<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM 10-KSB
[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the fiscal year ended December 31, 1999 Commission File No. 333-63769
COMMUNITY SHORES BANK CORPORATION
(Name of small business issuer in its charter)
<TABLE>
<CAPTION>
<S><C>
MICHIGAN 38-3423227
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
</TABLE>
1030 W. NORTON AVENUE, MUSKEGON, MICHIGAN 49441
(Address of principal executive offices)
(616) 780-1800
(Issuer's telephone number)
Securities registered under Section 12(b) of the Act: NONE
Securities registered under Section 12(g) of the Act: NONE
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
YES X NO
--- ---
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
Issuer's revenue for its most recent fiscal year was approximately
$3,113,000.
The aggregate market value of voting stock of the registrant held by
nonaffiliates was approximately $6,069,375 as of February 1, 2000; based on the
average of the closing bid and asked prices ($5.1875) on that date.
As of March 24, 1999, 1,170,000 shares of Common Stock of the issuer
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Parts II and III Portions of 1999 Annual Report
to the Shareholders of the issuer.
Part III Portions of the Proxy Statement of the
issuer for its April 20, 2000 Annual
Meeting
Transitional Small Business Disclosure Format YES NO X
------- -------
<PAGE> 2
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Community Shores Bank Corporation (the "Company") is a bank holding
company organized in 1998 under Michigan law. The Company owns all of the common
stock of Community Shores Bank (the "Bank"). The Bank was organized and
commenced operations in January, 1999 as a Michigan chartered bank with
depository accounts insured by the FDIC to the extent permitted by law. The Bank
provides a full range of commercial and consumer banking services primarily in
the communities of Muskegon County and Northern Ottawa County. The Bank's
services include checking and savings accounts, certificates of deposit, safe
deposit boxes, courier service, loans for commercial, mortgage and consumer
purposes. As of year-end 1999, the Company had total assets of $73 million.
Significant events in 1999 include the move from modular units to our
new building on November 1, 1999, the opening of our first branch in Grand Haven
Township, and exceeding original asset growth projections for our first year by
205%.
The Company's main office is located at 1030 W. Norton Avenue in the
City of Roosevelt Park, Michigan, 49441 and its telephone number is (231)
780-1800.
PRODUCTS AND SERVICES
The Bank offers a broad range of deposit services, including checking
accounts, savings accounts and time deposits of various types. Transaction
accounts and time certificates are tailored to the principal market area at
rates competitive with those offered in the area. All qualified deposit accounts
are insured by the FDIC up to the maximum amount permitted by law. The Bank
solicits these accounts from individuals, businesses, schools, associations,
churches, nonprofit organizations, financial institutions and government
authorities. The Bank may also use alternative funding sources as needed,
including advances from Federal Home Loan Bank. Additionally, the Bank offers
mutual funds and annuities, which are non-insured, through an alliance with the
Independent Community Financial Services Association.
Real Estate Loans. The Bank originates residential mortgage loans,
which are generally long-term with either fixed or variable interest rates. The
Bank's general policy, which is subject to review by management due to changing
market, economic conditions and other factors, is to sell all loans on a
servicing released basis in the secondary market, regardless of term or product.
The Bank, based on its lending guidelines, may periodically elect to underwrite
and retain certain mortgages, the majority of which are variable rate loans, in
its portfolio. The Bank also offers fixed rate home equity loans and variable
rate home equity lines of credit, which are retained in its portfolio.
The retention of variable rate loans on 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
<PAGE> 3
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.
Commercial Loans. Commercial loans are made primarily to small and
mid-sized businesses. These loans are and will be both secured and unsecured and
are made available for general operating purposes, acquisition of fixed assets
including real estate, purchases of equipment and machinery, financing of
inventory and accounts receivable, as well as any other purposes considered
appropriate. The Bank generally looks to a borrower's business operations as the
principal source of repayment, but will also receive, when appropriate,
mortgages on real estate, security interests in inventory, accounts receivable
and other personal property and/or personal guarantees.
Although the Bank takes a progressive and competitive approach to
lending, it stresses high quality in its loans. On a regular basis, the Board of
Directors is asked to approve loans above the legal lending limit of the
Executive Loan Board. In addition, a loan committee of the Board of Directors of
the Bank (the "Executive Loan Board") also reviews larger loans for prior
approval when the loan request exceeds the established limits for the lending
officers. The Bank hires an independent company to perform loan review, to help
determine asset quality of the Bank. Any past due loans and identified problem
loans will be reviewed with the Board of Directors on a regular basis.
Regulatory and supervisory loan-to-value limits are established
pursuant to Section 304 of the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA") for loans secured by, or used to build on or improve,
real estate. The Bank's internal limitations follow those limits and in certain
cases are more restrictive than those required by the regulators.
The Bank has established relationships with correspondent banks and
other independent financial institutions to provide other services requested by
its customers, including loan participations where the requested loan amounts
exceed the Bank's policies or legal lending limits.
COMPETITION
The Company's primary market area is Muskegon County and Northern
Ottawa County. Northern Ottawa County primarily consists of the cities of Grand
Haven, Ferrysburg, Spring Lake and the townships surrounding these areas. There
are a number of banks, thrift and credit union offices located in the Company's
market area. Most are branches of larger financial institutions and are not 100%
locally owned, with the exception of some credit unions. Competition with the
Company also comes from other areas such as finance companies, insurance
companies, mortgage companies, brokerage firms and other providers of financial
services. All of the Company's competitors have been in business a number of
years longer than the Company and, for the most part, have established customer
bases. The Company competes with these older institutions, through its ability
to provide quality customer service, along with competitive products and
services.
EFFECT OF GOVERNMENT MONETARY POLICIES
The earnings of the Company are affected by domestic economic
conditions and the monetary and fiscal policies of the United States government,
its agencies, and the Federal
<PAGE> 4
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. The Bank maintains reserves with
the Federal Reserve Bank on a pass-through basis through a correspondent
financial institution.
REGULATION AND SUPERVISION
The Corporation, as a bank holding company under the Bank Holding
Company Act, is required to file an annual report with the Federal Reserve Board
and such additional information as the Federal Reserve Board may require
pursuant to the Bank Holding Company Act, and is subject to examination by the
Federal Reserve Board.
The Bank Holding Company Act limits the activities which may be engaged
in by the Company and its subsidiary to those of banking and the management of
banking organizations, and to certain non-banking activities, including those
activities which the Federal Reserve Board may find, by order or regulation, to
be so closely related to banking or managing or controlling banks as to be a
proper incident thereto. The Federal Reserve Board is empowered to differentiate
between activities by a bank holding company, or a subsidiary thereof, and
activities commenced by acquisition of a going concern.
