directors may also appoint directors to serve as alternates for members of each committee in the absence or disability of regular members. The board of directors may fill any vacancies in any committee as they occur. SECTION 2. EXECUTIVE COMMITTEE. The Executive Committee, if there is one, shall have and may exercise the full powers and authority of the board of directors in the management of the business affairs and property of the Corporation during the intervals between meetings of the board of directors. The Executive Committee shall also have the power and authority to declare distributions and dividends and to authorize the issuance of stock. SECTION 3. AUDIT COMMITTEE. The Audit Committee will perform the function of an audit committee for the Corporation and each of it's subsidiaries as that function is defined in the Audit Committee Charter adopted by the board of directors from time to time. The Audit Committee shall have the authority, responsibilities and powers provided in the Audit Committee Charter, any resolutions adopted by the board of directors from time to time, and any applicable laws and regulations. The members of the Audit Committee shall have the qualifications set forth in the Audit Committee Charter, any resolutions adopted by the board of directors from time to time, and any applicable laws and regulations. SECTION 4. COMPENSATION COMMITTEE. The Compensation Committee will perform the function of a compensation committee for the Corporation and each of its subsidiaries as that function is defined in the Compensation Committee Charter adopted by the board of directors from time to time. The Compensation Committee shall have the authority, responsibilities, and powers provided in the Compensation Committee Charter, any resolutions adopted by the board of directors from time to time, and any applicable laws and regulations. The members of the Compensation Committee shall have the qualifications set forth in the Compensation Committee Charter, any resolutions adopted by the board of directors from time to time, and any applicable laws and regulations. -9- SECTION 5. GOVERNANCE COMMITTEE. The Governance Committee will perform the function of a governance and nominations committee for the Corporation and each of its subsidiaries as that function is defined in the Governance Committee Charter adopted by the board of directors from time to time. The Governance Committee shall have the authority, responsibilities, and powers provided in the Governance Committee Charter, any resolutions adopted by the board of directors from time to time, and any applicable laws and regulations. The members of the Governance Committee shall have the qualifications set forth in the Governance Committee Charter, any resolutions adopted by the board of directors from time to time, and any applicable laws and regulations. SECTION 6. OTHER COMMITTEES. The board of directors may designate such other committees as it may deem appropriate, and such committees shall exercise the authority delegated to them. SECTION 7. MEETINGS. Each committee provided for above shall meet as often as its business may require and may fix a day and time for regular meetings, notice of which shall not be required. Whenever the day fixed for a meeting shall fall on a holiday, the meeting shall be held on the following business day or on such other day as the chairman of the committee may determine. Special meetings of committees may be called by any member, and notice thereof may be given to the members personally, by telephone, by mail, or by electronic transmission. A majority of the members of a committee shall constitute a quorum for the transaction of the business of the committee. A record of the proceedings of each committee shall be kept and presented to the board of directors. SECTION 8. SUBSTITUTES. In the absence or disqualification of a member of a committee, the members thereof present at a meeting and not disqualified from voting, whether or not they constitute a quorum, may unanimously appoint any other member of the board who has the qualifications, if any, set forth in the committee charter to act at the meeting in place of such absent or disqualified member. ARTICLE VII. OFFICERS AND TITLED POSITIONS SECTION 1. APPOINTMENT OF OFFICERS. The board of directors at its first meeting after the annual meeting of shareholders, or as soon as practicable after the election of directors in each year, shall appoint from its number a Chairman of the Board. The board of directors shall also appoint a President, a Secretary, and a Treasurer, all of whom shall be officers of the Corporation. The board of directors may also appoint and expressly designate such other individuals as it may deem proper to be officers of the Corporation, with such titles as the board of directors may deem appropriate. If the offices of Chairman of the Board and President are held by a single person, that officer shall be the Chief Executive Officer of the Corporation; if not, the board of directors shall designate either the Chairman of the Board or the President to be the Chief Executive Officer of the Corporation. The dismissal of an officer, the appointment of an officer to fill the office of one who has been dismissed or has ceased for any reason to be an officer, the appointment of any additional officers, and the change of an officer to a different or -10- additional office, may be made by the board of directors at any later meeting. Any two or more offices may be filled by the same person. SECTION 2. APPOINTMENTS TO TITLED POSITIONS. The board of directors or the Chief Executive Officer may from time to time appoint individuals to fill titled positions. Holders of titled positions who may from time to time be appointed pursuant to this Section shall hold such titles as are assigned by the board of directors or the Chief Executive Officer and shall perform such duties and exercise such authority as may be assigned by the board of directors or the Chief Executive Officer. Dismissal of the holder of a titled position, appointment of a replacement for a holder of a titled position, appointment of any additional titled position holders, and change of a titled position holder to a different or additional position, may be made by the board of directors or the Chief Executive Officer. Any two or more titled positions may be filled by the same person. SECTION 3. AUTHORITY OF OFFICERS. The Chairman of the Board, the Chief Executive Officer, the President, the Secretary, the Treasurer, and such other persons as the board of directors shall have appointed and expressly designated as officers shall be the only officers of the Corporation. Only the officers of the Corporation shall have discretionary authority to determine the fundamental policies of the Corporation. Holders of titled positions who have not been expressly designated as officers of the Corporation in this Section or by the board of directors shall not be officers of the Corporation regardless of their titles. SECTION 4. AUTHORITY OF TITLED POSITIONS. Holders of titled positions who are not officers shall not have discretionary authority to determine fundamental policies of the Corporation and shall not, by reason of holding such titled positions, be entitled to have access to any files, records or other information