<PAGE> 1
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 March 31, 1999
[ ] 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)
(616) 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 March 31, 1999, 1,170,000 shares of Common Stock of the issuer were
outstanding
Transitional Small Business Disclosure Format:
Yes No X
--- ---
<PAGE> 2
<TABLE>
<CAPTION>
PART 1. Financial Information Page No.
<S> <C> <C>
Item I. Financial Statements 1
Item 2. Management's Discussion and Analysis or
Plan of Operations........................................ 14
PART II. Other Information
Item 1. Legal Proceedings......................................... 20
Item 2. Changes in Securities and Use of Proceeds................. 20
Item 3. Defaults upon Senior Securities........................... 20
Item 4. Submission of Matters to a Vote of Security Stockholders.. 20
Item 5. Other Information......................................... 20
Item 6. Exhibits and Reports on Form 8-K.......................... 21
Signatures........................................................ 22
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COMMUNITY SHORES BANK CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------------- -------------------
(Unaudited)
ASSETS
<S> <C> <C>
Cash and due from banks $ 710,000 $ 8,612,377
Federal Funds Sold 5,000,000 0
----------------- ------------------
Total cash and cash equivalents 5,710,000 $ 8,612,377
Securities available for sale,net of SFAS 115 7,730,413 0
Total loans 16,362,933 0
Allowance for loan losses 244,400 0
----------------- ------------------
Net loans 16,118,533 0
Accrued interest receivable 100,440 11,400
Premises and equipment-net 1,436,736 1,237,489
Other assets 100,848 0
----------------- ------------------
Total assets $ 31,196,970 $ 9,861,266
================= ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Non interest-bearing $ 1,206,507 $ -
Interest bearing 19,039,883 0
----------------- ------------------
Total 20,246,390 0
Securities sold under agreements to repurchase 1,031,524 0
Accrued expenses and other liabilities 86,976 72,214
----------------- ------------------
Total liabilities 21,364,890 72,214
Shareholders' Equity
Preferred Stock, no par value: no shares 0 0
authorized and none issued
Common Stock, no par value: 9,000,000 10,871,211 10,227,604
shares authorized and 1,170,000 shares
outstanding
Retained Deficit (1,036,023) (438,552)
Unrealized loss on securities available for sale (3,108) 0
----------------- ------------------
Total shareholders' equity 9,832,080 9,789,052
----------------- ------------------
Total liabilities and shareholders' equity $ 31,196,970 $ 9,861,266
================= ==================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
1
<PAGE> 4
COMMUNITY SHORES BANK CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------------------- ----------------------
(Unaudited)
Interest Income
<S> <C> <C>
Loans, including fees $ 96,720 $ -
Federal Funds Sold 42,796 0
Securities, taxable 67,864 0
Other 13,924 12,716
----------------------- ----------------------
Total interest income 221,304 12,716
Interest expense
Deposits 69,556 0
Other 3,235 17,536
----------------------- ----------------------
Total interest expense 72,791 17,536
NET INTEREST INCOME 148,513 (4,820)
Provision for loan losses 244,400 0
----------------------- ----------------------
Net interest income after provision for loan losses (95,887) (4,820)
Noninterest income
Service charge income 2,216 0
Mortgage referral income 4,787 0
Other 939 0
----------------------- ----------------------
Total noninterest income 7,942 0
Noninterest expense
Salaries and benefits 267,520 279,481
Occupancy 45,210 17,336
Equipment 46,830 7,943
Legal and professional 70,697 67,842
Supplies 50,816 0
Other 28,453 61,130
----------------------- ----------------------
Total noninterest expense 509,526 433,732
LOSS BEFORE FEDERAL INCOME TAX (597,471) (438,552)
Federal income tax expense 0 0
----------------------- ----------------------
NET LOSS $ (597,471) $ (438,552)
======================= ======================
Basic loss per share $ (0.52) $ (0.40)
======================= ======================
Weighted average shares outstanding $ 1,154,444 $ 1,100,000
======================= ======================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 5
COMMUNITY SHORES BANK CORPORATION
CONDENSED CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1999
------------------
<S> <C>
Net Loss $ (597,471)
Other Comprehensive income, net of tax;
Change in unrealized loss on securites (3,108)
------------------
Comprehensive loss $ (600,579)
==================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 6
COMMUNITY SHORES BANK CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF
CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Net Unrealized
Loss on
Securities Total
