10KSB 1 k82477e10ksb.txt ANNUAL REPORT FOR THE FISCAL YEAR ENDED 12/31/03 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------ FORM 10-KSB [X] Annual report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2003 Commission File No. 333-63769 COMMUNITY SHORES BANK CORPORATION (Name of small business issuer in its charter) MICHIGAN 38-3423227 (State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
1030 W. NORTON AVENUE, MUSKEGON, MICHIGAN 49441 (Address of principal executive offices) (231) 780-1800 (Issuer's telephone number) Securities registered under Section 12(b) of the Act: NONE Securities registered under Section 12(g) of the Act: NONE Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Check if disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] Issuer's revenue for its most recent fiscal year was approximately $11,085,000. The aggregate market value of voting stock of the registrant held by nonaffiliates was approximately $14,279,000 as of February 27, 2004; based on the average of the closing bid and asked prices ($13.10) on that date. As of February 27, 2004, 1,430,000 shares of Common Stock of the issuer were outstanding. DOCUMENTS INCORPORATED BY REFERENCE: Parts I and II Portions of 2003 Annual Report to the Shareholders of the issuer. Part III Portions of the Proxy Statement of the issuer for its May 13, 2004 Annual Meeting Transitional Small Business Disclosure Format YES [ ] NO [X] PART I ITEM 1. DESCRIPTION OF BUSINESS GENERAL Community Shores Bank Corporation ("the Company"), organized in 1998, is a Michigan corporation and a bank holding company. The Company owns all of the common stock of Community Shores Bank (the "Bank"). The Bank was organized and commenced operations in January, 1999 as a Michigan chartered bank with depository accounts insured by the FDIC to the extent permitted by law. The Bank provides a full range of commercial and consumer banking services primarily in the communities of Muskegon County and Northern Ottawa County. The Bank's services include checking and savings accounts, certificates of deposit, safe deposit boxes, courier service, and loans for commercial and consumer purposes. The Bank formed Community Shores Mortgage Company (the "Mortgage Company") on March 1, 2002. The Mortgage Company, a wholly owned subsidiary of the Bank, originates both commercial and residential real estate loans. Most fixed rate residential real estate loans originated are sold to a third party. Commercial and residential real estate loans that are held in the Mortgage Company's portfolio are serviced by the Bank pursuant to a servicing agreement. On September 27, 2002, pursuant to Title I of the Gramm-Leach-Bliley Act, the Company received regulatory approval to become a financial holding company. After becoming a financial holding company the Company created Community Shores Financial Services ("CS Financial Services"). In addition to a 1.86% ownership of the Michigan Bankers Insurance Center, LLC, CS Financial Services receives referral fee income from a local insurance agency, Lead Financial. Lead Financial offers among other things employer sponsored benefit plans. CS Financial Services has the opportunity to earn a referral fee for each sale of employer sponsored benefits that is transacted by Lead Financial as a result of a referral made by CS Financial Services. As of year-end 2003, the Company had total consolidated assets of $184 million. Significant events in 2003 included the Company achieving its third fully profitable year of operations and recognizing all of the remaining net operating loss carryforwards. The Company's earnings are now fully taxable. Earnings per share of the Company increased 15% to $.75 per share. The Company's net interest margin remained virtually unchanged even though the Federal Reserve lowered interest rates in the second quarter of the year by 25 basis points. Over the past year on the retail side, the Bank was able to increase its deposit market share in both of the counties it operates branches. In Muskegon County where the Bank's main office is located, the Bank has the fifth largest deposit market share. The Company's main office is located at 1030 W. Norton Avenue, Muskegon, Michigan, 49441 and its telephone number is (231) 780-1800. PRODUCTS AND SERVICES The Bank offers a broad range of deposit services, including checking accounts, savings accounts and time deposits of various types. Transaction accounts and time certificates are tailored to the principal market area at rates competitive with those offered in the area. All qualified deposit accounts are insured by the FDIC up to the maximum amount permitted by law. The Bank solicits these accounts from individuals, businesses, schools, associations, churches, nonprofit organizations, financial institutions and government authorities. The Bank may also use alternative funding sources as needed, including advances from the Federal Home Loan Bank. Additionally, the Bank offers mutual funds and annuities, which are non-insured, through an alliance with the Independent Community Financial Services Association. Real Estate Loans. The Mortgage Company originates residential mortgage loans, which are generally long-term with either fixed or variable interest rates. The Mortgage Company's general policy, which is subject to review by management due to changing market and economic conditions and other factors, is to sell all 2 PRODUCTS AND SERVICES (CONTINUED) fixed rate residential real estate loans on a servicing released basis in the secondary market, regardless of term or product. The Mortgage Company, based on its lending guidelines, may periodically elect to underwrite and retain certain mortgages in its portfolio. The Bank offers fixed rate home equity loans and variable rate home equity lines of credit, which are usually retained in its portfolio. The retention of variable rate loans in the Bank's loan portfolio helps to reduce the Bank's exposure to fluctuations in interest rates. However, such loans generally pose credit risks different from the risks inherent in fixed rate loans, primarily because as interest rates rise, the underlying payments from the borrowers rise, thereby increasing the potential for default. Personal Loans and Lines of Credit. The Bank makes personal loans and lines of credit available to consumers for various purposes, such as the purchase of automobiles, boats and other recreational vehicles, home improvements and personal investments. The Bank's current policy is to retain substantially all of these loans in its portfolio. Commercial and Commercial Real Estate Loans. Commercial loans are made primarily to small and mid-sized businesses. These loans are and will be both secured and unsecured and are made available for general operating purposes, acquisition of fixed assets including real estate, purchases of equipment and machinery, financing of inventory and accounts receivable, as well as any other purposes considered appropriate. Substantially all Commercial Real Estate Loan originations have been executed by the Mortgage Company, since March of 2002. The Bank and the Mortgage Company generally look to a borrower's business operations as the principal source of repayment, but will also receive, when appropriate, mortgages on real estate, security interests in inventory, accounts receivable and other personal property and/or personal guarantees. Although the Bank takes a progressive and competitive approach to lending, it stresses high quality in its loans. The Bank hires an independent company to perform loan review, to help monitor asset quality of the Bank. Any past due loans and identified problem loans are reviewed with the Board of Directors on a regular basis. Regulatory and supervisory loan-to-value limits are established pursuant to Section 304 of the Federal Deposit Insurance Corporation Improvement Act of 1991 "FDICIA" for loans secured by, or used to build on or improve, real estate. The Bank's internal limitations follow those limits and in certain cases are more restrictive than those required by the regulators. The Bank has established relationships with correspondent banks and other independent financial institutions to provide other services requested by its customers, including loan participations where the requested loan amounts exceed the Bank's policies or legal lending limits. COMPETITION The Company's primary market area is Muskegon County and Northern Ottawa County. Northern Ottawa County primarily consists of the cities of Grand Haven, Ferrysburg, Spring Lake and the townships surrounding these areas. There are a number of banks, thrift and credit union offices located in the Company's market area. Most are branches of larger financial institutions and are not 100% locally owned, with the exception of some credit unions. Competition with the Company also comes from other areas such as finance companies, insurance companies, mortgage companies, brokerage firms and other providers of financial services. All of the Company's competitors have been in business a number of years longer than the Company and, for the most part, have established customer bases. The Company competes with these older institutions, through its ability to provide quality customer service, along with competitive products and services. 