With respect to non-banking activities, the Federal Reserve Board has,
by regulation, determined that certain non-banking activities are closely
related to banking within the meaning of the Bank Holding Company Act. These
activities include, among other things, operating a mortgage company, finance
company, credit card company or factoring company, performing certain data
processing operations, providing certain investment and financial advice, acting
as an insurance agent for certain types of credit related insurance, leasing
property on a full-payout, nonoperating basis; and, subject to certain
limitations, providing discount securities brokerage services for customers. The
Company has no current plans to engage in non-banking activities.
The Bank is subject to certain restrictions imposed by federal law on
any extension of credit to the Company, on investments in stock or other
securities of the Company, and on the taking of such stock or securities as
collateral for loans to any borrower. Federal law prevents the Company from
borrowing from the Bank unless the loans are secured in designated amounts.
With respect to the acquisition of banking organizations, the Company
is required to obtain the prior approval of the Federal Reserve Board before it
can acquire all or substantially all of the assets of any bank, or acquire
ownership or control of any voting shares of any bank, if, after such
acquisition, it will own or control more than 5% of the voting shares of such
bank. Acquisitions across state lines are subject to certain state and Federal
Reserve Board restrictions.
<PAGE> 5
LOAN POLICY
The Bank makes loans primarily to individuals and businesses located
within the Bank's market area. The loan policy of the Bank states that the
function of the lending operation is to provide a means for the investment of
funds at a profitable rate of return with an acceptable degree of risk, and to
meet the credit needs of qualified businesses and individuals who become
customers of the Bank. The Board of Directors of the Bank recognizes that, in
the normal business of lending, some losses on loans will be inevitable. These
losses will be carefully monitored and evaluated and are recognized as a normal
cost of conducting business.
The Bank's loan policy anticipates that priorities in extending loans
will change from time to time as interest rates, market conditions and
competitive factors change. The policy is designed to assist the Bank in
managing the business risk involved in extending credit. It sets forth
guidelines on a nondiscriminatory basis for lending in accordance with
applicable laws and regulations. The policy describes criteria for evaluating a
borrower's ability to support debt, including character of the borrower,
evidence of financial responsibility, knowledge of collateral type, value and
loan to value ratio, terms of repayment, source of repayment, payment history,
and economic conditions.
The Bank provides oversight and monitoring of lending practices and
loan portfolio quality through the use of an Officers Loan Committee (the "Loan
Committee"). The Loan Committee members include all commercial lenders, the
Senior Vice President and Senior Lender, the Chairman of the Board, President
and Chief Executive Officer, and other designated lending personnel. The Loan
Committee is presently permitted to approve requests for loans in an amount not
exceeding $750,000. The Loan Committee may recommend that requests exceeding
this amount be approved by a Committee of the Board of Directors (the "Executive
Loan Board") whose lending authority is approximately $1,265,994. Loan requests
in excess of the Executive Loan Board limit require the approval of the Board of
Directors. The Board of Directors has the maximum lending authority permitted by
law. However, generally, the loan policy establishes an "in house" limit
slightly lower than the actual legal lending limit. The Bank's general legal
lending limit, as of December 31, 1999, was approximately $1,265,994, subject to
a higher legal lending limit of approximately $2,109,990 in specific cases with
approval by two-thirds of the Bank's Board of Directors. This limit is expected
to change as the Bank's capital changes.
In addition to the lending authority described above, the Bank's Board
of Directors delegates significant authority to officers of the Bank. The Board
believes this empowerment enables the Bank to be more responsive to its
customers. The Chairman of the Board, President and Chief Executive Officer, and
the Senior Vice President and Senior Lender have been delegated authority, where
they deem it appropriate, to approve loans up to the limit authorized for the
Board Committee. 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
<PAGE> 6
minimize the Bank's risk. Loans secured by a second or junior lien generally
will be limited to a loan to value ratio of 100%. Loans for improved residential
real estate lots generally will not exceed a loan to value ratio of 80%, and
loans for unimproved residential sites generally will not exceed a loan to value
ratio of 75%. For certain loans secured by real estate, an appraisal of the
property offered as collateral, by a state licensed or certified independent
appraiser, will be required.
The loan policy also provides general guidelines as to collateral,
provides for environmental policy review, contains specific limitations with
respect to loans to employees, executive officers and directors, provides for
problem loan identification, establishes a policy for the maintenance of a loan
loss reserve, provides for loan reviews and sets forth policies for mortgage
lending and other matters relating to the Bank's lending practices.
LENDING ACTIVITY
Commercial Loans. The Bank's commercial lending group originates
commercial loans primarily in the Western Michigan Counties of Muskegon and
Northern Ottawa. Commercial loans are originated by experienced lenders,
including the Chairman of the Board, President and Chief Executive Officer, and
the Senior Vice President and Senior Lender. Loans are originated for general
business purposes, including working capital, accounts receivable financing,
machinery and equipment acquisition and commercial real estate financing,
including new construction and land development.
Working capital loans that are structured as a line of credit are
reviewed periodically in connection with the borrower's year end financial
reporting. These loans generally are secured by assets of the borrower and have
an interest rate tied to the prime rate. Loans for machinery and equipment
purposes typically have a maturity of five to seven years and are fully
amortizing. Commercial real estate loans may have an interest rate that is fixed
to maturity or floats with a margin tied to the prime rate or a U.S. Treasury
Index.
The Bank evaluates many aspects of a commercial loan transaction in
order to minimize credit and interest rate risk. Underwriting commercial loans
requires an assessment of management, products, markets, cash flow, capital,
income and collateral. The analysis includes a review of historical and
projected financial results. On certain transactions, where real estate is the
primary collateral, and in some cases where equipment is the primary collateral,
appraisals are obtained from licensed or certified appraisers. In certain
situations, for creditworthy customers, the Bank may accept title reports
instead of requiring lenders' policies of title insurance.
Commercial real estate lending involves more risk than residential
lending, because loan balances are greater and repayment is dependent upon the
borrower's operations. The Bank attempts to minimize risk associated with these
transactions by generally limiting its exposure to owner operated properties of
well known customers or new customers with an established profitable history. In
certain cases, risk may be further reduced by (i) limiting the amount of credit
to any one borrower to an amount less than the Bank's legal lending limit, and
(ii) avoiding certain types of commercial real estate financing.