Common Retained Available for Shareholders'
Stock Earnings Sale Equity
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Balance at January 1, 1999 $ 10,227,604 $ (438,552) $ - $ 9,789,052
Net proceeds from IPO over-
allotment, January 21, 1999 643,607 643,607
Net loss for period from
January 1, 1999 through
March 31, 1999 (597,471) (597,471)
Unrealized gain sale of
securities available for sale,
net of tax (3,108) (3,108)
----------------- ----------------- ----------------- -----------------
Balance, March 31, 1999 $ 10,871,211 $(1,036,023) $ (3,108) $ 9,832,080
================= ================= ================= =================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 7
COMMUNITY SHORES BANK CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1999
------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C>
Net Loss $ (597,471)
Adjustments to reconcile net loss to net cash
from operating activities
Depreciation and amortization 60,305
Provision for loan losses 244,400
Net change in accrued interest receivable (89,040)
Net change in other assets (100,848)
Net change in accrued expenses and other liabilities 14,762
------------------
Net cash from operating activities (467,891)
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in loans (16,362,933)
Purchase of securities available for sale (7,733,521)
Purchase of premises and equipment (259,552)
------------------
Net cash from investing activities (24,356,007)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 20,246,390
Net increase in securities sold under agreements to repurchase 1,031,524
Net proceeds from IPO Over-allotment 643,607
------------------
Net cash from financing activities 21,921,521
Net change in cash and cash equivalents (2,902,377)
Cash and cash equivalents, beginning balance 8,612,377
------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,710,000
==================
Supplemental disclosures of cash flow information
Cash paid during the period for interest $ 47,431
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 8
COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The unaudited financial statements for the three months ended March 31,
1999 include the consolidated results of operations of Community Shores
Bank Corporation ("Corporation") and its wholly-owned subsidiary,
Community Shores Bank ("Bank"). These 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 Corporation'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 March 31, 1999 should not be
considered as indicative of results for a full year. For further
information, refer to the consolidated financial statements and
footnotes included in the Corporation's annual report on Form 10-KSB
for the year ended December 31, 1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Securities: Securities are classified as held to maturity and carried
at amortized cost when management has the positive intent and ability
to hold them to maturity. Securities are classified as available for
sale when they might be sold before maturity. Securities available for
sale are carried at fair value, with unrealized holding gains and
losses reported in other comprehensive income. Trading securities are
carried at fair value, with changes in unrealized holding gains and
losses included in income. Other securities such as Federal Home Loan
Bank stock are carried at cost.
Interest income includes amortization of purchase premium or discount.
Gains and losses on sales are based on the amortized cost of the
security sold. Securities are written down to fair value when a decline
in fair value is not temporary.
Loans: Loans are reported at the principal balance outstanding, net of
unearned interest, deferred loan fees and costs, and an allowance for
loan losses. Loans held for sale are reported at the lower of cost or
market, on an aggregate basis.
Interest income is reported on the interest method and includes
amortization of net deferred loan fees and costs over the loan term.
Interest income is not reported when full loan repayment is in doubt,
typically when the loan is impaired or payments are past due over 90
days (180 days for residential mortgages). Payments received on such
loans are reported as principal reductions.
6
<PAGE> 9
Allowance for Loan Losses: The allowance for loan losses is a valuation
allowance for probable credit losses, increased by the provision for
loan losses and decreased by charge-offs less recoveries. Management
estimates the allowance balance required using past loan loss
experience, known and inherent risks in the nature and volume of the
portfolio, information about specific borrower situations and estimated
collateral values, economic conditions and other factors. Allocations
of the allowance may be made for specific loans, but the entire
allowance is available for any loan that, in management's judgement,
should be charged-off.