3 EFFECT OF GOVERNMENT MONETARY POLICIES The earnings of the Company are affected by domestic economic conditions and the monetary and fiscal policies of the United States government, its agencies, and the Federal Reserve Board. The Federal Reserve Board's monetary policies have had, and will likely continue to have, an important impact on the operating results of commercial banks through its power to implement national monetary policy in order to, among other things, curb inflation or avoid a recession. The policies of the Federal Reserve Board have a major effect upon the levels of bank loans, investments and deposits through its open market operations in United States government securities, and through its regulation of, among other things, the discount rate on borrowings of member banks and the reserve requirements against member bank deposits. It is not possible to predict the nature and impact of future changes in monetary and fiscal policies. REGULATION AND SUPERVISION The Company, as a bank holding company under the Bank Holding Company Act, is required to file an annual report with the Federal Reserve Board and such additional information as the Federal Reserve Board may require pursuant to the Bank Holding Company Act, and is subject to examination by the Federal Reserve Board. The Bank Holding Company Act limits the activities which may be engaged in by the Company and its subsidiary to those of banking and the management of banking organizations, and to certain non-banking activities, including those activities which the Federal Reserve Board may find, by order or regulation, to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. The Federal Reserve Board is empowered to differentiate between activities by a bank holding company, or a subsidiary, and activities commenced by acquisition of a going concern. With respect to non-banking activities, the Federal Reserve Board has, by regulation, determined that certain non-banking activities are closely related to banking within the meaning of the Bank Holding Company Act. These activities include, among other things, operating a mortgage company, finance company, credit card company or factoring company, performing certain data processing operations, providing certain investment and financial advice, acting as an insurance agent for certain types of credit related insurance, leasing property on a full-payout, nonoperating basis; and, subject to certain limitations, providing discount securities brokerage services for customers. During 2002 the Company and the Bank were involved in creating entities that are engaged in non-banking activities (see page 2, Description of Business-General for more details). The Bank is subject to certain restrictions imposed by federal law on any extension of credit to the Company, on investments in stock or other securities of the Company, and on the taking of such stock or securities as collateral for loans to any borrower. Federal law prevents the Company from borrowing from the Bank unless the loans are secured in designated amounts. With respect to the acquisition of banking organizations, the Company is required to obtain the prior approval of the Federal Reserve Board before it can acquire all or substantially all of the assets of any bank, or acquire ownership or control of any voting shares of any bank, if, after such acquisition, it will own or control more than 5% of the voting shares of such bank. Acquisitions across state lines are subject to certain restrictions imposed by Federal and state law and regulations. LOAN POLICY The Bank makes loans primarily to individuals and businesses located within the Bank's market area. The loan policy of the Bank states that the function of the lending operation is to provide a means for the investment of funds at a profitable rate of return with an acceptable degree of risk, and to meet the credit needs of qualified businesses and individuals who become customers of the Bank. The Board of Directors of the Bank recognizes that, in the normal business of lending, some losses on loans will be inevitable. These 4 LOAN POLICY (CONTINUED) losses will be carefully monitored and evaluated and are recognized as a normal cost of conducting business. The Bank's loan policy anticipates that priorities in extending loans will change from time to time as interest rates, market conditions and competitive factors change. The policy is designed to assist the Bank in managing the business risk involved in extending credit. It sets forth guidelines on a nondiscriminatory basis for lending in accordance with applicable laws and regulations. The policy describes criteria for evaluating a borrower's ability to support debt, including character of the borrower, evidence of financial responsibility, knowledge of collateral type, value and loan to value ratio, terms of repayment, source of repayment, payment history, and economic conditions. The Bank provides oversight and monitoring of lending practices and loan portfolio quality through the use of an Officers Loan Committee (the "Loan Committee"). The Loan Committee members include all commercial lenders, the Chief Lending Officer, the President, the Vice Chairman of the Bank and other designated lending personnel. The Loan Committee is presently permitted to approve requests for loans in an amount not exceeding $750,000. The Loan Committee may recommend that requests exceeding this amount be approved by a Committee of the Board of Directors (the "Executive Loan Committee") whose lending authority is approximately $1,250,000. Loan requests in excess of the Executive Loan Committee limit require the approval of the Board of Directors. The Board of Directors has the maximum lending authority permitted by law. However, generally, the loan policy establishes an "in house" limit slightly lower than the actual legal lending limit. The Bank's general legal lending limit, as of December 31, 2003, was approximately $2,250,000, subject to a higher legal lending limit of approximately $3,750,000 in specific cases with approval by two-thirds of the Bank's Board of Directors. This limit is expected to change as the Bank's capital changes. In addition to the lending authority described above, the Bank's Board of Directors delegates significant authority to officers of the Bank. The Board believes this empowerment enables the Bank to be more responsive to its customers. The Vice Chairman of the Bank and the Chief Lending Officer each have been delegated authority, where they deem it appropriate, to approve loans up to $1,500,000. Other officers have been delegated authority to approve loans of lesser amounts, where they deem it appropriate, without approval by the Loan Committee. The loan policy outlines the amount of funds that may be loaned against specific types of collateral. The loan to value ratios for first mortgages on residences are expected to comply with the guidelines of secondary market investors. First mortgages held within the Bank's portfolio are expected to mirror secondary market requirements. In those instances where loan to value ratio exceeds 80%, it is intended that private mortgage insurance will be obtained to minimize the Bank's risk. Loans secured by a second or junior lien generally will be limited to a loan to value ratio of 100%. Loans for improved residential real estate lots generally will not exceed a loan to value ratio of 80%, and loans for unimproved residential sites generally will not exceed a loan to value ratio of 75%. For certain loans secured by real estate, an appraisal of the property offered as collateral, by a state licensed or certified independent appraiser, will be required. The loan policy also provides general guidelines as to collateral, provides for environmental policy review, contains specific limitations with respect to loans to employees, executive officers and directors, provides for problem loan identification, establishes a policy for the maintenance of a loan loss reserve, provides for loan reviews and sets forth policies for mortgage lending and other matters relating to the Bank's lending practices. LENDING ACTIVITY Commercial Loans. The Bank's commercial lending group originates commercial loans primarily in the Western Michigan Counties of Muskegon and Northern Ottawa. Commercial loans are originated by experienced lenders, including the Vice Chairman, and the Chief Lending Officer. Loans are originated 5 LENDING ACTIVITY (CONTINUED) for general business purposes, including working capital, accounts receivable financing, machinery and equipment acquisition and commercial real estate financing, including new construction and land development. Working capital loans that are structured as a line of credit are reviewed periodically in connection with the borrower's year end financial reporting. These loans generally are secured by assets of the borrower and have an interest rate tied to the prime rate. Loans for machinery and equipment purposes typically have a maturity of five to seven years and are fully amortizing. Commercial real estate loans may have an interest rate that is fixed to maturity or floats with a spread to the prime rate or a U.S. Treasury Index. The Bank evaluates many aspects of a commercial loan transaction in order to minimize credit and interest rate risk. Underwriting commercial loans requires an assessment of management, products, markets, cash flow, capital, income and collateral. The analysis includes a review of historical and projected financial results. On certain transactions, where real estate is the primary collateral, and in some cases where equipment is the primary collateral, appraisals are obtained from licensed or certified appraisers. In certain situations, for creditworthy customers, the Bank may accept title reports instead of requiring lenders' policies of title insurance. Commercial real estate lending involves more risk than residential lending, because loan balances are greater and repayment is dependent upon the borrower's operations. The Bank attempts to minimize risk associated with these transactions by generally limiting its exposure to owner operated properties of well known customers or new customers with an established profitable history. In certain cases, risk may be further reduced by (i) limiting the amount of credit to any one borrower to an amount less than the Bank's legal lending limit, and (ii) avoiding certain types of commercial real estate financing. Single Family Residential Real Estate Loans. The Bank originates first mortgage residential real estate loans in its market area according to secondary market underwriting standards. These loans are likely to provide borrowers with a fixed or adjustable interest rate with terms up to 30 years. A majority of the single family residential real estate loans are expected to be sold on a servicing released basis in the secondary market with all interest rate risk