Single Family Residential Real Estate Loans. The Bank originates first
mortgage residential real estate loans in its market area according to secondary
market underwriting standards. These loans are likely to provide borrowers with
a fixed or adjustable interest rate
<PAGE> 7
with terms up to 30 years. A majority of the single family residential real
estate loans are expected to be sold on a servicing released basis in the
secondary market with all interest rate risk and credit risk passed to the
purchaser. The Bank may periodically elect to underwrite certain residential
real estate loans, generally with maturities of seven years or less, to be held
in its own loan portfolio.
Consumer Loans. The Bank originates consumer loans for a variety of
personal financial needs. Consumer loans are likely to include fixed home equity
and equity lines of credit, new and used automobile loans, boat loans, personal
unsecured lines of credit, credit cards (through third-party providers to
minimize risk) and overdraft protection for checking account customers.
Consumer loans generally have shorter terms and higher interest rates
than residential mortgage loans and, except for home equity lines of credit,
usually will involve greater credit risk due to the type and nature of the
collateral securing the debt. Strong emphasis is placed on the amount of the
down payment, credit quality, employment stability and monthly income. Hazard
insurance is obtained (in favor of the Bank) on certain loan types, including
automobiles and boats.
Consumer loans are generally repaid on a monthly basis with the source
of repayment tied to the borrower's periodic income. It is recognized that
consumer loan delinquency and losses are dependent on the borrower's continuing
financial stability. Job loss, illness and personal bankruptcy may adversely
affect repayment. In many cases, repossessed collateral (on a secured consumer
loan) may not be sufficient to satisfy the outstanding loan balance. This is a
common occurrence due to depreciation of the underlying collateral. The Bank
believes that the generally higher yields earned on consumer loans compensate
for the increased credit risk associated with such loans. Consumer loans are
expected to be an important component in the Bank's efforts to meet the credit
needs of the communities and customers that it serves.
INVESTMENTS
The principal investment of the Company is its investment in the common
stock of the Bank. Funds retained by the Company from time to time may be
invested in various debt instruments, including but not limited to obligations
of or guaranteed by the United States, general obligations of a state or
political subdivision or agency thereof, banker's acceptances or certificates of
deposit of United States commercial banks, or commercial paper of United States
issuers rated in the highest category by a nationally-recognized investment
rating service. Although the Company is permitted to make limited portfolio
investments in equity securities and to make equity investments in subsidiary
corporations engaged in certain non-banking activities which may include real
estate-related activities, such as mortgage banking, community development, real
estate appraisals, arranging equity financing for commercial real estate, and
owning and operating real estate used substantially by the Bank or acquired for
its future use, the Company has no present plans to make any such equity
investment. The Company's Board of Directors may alter the Company's investment
policy without shareholder approval.
The Bank may invest its funds in a wide variety of debt instruments and
may participate in the federal funds market with other depository institutions.
Subject to certain exceptions, the Bank is prohibited from investing in equity
securities. Under one such exception, in certain circumstances and with the
prior approval of the FDIC, the Bank could invest up to 10% of its
<PAGE> 8
total assets in the equity securities of a subsidiary corporation engaged in
certain real estate-related activities. The Bank has no present plans to make
such an investment. Real estate acquired by the Bank in satisfaction of or
foreclosure upon loans may be held by the Bank, subject to a determination by a
majority of the Bank's Board of Directors at least annually of the advisability
of retaining the property, for a period not exceeding 60 months after the date
of acquisition, or such longer period as the Commissioner of the Michigan
Financial Institutions Bureau may approve. The Bank is also permitted to invest
an aggregate amount not in excess of two-thirds of the capital and surplus of
the Bank in such real estate as is necessary for the convenient transaction of
its business. The Bank's Board of Directors may alter the Bank's investment
policy without shareholder approval.
ENVIRONMENTAL MATTERS
The Company does not believe that existing environmental regulations
will have any material effect upon the capital expenditures, earnings and
competitive position of the Company.
EMPLOYEES
As of December 31, 1999, the Bank had 24 full-time and 5 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 Community Shores Bank Corporation is
shown for 1999 only. The bank did not commence banking operations until January
18, 1999 so some of the Guide 3 information is not meaningful and thus not
provided.
<TABLE>
<CAPTION>
1999
-----------------
<S> <C>
CONSOLIDATED RESULTS OF OPERATIONS: (In thousands except per share data)
Interest income 2,960,088
Interest expense 1,502,123
-----------------
Net interest income 1,457,965
Provision for loan losses 852,000
Non interest income 153,391
Non interest expense 2,561,138
-----------------
Income (loss) before income tax expense (1,801,782)
Income tax expense 0
-----------------
Net income (loss) (1,801,782)
</TABLE>
<PAGE> 9
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET DATA: 1999
-----------------
<S> <C>
(In thousands except per share data)
Cash and cash equivalents 1,966,574
Securities available for sale 10,767,804
Gross loans 56,798,379
Allowance for loan losses 852,000
Other assets 4,018,170
-----------------
Total assets 72,698,927
Deposits 55,976,077
Federal funds purchased and repurchase agreements 6,934,491
Other 1,253,597
-----------------
Shareholders' equity 8,534,762
CONSOLIDATED FINANCIAL RATIOS:
Return on average assets -4.28%
Return on average shareholders' equity -20.07%
Average equity to average assets 21.35%
Dividend payout ratio 0.00%
Non performing loans to total loans 0.00%
Tier 1 leverage capital 20.60%
Tier 1 leverage risk-based capital 13.39%
Total risk-based capital 14.57%
PER SHARE DATA:
Net Income:
Basic (1.55)
Diluted (1.55)
</TABLE>
NET INTEREST EARNINGS
The following table provides the average balances of both
interest-earning assets and interest-bearing liabilities as well as the yield
earned on each. The net interest margin at December 31, 1999 was 2.72%.
<PAGE> 10
<TABLE>
<CAPTION>
Twelve months ended December 31, 1999
Average Average
balance Interest rate
----------------- --------------- ----------
<S> <C> <C> <C>
Assets
Federal funds sold and interest-bearing
deposits with banks $3,436,825 $ 184,670 5.37 %
Investment securities-available for sale 7,531,762 412,957 5.48
Loans 28,102,643 2,362,461 8.41
----------------- --------------- ----------
39,071,230 2,960,088 7.58
Other assets 2,988,202
-----------------
$42,059,431
=================
Liabilities and Shareholders' Equity
Interest-bearing deposits $29,018,213 $1,415,714 4.88
Federal funds purchased and repurchase agreements 1,865,645 86,409 4.63
----------------- --------------- ----------
30,883,858 1,502,123 4.86
Noninterest-bearing deposits 2,089,131
Other liabilities 108,323
Shareholders' Equity 8,978,119
-----------------
$42,059,431
=================
Net interest income $1,457,965
===============
Net interest margin on earning assets 2.72 %
==========
</TABLE>
INVESTMENT PORTFOLIO
The composition of the investment portfolio is detailed in the table
below. Information related to the investment's scheduled maturities and realized
and unrealized losses is shown in Note 2, pages S-17 to S-18, of the Notice of
Annual Meeting, Proxy Statement & 1999 Annual Report furnished to the Securities
Exchange Commission as Exhibit 13 to this Report.