relating or pertaining to the Corporation, its business and finances, or to attend or receive the minutes of any meetings of the board of directors or any committee of the Corporation, except as and to the extent expressly authorized and permitted by the board of directors or the Chief Executive Officer. SECTION 5. TERM OF SERVICE. Each officer and holder of a titled position shall serve at the pleasure of the board. The board of directors may remove any officer or holder of a titled position from that office or position for cause or without cause. Any officer or holder of a titled position may resign his or her office or position at any time, such resignation to take effect upon receipt of written notice thereof by the Corporation unless otherwise specified in the resignation. SECTION 6. CHAIRMAN OF THE BOARD. The Chairman of the Board shall preside at all meetings of the shareholders and all meetings of the board of directors. SECTION 7. PRESIDENT. The President shall, subject to the direction of the board of directors, see that all orders and resolutions of the board are carried into effect, and shall perform all other duties necessary or appropriate to his or her office, subject, however, to his or her right and the right of the directors to delegate any specific powers to any other officer or officers of the Corporation. In case of the absence or inability to act of the Chairman of the Board, the President shall exercise all of the duties and responsibilities of the Chairman until the board shall otherwise direct. -11- SECTION 8. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer, in addition to his or her duties as Chairman of the Board or President, as the case may be, shall have final authority, subject to the control of the board of directors, over the general policy and business of the Corporation. The Chief Executive Officer shall have the power, subject to the control of the board of directors, to appoint, suspend or discharge and to prescribe the duties and to fix the compensation of such agents and employees of the Corporation, other than the officers appointed by the board, as he or she may deem necessary. SECTION 9. VICE CHAIRMEN OF THE BOARD. Each Vice-Chairman of the Board shall have such powers and perform such duties as may be assigned to him or her from time to time by the board of directors or the Chief Executive Officer. In case of the absence or inability to act of the Chairman of the Board and the President, the duties of his or her office shall, unless otherwise specified by these Bylaws, be performed by the Vice-Chairmen of the Board in the order of their seniority or such other priority as may be established by the board or by the Chief Executive Officer, unless and until the board shall otherwise direct, and, when so acting, the duly authorized Vice-Chairman of the Board shall have all the powers of, and shall be subject to the restrictions upon, the Chairman of the Board or the President. SECTION 10. VICE PRESIDENTS. Each Executive Vice President, Senior Vice President, Vice President, Assistant Vice President and such other vice presidents as may be designated by the board of directors shall have such powers and perform such duties as may be assigned to him or her from time to time by the board of directors or the Chief Executive Officer. In case of the absence or inability to act of the President, and in the absence or inability to act of the Vice-Chairmen of the Board, the duties of the President shall, unless otherwise specified by these Bylaws, be performed by the Executive Vice Presidents, the Senior Vice Presidents, the Vice Presidents, the Assistant Vice Presidents and then such other vice presidents as may be designated by the board in the order of their seniority or such other priority as may be established by the board or by the Chief Executive Officer, unless and until the board shall otherwise direct, and, when so acting, the duly authorized Executive Vice President, Senior Vice President, Vice President or Assistant Vice President shall have all the powers of, and shall be subject to the restrictions upon, the President. Executive Vice Presidents, Senior Vice Presidents, Vice Presidents and Assistant Vice Presidents have the authority to sign or execute contracts and other documents which shall be binding on the Corporation and to fulfill the terms thereof, but such Executive Vice Presidents, Senior Vice Presidents, Vice Presidents and Assistant Vice Presidents shall not have the discretionary policy-making authority conferred upon the officers by these Bylaws unless expressly designated as an officer by the board of directors. SECTION 11. SECRETARY. Except as otherwise directed by the Chairman of the Board, the Secretary shall attend all sessions of the board of directors and all meetings of the shareholders and shall record all votes and the minutes of all proceedings in a book to be kept for that purpose. The Secretary shall perform like duties for committees when required. He or she may give, or cause to be given, notice of meetings of the shareholders and meetings of the board of directors (though such notices may be given by the Chairman of the Board, the President or any Vice President). He or she shall keep in safe custody the seal of the Corporation and shall see that it is affixed to all documents the execution of which, on behalf of the Corporation under its seal, is -12- necessary or appropriate, and when so affixed may attest the same. He or she shall perform such other duties as may be prescribed by the board of directors or the Chief Executive Officer. SECTION 12. TREASURER. The Treasurer shall have custody of the corporate funds and securities, except as otherwise provided by the board, shall cause to be kept full and accurate accounts of receipts and disbursements in books belonging to the Corporation, and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the board of directors. He or she shall disburse the funds of the Corporation as may be ordered by the board or directors, taking proper vouchers for such disbursements, and shall render to the directors, at the regular meetings of the board or whenever they may require it, an account of all his or her transactions as Treasurer and of the financial condition of the Corporation. SECTION 13. ABSENCE. In the case of the absence or inability to act of any officer or holder of any titled position, or for any other reason that the board may deem sufficient, the board of directors or the Chief Executive Officer may delegate for the time being the powers or duties of such officer or holder of any titled position, to any other director or officer. To the extent that the enumerated powers or duties do not involve participation in major policy-making functions of the Corporation or the exercise of discretionary authority to that end, said powers or duties may be delegated for the time being to the holder of a titled position, but shall be exercised under the supervision of an officer. ARTICLE VIII. INDEMNIFICATION SECTION 1. INDEMNIFICATION OTHER THAN IN ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. Any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he or she is or was a director or officer of the Corporation or a subsidiary, or, while serving as such a director or officer, is or was serving at the request of the