and credit risk passed to the purchaser. The Bank may periodically elect to underwrite certain residential real estate loans, generally with maturities of seven years or less, to be held in its own loan portfolio. Consumer Loans. The Bank originates consumer loans for a variety of personal financial needs. Consumer loans are likely to include fixed home equity and equity lines of credit, new and used automobile loans, boat loans, personal unsecured lines of credit, credit cards (through third-party providers to minimize risk) and overdraft protection for checking account customers. Consumer loans generally have shorter terms and higher interest rates than residential mortgage loans and, except for home equity lines of credit, usually will involve greater credit risk due to the type and nature of the collateral securing the debt. Strong emphasis is placed on the amount of the down payment, credit quality, employment stability and monthly income. Hazard insurance is obtained (in favor of the Bank) on certain loan types, including automobiles and boats. Consumer loans are generally repaid on a monthly basis with the source of repayment tied to the borrower's periodic income. It is recognized that consumer loan delinquency and losses are dependent on the borrower's continuing financial stability. Job loss, illness and personal bankruptcy may adversely affect repayment. In many cases, repossessed collateral (on a secured consumer loan) may not be sufficient to satisfy the outstanding loan balance. This is a common occurrence due to depreciation of the underlying collateral. The Bank believes that the generally higher yields earned on consumer loans compensate for the increased credit 6 LENDING ACTIVITY (CONTINUED) risk associated with such loans. Consumer loans are expected to be an important component in the Bank's efforts to meet the credit needs of the communities and customers that it serves. LOAN PORTFOLIO QUALITY The Bank hires an independent firm to help management monitor and validate their ongoing assessment of the credit quality of the Bank's loan portfolio. They accomplish this through a sampling of the loan portfolios for both commercial and retail loans. They also evaluate the loan underwriting, loan approval, loan monitoring, loan documentation, and problem loan administration practices of the Bank. The last loan review was performed in October 2002 and no problems were noted. The Bank is scheduled to undergo its next review in June of 2004. The Bank has a comprehensive loan grading system for commercial loans. Administered as part of the loan review program, all commercial loans were graded on a nine grade rating system during 2003. Utilizing a standardized grade paradigm that analyzes several critical factors, such as cash flow, management and collateral coverage, all commercial loans are graded at inception and at various intervals thereafter. All commercial loan relationships exceeding $500,000 are formally reviewed at least annually. Watch list credits are formally reviewed monthly. INVESTMENTS The principal investment of the Company is its investment in the common stock of the Bank. Funds retained by the Company from time to time may be invested in various debt instruments, including but not limited to obligations of or guaranteed by the United States, general obligations of a state or political subdivision or agency, banker's acceptances or certificates of deposit of United States commercial banks, or commercial paper of United States issuers rated in the highest category by a nationally-recognized investment rating service. The Company is permitted to make limited portfolio investments in equity securities and to make equity investments in subsidiary corporations engaged in certain non-banking activities. These non-banking activities may include real estate-related activities, such as mortgage banking, community development, real estate appraisals, arranging equity financing for commercial real estate, and owning and operating real estate used substantially by the Bank or acquired for its future use; and insurance agency activities. Other than the Company's investment in CS Financial Services, it has no present plans to make any such equity investment. The Company's Board of Directors may alter the Company's investment policy without shareholder approval. The Bank may invest its funds in a wide variety of debt instruments and may participate in the federal funds market with other depository institutions. Subject to exceptions for certain permitted equity investments, the Bank is prohibited from investing in equity securities. Among the permitted equity investments are shares of a subsidiary mortgage company like the Mortgage Company. Under another exception, in certain circumstances and with the prior approval of the FDIC, the Bank could invest up to 10% of its total assets in the equity securities of a subsidiary corporation engaged in certain real estate-related activities. Real estate acquired by the Bank in satisfaction of or foreclosure upon loans may be held by the Bank. The Bank's Board of Directors may alter the Bank's investment policy without shareholder approval. ENVIRONMENTAL MATTERS The Company does not believe that existing environmental regulations will have any material effect upon the capital expenditures, earnings and competitive position of the Company. 7 EMPLOYEES As of December 31, 2003, the Bank had 42 full-time and 16 part-time employees. No area of the Bank is represented by collective bargaining agents. SELECTED STATISTICAL DATA AND RETURN ON EQUITY AND ASSETS Selected statistical data for the Company is shown for 2003, 2002 and 2001 only. CONSOLIDATED RESULTS OF OPERATIONS:
2003 2002 2001 ------------- ------------- ------------- Interest Income $ 9,997,156 $ 10,416,327 $ 10,452,924 Interest Expense 4,100,827 4,987,306 6,032,670 ------------- ------------- ------------- Net Interest Income 5,896,329 5,429,021 4,420,254 Provision for loan losses 494,239 624,840 395,020 Non interest income 1,088,269 902,191 646,005 Non interest expense 5,469,453 4,883,352 4,242,871 ------------- ------------- ------------- Income before income tax expense 1,020,906 823,020 428,368 Income tax benefit (43,140) 0 0 ------------- ------------- ------------- Net income $ 1,064,046 $ 823,020 $ 428,368 CONSOLIDATED BALANCE SHEET DATA: Total assets $ 184,104,142 $ 173,465,944 $ 148,191,276 Cash and cash equivalents 6,590,025 2,781,994 2,270,921 Securities 24,274,055 26,295,584 24,731,925 Loans held for sale 0 579,400 0 Gross loans 149,950,085 141,453,620 118,115,580 Allowance for loan losses 1,927,756 1,898,983 1.535.543 Other assets 5,217,733 4,254,329 4,608,393 Deposits 150,167,453 132,725,379 110,148,334 Federal funds purchased and repurchase agreements 11,915,282 19,466,513 18,964,598 Notes payable and Federal Home Loan Bank Advances 8,550,000 9,600,000 9,400,000 Other 835,706 608,179 544,256 Shareholders' equity 12,635,701 11,065,873 9,134,088 CONSOLIDATED FINANCIAL RATIOS: Return on average assets 0.58% 0.49% 0.31% Return on average shareholders' equity 8.74% 8.27% 4.87% Average equity to average assets 6.65% 5.92% 6.34% Dividend payout ratio N/A N/A N/A Non performing loans to total loans 0.64% 0.59% 0.27% Tier 1 leverage capital 6.90% 6.40% 6.25% Tier 1 leverage risk-based capital 7.78% 7.04% 6.77% Total risk-based capital 10.54% 10.64% 10.66%
8 SELECTED STATISTICAL DATA AND RETURN ON EQUITY AND ASSETS (CONTINUED)
Per Share Data: 2003 2002 2001 ---------- ---------- ---------- Net Income: Basic $ 0.75 $ 0.65 $ 0.37 Diluted 0.75 0.65 0.37 Book value at end of period 8.84 8.32 7.81 Dividends declared N/A N/A N/A Weighted average shares outstanding 1,410,274 1,267,301 1,170,000 Diluted average shares outstanding 1,411,282 1,267,301 1,170,000
NET INTEREST EARNINGS A table displaying the Company's average balance of both interest-earning assets and interest-bearing liabilities as well as the yield earned on each is incorporated by reference to Management's Discussion and Analysis at page 14 of the 2003 Annual Report furnished to the Securities and Exchange Commission as Exhibit 13 to this Report. RATE VOLUME ANALYSIS A table displaying the Company's change in interest income and interest expense on interest earning assets and interest bearing liabilities segregated between the change due to volume and the change due to rate is incorporated by reference to Management's Discussion and Analysis at page 15 of the 2003 Annual Report furnished to the Securities and Exchange Commission as Exhibit 13 to this Report. INVESTMENT PORTFOLIO The composition of the investment portfolio is detailed in the table below.
Balance at Balance at December 31, 2003 December 31, 2002 ----------------- ----------------- U.S. Treasuries $ 0 $ 0 U.S. Government and federal agency 12,456,595 17,669,155 Municipals 607,474 485,767 Mortgage-backed and collateralized mortgage obligations 10,960,940 8,140,662 ----------- ----------- $24,274,055 $26,295,584 =========== ===========
The maturity schedule of the Company's investment portfolio as well as the weighted average yield for each timeframe is included in the table below.
One Yr or Less 1 - 5 Years Over 5 Years Total -------------- ------------ ------------ ------------ Treasury $ 0 $ 0 $ 0 $ 0 Government Agency 5,011,658 7,444,937 0 12,456,595 Municipals 206,190 413,678 236,652 856,520 Mortgage Backed Securities 0 3,738,427 7,222,513 10,960,940 ---------- ------------ ----------- ------------ Total $5,217,848 $ 11,597,042 $ 7,459,165 $ 24,274,055 ========== ============ =========== ============ Weighted Average Yield 3.44% 2.80% 4.13% 3.01%
Yields on tax exempt obligations have not been computed on a tax equivalent basis. 9 INVESTMENT PORTFOLIO (CONTINUED) The table below lists the security issuers in which the aggregate holding exceeds 10% of the Company's stockholders' equity.
Issuer Book Value Market Value ----------------------------------------------------------------- FHLB $ 2,497,537 $ 2,486,859 FHLMC 10,113,343 10,106,438 FNMA 8,974,290 8,957,264
LOAN PORTFOLIO The composition of the loan portfolio is detailed in the following table.