<TABLE>
<CAPTION>
Balance at
December 31, 1999 %
------------------------- --------------
<S> <C> <C>
US Treasury
US Government Agency $ - 0.0 %
Mortgaged-backed securities, 8,867,790 82.4
guaranteed by GNMA
1,900,014 17.6
------------------------- --------------
Total securities at December 31,1999
$ 10,767,804 100.0 %
========================= ==============
</TABLE>
The weighted average yield for each reported maturity range is as
follows-one year or less 5.76%, one to five years 6.29%, and Mortgage-backed
securities 6.88%.
<PAGE> 11
LOAN PORTFOLIO
Composite:
<TABLE>
<CAPTION>
December 31, 1999
Balance %
---------------- -------
<S> <C> <C>
Commercial, financial and other $47,570,725 83.8 %
Real estate-construction 1,445,789 2.5
Real estate-mortgages 1,957,393 3.4
Installment loans to individuals 5,824,472 10.3
---------------- -------
Total loans $ 56,798,379 100.0 %
================ =======
</TABLE>
Maturities:
<TABLE>
<CAPTION>
Within Three to One to After
three twelve five five
months months years years Total
---------------- ----------------- --------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Commercial, financial and other $5,357,180 $11,434,105 $26,643,415 $4,136,025 $47,570,725
Real estate-construction 100,000 1,345,789 0 0 1,445,789
Real estate-mortgages 0 0 167,365 1,790,028 1,957,393
Installment loans to individuals 147,502 265,887 3,907,003 1,504,080 5,824,472
================ ================= =============== ============== ================
$5,604,682 $13,045,781 $30,717,783 $7,430,133 $56,798,379
================ ================= =============== ============== ================
Loans at fixed rates 1,652,040 2,073,486 28,212,856 4,246,074 $36,184,456
Loans at variable rates 3,952,642 10,972,295 2,504,927 3,184,059 20,613,923
---------------- ----------------- --------------- -------------- ----------------
$5,604,682 $13,045,781 $30,717,783 $7,430,133 $56,798,379
================ ================= =============== ============== ================
</TABLE>
Analysis of the Allowance for Loan Losses:
<TABLE>
<S> <C>
Balance at January 1, 1999 $ 0
Charge-offs 0
Recoveries 0
Provision charged against operating expense 852,000
-------------
Balance at December 31, 1999 $852,000
=============
</TABLE>
<PAGE> 12
Allocation of the Allowance for Loan Losses:
<TABLE>
<CAPTION>
Percent of
allowance
Balance at End of Period Applicable to: related to
Amount loan category
-------------- -------------
<S> <C> <C>
Commercial $761,700 89.4 %
Residential real estate 35,800 4.2
Installment 54,500 6.4
Unallocated 0 0.0
-------------- ------------
Total loans $852,000 100.0 %
============== ============
</TABLE>
For further discussion on the factors considered in determining the amount of
the allowance for loan losses see page S-5 of the Notice of Annual Meeting,
Proxy Statement & 1999 Annual Report furnished to the Securities Exchange
Commission as Exhibit 13 to this Report.
DEPOSITS
<TABLE>
<CAPTION>
Composite:
December 31, 1999
Balance %
----------------- -------
<S> <C> <C>
Noninterest-bearing
Demand $4,074,635 7.3 %
Interest-bearing
Checking 4,662,155 8.3
Money Market 3,068,971 5.5
Savings 565,741 1.0
Time, under $100,000 21,084,562 37.7
Time, over $100,000 22,520,013 40.2
----------------- -------
Total Deposits $55,976,077 100.0 %
================= =======
</TABLE>
The schedule of maturities for time deposits is shown in Note 5, page S-19, of
the Notice of Annual Meeting, Proxy Statement & 1999 Annual Report furnished to
the Securities Exchange Commission as Exhibit 13 to this Report.
<PAGE> 13
SHORT-TERM BORROWINGS
At December 31, 1999 the consolidated short-term borrowings consisted of
repurchase agreements ($5,134,491) and federal funds purchased ($1,800,000).
Repurchase agreements are advances by customers that are not covered by federal
deposit insurance. This deposit product is secured by bank owned securities
which are pledged on behalf of the repurchase account holders. Federal funds
purchased are overnight borrowings from various correspondent banks.
<TABLE>
<CAPTION>
December 31,
1999
------------------
<S> <C>
Outstanding balance $ 6,934,491
Average interest rate 4.97%
Average balance $ 145,503
Average interest rate 4.61%
Maximum outstanding at any month end $ 6,934,491
</TABLE>
INTEREST RATE SENSITIVITY
Interest rate sensitivity varies with different types of earning assets
and interest bearing liabilities. Comparison of the repricing intervals of both
is referred to as a measure of interest sensitivity gap. The interest
sensitivity of the company's consolidated assets at December 31, 1999 was:
<TABLE>
<CAPTION>
Interest rate sensitivity period
Within Three to One to After
three twelve five five
months months years years Total
---------------------------------------------------------------------
Earning assets
<S> <C> <C> <C> <C> <C>
Interest-bearing deposits in other financial institutions $ 1,727 $ 0 $ 0 $ 0 $ 1,727
Securities available for sale 492,500 5,437,585 2,937,705 1,900,014 10,767,804
Loans 22,279,368 2,074,820 28,198,117 4,246,074 56,798,379
---------------------------------------------------------------------
22,773,595 7,512,405 31,135,822 6,146,088 67,567,910
Interest-bearing liabilities
Savings and checking 8,296,867 0 0 0 8,296,867
Time deposits< $100,000 9,571,259 8,965,940 2,547,363 0 21,084,562
Time deposits>$100,000 13,730,570 8,484,762 304,681 0 22,520,013
Fed funds purchased and repurchase agreements 6,934,491 0 0 0 6,934,491
---------------------------------------------------------------------
38,533,187 17,450,702 2,852,044 0 58,835,933
Net asset (liability) repricing gap $(15,759,593) $ (9,938,297) $ 28,283,778 $6,146,088 $ 8,731,977
=====================================================================
Cumulative net asset (liability) repricing gap $(15,759,593) $(25,697,890) $ 2,585,888 $8,731,976
========================================================
</TABLE>
<PAGE> 14
For additional discussion of interest sensitivity see page S-7 of the
Notice of Annual Meeting, Proxy Statement & 1999 Annual Report furnished to the
Securities 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 and the drive-up ATM.