Corporation or a subsidiary as a director, officer, partner, trustee, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, whether for profit or not, shall be indemnified by the Corporation against expenses (including attorneys' fees), judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation or its shareholders, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Corporation or its shareholders, or with respect to any criminal action or proceeding, that he or she had reasonable cause to believe that his or her conduct was unlawful. Persons who are not directors or officers of the Corporation or a subsidiary may be similarly indemnified in respect of -13- such service to the extent authorized at any time by the board of directors, except as otherwise provided by statute or the Articles of Incorporation. SECTION 2. INDEMNIFICATION IN ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. Any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he or she is or was a director or officer of the Corporation or a subsidiary, or, while serving as such a director or officer, is or was serving at the request of the Corporation or a subsidiary as a director, officer, partner, trustee, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, whether for profit or not, shall be indemnified by the Corporation against expenses (including attorneys' fees) and amounts paid in settlement actually and reasonably incurred by him or her in connection with the action or suit if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation or its shareholders. Indemnification shall not be made for any claim, issue or matter in which such person has been found liable to the Corporation except to the extent authorized in Section 6 of this Article. Persons who are not directors or officers of the Corporation or a subsidiary may be similarly indemnified in respect of such service to the extent authorized at any time by the board of directors, except as otherwise provided by statute or the Articles of Incorporation. SECTION 3. EXPENSES. To the extent that a director or officer, or other person whose indemnification is authorized by the board of directors, has been successful on the merits or otherwise, including the dismissal of an action without prejudice, in the defense of any action, suit or proceeding referred to in Section 1 or 2 of this Article, or in the defense of any claim, issue or matter therein, he or she shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him or her in connection therewith and any action, suit or proceeding brought to enforce the mandatory indemnification provided in this Section. SECTION 4. DETERMINATION OF ENTITLEMENT. Any person who is or was a director or officer of the Corporation who claims indemnification pursuant to Section 1 or Section 2 of this Article, this Corporation's Articles of Incorporation, or applicable law shall be entitled to a strong presumption that he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the Corporation or its shareholders, and, with respect to a criminal action or proceeding, that he or she had no reason to believe his or her conduct was unlawful. Any person who is or was a director or officer of the Corporation who claims indemnification under Section 1 or Section 2 shall be entitled to indemnification and indemnification shall be paid or reimbursed pursuant to this Article unless it is affirmatively determined, based on credible evidence, that such person is not entitled to indemnification under this Article or that indemnification would be prohibited by applicable law by: (a) A majority vote of a quorum of the board of directors after consideration of a written opinion by independent legal counsel, or (b) A court of competent jurisdiction in a final order, opinion or judgment. -14- Notwithstanding the foregoing, if a change in control of the Corporation has occurred, and all or any part of the events or circumstances giving rise to the claim for which indemnification is sought occurred prior to the change in control, a determination that such person is not entitled to indemnification shall be made only as provided in Section 4(b) above. A change in control shall be deemed to have occurred if a majority of the board of directors is composed of persons who were not directors of this Corporation at the time of all such events and circumstances, or a majority of the shares of common stock of the Corporation or its successor, are held by a shareholder or group of shareholders who held fewer than 25% of the Corporation's common stock at the time of such events and circumstances. SECTION 5. INDEMNIFICATION FOR LIMITED LIABILITY. To the extent that the Articles of Incorporation eliminate or limit the liability of a director pursuant to Section 209(1)(c) of the Michigan Business Corporation Act, the Corporation shall indemnify a director for the expenses and liabilities described in this section without a determination that the director has met the standard of conduct set forth in Sections 1 or 3 of this Article; but no indemnification may be made except to the extent authorized in Section 7 of this Article if the director received a financial benefit to which he or she was not entitled, intentionally inflicted harm on the Corporation or its shareholders, violated Section 551 of the Michigan Business Corporation Act or intentionally committed a criminal act. In connection with an action or suit by or in the right of the Corporation as described in Section 2 of this Article, indemnification under this Section 5 may be for expenses, including attorneys' fees, actually and reasonably incurred. In connection with an action, suit, or proceeding other than an action, suit, or proceeding by or in the right of the Corporation, as described in Section 2 of this Article, indemnification under this Section 5 may be for expenses, including attorneys' fees, actually and reasonably incurred, and for judgments, penalties, fines, and amounts paid in settlement actually and reasonably incurred. SECTION 6. ADVANCING OF EXPENSES. Expenses incurred by any person who is or was serving as a director or officer of the Corporation or a subsidiary who is a party or threatened to be made a party to any civil or criminal action, suit or proceeding described in Section 1 or 2 of this Article shall be paid or reimbursed by the Corporation in advance of the final disposition of such action, suit or proceeding if the person furnishes the Corporation a written undertaking, executed personally or on his or her behalf, to repay the advance if it is ultimately determined that he or she did not meet the applicable standard of conduct, if any, required by this act for the indemnification of a person under the circumstances. The written undertaking must be an unlimited general obligation of the person but need not be secured and may be accepted without reference to the financial ability of the person to make repayment. Persons who are not or were not serving as a director or officer of the Corporation or a subsidiary may receive similar advances of expenses to the extent authorized at any time by the board of directors, except as otherwise provided by statute or the Articles of Incorporation. Determinations under this Section shall be made in the manner specified in Section 4 of this Article. Notwithstanding the foregoing, in no event