December 31, 2003 December 31, 2002 Balance % Balance % -------------------------- ------------------------- Commercial $ 65,465,085 43.7 $ 62,661,644 44.3 Real estate - commercial 50,440,113 33.6 44,681,761 31.6 Real estate - mortgages 6,213,613 4.1 5,819,289 4.1 Real estate - construction 3,109,574 2.1 1,853,099 1.3 Consumer 24,721,700 16.5 26,437,827 18.7 ------------ ----- ------------ ----- 149,950,085 100.0 141,453,620 100.0 ===== ===== Less allowance for loan losses 1,927,756 1,898,983 ------------ ------------ $148,022,329 $139,554,637 ============ ============
Below are two tables that summarize the activity in and the allocation of the Allowance for Loan Losses. Activity in the Allowance for Loan Losses:
Twelve Months Twelve Months Ended Ended 12/31/03 12/31/02 ------------- ------------- Beginning Balance $ 1,898,983 $ 1,535,543 Charge-offs Commercial (177,922) 0 Real Estate - Commercial (251,654) (150,740) Real Estate - Residential (23,363) 0 Real Estate - Construction (14,247) 0 Consumer (213,660) (162,781) ----------- ----------- (680,846) (313,521) ----------- ----------- Recoveries Commercial 107,749 0 Real Estate - Commercial 31,234 6,743 Real Estate - Residential 14,989 0 Real Estate - Construction 0 0 Consumer 61,408 45,378 ----------- ----------- 215,380 52,121 ----------- ----------- Net Charge-offs (465,466) (261,400) ----------- ----------- Provision charged against operating expense 494,239 624,840 ----------- ----------- Ending Balance $ 1,927,756 $ 1,898,983 =========== ===========
10 LOAN PORTFOLIO (CONTINUED) Allocation of the Allowance for Loan Losses:
2003 2002 ----------------------------- ------------------------------ Percent of Percent of Loans in Each Loans in Each Category to Category to Balance at End of Period Amount Total Loans Amount Total Loans ----------------------------- ------------------------------ Commercial $ 996,728 43.7 $ 862,436 44.3 Real estate - commercial 576,778 33.6 663,579 31.6 Real estate - mortgages 30,708 4.1 43,645 4.1 Real estate - construction 35,760 2.1 24,090 1.3 Consumer 287,782 16.5 305,233 18.7 Unallocated 0 0.0 0 0.0 ------------------------- -------------------------- Total $1,927,756 100.0 $1,898,983 100.0 ========================= ==========================
As of both period ends, all loans in the portfolio were domestic; there were no foreign outstandings. For further discussion on the risk elements of the portfolio and the factors considered in determining the amount of the allowance for loan losses and for a table summarizing the scheduled maturities and interest rate sensitivity of the Company's loan portfolio see the table and information in Management's Discussion and Analysis on pages 9 and 10 of the 2003 Annual Report furnished to the Securities and Exchange Commission as Exhibit 13 to this Report, which are incorporated here by reference. DEPOSITS The table below represents the maturity distribution of time deposits of $100,000 or more at December 31, 2003.
Within Over Three Over Six Three Through Six Through Over Twelve Months Months Twelve Months Months Total ------------------------------------------------------------------------------------- Time Deposits > $100,000 $5,953,750 $6,014,272 $6,471,093 $31,250,083 $49,689,198
The Company had no foreign banking offices or foreign depositors at December 31, 2003. The average balance of deposits by category as well as the average rate on each category is shown in Management's Discussion and Analysis on page 14 of the 2003 Annual Report furnished to the Securities and Exchange Commission as Exhibit 13 to this Report and are incorporated here by reference. SHORT-TERM BORROWINGS On December 31, 2003, the consolidated short-term borrowings of the Company consisted of repurchase agreements but on December 31, 2002, the consolidated short-term borrowings of the Company consisted of federal funds purchased and repurchase agreements. Federal funds purchased are overnight borrowings from various correspondent banks. Repurchase agreements are advances by customers that are not covered by federal deposit insurance. This liability is secured by Bank owned securities which are pledged on behalf of the repurchase account holders. 11 SHORT-TERM BORROWINGS (continued) Details of the Company's holdings at both year-ends are as follows:
Repurchase Federal Funds Agreements Purchased ------------- ------------- Outstanding at December 31, 2003 $ 11,915,282 $ 0 Average interest rate at year end 1.11% 1.24% Average balance during year 15,377,163 2,112,055 Average interest rate during year 1.28% 1.49% Maximum month end balance during year 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
INTEREST RATE SENSITIVITY The interest sensitivity of the Company's consolidated balance sheet at December 31, 2003 and discussion of interest rate sensitivity are incorporated here by reference to Management's Discussion and Analysis at pages 17 and 18 of the 2003 Annual Report furnished to the Securities and Exchange Commission as Exhibit 13 to this Report. ITEM 2. DESCRIPTION OF PROPERTY The Company's and Bank's main office is located at 1030 W. Norton Avenue, Roosevelt Park, Michigan, a suburb of Muskegon. The building is approximately 11,500 square feet with a three lane drive-up. The lane closest to the building houses the night depository. A drive-up ATM is located in the lane farthest from the building. The Bank's second location is at 15190 Newington Drive, Grand Haven, Michigan. The Bank secured a lease on September 1, 1999 which has a term of five years. The leased space has 2,075 square feet of office space and one drive-up lane. A stand alone ATM is also available at the Grand Haven location. The third banking location is situated in the City of North Muskegon at 485 Whitehall Road. It officially opened for business on January 16, 2001. The leased premises are approximately 1200 square feet and have been customized by the Landlord to accommodate banking services. The completed location has one drive-up lane and an ATM. The term of the lease is sixty months. For more information on the Company's future lease commitments see Note 10 on page 30 of the 2003 Annual Report furnished to the Securities and Exchange Commission as Exhibit 13 to this Report, which information regarding lease commitments is incorporated here by reference. 12 ITEM 3. LEGAL PROCEEDINGS From time to time, the Company and the Bank may be involved in various legal proceedings that are incidental to their business. In the opinion of management, neither the Company nor the Bank is a party to any current legal proceedings that are material to the financial condition of the Company or the Bank, either individually or in aggregate. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted during the fourth quarter of 2003 to a vote of the Company's shareholders. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information listed under the caption "Stock Information" on page 41 of the 2003 Annual Report furnished to the Securities and Exchange Commission as Exhibit 13 to this Report are incorporated here by reference. EQUITY PLAN COMPENSATION INFORMATION The following table summarizes information, as of December 31, 2003, relating to the Company's compensation plans under which equity securities are authorized for issuance.