In the fall, a second location was opened 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.
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 1999 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 "Shareholder Information" on
page S-28 of the Notice of Annual Meeting, Proxy Statement & 1999 Annual
Report furnished to the Securities Exchange Commission as Exhibit 13 to this
Report is incorporated here by reference.
<PAGE> 15
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS
The information shown under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" beginning on page S-4
of the Notice of Annual Meeting, Proxy Statement & 1999 Annual Report furnished
to the Securities Exchange Commission as Exhibit 13 to this Report is
incorporated by reference.
ITEM 7. FINANCIAL STATEMENTS
The information presented under the captions "Consolidated Balance
Sheets," "Consolidated Statements of Income," "Consolidated Statements of
Changes in Shareholders' Equity," "Consolidated Statements of Cash Flows," and
"Notes to Consolidated Financial Statements," as well as the Report of
Independent Auditors, Crowe, Chizek and Company LLP, dated February 25, 2000, in
the the Notice of Annual Meeting, Proxy Statement & 1999 Annual Report furnished
to the Securities Exchange Commission as Exhibit 13 to this Report is
incorporated by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
ACT
The information listed under the caption "Information about Directors,
Nominees and Executive Officers in the Notice of Annual Meeting, Proxy Statement
& 1999 Annual Report furnished to the Securities Exchange Commission as Exhibit
13 to this Report is incorporated 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.
<PAGE> 16
ITEM 10. EXECUTIVE COMPENSATION
The information presented under the captions "Summary Compensation
Table," "Options Granted in 1999," and "Aggregated Stock Option Exercises in
1999 and Year End Option Values", and in the last paragraph under the caption
"Board of Directors Meetings and Committees" in the Notice of Annual Meeting,
Proxy Statement & 1999 Annual Report furnished to the Securities Exchange
Commission as Exhibit 13 to this Report is incorporated by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information presented under the caption "Stock Ownership of Certain
Beneficial Owners and Management" in the Notice of Annual Meeting, Proxy
Statement & 1999 Annual Report furnished to the Securities Exchange Commission
as Exhibit 13 to this Report is incorporated by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information listed under the caption "Certain Transactions" in the
Notice of Annual Meeting, Proxy Statement & 1999 Annual Report furnished to the
Securities Exchange Commission as Exhibit 13 to this Report is incorporated by
reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
EXHIBIT NO. EXHIBIT DESCRIPTION
3.1 Articles of Incorporation are incorporated by
reference to exhibit 3.1 of the Company's
Registration Statement on Form SB-2 (SEC File no.
333-63769) that become effective on December 17,
1998).
3.2 Bylaws of the Company are incorporated by reference
to exhibit 3.2 of the Company's Registration
Statement on Form SB-2 (SEC File No. 333-63769)
which became effective on December 17, 1998.
10.1 1998 Employee Stock Option Plan is incorporated by
reference to exhibit 10.1 of the Company's
Registration Statement on Form SB-2 (SEC File No.
333-63769) which became effective on December 17,
1998. (Management contract or compensatory plan)
<PAGE> 17
EXHIBIT NO. EXHIBIT DESCRIPTION
10.2 Development Coordination and Construction Oversight
Agreement between the Company and Investment
Property Associates, Inc. is incorporated by
reference to exhibit 10.2 of the Company's
Registration Statement on Form SB-2 (SEC File No.
333-63769) which became effective on December 17,
1998. (Management contract or compensatory plan)
10.4 Agreement between Fiserv Solutions, Inc. and
Community Shores Bank is incorporated by reference
to exhibit 10.4 of the Company's Registration
Statement on Form SB-2 (SEC File No. 333-63769)
which became effective on December 17, 1998.
13 Proxy Statement & 1999 Annual Report of the
Company. Except for the portions of the Proxy
Statement & 1999 Annual Report that are expressly
incorporated by reference in this Annual Report on
Form 10-KSB, the Proxy Statement & 1999 Annual
Report of the Company shall not be deemed filed as
a part hereof.
20 Proxy Statement of the Company for its April 20,
2000 Annual Meeting is included as part of the
Proxy Statement & 1999 Annual Report of the Company
(front cover through page 10 thereof) that is set
forth as Exhibit 13 to this Annual Report on Form
10-KSB. Except for the portions of the Proxy
Statement & 1999 Annual Report that are expressly
incorporated by reference in this Annual Report on
Form 10-KSB, the Proxy Statement & 1999 Annual
Report of the Company shall not be deemed filed as
a part hereof.
21 Subsidiaries of the Issuer is incorporated by
reference to Exhibit 21 of the Company's Annual
Report on Form 10-KSB for the year ended December
31, 1998 (SEC File No. 333-63769).
23 Consent of Independent Accountants.
27 Financial Data Schedule.
(B) REPORTS ON FORM 8-K
The Company has not filed any reports on Form 8-K during the last
quarter of the period covered by this report.
<PAGE> 18
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on March 30, 1999.
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 29, 2000.
<TABLE>
<S> <C>
/s/ David C. Bliss /s/ Michael D. Gluhanich
- -------------------------------------- --------------------------------------
David C. Bliss, Director Michael D. Gluhanich, Director
- -------------------------------------- --------------------------------------
Gary F. Bogner, Director Donald E. Hegedus, Director
/s/ John C. Carlyle
- -------------------------------------- --------------------------------------
John C. Carlyle, Director John L. Hilt, Director
/s/ Robert L. Chandonnet /s/ Jose' A. Infante
- -------------------------------------- --------------------------------------
Robert L. Chandonnet, Director Jose' A. Infante, Chairman of the Board,
President and Chief Executive Officer and
Director (principal executive officer)
/s/ Dennis L. Cherette
- -------------------------------------- --------------------------------------
Dennis L. Cherette, Director Joy R. Nelson, Director
/s/ Bruce J. Essex /s/ Tracey A. Welsh
- -------------------------------------- --------------------------------------
Bruce J. Essex, Director Tracey A. Welsh (principal financial and
accounting officer)
</TABLE>
<PAGE> 19
EXHIBIT INDEX
-------------
EXHIBIT NO. EXHIBIT DESCRIPTION
3.1 Articles of Incorporation are incorporated by
reference to exhibit 3.1 of the Company's
Registration Statement on Form SB-2 (SEC File no.