shall any advance be made in instances where the board of directors or independent legal counsel reasonably determines that such person deliberately breached his or her duty to the Corporation or its shareholders. SECTION 7. RIGHT TO INDEMNIFICATION UPON APPLICATION; PROCEDURE UPON APPLICATION. A director, officer or other person who is a party or threatened to be made a party to an -15- action, suit or proceeding may apply for indemnification to the court conducting the proceeding or to another court of competent jurisdiction. On receipt of an application, the court may order indemnification if it determines that the person is fairly and reasonably entitled to indemnification in view of all the relevant circumstances, whether or not he or she met the applicable standard of conduct set forth in Section 1 or 2 of this Article or was adjudged liable as described in Section 2 of this Article, provided, however, that if he or she was adjudged liable as described in Section 2 of this Article, his or her indemnification shall be limited to reasonable expenses incurred. SECTION 8. INDEMNIFICATION UNDER BYLAWS NOT EXCLUSIVE. The indemnification or advancement of expenses provided by this Article shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under the Articles of Incorporation, any agreement, vote of shareholders or disinterested directors, or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent, and shall inure to the benefit of the heirs, executors and administrators of such a person. The total amount of expenses advanced or indemnified from all sources shall not exceed the amount of actual expenses incurred by the person seeking indemnification or advancement of expenses. All rights to indemnification under this Article shall be deemed to be provided by a contract between the Corporation and the director, officer, employee or agent who serves in such capacity at any time while these Bylaws and other relevant provisions of the general corporation law and other applicable law, if any, are in effect. Any repeal or modification thereof shall not affect any rights or obligations then existing. SECTION 9. INSURANCE. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, partner, trustee, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of this Article. SECTION 10. CONTRACT RIGHTS. The provisions of this Article shall be deemed to be a contract for the benefit of and enforceable by any person entitled to indemnification under this Article and shall be applicable to actions, suits, or proceedings, whether arising from acts or omissions occurring before or after the adoption hereof, and to directors and officers of the Corporation who have ceased to render such service, and shall inure to the benefit of the heirs, executors, and administrators of the directors and officers of the Corporation referred to in this Article. Changes in these bylaws reducing the scope of indemnification shall not apply to actions or omissions occurring before such change. The provisions of this Article shall survive any merger, consolidation or sale of the Corporation's stock or substantially all of the business or assets of the Corporation. SECTION 11. MERGERS. For the purposes of this Article, references to the "Corporation" include the Corporation if absorbed in a consolidation or merger, as well as the resulting or surviving corporation, so that any person who is or was a director, officer, employee or agent of -16- the Corporation, or is or was serving at the request of the Corporation as a director, officer, partner, trustee, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, whether for profit or not, shall stand in the same position under the provisions of this Article with respect to the resulting or surviving Corporation as the person would if the Corporation were the resulting or surviving corporation and he or she had served the resulting or surviving Corporation in the same capacity. SECTION 12. SAVINGS CLAUSE. If this Article or any portion thereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each director, officer or other person whose indemnification is authorized by the board of directors as to expenses (including attorneys' fees), judgments, fines and amounts paid in settlement with respect to any action, suit or proceeding, whether civil, criminal, administrative or investigative, including a grand jury proceeding and an action by the Corporation, to the full extent permitted by any applicable portion of this Article that shall not have been invalidated or by any other applicable law. ARTICLE IX. SUBSIDIARIES SECTION 1. SUBSIDIARIES. The board of directors, the Chairman of the Board, the Chief Executive Officer, the President, or any other officer designated by the board of directors may vote the shares of stock owned by the Corporation in any subsidiary, whether wholly or partly owned by the Corporation, in such manner as they may deem in the best interests of the Corporation, including, without limitation, for the election of directors of any subsidiary corporation, or for any amendments to the charter or bylaws of any such subsidiary corporation, or for the liquidation, merger or sale of assets of any such subsidiary corporation. The board of directors, the Chief Executive Officer, or any other officer designated by the board of directors may cause to be elected to the board of directors of any such subsidiary corporation such persons as they shall designate, any of whom may, but need not be, directors, officers, or other employees or agents of the Corporation. SECTION 2. SUBSIDIARY OFFICERS NOT EXECUTIVE OFFICERS. The officers of any subsidiary corporation shall not, by virtue of holding such title and position, be deemed to be officers of the Corporation, nor shall any such officer of a subsidiary corporation, unless he or she is also a director or officer of the Corporation, be entitled to have access to any files, records or other information relating or pertaining to the Corporation, its business and finances, or to attend or receive the minutes of any meetings of the board of directors or any committee of the Corporation, except as and to the extent expressly authorized and permitted by the board of directors or the Chief Executive Officer. -17- ARTICLE X. CERTIFICATES OF STOCK SECTION 1. FORM. Every holder of stock in the Corporation shall be entitled to have a certificate, signed by, or in the name of the Corporation by, the Chairman of the Board, a Vice Chairman of the Board, the President, an Executive Vice President, a Senior Vice President, or a Vice President of the Corporation, certifying the number of shares owned by him or her in the Corporation. Such certificate may also be signed by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of the Corporation. The certificate may but need not be, sealed with the seal of the Corporation, or a facsimile thereof. SECTION 2. FACSIMILE SIGNATURES. Where a certificate is signed (a) by a transfer agent or an assistant transfer agent, or (b) by a transfer clerk acting on behalf of the Corporation and a registrar, the signatures of the Chairman of the Board, Vice Chairman of the Board, President, Executive Vice President, Senior Vice President, Vice President, Treasurer, Assistant Treasurer, Secretary or Assistant Secretary may be facsimiles. In case any officer(s) or