Number of securities Number of securities Weighted average remaining available for to be issued upon exercise price of future issuance under equity exercise of outstanding compensation plans outstanding options, options, warrants (excluding securities Plan Category warrants and rights and rights reflected in column (a)) ------------- -------------------- ----------------- ---------------------------- (a) (b) (c) Equity compensation plans 148,200 $10.04 0 approved by security holders (1) Equity compensation plans 0 0 0 not approved by security holders Total 148,200 $10.04 0
------------------------ (1) The plans referred to are the Company's 1998 Employee Stock Option Plan and the Director Stock Option Plan. 13 ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The information shown under the caption "Management's Discussion and Analysis" beginning on page 6 of the 2003 Annual Report furnished to the Securities and Exchange Commission as Exhibit 13 to this Report is incorporated here by reference. ITEM 7. FINANCIAL STATEMENTS The information presented under the captions "Consolidated Balance Sheets," "Consolidated Statements of Income," "Consolidated Statements of Changes in Shareholders' Equity," "Consolidated Statements of Cash Flows," and "Notes to Consolidated Financial Statements," as well as the Report of Independent Auditors, Crowe, Chizek and Company LLC, dated February 19, 2004, in the 2003 Annual Report furnished to the Securities and Exchange Commission as Exhibit 13 to this Report is incorporated here by reference. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 8A. CONTROLS AND PROCEDURES As of December 31, 2003, an evaluation was performed under the supervision of and with the participation of the Company's management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on that evaluation, the Company's management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company's disclosure controls and procedures were effective as of December 31, 2003. There have been no significant changes in the internal controls over financial reporting during the quarter ended December 31, 2003, that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. 14 PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT The information presented under the caption "Information about Directors, Nominees and Executive Officers" in the Notice of Annual Meeting and Proxy Statement for the Company's 2004 Annual Meeting of Shareholders furnished to the Securities and Exchange Commission as Exhibit 20 to this Report (the "Proxy Statement") is incorporated here by reference. The Company does not have a class of equity securities registered pursuant to Section 12 of the Securities Exchange Act of 1934 so information regarding compliance with Section 16(a) is not applicable. The Company has a separately designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934. The members of the Audit Committee consist of John C. Carlyle, Michael D. Gluhanich and Joy R. Nelson. The Board of Directors has determined that it does not have an audit committee financial expert, as that term is defined in the rules of the Securities and Exchange Commission. The Board of Directors of the Company believes that the financial sophistication of the Audit Committee is sufficient to meet the needs of the Company and its shareholders. The Company has adopted a Code of Ethics that applies to all of the directors, officers and employees, including the principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. The Code of Ethics is filed as Exhibit 14 to this Report. ITEM 10. EXECUTIVE COMPENSATION The information presented under the captions "Director Compensation," "Summary Compensation Table," "Options Granted in 2003," and "Aggregated Stock Option Exercises in 2003 and Year End Option Values," in the Proxy Statement is incorporated here by reference. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information presented under the caption "Stock Ownership of Certain Beneficial Owners and Management" in the Proxy Statement is incorporated here by reference. The introductory sentence and table in Item 5 of this Report under the caption "Equity Plan Compensation Information" is incorporated here by reference. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information listed under the caption "Certain Transactions" in the Proxy Statement is incorporated here by reference. 15 ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS
EXHIBIT NO. EXHIBIT DESCRIPTION 3.1 Articles of Incorporation are incorporated by reference to exhibit 3.1 of the Company's Registration Statement on Form SB-2 (SEC File no. 333-63769) that become effective on December 17, 1998. 3.2 Bylaws of the Company 10.1 1998 Employee Stock Option Plan is incorporated by reference to exhibit 10.1 of the Company's Registration Statement on Form SB-2 (SEC File No. 333-63769) which became effective on December 17, 1998. (Management contract or compensatory plan) 10.2 First Amendment to 1998 Employee Stock Option Plan is incorporated by reference to exhibit 10.3 of the Company's Registration Statement on Form SB-2 (SEC File No. 333-63769) which became effective on December 17, 1998. (Management contract or compensatory plan) 10.3 Agreement between Fiserv Solutions, Inc. and Community Shores Bank is incorporated by reference to exhibit 10.4 of the Company's Registration Statement on Form SB-2 (SEC File No. 333-63769) which became effective on December 17, 1998. 10.4 Subordinated Note Purchase Agreement between Robert L. Chandonnet and Community Shores Bank Corporation dated June 27, 2000 is incorporated by reference to exhibit 10 a (i) of the Company's June 30, 2000 Form 10-QSB (SEC File no. 333-63769). 10.5 Floating Rate Subordinated Note issued to Robert L. Chandonnet by Community Shores Bank Corporation dated June 28, 2000 is incorporated by reference to exhibit 10 a (ii) of the Company's June 30, 2000 Form 10-QSB (SEC File no. 333-63769). 10.6 Subordinated Note Purchase Agreement between Michael D. Gluhanich and Community Shores Bank Corporation dated June 27, 2000 is incorporated by reference to exhibit 10 b (i) of the Company's June 30, 2000 Form 10-QSB (SEC File no. 333-63769). 10.7 Floating Rate Subordinated Note issued to Michael D. Gluhanich by Community Shores Bank Corporation dated June 28, 2000 is incorporated by reference to exhibit 10 b (ii) of the Company's June 30, 2000 Form 10-QSB (SEC File no. 333-63769). 10.8 Subordinated Note Purchase Agreement between Donald E. Hegedus and Community Shores Bank Corporation dated June 27, 2000 is incorporated by reference to exhibit 10 c (i) of the Company's June 30, 2000 Form 10-QSB (SEC File no. 333-63769).
16 10.9 Floating Rate Subordinated Note issued to Donald E. Hegedus by Community Shores Bank Corporation dated June 28, 2000 is incorporated by reference to exhibit 10 c (ii) of the Company's June 30, 2000 Form 10-QSB (SEC File no. 333-63769). 10.10 Subordinated Note Purchase Agreement between John L. Hilt, acting through his individual retirement account, and Community Shores Bank Corporation dated June 27, 2000 is incorporated by reference to exhibit 10 d (i) of the Company's June 30, 2000 Form 10-QSB (SEC File no. 333-63769). 10.11 Floating Rate Subordinated Note issued to John L. Hilt, acting through his individual retirement account, by Community Shores Bank Corporation dated June 28, 2000 is incorporated by reference to exhibit 10 d (ii) of the Company's June 30, 2000 Form 10-QSB (SEC File no. 333-63769). 10.12 Subordinated Note Purchase Agreement between Robert L. Chandonnet and Community Shores Bank Corporation dated September 27, 2000 is incorporated by reference to exhibit 10 a (i) of the Company's September 30, 2000 Form 10-QSB (SEC File no. 333-63769). 10.13 Floating Rate Subordinated Note issued to Robert L. Chandonnet by Community Shores Bank Corporation dated September 27, 2000 is incorporated by reference to exhibit 10 a (ii) of the Company's September 30, 2000 Form 10-QSB (SEC File no. 333-63769). 10.14 Subordinated Note Purchase Agreement between Michael D. Gluhanich and Community Shores Bank Corporation dated September 27, 2000 is incorporated by reference to exhibit 10 b (i) of the Company's September 30, 2000 Form 10-QSB (SEC File no. 333-63769). 10.15 Floating Rate Subordinated Note issued to Michael D. Gluhanich by Community Shores Bank Corporation dated September 27, 2000 is incorporated by reference to exhibit 10 b (ii) of the Company's September 30, 2000 Form 10-QSB (SEC File no. 333-63769). 10.16 Subordinated Note Purchase Agreement between Donald E. Hegedus and Community Shores Bank Corporation dated September 27, 2000 is incorporated by reference to exhibit 10 c (i) of the Company's September 30, 2000 Form 10-QSB (SEC File no. 333-63769). 10.17 Floating Rate Subordinated Note issued to Donald E. Hegedus by Community Shores Bank Corporation dated September 27, 2000 is incorporated by reference to exhibit 10 c (ii) of the Company's September 30, 2000 Form 10-QSB (SEC File no. 333-63769). 10.18 Subordinated Note Purchase Agreement between John L. Hilt, acting through his individual retirement account, and Community Shores Bank Corporation dated September 27, 2000 is incorporated by reference to exhibit 10 d (i) of the Company's September 30, 2000 Form 10-QSB (SEC File no. 333-63769). 10.19 Floating Rate Subordinated Note issued to John L. Hilt, acting through his