A loan is impaired when full payment under the loan terms is not
expected. Impairment is evaluated in total for smaller-balance loans of
similar nature such as residential mortgage, consumer, and credit card
loans, and on an individual loan basis for other loans. If a loan is
impaired, a portion of the allowance is allocated so that the loan is
reported, net, at the present value of estimated future cash flows
using the loan's existing rate or at the fair value of collateral if
repayment is expected solely from the collateral.
Repurchase Agreement: Substantially all repurchase agreement
liabilities represent amounts advanced by various customers. Securities
are pledged to cover these liabilities, which are not covered by
federal deposit insurance.
Comprehensive Income: Comprehensive income consists of net income and
other comprehensive income. Other comprehensive income includes
unrealized gains and losses on securities available for sale which are
also recognized as separate components of equity. The accounting
standard that requires reporting comprehensive income first applies
for 1998, with prior information restated to be comparable.
Industry Segment: Internal financial information is primarily reported
and aggregated in one line of business, banking.
3. ALLOWANCE FOR LOAN LOSSES
The following is a summary of the activity in the allowance for loan
losses account for the three months ended March 31, 1999:
<TABLE>
<S> <C> <C>
Balance at January 1, 1999 $ -
Provision for loan losses charged against
operating expense 244,400
---------------
Balance at March 31, 1999 $ 244,400
===============
</TABLE>
7
<PAGE> 10
4. LOANS
Between the opening of Community Shores Bank on January 18, 1999 and
the end of the first quarter, March 31, 1999, $16.4 million of loans
were made to customers. The components of the outstanding balances and
their percentage of the total portfolio is as follows:
<TABLE>
<CAPTION>
March 31, 1999
Balance %
---------------- ------------
<S> <C> <C>
Consumer Loans $ 948,428 5.8 %
Commercial, financial and other 5,905,302 36.1
Commercial real estate and
construction 8,805,168 53.8
Residential real estate, mortgages
and construction 704,035 4.3
---------------- ------------
Total loans $16,362,933 100.0 %
================ ============
</TABLE>
8
<PAGE> 11
COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. PREMISES AND EQUIPMENT - NET
Premises and equipment are comprised of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------------- -----------------
<S> <C> <C>
Land $ 450,440 $ 450,440
Leasehold improvements 80,159 0
Furniture and equipment 574,939 477,119
Construction in progress 384,510 309,930
----------------- -----------------
1,490,048 1,237,489
Less accumulated depreciation (53,312) 0
----------------- -----------------
Total net premises and equipment $ 1,436,736 $ 1,237,489
================= =================
</TABLE>
Depreciation expense for the first quarter 1998 amounted to $53,312.
6. DEPOSITS
Community Shores Bank began operations on January 18, 1999. Between
that date and the end of the first quarter, March 31, 1999, deposit
accounts totaling $20.2 million were opened. The components of the
outstanding balances and their percentage of the total portfolio is as
follows:
<TABLE>
<CAPTION>
March 31, 1999
Balance %
----------------- -------
<S> <C> <C>
Noninterest-bearing
Demand $1,206,507 6.0 %
Interest-bearing
Checking 1,120,904 5.5
Money Market 821,232 4.1
Savings 74,090 0.4
Time, under $100,000 6,467,970 31.9
Time, over $100,000 10,555,687 52.1
----------------- -------
Total Deposits $20,246,390 100.0 %
================= =======
</TABLE>
9
<PAGE> 12
COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. BORROWINGS
Information relating to securities sold under agreements to repurchase
follows:
<TABLE>
<CAPTION>
March 31,
1999
-----------------
<S> <C>
Outstanding balance $ 1,031,524
Average interest rate 4.34%
Average balance $ 288,502
Average interest rate 4.34%
Maximum outstanding at any month end $ 1,031,524
</TABLE>
Securities sold under agreements to repurchase (repurchase agreements)
generally have original maturities of less than one year. Repurchase
agreements are treated as financings and the obligations to repurchase
securities sold are reflected as liabilities. Securities involved with
the agreements are recorded as assets of the Bank and are primarily
held in safekeeping by correspondent banks. Repurchase agreements are
offered principally to certain large deposit customers as deposit
equivalent investments.