any holder(s) of a titled position who has signed, or whose facsimile signature(s) has been used on, any certificate shall cease to be such officer(s) or holder(s) before such certificate has been delivered by the Corporation, such certificate may nevertheless be issued and delivered as though the person(s) who signed such certificate or whose facsimile signature(s) appears thereon continued to be such officer(s) or holder(s) of such titled position. SECTION 3. LOST CERTIFICATES. The officers may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the officers may, in their discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or his or her legal representative, to advertise the same in such manner as it shall require and/or to give the Corporation a bond in such sum as they may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. SECTION 4. REGISTERED OWNER. The Corporation shall be entitled to recognize the exclusive rights of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares; the Corporation shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Michigan. SECTION 5. ISSUANCE OF SHARES WITHOUT CERTIFICATES. The Corporation may issue some or all of the shares of any or all of its classes or series without certificates. Within a reasonable time after issuance or transfer of shares without certificates, the Corporation shall send the shareholder a written statement confirming the issuance or transfer of shares without certificates. Such written statement shall include (i) the name of the Corporation and that it is formed under the laws of the State of Michigan, (ii) the name of the person to whom the shares -18- are issued, (iii) the number and class of shares and the designation of the series, if any, (iv) that the holder of the shares is entitled to have a certificate upon written request made to the secretary of the Corporation, and (v) any other information required by law. SECTION 6. FRACTIONAL SHARES. The Corporation may issue fractions of shares. The Corporation may issue certificates for fractions of shares or issue fractions of shares without certificates. Holders of fractions of shares shall be entitled to exercise voting rights and to receive dividends and distributions in proportion to their fractional shares. The Corporation may, alternatively, pay in cash the fair value of fractions of shares, as determined from time to time by the board of directors, as of the time when those entitled to receive the fractions are determined. ARTICLE XI. GENERAL PROVISIONS SECTION 1. CHECKS. Any signature on any check, demand or note may be signed by the facsimile signature of any person authorized by the board of directors to sign under this Section 1 of Article XI. If any officer who has signed or whose facsimile signature has been used shall cease to be such officer, such document may nevertheless be signed by means of such facsimile signature and delivered as though the person who signed such document or whose facsimile signature has been used thereon had not ceased to be such officer. SECTION 2. FISCAL YEAR. The fiscal year of the Corporation shall be fixed by resolution of the board of directors. SECTION 3. SEAL. The corporate seal shall have inscribed thereon the name of the Corporation and the words "Corporate Seal, Michigan." The seal may be used by causing it or a facsimile thereof to be impressed, affixed, reproduced or otherwise. SECTION 4. VOTING SECURITIES. The Chairman of the Board, the Chief Executive Officer, the President, or any officer designated by the board of directors shall have full power and authority on behalf of the Corporation to attend and to act and to vote, or to execute in the name or on behalf of the Corporation a proxy authorizing an agent or attorney-in-fact for the Corporation to attend and to act and to vote, at any meetings of security holders of corporations in which the Corporation may hold securities, and at such meetings he or she and his or her duly authorized agent or attorney-in-fact shall possess and may exercise any and all rights and powers incident to the ownership of such securities and which, as the owner thereof, the Corporation might have possessed and exercised if present. SECTION 5. DIVIDENDS. Dividends upon the capital stock of the Corporation, subject to the provisions of the Articles of Incorporation, if any, may be declared by the board of directors at any regular or special meeting pursuant to law. Dividends may be paid in cash, in property, or in shares of capital stock, subject to the provisions of the Articles of Incorporation. SECTION 6. RESERVES. Before payment of arty dividends, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the directors from time -19- to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the directors shall think conducive to the interests of the Corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. ARTICLE XII. AMENDMENTS These Bylaws may be amended, altered, changed, added to or repealed by the shareholders at any regular or special meeting of the shareholders if notice of such action be contained in the notice of such meeting, or by the board of directors at any regular or special meeting of the board of directors. -20- EX-10.1 4 k80594exv10w1.txt FIRST AMENDMENT TO RATE NOTE - JOHN L. HILT EXHIBIT 10.1 FIRST AMENDMENT TO COMMUNITY SHORES BANK CORPORATION FLOATING RATE SUBORDINATED NOTE DUE JUNE 30, 2008 AND SUBORDINATED NOTE PURCHASE AGREEMENT August 27, 2003 To the holder of Community Shores Bank Corporation Floating Rate Subordinated Notes named on the signature page of this letter Re Community Shores Bank Corporation Floating Rate Subordinated Notes due June 30, 2008, and related Subordinated Note Purchase Agreements Community Shores Bank Corporation (the "Community Shores") has previously entered into the Subordinated Note Purchase Agreements and issued to you the Floating Rate Subordinated Notes due June 30, 2007 referred to across from your name on Annex I to this letter (collectively "Your Purchase Agreements and Notes", and individually, "Your Purchase Agreements" and "Your Notes"). This letter will confirm the agreement between you and Community Shores, effective August 27, 2003, to extend the maturity of Your Notes from June 30, 2008 to June 30, 2009. The provisions of Your Purchase Agreements shall be deemed concurrently amended, effective August 27, 2003, to reflect the extension of the maturity of Your Notes to June 30, 2009. In connection with the extension of the maturity date, you represent to Community Shores that all of your representations, warranties and agreements set forth in Section 5 of Your Purchase Agreements continue to be true and correct as of the date of this letter. Except for the amendment to Your Purchase Agreements and Notes expressly set forth in this letter, all of the provisions of Your Purchase Agreements and Notes shall continue to be in full force and effect. Please indicate your agreement with the terms of this letter by signing and returning a copy of this letter to Community Shores, in which case this letter shall become a binding agreement between you and Community Shores, effective August 27, 2003. The effectiveness of the agreement set forth in this letter is not effected by any other holder of a Floating Rate Subordinated Note agreeing or not agreeing to enter into a similar amendment. Sincerely, Community Shores Bank Corporation By: ___________________________ Jose' A. Infante Chairman of the Board, President and Chief Executive Officer THE UNDERSIGNED AGREES TO THE ABOVE WITH RESPECT TO THE $750,000 AGGREGATE PRINCIPAL AMOUNT OFF FLOATING RATE SUBORDINATED NOTES DUE JUNE 30, 2008 AND RELATED SUBORDINATED NOTE PURCHASE AGREEMENTS REFERRED TO ACROSS FROM THE UNDERSIGNED'S NAME ON ANNEX I TO THIS LETTER _______________________________________ FBO John L. Hilt IRA II DC-85712 - --------------------------------------- _______________________________________ (please print name under signature) 2 ANNEX I COMMUNITY SHORES BANK CORPORATION OUTSTANDING FLOATING RATE SUBORDINATED NOTES DUE JUNE 30, 2009