17 individual retirement account, by Community Shores Bank Corporation dated September 27, 2000 is incorporated by reference to exhibit 10 d (ii) of the Company's September 30, 2000 Form 10-QSB (SEC File no. 333-63769). 10.20 Subordinated Note Purchase Agreement between Community Shores LLC and Community Shores Bank Corporation dated September 27, 2000 is incorporated by reference to exhibit 10 e (i) of the Company's September 30, 2000 Form 10-QSB (SEC File no. 333-63769). 10.21 Floating Rate Subordinated Note issued to Community Shores LLC by Community Shores Bank Corporation dated September 27, 2000 is incorporated by reference to exhibit 10 e (ii) of the Company's September 30, 2000 Form 10-QSB (SEC File no. 333-63769). 10.22 Subordinated Note Purchase Agreement between Community Shores LLC and Community Shores Bank Corporation dated March 28, 2001 is incorporated by reference to exhibit 10.1 of the Company's March 31, 2001 Form 10-QSB (SEC File no. 333-63769). 10.23 Floating Rate Subordinated Note issued to Community Shores LLC by Community Shores Bank Corporation dated March 28, 2001 is incorporated by reference to exhibit 10.2 of the Company's March 31, 2001 Form 10-QSB (SEC File no. 333-63769). 10.24 Subordinated Note Purchase Agreement between Community Shores LLC and Community Shores Bank Corporation dated March 29, 2001 is incorporated by reference to exhibit 10.3 of the Company's March 31, 2001 Form 10-QSB (SEC File no. 333-63769). 10.25 Floating Rate Subordinated Note issued to Community Shores LLC by Community Shores Bank Corporation dated March 29, 2001 is incorporated by reference to exhibit 10.4 of the Company's March 31, 2001 Form 10-QSB (SEC File no. 333-63769). 10.26 Subordinated Note Purchase Agreement between Community Shores LLC and Community Shores Bank Corporation dated April 13, 2001 is incorporated by reference to exhibit 10.1 of the Company's June 30, 2001 Form 10-QSB (SEC File no. 333-63769). 10.27 Floating Rate Subordinated Note issued to Community Shores LLC by Community Shores Bank Corporation dated April 13, 2001 is incorporated by reference to exhibit 10.2 of the Company's June 30, 2001 Form 10-QSB (SEC File no. 333-63769). 10.28 Subordinated Note Purchase Agreement between Community Shores LLC and Community Shores Bank Corporation dated July 12, 2001 is incorporated by reference to exhibit 10.1 of the Company's September 30, 2001 Form 10-QSB (SEC File no. 333-63769). 10.29 Floating Rate Subordinated Note issued to Community Shores LLC by Community Shores Bank Corporation dated July 12, 2001 is incorporated
18 by reference to exhibit 10.2 of the Company's September 30, 2001 Form 10-QSB (SEC File no. 333-63769). 10.30 First Amendment to Community Shores Bank Corporation Floating Rate Subordinated Note due June 30, 2006 and Subordinated Note Purchase Agreement between Community Shores Bank Corporation and Donald E. Hegedus dated September 26, 2001 is incorporated by reference to exhibit 10.3 of the Company's September 30, 2001 Form 10-QSB (SEC file no. 333-63769). 10.31 First Amendment to Community Shores Bank Corporation Floating Rate Subordinated Note due June 30, 2006 and Subordinated Note Purchase Agreement between Community Shores Bank Corporation and John L. Hilt, acting through his IRA, dated September 26, 2001 is incorporated by reference to exhibit 10.4 of the Company's September 30, 2001 Form 10-QSB (SEC file no. 333-63769). 10.32 First Amendment to Community Shores Bank Corporation Floating Rate Subordinated Note due June 30, 2006 and Subordinated Note Purchase Agreement between Community Shores Bank Corporation and Community Shores LLC dated September 26, 2001 is incorporated by reference to exhibit 10.5 of the Company's September 30, 2001 Form 10-QSB (SEC file no. 333-63769). 10.33 First Amendment to Community Shores Bank Corporation Floating Rate Subordinated Note due June 30, 2006 and Subordinated Note Purchase Agreement between Community Shores Bank Corporation and Michael D. Gluhanich dated September 26, 2001 is incorporated by reference to exhibit 10.6 of the Company's September 30, 2001 Form 10-QSB (SEC file no. 333-63769). 10.34 First Amendment to Community Shores Bank Corporation Floating Rate Subordinated Note due June 30, 2006 and Subordinated Note Purchase Agreement between Community Shores Bank Corporation and Robert L. Chandonnet dated September 26, 2001 is incorporated by reference to exhibit 10.7 of the Company's September 30, 2001 Form 10-QSB (SEC file no. 333-63769). 10.35 Subordinated Note Purchase Agreement between Community Shores LLC and Community Shores Bank Corporation dated October 9, 2001. 10.36 Floating Rate Subordinated Note issued to Community Shores LLC by Community Shores Bank Corporation dated October 9, 2001. 10.37 Subordinated Note Purchase Agreement between Community Shores LLC and Community Shores Bank Corporation dated December 31, 2001. 10.38 Floating Rate Subordinated Note issued to Community Shores LLC by Community Shores Bank Corporation dated December 31, 2001. 10.39 Subordinated Note Purchase Agreement between Community Shores LLC and Community Shores Bank Corporation dated February 25, 2002
19 is incorporated by reference to exhibit 10.1 of the Company's March 31, 2002 Form 10-QSB (SEC File no. 333-63769). 10.40 Floating Rate Subordinated Note issued to Community Shores LLC by Community Shores Bank Corporation dated February 25, 2002 is incorporated by reference to exhibit 10.2 of the Company's March 31, 2002 Form 10-QSB (SEC File no. 333-63769). 10.41 Subordinated Note Purchase Agreement between Community Shores LLC and Community Shores Bank Corporation dated April 19, 2002 is incorporated by reference to exhibit 10.1 of the Company's June 30, 2002 Form 10-QSB (SEC File no. 333-63769). 10.42 Floating Rate Subordinated Note issued to Community Shores LLC by Community Shores Bank Corporation dated April 19, 2002 is incorporated by reference to exhibit 10.2 of the Company's June 30, 2002 Form 10-QSB (SEC File no. 333-63769). 10.43 First Amendment to Community Shores Bank Corporation Floating Rate Subordinated Note due June 30, 2007 and Subordinated Note Purchase Agreement between Community Shores Bank Corporation and Donald E. Hegedus dated August 28, 2002 is incorporated by reference to exhibit 10.2 of the Company's September 30, 2002 Form 10-QSB (SEC file no. 333-63769). 10.44 First Amendment to Community Shores Bank Corporation Floating Rate Subordinated Note due June 30, 2007 and Subordinated Note Purchase Agreement between Community Shores Bank Corporation and John L. Hilt, acting through his IRA, dated August 28, 2002 is incorporated by reference to exhibit 10.1 of the Company's September 30, 2002 Form 10-QSB (SEC file no. 333-63769). 10.45 First Amendment to Community Shores Bank Corporation Floating Rate Subordinated Note due June 30, 2007 and Subordinated Note Purchase Agreement between Community Shores Bank Corporation and Community Shores LLC dated August 28, 2002 is incorporated by reference to exhibit 10.5 of the Company's September 30, 2002 Form 10-QSB (SEC file no. 333-63769). 10.46 First Amendment to Community Shores Bank Corporation Floating Rate Subordinated Note due June 30, 2007 and Subordinated Note Purchase Agreement between Community Shores Bank Corporation and Michael D. Gluhanich dated August 28, 2002 is incorporated by reference to exhibit 10.3 of the Company's September 30, 2002 Form 10-QSB (SEC file no. 333-63769). 10.47 First Amendment to Community Shores Bank Corporation Floating Rate Subordinated Note due June 30, 2007 and Subordinated Note Purchase Agreement between Community Shores Bank Corporation and Robert L. Chandonnet dated August 28, 2002 is incorporated by reference to exhibit 10.4 of the Company's September 30, 2002 Form 10-QSB (SEC file no. 333-63769).
20 10.48 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 is incorporated by reference to exhibit 10.1 of the Company's September 30, 2003 Form 10-QSB (SEC file no.333-63769). 10.49 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 is incorporated by reference to exhibit 10.2 of the Company's September 30, 2003 Form 10-QSB (SEC file no.333-63769). 10.50 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 is incorporated by reference to exhibit 10.3 of the Company's September 30, 2003 Form 10-QSB (SEC file no.333-63769). 10.51 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 is incorporated by reference to exhibit 10.4 of the Company's September 30, 2003 Form 10-QSB (SEC file no.333-63769). 10.52 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 is incorporated by reference to exhibit 10.5 of the Company's September 30, 2003 Form 10-QSB (SEC file no.333-63769). 10.53 Director Stock Option Plan 13 2003 Annual Report to Shareholders of the Company. Except for the portions of the 2003 Annual Report that are expressly incorporated by reference in this Annual Report on Form 10-KSB, the 2003 Annual Report of the Company shall not be deemed filed as a part of this Annual Report on Form 10-KSB. 14 Code of Ethics. 20 The Notice of Annual Meeting and Proxy Statement of the Company for its May 13, 2004 Annual Meeting of the Shareholders. Except for the portions of the Notice of Annual Meeting and Proxy Statement that are expressly incorporated by reference in this Annual Report on Form 10-KSB, the Notice of Annual Meeting and Proxy Statement shall not be deemed filed as part of this Annual Report on Form 10-KSB. 21 Subsidiaries of the Issuer.
21 23 Consent of Independent Auditors. 31 Rule 15d-14(a) Certifications. 32.1 Section 1350 Chief Executive Officer Certification. 32.2 Section 1350 Chief Financial Officer Certification.