8. EMPLOYEE BENEFIT PLANS
The Corporation established a 401(k) plan effective January 1, 1999,
covering substantially all its employees. The Corporation's first
quarter 1999 matching 401(k) contribution charged to expense was
$10,113. The percent of the Corporation's matching contributions to the
401(k) is currently 4.50% and was approved by the Board of Directors in
a meeting on January 26, 1999.
10
<PAGE> 13
COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. 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 a third party. Exposure to credit loss if the other
party 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 not 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 financing
instruments with off-balance-sheet risk at March 31, 1999 follows:
<TABLE>
<CAPTION>
March 31,
1999
-----------
<S> <C>
Letters of credit $ 50,000
Commercial unused lines of credit 8,611,982
Consumer unused lines of credit 504,605
Residential construction commitments $ 386,012
</TABLE>
Commitments to make loans generally have termination dates of one year
or less and may require a fee. Since many of the above commitments
expire without being used, the above amounts do not necessarily
represent future cash commitments. No losses are anticipated as a
result of these transactions.
11
<PAGE> 14
COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
10. REGULATORY MATTERS
The Corporation 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.
<TABLE>
<CAPTION>
Capital to risk weighted
assets
------------------------------ Tier 1 Capital
Total Tier 1 to average assets
------------ ------------- ----------------------
<S> <C> <C> <C>
Well capitalized 10 % 6 % 5 %
Adequately capitalized 8 4 4
Undercapitalized 6 3 3
</TABLE>
12
<PAGE> 15
COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Actual capital levels (in thousand) and minimum required levels for the
Corporation and Bank were:
<TABLE>
<CAPTION>
Actual Adequately Capitalized Well Capitalized
----------------------- ----------------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
------------ ------- ----------- ------- ----------- -------
March 31, 1999
- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk-
weighted assets)
Consolidated $ 10,079,588 50.43 % $ 1,599,111 8.00 % $ 1,998,889 0.00 %
Bank 8,968,496 44.91 1,597,663 8.00 1,997,079 0.00
Tier 1 capital (to risk-
weighted assets)
Consolidated 9,835,188 49.20 799,556 4.00 1,199,333 6.00
Bank 8,724,096 43.68 798,832 4.00 1,198,248 6.00
Tier 1 capital (to
average assets)
Consolidated 9,835,188 57.53 683,853 4.00 854,817 5.00
Bank 8,724,096 58.00 601,646 4.00 752,057 5.00
</TABLE>
The Corporation and the Bank were categorized as well capitalized at
March 31, 1999.
13
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This report contains forward-looking statements that are based on management's
beliefs, assumptions, current expectations, estimates and projections about the
financial services industry, the economy, and about the Corporation. 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
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. Therefore,
actual results and outcomes may materially differ from what may be expressed or
forecasted in such forward-looking statements. The Corporation undertakes no
obligation to update, amend, or clarify forward looking statements, whether as a
result of new information, future events (whether anticipated or unanticipated),
or otherwise.
Future Factors 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
outcomes of contingencies; trends in customer behavior as well as their ability
to repay loans; changes in the national and local economy; and risk factors
described from time to time in the Corporation's filings 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.
Community Shores Bank Corporation was incorporated on July 23, 1998 to establish
and own Community Shores Bank which began operations on January 18, 1999. Since
opening its doors on January 18, the Bank has seen steady growth. In fact,
during the first quarter of 1999, the assets of Community Shores Bank
Corporation increased from $9,861,266 on December 31, 1998, to $31,196,970 on
March 31, 1999. This represents the total increase in assets of $21,335,704.
14
<PAGE> 17
The following table sets forth certain information relating to the Corporation's
consolidated average interest earning assets and interest-bearing liabilities
and reflects the average yield on assets and average cost of liabilities for the
period indicated. Such yields and costs are derived by dividing income or
expenses by the average daily balance of assets or liabilities, respectively,
for the period presented. During the period presented, there were no nonaccrual
loans.