333-63769) that become effective on December 17,
1998).
3.2 Bylaws of the Company are incorporated by reference
to exhibit 3.2 of the Company's Registration
Statement on Form SB-2 (SEC File No. 333-63769)
which became effective on December 17, 1998.
10.1 1998 Employee Stock Option Plan is incorporated by
reference to exhibit 10.1 of the Company's
Registration Statement on Form SB-2 (SEC File No.
333-63769) which became effective on December 17,
1998. (Management contract or compensatory plan)
10.2 Development Coordination and Construction Oversight
Agreement between the Company and Investment
Property Associates, Inc. is incorporated by
reference to exhibit 10.2 of the Company's
Registration Statement on Form SB-2 (SEC File No.
333-63769) which became effective on December 17,
1998. (Management contract or compensatory plan)
10.3 First Amendment to 1998 Employee Stock Option Plan
is incorporated by reference to exhibit 10.3 of the
Company's Registration Statement on Form SB-2 (SEC
File No. 333-63769) which became effective on
December 17, 1998.
10.4 Agreement between Fiserv Solutions, Inc. and
Community Shores Bank is incorporated by reference
to exhibit 10.4 of the Company's Registration
Statement on Form SB-2 (SEC File No. 333-63769)
which became effective on December 17, 1998.
13 Proxy Statement & 1999 Annual Report of the
Company. Except for the portions of the Proxy
Statement & 1999 Annual Report that are expressly
incorporated by reference in this Annual Report on
Form 10-KSB, the Proxy Statement & 1999 Annual
Report of the Company shall not be deemed filed as
a part hereof.
20 Proxy Statement of the Company for its April 20,
2000 Annual Meeting is included as part of the
Proxy Statement & 1999 Annual Report of the Company
(front cover through page 10 thereof) that is set
forth as Exhibit 13 to this Annual Report on Form
10-KSB. Except for the portions of the Proxy
Statement & 1999 Annual Report that are expressly
incorporated
<PAGE> 20
by reference in this Annual Report on
Form 10-KSB, the Proxy Statement & 1999 Annual
Report of the Company shall not be deemed filed as
a part hereof.
21 Subsidiaries of the Issuer is incorporated by
reference to Exhibit 21 of the Company's Annual
Report on Form 10-KSB for the year ended December
31, 1998 (SEC File No. 333-63769).
23 Consent of Independent Accountant.
27 Financial Data Schedule.
<PAGE> 1
EXHIBIT 13
PROXY STATEMENT & 1999 ANNUAL REPORT OF THE COMPANY
<PAGE> 2
[COMMUNITY SHORES BANK CORPORATION LOGO]
NOTICE OF
ANNUAL MEETING
PROXY STATEMENT
&
1999 ANNUAL REPORT
<PAGE> 3
COMMUNITY SHORES BANK CORPORATION
1030 W. NORTON AVENUE
MUSKEGON, MICHIGAN 49441
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 20, 2000
TO THE HOLDERS OF SHARES OF COMMON STOCK OF
COMMUNITY SHORES BANK CORPORATION
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
COMMUNITY SHORES BANK CORPORATION will be held at the Holiday Inn at 939 Third
Street, in Muskegon, Michigan, on Thursday, April 20, 2000, at 2:00 p.m., for
the purpose of considering and voting upon the following matters:
1. ELECTION OF DIRECTORS. To elect four Class II directors for a three
year term, as detailed in the accompanying Proxy Statement.
2. OTHER BUSINESS. To transact such other business as may properly be
brought before the meeting or any adjournment or adjournments thereof.
Only those shareholders of record at the close of business on
Wednesday, March 1, 2000, shall be entitled to notice of and to vote at the
meeting.
We urge you to sign and return the enclosed proxy as promptly as
possible, whether or not you plan to attend the meeting in person. If you plan
to attend the meeting, please let us know by checking the box provided for this
purpose on the enclosed proxy. We would appreciate receiving your proxy by
Monday, April 10, 2000.
By Order of the Board of Directors,
Jose' A. Infante
Chairman of the Board, President
and Chief Executive Officer
Dated: March 23, 2000
<PAGE> 4
COMMUNITY SHORES BANK CORPORATION
1030 W. NORTON AVENUE
MUSKEGON, MICHIGAN 49441
March 23, 2000
PROXY STATEMENT
GENERAL INFORMATION
This Proxy Statement is furnished to shareholders of Community Shores
Bank Corporation (the "Company") in connection with the solicitation of proxies
by the Board of Directors of the Company for use at the Annual Meeting of
shareholders of the Company to be held on Thursday, April 20, 2000, at 2:00
p.m., at the Holiday Inn at 939 Third Street, Muskegon, Michigan, and at any and
all adjournments thereof. It is expected that the proxy materials will be mailed
to shareholders on or about March 23, 2000.
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its exercise. Unless the proxy is revoked,
the shares represented by the proxy will be voted at the Annual Meeting or any
adjournment of the meeting.
The entire cost of soliciting proxies will be borne by the Company.
Proxies may be solicited by mail, facsimile or telegraph, or by directors,
officers, or regular employees of the Company or its subsidiary, in person or by
telephone. The Company will reimburse brokerage houses and other custodians,
nominees and fiduciaries for their out-of-pocket expenses for forwarding
soliciting material to the beneficial owners of Common Stock of the Company.
The Board of Directors, in accordance with the By-Laws of the Company,
has fixed the close of business on March 1, 2000 as the record date for
determining shareholders entitled to notice of and to vote at the Annual Meeting
and at any and all adjournments thereof.
At the close of business on the record date, the outstanding number of
voting securities of the Company was 1,170,000 shares of Common Stock, each of
which is entitled to one vote. A majority of the outstanding shares will
constitute a quorum at the meeting. Abstentions and broker non-votes are counted
for purposes of determining the presence or absence of a quorum for the
transaction of business.
ELECTION OF DIRECTORS
The Company's Articles of Incorporation and By-Laws provide that the
number of directors, as determined from time to time by the Board of Directors,
shall be no less than six and no more than fifteen. The Board of Directors has
presently fixed the number of directors at eleven. The Articles of Incorporation
and By-Laws further provide that the directors shall be divided into three
classes, Class I, Class II and Class III, with each class serving a staggered
three year term and with the number of directors in each class being as nearly
equal as possible.