DATE OF FLOATING DATE OF RATE SUBORDINATED PRINCIPAL AMOUNT SUBORDINATED NOTE PURCHASE OF FLOATING RATE NAME OF HOLDER NOTE AGREEMENT SUBORDINATED NOTE -------------- ------------------ ------------------ ----------------- Robert Chandonnet June 28, 2000 June 27, 2000 $ 140,000 Michael Gluhanich June 28, 2000 June 27, 2000 70,000 Donald Hegedus June 28, 2000 June 27, 2000 350,000 Painewebber, Inc., IRA Custodian June 28, 2000 June 27, 2000 525,000 FBO John L. Hilt IRA II Robert Chandonnet September 27, 2000 September 27, 2000 $ 60,000 Michael Gluhanich September 27, 2000 September 27, 2000 30,000 Donald Hegedus September 27, 2000 September 27, 2000 150,000 Painewebber, Inc., IRA September 27, 2000 September 27, 2000 225,000 Custodian FBO John L. Hilt IRA II Community Shores LLC September 27, 2000 September 27, 2000 35,000 Community Shores LLC December 26, 2000 420,000 Community Shores LLC March 28, 2001 March 28, 2001 600,000 Community Shores LLC March 29, 2001 March 29, 2001 250,000 Community Shores LLC April 13, 2001 April 13, 2001 145,000 Community Shores LLC July 12, 2001 July 12, 2001 100,000 Community Shores LLC October 9, 2001 October 9, 2001 100,000 Community Shores LLC December 31, 2001 December 31, 2001 200,000 Community Shores LLC February 25, 2002 February 25, 2002 100,000 Community Shores LLC April 19, 2002 April 19, 2002 100,000 Community Shores LLC Paydown on March 31, 2003 (1,050,000)
3 EX-10.2 5 k80594exv10w2.txt FIRST AMENDMENT TO RATE NOTE - DONALD E. HEGEDUS EXHIBIT 10.2 FIRST AMENDMENT TO COMMUNITY SHORES BANK CORPORATION FLOATING RATE SUBORDINATED NOTE DUE JUNE 30, 2008 AND SUBORDINATED NOTE PURCHASE AGREEMENT August 27, 2003 To the holder of Community Shores Bank Corporation Floating Rate Subordinated Notes named on the signature page of this letter Re Community Shores Bank Corporation Floating Rate Subordinated Notes due June 30, 2008, and related Subordinated Note Purchase Agreements Community Shores Bank Corporation (the "Community Shores") has previously entered into the Subordinated Note Purchase Agreements and issued to you the Floating Rate Subordinated Notes due June 30, 2007 referred to across from your name on Annex I to this letter (collectively "Your Purchase Agreements and Notes", and individually, "Your Purchase Agreements" and "Your Notes"). This letter will confirm the agreement between you and Community Shores, effective August 27, 2003, to extend the maturity of Your Notes from June 30, 2008 to June 30, 2009. The provisions of Your Purchase Agreements shall be deemed concurrently amended, effective August 27, 2003, to reflect the extension of the maturity of Your Notes to June 30, 2009. In connection with the extension of the maturity date, you represent to Community Shores that all of your representations, warranties and agreements set forth in Section 5 of Your Purchase Agreements continue to be true and correct as of the date of this letter. Except for the amendment to Your Purchase Agreements and Notes expressly set forth in this letter, all of the provisions of Your Purchase Agreements and Notes shall continue to be in full force and effect. Please indicate your agreement with the terms of this letter by signing and returning a copy of this letter to Community Shores, in which case this letter shall become a binding agreement between you and Community Shores, effective August 27, 2003. The effectiveness of the agreement set forth in this letter is not effected by any other holder of a Floating Rate Subordinated Note agreeing or not agreeing to enter into a similar amendment. Sincerely, Community Shores Bank Corporation By: ___________________________ Jose' A. Infante Chairman of the Board, President and Chief Executive Officer THE UNDERSIGNED AGREES TO THE ABOVE WITH RESPECT TO THE $500,000 AGGREGATE PRINCIPAL AMOUNT OFF FLOATING RATE SUBORDINATED NOTES DUE JUNE 30, 2008 AND RELATED SUBORDINATED NOTE PURCHASE AGREEMENTS REFERRED TO ACROSS FROM THE UNDERSIGNED'S NAME ON ANNEX I TO THIS LETTER _______________________________________ Donald E. Hegedus - --------------------------------------- _______________________________________ (please print name under signature) 2 ANNEX I COMMUNITY SHORES BANK CORPORATION OUTSTANDING FLOATING RATE SUBORDINATED NOTES DUE JUNE 30, 2009
DATE OF FLOATING DATE OF RATE SUBORDINATED PRINCIPAL AMOUNT SUBORDINATED NOTE PURCHASE OF FLOATING RATE NAME OF HOLDER NOTE AGREEMENT SUBORDINATED NOTE -------------- ------------------ ------------------ ----------------- Robert Chandonnet June 28, 2000 June 27, 2000 $ 140,000 Michael Gluhanich June 28, 2000 June 27, 2000 70,000 Donald Hegedus June 28, 2000 June 27, 2000 350,000 Painewebber, Inc., IRA Custodian June 28, 2000 June 27, 2000 525,000 FBO John L. Hilt IRA II Robert Chandonnet September 27, 2000 September 27, 2000 $ 60,000 Michael Gluhanich September 27, 2000 September 27, 2000 30,000 Donald Hegedus September 27, 2000 September 27, 2000 150,000 Painewebber, Inc., IRA September 27, 2000 September 27, 2000 225,000 Custodian FBO John L. Hilt IRA II Community Shores LLC September 27, 2000 September 27, 2000 35,000 Community Shores LLC December 26, 2000 420,000 Community Shores LLC March 28, 2001 March 28, 2001 600,000 Community Shores LLC March 29, 2001 March 29, 2001 250,000 Community Shores LLC April 13, 2001 April 13, 2001 145,000 Community Shores LLC July 12, 2001 July 12, 2001 100,000 Community Shores LLC October 9, 2001 October 9, 2001 100,000 Community Shores LLC December 31, 2001 December 31, 2001 200,000 Community Shores LLC February 25, 2002 February 25, 2002 100,000 Community Shores LLC April 19, 2002 April 19, 2002 100,000 Community Shores LLC Paydown on March 31, 2003 (1,050,000)