(b) REPORTS ON FORM 8-K During the fourth quarter of 2003, the Company filed the following report on Form 8-K: Form 8-K dated October 2, 2003 reporting a change in the organizational structure of its bank subsidiary. Form 8-K dated October 24, 2003 reporting the Company's earnings and other financial results for its third quarter of 2003. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. The information presented under the caption "Fees to Independent Auditors for 2003 and 2002" in the Proxy Statement is incorporated here by reference. 22 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 26, 2004. COMMUNITY SHORES BANK CORPORATION /s/ Jose' A. Infante --------------------------------- Jose' A. Infante Chairman of the Board, President and Chief Executive Officer In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant, and in the capacities indicated on March 26, 2004. /s/ David C. Bliss /s/ Michael D. Gluhanich --------------------------------- ----------------------------------------- David C. Bliss, Director Michael D. Gluhanich, Director /s/ John L. Hilt --------------------------------- ----------------------------------------- Gary F. Bogner, Director John L. Hilt, Director /s/ Jose' A. Infante --------------------------------- ----------------------------------------- John C. Carlyle, Director Jose' A. Infante, Chairman of the Board, President and Chief Executive Officer and Director (principal executive officer) /s/ Robert L. Chandonnet /s/ Joy R. Nelson ---------------------------------- ----------------------------------------- Robert L. Chandonnet, Director Joy R. Nelson, Director /s/ Dennis L. Cherette /s/ Tracey A. Welsh --------------------------------- ----------------------------------------- Dennis L. Cherette, Director Tracey A. Welsh, Senior Vice President, Treasurer and Chief Financial Officer (principal financial and accounting officer) /s/ Bruce J. Essex --------------------------------- Bruce J. Essex , Director 23 SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE EXCHANGE ACT BY NON-REPORTING ISSUERS (c) The Company's Notice of Annual Meeting and Proxy Statement, exhibit 20 of this document, and its 2003 Annual Report, exhibit 13 of this document, are expected to be mailed to the Company's security holders on or about April 8, 2004. Also on that date the required number of copies will be mailed to the Commission. 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 (SEC File no. 333-63769) that become effective on December 17, 1998. 3.2 Bylaws of the Company 10.1 1998 Employee Stock Option Plan is incorporated by reference to exhibit 10.1 of the Company's Registration Statement on Form SB-2 (SEC File No. 333-63769) which became effective on December 17, 1998. (Management contract or compensatory plan) 10.2 First Amendment to 1998 Employee Stock Option Plan is incorporated by reference to exhibit 10.3 of the Company's Registration Statement on Form SB-2 (SEC File No. 333-63769) which became effective on December 17, 1998. (Management contract or compensatory plan) 10.3 Agreement between Fiserv Solutions, Inc. and Community Shores Bank is incorporated by reference to exhibit 10.4 of the Company's Registration Statement on Form SB-2 (SEC File No. 333-63769) which became effective on December 17, 1998. 10.4 Subordinated Note Purchase Agreement between Robert L. Chandonnet and Community Shores Bank Corporation dated June 27, 2000 is incorporated by reference to exhibit 10 a (i) of the Company's June 30, 2000 Form 10-QSB (SEC File no. 333-63769). 10.5 Floating Rate Subordinated Note issued to Robert L. Chandonnet by Community Shores Bank Corporation dated June 28, 2000 is incorporated by reference to exhibit 10 a (ii) of the Company's June 30, 2000 Form 10-QSB (SEC File no. 333-63769). 10.6 Subordinated Note Purchase Agreement between Michael D. Gluhanich and Community Shores Bank Corporation dated June 27, 2000 is incorporated by reference to exhibit 10 b (i) of the Company's June 30, 2000 Form 10-QSB (SEC File no. 333-63769). 10.7 Floating Rate Subordinated Note issued to Michael D. Gluhanich by Community Shores Bank Corporation dated June 28, 2000 is incorporated by reference to exhibit 10 b (ii) of the Company's June 30, 2000 Form 10-QSB (SEC File no. 333-63769). 10.8 Subordinated Note Purchase Agreement between Donald E. Hegedus and Community Shores Bank Corporation dated June 27, 2000 is incorporated by reference to exhibit 10 c (i) of the Company's June 30, 2000 Form 10-QSB (SEC File no. 333-63769). 10.9 Floating Rate Subordinated Note issued to Donald E. Hegedus by Community Shores Bank Corporation dated June 28, 2000 is incorporated by reference to exhibit 10 c (ii) of the Company's June 30, 2000 Form 10-QSB (SEC File no. 333-63769).
25 10.10 Subordinated Note Purchase Agreement between John L. Hilt, acting through his individual retirement account, and Community Shores Bank Corporation dated June 27, 2000 is incorporated by reference to exhibit 10 d (i) of the Company's June 30, 2000 Form 10-QSB (SEC File no. 333-63769). 10.11 Floating Rate Subordinated Note issued to John L. Hilt, acting through his individual retirement account, by Community Shores Bank Corporation dated June 28, 2000 is incorporated by reference to exhibit 10 d (ii) of the Company's June 30, 2000 Form 10-QSB (SEC File no. 333-63769). 10.12 Subordinated Note Purchase Agreement between Robert L. Chandonnet and Community Shores Bank Corporation dated September 27, 2000 is incorporated by reference to exhibit 10 a (i) of the Company's September 30, 2000 Form 10-QSB (SEC File no. 333-63769). 10.13 Floating Rate Subordinated Note issued to Robert L. Chandonnet by Community Shores Bank Corporation dated September 27, 2000 is incorporated by reference to exhibit 10 a (ii) of the Company's September 30, 2000 Form 10-QSB (SEC File no. 333-63769). 10.14 Subordinated Note Purchase Agreement between Michael D. Gluhanich and Community Shores Bank Corporation dated September 27, 2000 is incorporated by reference to exhibit 10 b (i) of the Company's September 30, 2000 Form 10-QSB (SEC File no. 333-63769). 10.15 Floating Rate Subordinated Note issued to Michael D. Gluhanich by Community Shores Bank Corporation dated September 27, 2000 is incorporated by reference to exhibit 10 b (ii) of the Company's September 30, 2000 Form 10-QSB (SEC File no. 333-63769). 10.16 Subordinated Note Purchase Agreement between Donald E. Hegedus and Community Shores Bank Corporation dated September 27, 2000 is incorporated by reference to exhibit 10 c (i) of the Company's September 30, 2000 Form 10-QSB (SEC File no. 333-63769). 10.17 Floating Rate Subordinated Note issued to Donald E. Hegedus by Community Shores Bank Corporation dated September 27, 2000 is incorporated by reference to exhibit 10 c (ii) of the Company's September 30, 2000 Form 10-QSB (SEC File no. 333-63769). 10.18 Subordinated Note Purchase Agreement between John L. Hilt, acting through his individual retirement account, and Community Shores Bank Corporation dated September 27, 2000 is incorporated by reference to exhibit 10 d (i) of the Company's September 30, 2000 Form 10-QSB (SEC File no. 333-63769). 10.19 Floating Rate Subordinated Note issued to John L. Hilt, acting through his individual retirement account, by Community Shores Bank Corporation dated September 27, 2000 is incorporated by reference to exhibit 10 d (ii) of the Company's September 30, 2000 Form 10-QSB (SEC File no. 333-63769).