<TABLE>
<CAPTION>
Quarter ended March 31, 1999
Average Average
balance Interest rate
---------------- ------------- ------------
<S> <C> <C> <C>
Assets
Federal funds sold and interest-bearing
deposits with banks $5,484,997 $56,720 4.14 %
Investment securities-available for sale 5,542,607 67,864 4.90
Loans 4,407,091 96,720 8.78
---------------- ------------- ------------
15,434,695 221,304 5.74
Other assets 1,661,640
----------------
$17,096,335
================
Liabilities and Shareholders' Equity
Interest-bearing deposits $6,047,763 $69,556 4.60
Other borrowings 288,502 3,235 4.49
---------------- ------------- ------------
6,336,265 72,791 4.60
Noninterest-bearing deposits 603,712
Other liabilities 29,983
Shareholders' Equity 10,126,374
----------------
$17,096,335
================
Net interest income $148,513
=============
Net interest margin on earning assets 1.14 %
============
</TABLE>
15
<PAGE> 18
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at March 31, 1999, which are expected
to mature or reprice in each of the time periods shown (in thousands):
<TABLE>
<CAPTION>
Interest rate sensitivity period
Within Three to One to After
three twelve five five
months months years years Total
------------ ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Earning assets
Federal funds sold $ 5,000,000 $ - $ - $ - $5,000,000
Securities available for sale 0 7,730,413 0 0 7,730,413
Loans 3,419,634 242,150 8,991,940 3,709,209 16,362,933
------------ ------------ ---------- ---------- ----------
8,419,634 7,972,563 8,991,940 3,709,209 29,093,346
Interest-bearing liabilities
Savings and money market 895,322 0 0 0 895,322
Time deposits< $100,000 725,327 5,514,942 228,000 0 6,468,269
Time deposits>$100,000 7,321,799 3,133,879 100,006 0 10,555,684
Other borrowings 2,152,428 0 0 0 2,152,428
------------ ------------ ---------- ---------- ----------
11,094,876 8,648,821 328,006 0 20,071,703
Net asset (liability) gap $(2,675,242) $ (676,258) $8,663,934 $3,709,209 $9,021,643
============ ============ ========== ========== ==========
Cumulative net asset (liability) gap $(2,675,242) $(3,351,500) $5,312,434 $9,021,643
------------ ------------ ---------- ----------
</TABLE>
Although there was a $2,902,377 decrease in cash and cash equivalents, the
investment securities increased by $7,730,413. This increase was partially
driven by the growth in our Repurchase Account deposit product, which is
essentially a combined sweep account and repurchase account collateralized by
securities. Other purchases were prompted by a liquidity need in light of our
rapid loan growth. All of the investments in the security portfolio were
classified as "available for sale" at March 31, 1999.
As management had expected the majority of the bank's growth has occurred in the
commercial loan area.
See the loan composite table below:
<TABLE>
<CAPTION>
March 31, 1999
Balance %
----------- ----------
<S> <C> <C>
Consumer Loans $ 948,428 5.8 %
Commercial, financial and other 5,905,302 36.1
Commercial real estate and
construction 8,805,168 53.8
Residential real estate, mortgages
and construction 704,035 4.3
----------- ----------
Total loans $16,362,933 100.0 %
----------- ----------
</TABLE>
16
<PAGE> 19
Out of the $16.4 million loan portfolio at quarter end, nearly 90% is held in
the commercial loan category. This significant concentration is in line with our
strategy of focusing our initial efforts in the commercial "wholesale" sector of
business due in part to the fact that commercial customers tend to generate
demand deposit growth as well as loan volume.
The "retail" portion of our loan portfolio, consumer and mortgage loans,
comprise approximately 10% of the March 31, 1999 loan portfolio as management
expected. The Bank has recently begun heavier marketing for mortgage loans in
particular. The Bank intends to aggressively grow this business segment.
Consumer loan volume should increase at a steady pace and account for a larger
percentage of total assets over time.