3 EX-10.3 6 k80594exv10w3.txt FIRST AMENDMENT TO RATE NOTE - MICHAEL D GLUHANICH EXHIBIT 10.3 FIRST AMENDMENT TO COMMUNITY SHORES BANK CORPORATION FLOATING RATE SUBORDINATED NOTE DUE JUNE 30, 2008 AND SUBORDINATED NOTE PURCHASE AGREEMENT August 27, 2003 To the holder of Community Shores Bank Corporation Floating Rate Subordinated Notes named on the signature page of this letter Re Community Shores Bank Corporation Floating Rate Subordinated Notes due June 30, 2008, and related Subordinated Note Purchase Agreements Community Shores Bank Corporation (the "Community Shores") has previously entered into the Subordinated Note Purchase Agreements and issued to you the Floating Rate Subordinated Notes due June 30, 2007 referred to across from your name on Annex I to this letter (collectively "Your Purchase Agreements and Notes", and individually, "Your Purchase Agreements" and "Your Notes"). This letter will confirm the agreement between you and Community Shores, effective August 27, 2003, to extend the maturity of Your Notes from June 30, 2008 to June 30, 2009. The provisions of Your Purchase Agreements shall be deemed concurrently amended, effective August 27, 2003, to reflect the extension of the maturity of Your Notes to June 30, 2009. In connection with the extension of the maturity date, you represent to Community Shores that all of your representations, warranties and agreements set forth in Section 5 of Your Purchase Agreements continue to be true and correct as of the date of this letter. Except for the amendment to Your Purchase Agreements and Notes expressly set forth in this letter, all of the provisions of Your Purchase Agreements and Notes shall continue to be in full force and effect. Please indicate your agreement with the terms of this letter by signing and returning a copy of this letter to Community Shores, in which case this letter shall become a binding agreement between you and Community Shores, effective August 27, 2003. The effectiveness of the agreement set forth in this letter is not effected by any other holder of a Floating Rate Subordinated Note agreeing or not agreeing to enter into a similar amendment. Sincerely, Community Shores Bank Corporation By: ___________________________ Jose' A. Infante Chairman of the Board, President and Chief Executive Officer THE UNDERSIGNED AGREES TO THE ABOVE WITH RESPECT TO THE $100,000 AGGREGATE PRINCIPAL AMOUNT OFF FLOATING RATE SUBORDINATED NOTES DUE JUNE 30, 2008 AND RELATED SUBORDINATED NOTE PURCHASE AGREEMENTS REFERRED TO ACROSS FROM THE UNDERSIGNED'S NAME ON ANNEX I TO THIS LETTER _______________________________________ Michael D. Gluhanich - --------------------------------------- _______________________________________ (please print name under signature) 2 ANNEX I COMMUNITY SHORES BANK CORPORATION OUTSTANDING FLOATING RATE SUBORDINATED NOTES DUE JUNE 30, 2009
DATE OF FLOATING DATE OF RATE SUBORDINATED PRINCIPAL AMOUNT SUBORDINATED NOTE PURCHASE OF FLOATING RATE NAME OF HOLDER NOTE AGREEMENT SUBORDINATED NOTE -------------- ------------------ ------------------ ----------------- Robert Chandonnet June 28, 2000 June 27, 2000 $ 140,000 Michael Gluhanich June 28, 2000 June 27, 2000 70,000 Donald Hegedus June 28, 2000 June 27, 2000 350,000 Painewebber, Inc., IRA Custodian June 28, 2000 June 27, 2000 525,000 FBO John L. Hilt IRA II Robert Chandonnet September 27, 2000 September 27, 2000 $ 60,000 Michael Gluhanich September 27, 2000 September 27, 2000 30,000 Donald Hegedus September 27, 2000 September 27, 2000 150,000 Painewebber, Inc., IRA September 27, 2000 September 27, 2000 225,000 Custodian FBO John L. Hilt IRA II Community Shores LLC September 27, 2000 September 27, 2000 35,000 Community Shores LLC December 26, 2000 420,000 Community Shores LLC March 28, 2001 March 28, 2001 600,000 Community Shores LLC March 29, 2001 March 29, 2001 250,000 Community Shores LLC April 13, 2001 April 13, 2001 145,000 Community Shores LLC July 12, 2001 July 12, 2001 100,000 Community Shores LLC October 9, 2001 October 9, 2001 100,000 Community Shores LLC December 31, 2001 December 31, 2001 200,000 Community Shores LLC February 25, 2002 February 25, 2002 100,000 Community Shores LLC April 19, 2002 April 19, 2002 100,000 Community Shores LLC Paydown on March 31, 2003 (1,050,000)
3 EX-10.4 7 k80594exv10w4.txt FIRST AMENDMENT TO RATE NOTE - ROBERT L CHANDONNET EXHIBIT 10.4 FIRST AMENDMENT TO COMMUNITY SHORES BANK CORPORATION FLOATING RATE SUBORDINATED NOTE DUE JUNE 30, 2008 AND SUBORDINATED NOTE PURCHASE AGREEMENT August 27, 2003 To the holder of Community Shores Bank Corporation Floating Rate Subordinated Notes named on the signature page of this letter Re Community Shores Bank Corporation Floating Rate Subordinated Notes due June 30, 2008, and related Subordinated Note Purchase Agreements Community Shores Bank Corporation (the "Community Shores") has previously entered into the Subordinated Note Purchase Agreements and issued to you the Floating Rate Subordinated Notes due June 30, 2007 referred to across from your name on Annex I to this letter (collectively "Your Purchase Agreements and Notes", and individually, "Your Purchase Agreements" and "Your Notes"). This letter will confirm the agreement between you and Community Shores, effective August 27, 2003, to extend the maturity of Your Notes from June 30, 2008 to June 30, 2009. The provisions of Your Purchase Agreements shall be deemed concurrently amended, effective August 27, 2003, to reflect the extension of the maturity of Your Notes to June 30, 2009. In connection with the extension of the maturity date, you represent to Community Shores that all of your representations, warranties and agreements set forth in Section 5 of Your Purchase Agreements continue to be true and correct as of the date of this letter. Except for the amendment to Your Purchase Agreements and Notes expressly set forth in this letter, all of the provisions of Your Purchase Agreements and Notes shall continue to be in full force and effect. Please indicate your agreement with the terms of this letter by signing and returning a copy of this letter to Community Shores, in which case this letter shall become a binding agreement between you and Community Shores, effective August 27, 2003. The effectiveness of the agreement set forth in this letter is not effected by any other holder of a Floating Rate Subordinated Note agreeing or not agreeing to enter into a similar amendment. Sincerely, Community Shores Bank Corporation By: __________________________________ Jose' A. Infante Chairman of the Board, President and Chief Executive Officer THE UNDERSIGNED AGREES TO THE ABOVE WITH RESPECT TO THE $200,000 AGGREGATE PRINCIPAL AMOUNT OFF FLOATING RATE SUBORDINATED NOTES DUE JUNE 30, 2008 AND RELATED SUBORDINATED NOTE PURCHASE AGREEMENTS REFERRED TO ACROSS FROM THE UNDERSIGNED'S NAME ON ANNEX I TO THIS LETTER ________________________________________ Robert L. Chandonnet - ---------------------------------------- ________________________________________ (please print name under signature) 2 ANNEX I COMMUNITY SHORES BANK CORPORATION OUTSTANDING FLOATING RATE SUBORDINATED NOTES DUE JUNE 30, 2009
DATE OF FLOATING DATE OF RATE SUBORDINATED PRINCIPAL AMOUNT SUBORDINATED NOTE PURCHASE OF FLOATING RATE NAME OF HOLDER NOTE AGREEMENT SUBORDINATED NOTE -------------- ------------------ ------------------ ----------------- Robert Chandonnet June 28, 2000 June 27, 2000 $ 140,000 Michael Gluhanich June 28, 2000 June 27, 2000 70,000 Donald Hegedus June 28, 2000 June 27, 2000 350,000 Painewebber, Inc., IRA Custodian June 28, 2000 June 27, 2000 525,000 FBO John L. Hilt IRA II Robert Chandonnet September 27, 2000 September 27, 2000 $ 60,000 Michael Gluhanich September 27, 2000 September 27, 2000 30,000 Donald Hegedus September 27, 2000 September 27, 2000 150,000 Painewebber, Inc., IRA September 27, 2000 September 27, 2000 225,000 Custodian FBO John L. Hilt IRA II Community Shores LLC September 27, 2000 September 27, 2000 35,000 Community Shores LLC December 26, 2000 420,000 Community Shores LLC March 28, 2001 March 28, 2001 600,000 Community Shores LLC March 29, 2001 March 29, 2001 250,000 Community Shores LLC April 13, 2001 April 13, 2001 145,000 Community Shores LLC July 12, 2001 July 12, 2001 100,000 Community Shores LLC October 9, 2001 October 9, 2001 100,000 Community Shores LLC December 31, 2001 December 31, 2001 200,000 Community Shores LLC February 25, 2002 February 25, 2002 100,000 Community Shores LLC April 19, 2002 April 19, 2002 100,000 Community Shores LLC Paydown on March 31, 2003 (1,050,000)