1
<PAGE> 5
The Board of Directors has nominated John C. Carlyle, Dennis L.
Cherette, Michael D. Gluhanich, and Donald E. Hegedus as Class II directors for
three year terms expiring at the 2003 Annual Meeting and upon election and
qualification of their successors. Each of the nominees is presently a Class II
director of the Company whose term expires at the April 20, 2000 Annual Meeting
of the shareholders. The other members of the Board, who are Class I and Class
III directors, will continue in office in accordance with their previous
elections until the expiration of their terms at the 2001 or 2002 Annual
Meeting.
It is the intention of the persons named in the enclosed proxy to vote
the proxy for the election of the four nominees. The proposed nominees for
election as director are willing to be elected and serve; but in the event that
any nominee at the time of election is unable to serve or is otherwise
unavailable for election, the Board of Directors may select a substitute
nominee, and in that event the persons named in the enclosed proxy intend to
vote the proxy for the person so selected. If a substitute nominee is not so
selected, the proxy will be voted for the election of the remaining nominees.
The affirmative vote of a plurality of the votes cast at the meeting is required
for the nominees to be elected. Votes withheld and broker non-votes are not
counted toward a nominee's total.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents information regarding the beneficial
ownership of the Company's Common Stock as of February 1, 2000, by the nominees
for election as directors of the Company, the directors of the Company whose
terms of office will continue after the Annual Meeting, the executive officer
named in the Summary Compensation Table, and all directors and executive
officers of the Company as a group.
<TABLE>
<CAPTION>
Amount Percent of Class
Beneficially Beneficially
Name of Beneficial Owner Owned (1) Owned (2)
- ------------------------ --------- ---------
<S> <C> <C>
David C. Bliss............................................ 20,310 1.7%
Gary F. Bogner............................................ 36,800(3) 3.1%
John C. Carlyle........................................... 25,000 2.1%
Robert L. Chandonnet...................................... 26,130 2.2%
Dennis L. Cherette........................................ 23,900 2.0%
Bruce J. Essex............................................ 79,069 6.8%
Michael D. Gluhanich...................................... 28,730 2.5%
Donald E. Hegedus......................................... 29,700 2.5%
John L. Hilt.............................................. 37,200 3.2%
Jose' A. Infante.......................................... 31,720(4) 2.7%
Joy R.Nelson..............................................
All directors and executive officers of the
Company as a group (14 persons)........................... 383,889(5) 31.5%
- -----------------------------
</TABLE>
* Less than one percent
(1) Some or all of the Common Stock listed may be held jointly with, or for
the benefit of, spouses and children or grandchildren of, or various
trusts established by, the person indicated.
(2) The percentages shown are based on the 1,170,000 shares of the
Company's Common Stock outstanding as of February 1, 2000, plus the
number of shares that the named person or group has the right to
acquire within 60 days of February 1, 2000.
2
<PAGE> 6
(3) Includes 1,800 shares held by Mr. Bogner's spouse.
(4) Includes 20,000 shares that Mr. Infante has the right to acquire within
60 days of February 1, 2000 pursuant to the Company's 1998 Employee
Stock Option Plan. Mr. Infante also holds an option under the Plan to
purchase an additional 20,000 shares, which has not yet vested.
Includes also 300 shares held by Mr. Infante's children and 170 shares
held by Mr. Infante's spouse.
(5) Includes 47,000 shares that such persons have the right to acquire
within 60 days of February 1, 2000 pursuant to the Company's 1998
Employee Stock Option Plan. Such persons also hold options under the
Plan to purchase an additional 47,000 shares which have not yet vested.
To the best of the Company's knowledge, no person other than Bruce J.
Essex, whose ownership is shown in the table above, owns 5% or more of the
Company's outstanding Common Stock. Mr. Essex and the other directors named in
the table have a business address at the office of the Company.
INFORMATION ABOUT DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
The following information is furnished with respect to each continuing
director, nominee as a director, and executive officer of the Company. Each of
the continuing directors and nominees is currently a director of the Company as
well as a director of Community Shores Bank (the "Bank") which is the Company's
subsidiary.
<TABLE>
<CAPTION>
Name, Age, and Position with Has Served As Year When Term
the Company and the Bank Director Since As a Director Expires
- ------------------------ -------------- ---------------------
<S> <C> <C>
David C. Bliss, 62, Director 1998 2001
Gary F. Bogner, 57, Director 1998 2002
John C. Carlyle, 61, Director 1998 2000
Robert L. Chandonnet, 55, Director 1998 2002
Dennis L. Cherette, 45, Director 1998 2000
Bruce J. Essex, 50, Director 1998 2001
Michael D. Gluhanich, 54, Director 1998 2000
Donald E. Hegedus, 64, Director 1998 2000
John L. Hilt, 55, Director 1998 2001
Jose' A. Infante, 47, Chairman of the Board, President 1998 2002
and Chief Executive Officer, and Director
Joy R. Nelson, 62, Director 1998 2002
Ralph R. Berggren, 47, Senior Vice President and
Secretary of the Company, Senior Vice President,
Secretary, Cashier and Senior Lender of the Bank
Heather D. Brolick, 40, Senior Vice President of the
Company, Senior Vice President, Retail Lending
and Operations of the Bank
Robert J. Jacobs, 51, Senior Vice President of the
Company, Senior Vice President, Retail Banking
of the Bank
</TABLE>
3
<PAGE> 7
The business experience of each of the directors, nominees and
executive officers of the Company for at least the past five years is summarized
below:
DAVID C. BLISS (Director) is Chairman of Quality Stores, Inc. ("Quality
Stores"), located in Muskegon, Michigan. Quality Stores operates over 350 retail
farm and do-it-yourself stores located nationwide under the names of Quality
Farm and Fleet and County Post, and has annual sales in excess of $1.2 billion.
Mr. Bliss was the Chief Executive Officer of Quality Stores from 1994 to 1999,
and Chairman of Quality Stores since 1996. Mr. Bliss served on the Board and
Executive Committee of FMB-Lumberman's Bank ("FMB-Lumberman's") from May, 1995
to October, 1997 when he moved to the Huntington Bank Advisory Board after the
merger of FMB-Lumberman's and Huntington Bank. Mr. Bliss serves as the Vice
Chair of Community Foundation of Muskegon County. Mr. Bliss previously served as
a member of the Boards of Directors of United Way of Muskegon County, the local
YFCA, Muskegon Community Health Project, Muskegon Economic Growth Alliance, OHIO
FAA Sponsor Board, and International Mass Retailers Association.