Additionally the loan maturities and rate sensitivity of the loan portfolio at
March 31, 1999 have been included below:
<TABLE>
<CAPTION>
Within Three to One to After
three twelve five five
months months years years Total
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Consumer loans $129,693 $31,854 $547,488 $239,393 $948,428
Commercial, financial and other 3,199,610 172,209 2,274,924 258,559 5,905,302
Commercial real estate and
construction 90,331 0 6,169,528 2,545,309 8,805,168
Residential real estate, mortgages
and construction 0 38,087 0 665,948 704,035
----------- ----------- ----------- ----------- -------------
$3,419,634 $242,150 $8,991,940 $3,709,209 $16,362,933
=========== =========== =========== =========== =============
Loans at fixed rates 108,500 242,150 8,991,940 3,243,261 12,585,851
Loans at variable rates 3,311,134 0 0 465,948 3,777,082
----------- ----------- ----------- ----------- -------------
$3,419,634 $242,150 $8,991,940 $3,709,209 $16,362,933
----------- ----------- ----------- ----------- -------------
</TABLE>
17
<PAGE> 20
Deposits were $20.2 million at quarter end. See the components below:
<TABLE>
<CAPTION>
March 31, 1999
Balance %
----------------- -------
<S> <C> <C>
Noninterest-bearing
Demand $1,206,507 6.0 %
Interest-bearing
Checking 1,120,904 5.5
Money Market 821,232 4.1
Savings 74,090 0.4
Time, under $100,000 6,467,970 31.9
Time, over $100,000 10,555,687 52.1
----------------- ------
Total Deposits $20,246,390 100.0 %
----------------- ------
</TABLE>
Management has chosen to fund the rapid loan growth by obtaining brokered and
out-of-state deposits. Brokered deposits are time deposits obtained from
depositors located outside our market area and are placed with our Bank by a
deposit broker. Deposits of this type totaled $8,667,000 (approximately 43% of
total deposits) at quarter end.
Our reliance on deposits of this type is expected to be ongoing but we are
actively pursuing local business and public deposits in order to neutralize the
portfolio concentration levels.
As of March 31, 1999, the Corporation had a retained deficit of $1,036,023. The
retained deficit was primarily the result of preopening fees and expenses as
well as a provision for loan losses of $244,400 made in the first quarter.
Management believes that the Corporation will generate a net loss for 1999 as a
result of expenditures made to organize and grow the Bank to the size necessary
to generate revenues to exceed the cost of its overhead structure. Significant
ongoing additions to loan loss reserves will also contribute to this deficit due
to the projected increase in the loan portfolio. The expenditures made will
create the infrastructure and lay the foundation for growth in subsequent years.
At this time, Management believes that the Bank is likely to have adequate funds
to meet its capital requirements for the next twelve months. The Bank projects
that during the next twelve months it will spend approximately $1.3 million for
the construction of its main office and approximately $500,000 for furniture,
fixtures, equipment, and other assets. Construction of the Bank's permanent
main office was started on March 8, 1999 with good progress occurring.
Completion is expected by the end of this year. The Bank is negotiating the
lease of a facility in Grand Haven, Michigan that is expected to be ready to
serve as a branch bank in the second half of 1999. The
18
<PAGE> 21
Bank presently has the equivalent of 21 full-time employees. Management will
continue to review staffing levels and may hire several additional employees
within the next twelve months. In determining staffing levels, Management seeks
to employ an adequate number of employees to provide excellent customer service
while maintaining expenses at a reasonable level.
The approach of the Year 2000 presents potential problems to businesses that
utilize computers. Some computer systems may not be able to properly interpret
or process dates after December 31, 1999 because they use only two digits to
indicate the year in the date. These computer systems do not properly recognize
a year that begins with "20" instead of the familiar "19". The effects of this
problem may vary from system to system. If not corrected, many computer
applications could fail or create erroneous results. The Corporation has
obtained information and account processing services and reports ("Processing
Services") from a reputable and experienced company that provides such services
for many financial institutions. The Corporation is obtaining written assurances
from its Processing Services supplier and computer equipment suppliers that
their products are or will be year 2000 ready or compliant. The Corporation is
assessing year 2000 compliance of the Bank and its vendors. Vendors whose year
2000 compliance may affect the Corporation's business and operations include its
Processing Services supplier, electronic banking vendors, correspondent banks,
utilities and communications companies. Security systems, heating, ventilating,
air conditioning and other systems may also be affected. The Corporation expects
to require information from commercial borrowers as to their year 2000
compliance as part of the loan application and review process. The Corporation
has appointed one of its senior officers to oversee its year 2000 programs, and
the Corporation is apprising its Board of Directors of the progress being made
on a regular basis. Costs to the Corporation related to year 2000 matters are
estimated to be less than $25,000. These costs may include testing of equipment
and software programs, equipment upgrades and customer education. It is
difficult to predict such costs, and additional funds may be needed for expenses
relating to year 2000 testing, training, education, system or software failure
replacements, or losses due to vendor or customer failure to be year 2000
compliant. The failure of the Corporation, its vendors, or customers to
successfully address year 2000 issues could interfere with the Corporation's
ability to operate its business and have a material adverse effect on the
Corporation's financial condition and results of operation. The Corporation is
in the process of developing a contingency plan to address year 2000 problems
that may occur after December 31, 1999, and expects to develop the plan by the
end of the first half of 1999.