3 EX-10.5 8 k80594exv10w5.txt FIRST AMENDMENT TO FLOATING RATE SUBORDINATED NOTE EXHIBIT 10.5 FIRST AMENDMENT TO COMMUNITY SHORES BANK CORPORATION FLOATING RATE SUBORDINATED NOTE DUE JUNE 30, 2008 AND SUBORDINATED NOTE PURCHASE AGREEMENT August 27, 2003 To the holder of Community Shores Bank Corporation Floating Rate Subordinated Notes named on the signature page of this letter Re Community Shores Bank Corporation Floating Rate Subordinated Notes due June 30, 2008, and related Subordinated Note Purchase Agreements Community Shores Bank Corporation (the "Community Shores") has previously entered into the Subordinated Note Purchase Agreements and issued to you the Floating Rate Subordinated Notes due June 30, 2007 referred to across from your name on Annex I to this letter (collectively "Your Purchase Agreements and Notes", and individually, "Your Purchase Agreements" and "Your Notes"). This letter will confirm the agreement between you and Community Shores, effective August 27, 2003, to extend the maturity of Your Notes from June 30, 2008 to June 30, 2009. The provisions of Your Purchase Agreements shall be deemed concurrently amended, effective August 27, 2003, to reflect the extension of the maturity of Your Notes to June 30, 2009. In connection with the extension of the maturity date, you represent to Community Shores that all of your representations, warranties and agreements set forth in Section 5 of Your Purchase Agreements continue to be true and correct as of the date of this letter. Except for the amendment to Your Purchase Agreements and Notes expressly set forth in this letter, all of the provisions of Your Purchase Agreements and Notes shall continue to be in full force and effect. Please indicate your agreement with the terms of this letter by signing and returning a copy of this letter to Community Shores, in which case this letter shall become a binding agreement between you and Community Shores, effective August 27, 2003. The effectiveness of the agreement set forth in this letter is not effected by any other holder of a Floating Rate Subordinated Note agreeing or not agreeing to enter into a similar amendment. Sincerely, Community Shores Bank Corporation By: ___________________________ Jose' A. Infante Chairman of the Board, President and Chief Executive Officer THE UNDERSIGNED AGREES TO THE ABOVE WITH RESPECT TO THE $1,000,000 AGGREGATE PRINCIPAL AMOUNT OFF FLOATING RATE SUBORDINATED NOTES DUE JUNE 30, 2008 AND RELATED SUBORDINATED NOTE PURCHASE AGREEMENTS REFERRED TO ACROSS FROM THE UNDERSIGNED'S NAME ON ANNEX I TO THIS LETTER _______________________________________ Jose' A. Infante - --------------------------------------- _______________________________________ (please print name under signature) 2 ANNEX I COMMUNITY SHORES BANK CORPORATION OUTSTANDING FLOATING RATE SUBORDINATED NOTES DUE JUNE 30, 2009
DATE OF FLOATING DATE OF RATE SUBORDINATED PRINCIPAL AMOUNT SUBORDINATED NOTE PURCHASE OF FLOATING RATE NAME OF HOLDER NOTE AGREEMENT SUBORDINATED NOTE -------------- ------------------ ------------------ ----------------- Robert Chandonnet June 28, 2000 June 27, 2000 $ 140,000 Michael Gluhanich June 28, 2000 June 27, 2000 70,000 Donald Hegedus June 28, 2000 June 27, 2000 350,000 Painewebber, Inc., IRA Custodian June 28, 2000 June 27, 2000 525,000 FBO John L. Hilt IRA II Robert Chandonnet September 27, 2000 September 27, 2000 $ 60,000 Michael Gluhanich September 27, 2000 September 27, 2000 30,000 Donald Hegedus September 27, 2000 September 27, 2000 150,000 Painewebber, Inc., IRA September 27, 2000 September 27, 2000 225,000 Custodian FBO John L. Hilt IRA II Community Shores LLC September 27, 2000 September 27, 2000 35,000 Community Shores LLC December 26, 2000 420,000 Community Shores LLC March 28, 2001 March 28, 2001 600,000 Community Shores LLC March 29, 2001 March 29, 2001 250,000 Community Shores LLC April 13, 2001 April 13, 2001 145,000 Community Shores LLC July 12, 2001 July 12, 2001 100,000 Community Shores LLC October 9, 2001 October 9, 2001 100,000 Community Shores LLC December 31, 2001 December 31, 2001 200,000 Community Shores LLC February 25, 2002 February 25, 2002 100,000 Community Shores LLC April 19, 2002 April 19, 2002 100,000 Community Shores LLC Paydown on March 31, 2003 (1,050,000)
3 EX-31.1 9 k80594exv31w1.txt CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER Exhibit 31.1 CERTIFICATION I, Jose' A. Infante, Chairman and Chief Executive Officer of Community Shores Bank Corporation, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Community Shores Bank Corporation (the "small business issuer"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13(a)-15(e) and 15(d)-15(e)) for the small business issuer and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting; Date: November 14, 2003 /s/ Jose' A. Infante ------------------------------------ Jose' A. Infante Chairman and Chief Executive Officer EX-31.2 10 k80594exv31w2.txt CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER Exhibit 31.2 CERTIFICATION I, Tracey A. Welsh, Chief Financial Officer and Vice President of Community Shores Bank Corporation, certify that: 1. I have reviewed this report on Form 10-QSB of Community Shores Bank Corporation (the "small business issuer"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13(a)-15(e) and 15(d)-15(e)) for the small business issuer and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting Date: November 14, 2003 /s/ Tracey A. Welsh ------------------------------------------- Tracey A. Welsh Chief Financial Officer and Vice President EX-32.1 11 k80594exv32w1.txt CERTIFICATION OF CHIEF EXECUTIVE OFFICER EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, and accompanies the quarterly report on Form 10-QSB for the quarter ended September 30, 2003 (the "Form 10-QSB") of Community Shores Bank Corporation (the "Issuer"). I, Jose' A. Infante, Chairman, President and Chief Executive Officer of the Issuer, certify that: (i) the Form 10-QSB fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and (ii) the information contained in the Form 10-QSB fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Dated: November 14, 2003 /s/ Jose' A. Infante ------------------------------------ Jose' A. Infante Chairman and Chief Executive Officer EX-32.2 12 k80594exv32w2.txt CERTIFICATION OF CHIEF FINANCIAL OFFICER EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, and accompanies the quarterly report on Form 10-QSB for the quarter ended September 30, 2003 (the "Form 10-QSB") of Community Shores Bank Corporation (the "Issuer"). I, Tracey A. Welsh, Vice President and Chief Financial Officer of the Issuer, certify that: (i) the Form 10-QSB fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and (ii) the information contained in the Form 10-QSB fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Dated: November 14, 2003 /s/ Tracey A. Welsh --------------------------------------------- Tracey A. Welsh Vice President, Treasurer and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----