26 10.20 Subordinated Note Purchase Agreement between Community Shores LLC and Community Shores Bank Corporation dated September 27, 2000 is incorporated by reference to exhibit 10 e (i) of the Company's September 30, 2000 Form 10-QSB (SEC File no. 333-63769). 10.21 Floating Rate Subordinated Note issued to Community Shores LLC by Community Shores Bank Corporation dated September 27, 2000 is incorporated by reference to exhibit 10 e (ii) of the Company's September 30, 2000 Form 10-QSB (SEC File no. 333-63769). 10.22 Subordinated Note Purchase Agreement between Community Shores LLC and Community Shores Bank Corporation dated March 28, 2001 is incorporated by reference to exhibit 10.1 of the Company's March 31, 2001 Form 10-QSB (SEC File no. 333-63769). 10.23 Floating Rate Subordinated Note issued to Community Shores LLC by Community Shores Bank Corporation dated March 28, 2001 is incorporated by reference to exhibit 10.2 of the Company's March 31, 2001 Form 10-QSB (SEC File no. 333-63769). 10.24 Subordinated Note Purchase Agreement between Community Shores LLC and Community Shores Bank Corporation dated March 29, 2001 is incorporated by reference to exhibit 10.3 of the Company's March 31, 2001 Form 10-QSB (SEC File no. 333-63769). 10.25 Floating Rate Subordinated Note issued to Community Shores LLC by Community Shores Bank Corporation dated March 29, 2001 is incorporated by reference to exhibit 10.4 of the Company's March 31, 2001 Form 10-QSB (SEC File no. 333-63769). 10.26 Subordinated Note Purchase Agreement between Community Shores LLC and Community Shores Bank Corporation dated April 13, 2001 is incorporated by reference to exhibit 10.1 of the Company's June 30, 2001 Form 10-QSB (SEC File no. 333-63769). 10.27 Floating Rate Subordinated Note issued to Community Shores LLC by Community Shores Bank Corporation dated April 13, 2001 is incorporated by reference to exhibit 10.2 of the Company's June 30, 2001 Form 10-QSB (SEC File no. 333-63769). 10.28 Subordinated Note Purchase Agreement between Community Shores LLC and Community Shores Bank Corporation dated July 12, 2001 is incorporated by reference to exhibit 10.1 of the Company's September 30, 2001 Form 10-QSB (SEC File no. 333-63769). 10.29 Floating Rate Subordinated Note issued to Community Shores LLC by Community Shores Bank Corporation dated July 12, 2001 is incorporated by reference to exhibit 10.2 of the Company's September 30, 2001 Form 10-QSB (SEC File no. 333-63769).
27 10.30 First Amendment to Community Shores Bank Corporation Floating Rate Subordinated Note due June 30, 2006 and Subordinated Note Purchase Agreement between Community Shores Bank Corporation and Donald E. Hegedus dated September 26, 2001 is incorporated by reference to exhibit 10.3 of the Company's September 30, 2001 Form 10-QSB (SEC file no. 333-63769). 10.31 First Amendment to Community Shores Bank Corporation Floating Rate Subordinated Note due June 30, 2006 and Subordinated Note Purchase Agreement between Community Shores Bank Corporation and John L. Hilt, acting through his IRA, dated September 26, 2001 is incorporated by reference to exhibit 10.4 of the Company's September 30, 2001 Form 10-QSB (SEC file no. 333-63769). 10.32 First Amendment to Community Shores Bank Corporation Floating Rate Subordinated Note due June 30, 2006 and Subordinated Note Purchase Agreement between Community Shores Bank Corporation and Community Shores LLC dated September 26, 2001 is incorporated by reference to exhibit 10.5 of the Company's September 30, 2001 Form 10-QSB (SEC file no. 333-63769). 10.33 First Amendment to Community Shores Bank Corporation Floating Rate Subordinated Note due June 30, 2006 and Subordinated Note Purchase Agreement between Community Shores Bank Corporation and Michael D. Gluhanich dated September 26, 2001 is incorporated by reference to exhibit 10.6 of the Company's September 30, 2001 Form 10-QSB (SEC file no. 333-63769). 10.34 First Amendment to Community Shores Bank Corporation Floating Rate Subordinated Note due June 30, 2006 and Subordinated Note Purchase Agreement between Community Shores Bank Corporation and Robert L. Chandonnet dated September 26, 2001 is incorporated by reference to exhibit 10.7 of the Company's September 30, 2001 Form 10-QSB (SEC file no. 333-63769). 10.35 Subordinated Note Purchase Agreement between Community Shores LLC and Community Shores Bank Corporation dated October 9, 2001. 10.36 Floating Rate Subordinated Note issued to Community Shores LLC by Community Shores Bank Corporation dated October 9, 2001. 10.37 Subordinated Note Purchase Agreement between Community Shores LLC and Community Shores Bank Corporation dated December 31, 2001. 10.38 Floating Rate Subordinated Note issued to Community Shores LLC by Community Shores Bank Corporation dated December 31, 2001. 10.39 Subordinated Note Purchase Agreement between Community Shores LLC and Community Shores Bank Corporation dated February 25, 2002 is incorporated by reference to exhibit 10.1 of the Company's March 31, 2002 Form 10-QSB (SEC File no. 333-63769).
28 10.40 Floating Rate Subordinated Note issued to Community Shores LLC by Community Shores Bank Corporation dated February 25, 2002 is incorporated by reference to exhibit 10.2 of the Company's March 31, 2002 Form 10-QSB (SEC File no. 333-63769). 10.41 Subordinated Note Purchase Agreement between Community Shores LLC and Community Shores Bank Corporation dated April 19, 2002 is incorporated by reference to exhibit 10.1 of the Company's June 30, 2002 Form 10-QSB (SEC File no. 333-63769). 10.42 Floating Rate Subordinated Note issued to Community Shores LLC by Community Shores Bank Corporation dated April 19, 2002 is incorporated by reference to exhibit 10.2 of the Company's June 30, 2002 Form 10-QSB (SEC File no. 333-63769). 10.43 First Amendment to Community Shores Bank Corporation Floating Rate Subordinated Note due June 30, 2007 and Subordinated Note Purchase Agreement between Community Shores Bank Corporation and Donald E. Hegedus dated August 28, 2002 is incorporated by reference to exhibit 10.2 of the Company's September 30, 2002 Form 10-QSB (SEC file no. 333-63769). 10.44 First Amendment to Community Shores Bank Corporation Floating Rate Subordinated Note due June 30, 2007 and Subordinated Note Purchase Agreement between Community Shores Bank Corporation and John L. Hilt, acting through his IRA, dated August 28, 2002 is incorporated by reference to exhibit 10.1 of the Company's September 30, 2002 Form 10-QSB (SEC file no. 333-63769). 10.45 First Amendment to Community Shores Bank Corporation Floating Rate Subordinated Note due June 30, 2007 and Subordinated Note Purchase Agreement between Community Shores Bank Corporation and Community Shores LLC dated August 28, 2002 is incorporated by reference to exhibit 10.5 of the Company's September 30, 2002 Form 10-QSB (SEC file no. 333-63769). 10.46 First Amendment to Community Shores Bank Corporation Floating Rate Subordinated Note due June 30, 2007 and Subordinated Note Purchase Agreement between Community Shores Bank Corporation and Michael D. Gluhanich dated August 28, 2002 is incorporated by reference to exhibit 10.3 of the Company's September 30, 2002 Form 10-QSB (SEC file no. 333-63769). 10.47 First Amendment to Community Shores Bank Corporation Floating Rate Subordinated Note due June 30, 2007 and Subordinated Note Purchase Agreement between Community Shores Bank Corporation and Robert L. Chandonnet dated August 28, 2002 is incorporated by reference to exhibit 10.4 of the Company's September 30, 2002 Form 10-QSB (SEC file no. 333-63769). 10.48 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,
29 acting through his IRA, dated August 27, 2003 is incorporated by reference to exhibit 10.1 of the Company's September 30, 2003 Form 10-QSB (SEC file no.333-63769). 10.49 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 is incorporated by reference to exhibit 10.2 of the Company's September 30, 2003 Form 10-QSB (SEC file no.333-63769). 10.50 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 is incorporated by reference to exhibit 10.3 of the Company's September 30, 2003 Form 10-QSB (SEC file no.333-63769). 10.51 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 is incorporated by reference to exhibit 10.4 of the Company's September 30, 2003 Form 10-QSB (SEC file no.333-63769). 10.52 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 is incorporated by reference to exhibit 10.5 of the Company's September 30, 2003 Form 10-QSB (SEC file no.333-63769). 10.53 Director Stock Option Plan 13 2003 Annual Report to Shareholders of the Company. Except for the portions of the 2003 Annual Report that are expressly incorporated by reference in this Annual Report on Form 10-KSB, the 2003 Annual Report of the Company shall not be deemed filed as a part of this Annual Report on Form 10-KSB. 14 Code of Ethics. 20 The Notice of Annual Meeting and Proxy Statement of the Company for its May 13, 2004 Annual Meeting of the Shareholders. Except for the portions of the Notice of Annual Meeting and Proxy Statement that are expressly incorporated by reference in this Annual Report on Form 10-KSB, the Notice of Annual Meeting and Proxy Statement shall not be deemed filed as part of this Annual Report on Form 10-KSB. 21 Subsidiaries of the Issuer. 23 Consent of Independent Auditors. 31 Rule 15d-14(a) Certifications.
30 32.1 Section 1350 Chief Executive Officer Certification. 32.2 Section 1350 Chief Financial Officer Certification.
31