19
<PAGE> 22
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Corporation and the Bank may be involved in various legal
proceedings that are incidental to their business. In the opinion of management,
neither the Corporation nor the Bank is a party to any current legal proceedings
that are material to the financial condition of the Corporation or the Bank,
either individually or in the aggregate.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
20
<PAGE> 23
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION
----------- -------------------
<S> <C>
3.1 Articles of Incorporation are incorporated by reference to
exhibit 3.1 of the Corporation's Registration Statement on Form
SB-2 (Commission File no. 333-63769) that became effective on
December 17, 1998
3.2 Bylaws of the Corporation are incorporated by reference to
exhibit 3.2 of the Corporation's Registration Statement on Form
SB-2 (Commission File No. 333-63769) that became effective on
December 17, 1998
11 Statement re Computation of Per Share Earnings
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K.
No reports were filed by the Corporation on Form 8-K during the quarter
for which this report is filed.
21
<PAGE> 24
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 May 12, 1999.
COMMUNITY SHORES BANK CORPORATION
By: /s/ Jose' A. Infante
-----------------------------------------
Chairman of the Board, President and Chief
Executive Officer (principal executive officer)
By: /s/ Tracey A. Welsh
-----------------------------------------
(principal financial and accounting officer)
22
<PAGE> 25
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION
- ----------- -------------------
<S> <C>
3.1 Articles of Incorporation are incorporated by reference to exhibit 3.1 of the
Corporation's Registration Statement on Form SB-2 (Commission File no. 333-63769) that
became effective on December 17, 1998
3.2 Bylaws of the Corporation are incorporated by reference to exhibit 3.2 of the
Corporation's Registration Statement on Form SB-2 (Commission File No. 333-63769) that
became effective on December 17, 1998
11 Statement re Computation of Per Share Earnings
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
12/31/98 to
Return on Equity and Assets Annualized 3/31/99
-------------- -----------------
<S> <C> <C>
Return on average total assets (0.08)% (0.02)%
Return on average equity (0.24) (0.06)
Dividend payout ratio N/A
Average equity to average assets 0.59
Statement of Per Share Earnings
Net Loss $ (597,471)
=================
Average shares outstanding 1,154,444
Basic and diluted loss per share $ (0.52)
=================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1999
<CASH> 710,000
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 5,000,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 7,730,413
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 16,362,933
<ALLOWANCE> 244,400
<TOTAL-ASSETS> 31,196,970
<DEPOSITS> 20,246,390
<SHORT-TERM> 1,031,524
<LIABILITIES-OTHER> 86,976
<LONG-TERM> 0
0
0
<COMMON> 10,871,211
<OTHER-SE> (1,036,023)
<TOTAL-LIABILITIES-AND-EQUITY> 31,196,970
<INTEREST-LOAN> 96,720
<INTEREST-INVEST> 67,864
<INTEREST-OTHER> 56,720
<INTEREST-TOTAL> 221,304
<INTEREST-DEPOSIT> 69,556
<INTEREST-EXPENSE> 72,791
<INTEREST-INCOME-NET> 148,513
<LOAN-LOSSES> 244,400
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 509,527
<INCOME-PRETAX> (597,471)
<INCOME-PRE-EXTRAORDINARY> (597,471)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (597,471)
<EPS-PRIMARY> (.52)
<EPS-DILUTED> (.52)
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> (244,400)
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> (244,400)
</TABLE>