GARY F. BOGNER (Director) is a lifelong resident of Muskegon County.
Mr. Bogner became a pilot for Northwest Airlines in the late 1960s and is now
retired. While a pilot he began investing in real estate in Muskegon County. He
obtained his Michigan Real Estate Broker license in 1971 and his contractors
license in 1975. Mr. Bogner continued to invest in commercial real estate
throughout the 1980s and 1990s. He owns several commercial and residential real
estate developments primarily in Muskegon County. His largest real estate
holdings consist of two mobile home parks, Park Meadows and Timberline Estates.
Additionally, he is a partner in two growing companies, Send Delivery Inc. and
Send Resources Inc., that deliver small parcels within Michigan, Indiana,
Illinois and Ohio. Mr. Bogner resides in North Muskegon and is a retired member
of the Airline Pilots Association and a current Vice President of the Safari
Club International.
JOHN C. CARLYLE (Director) is a partner in the law firm of Varnum,
Riddering, Schmidt and Howlett LLP. He joined the law firm in 1990 and his
office is located in Grand Haven, Michigan. Mr. Carlyle is also a certified
public accountant. He currently serves as a member of the Board of Directors of
the Grand Rapids Symphony and the Hospice of North Ottawa Community Endowment
Fund. From 1978 to 1996, Mr. Carlyle served as a member of the Board of
Directors of Old Kent Bank of Grand Haven. He resides in Spring Lake, Michigan.
ROBERT L. CHANDONNET (Director) is the owner of The Nugent Sand
Company, Inc. ("Nugent Sand"), which provides foundry sand to several foundries
in the Great Lakes Region. Mr. Chandonnet has worked in the foundry industry
since 1966. He began working at Nugent Sand as Sales Manager in 1980, and
progressed to President of the Company in 1989. Mr. Chandonnet purchased Nugent
Sand from the prior owners in 1989. He is a member of the National Industrial
Sand Association, American Foundrymans Society, Muskegon Country Club, Muskegon
County Catholic Education Foundation, and DJ Campbell Scholarship Fund.
4
<PAGE> 8
DENNIS L. CHERETTE (Director) is an owner and the President of
Investment Property Association, Inc., IPA Construction Inc. and IPA Management.
Mr. Cherette formed IPA in 1985 and has over 22 years experience in real estate
development. Over the years Mr. Cherette has served as a corporate consultant
for both national and regional firms and has had real estate consulting
assignments in 22 major markets. Mr. Cherette holds a Certified Commercial
Investment Member designation. He presently serves as Vice Chair of the Board of
Directors of Mercy General Health Partners, a Board Member of Mercy General
Osteopathic Foundation, and Chairman of the Finance Committee of Mercy General
Health Partners. He has previously served as President of Hospice of North
Ottawa Community. His previous Board positions include the Advisory Board of
Grand Bank (located in Grand Rapids, Michigan), West Michigan Wellness Center,
CBD 2000 Board of Economics Development, and Salvation Army of Grand Haven.
BRUCE J. ESSEX (Director) owns and operates a group of companies
including Port City Die Cast, Port City Metal Products, Muskegon Casting Corp.
and Mirror Image Tool (known as the Port City Group). Mr. Essex has over 25
years experience in the die casting industry and has owned the Port City Group
since 1982. Mr. Essex is a longtime resident of Muskegon County. Mr. Essex is a
member of the Muskegon Economic Growth Alliance and YFCA partner with Youth
Campaign.
MICHAEL D. GLUHANICH (Director) is President of Geerpres, Inc.
("Geerpres"). Geerpres is a leading manufacturer of janitorial supply equipment.
Mr. Gluhanich has owned Geerpres since 1992 and has over 25 years of progressive
staff and line experience in accounting, finance and operations, starting at
Dresser Industries, a Fortune 100 company and later at Shaw Walker, a large
privately held company located in Muskegon. Mr. Gluhanich serves on the Board of
Directors of Cherry County Playhouse, Mercy Development Council and The Child &
Family Services of Muskegon. He is also Chair of Norton Shores EDC and
Brownfield Authority and a member of the Finance Committee of Mercy General
Health Partners.
DONALD E. HEGEDUS (Director) started his career in the construction
industry over 40 years ago. In 1970, Mr. Hegedus started Tridonn Construction
Company, which he sold to his employees in 1994. The company continues to
operate under its present ownership. In 1985, Mr. Hegedus started Tridonn
Development Company ("TDC"), which he continues to own today. TDC has owned and
operated businesses engaged in real estate development, lodging, commercial real
estate and restaurants. Mr. Hegedus is also part owner of LHR Properties and
Edgewater LLC, located in Muskegon County. Mr. Hegedus is a member of the
Muskegon Economic Growth Alliance. Additionally, he is a past board member of
the American Builders and Construction Association.
JOHN L. HILT (Director) is the retired Chairman Emeritus and son of the
founder of Quality Stores. Mr. Hilt worked for Quality Stores for 31 years, and
held various positions including President, Chairman and Chairman Emeritus. Mr.
Hilt was a director of National Lumberman's Bank from 1975 to 1979. In 1979
National Lumberman's Bank merged with First Michigan Bank Corporation. He
remained as a director for FMB-Lumberman's, the continuing bank, until 1995. He
served in various capacities on the Board including member of the Executive Loan
Committee. Mr. Hilt has been involved with several community organizations such
as Muskegon County Community Foundation-Trustee, Western Michigan Cherry County
Playhouse-Chairman, and Great Lakes Aquarium.
5
<PAGE> 9
JOSE' A. INFANTE (Chairman of the Board, President and Chief Executive
Officer) has been in banking since 1970. Mr. Infante has experience in both
retail and commercial aspects of banking, and 28 of his 29 years of financial
services experience are in the West Michigan area. He started his West Michigan
career with Old Kent in 1971, where he held various positions in the areas of
retail banking, branch administration, credit administration and commercial
lending. In 1986, Mr. Infante left Old Kent to become Vice President of branch
administration for FMB-Lumberman's in Muskegon. While at FMB-Lumberman's, he was
promoted to Senior Vice President of Retail Banking in 1991, then to Executive
Vice President in 1992, and from 1994 to 1997 held the position of President and
CEO. After Huntington Bank acquired FMB-Lumberman's in October of 1997, Mr.
Infante became District City Executive for Huntington Bank in Muskegon and
Northern Ottawa Counties, the markets of Oceana County, Newaygo County and the
cities of Reed City and Big Rapids in Mecosta County, with other City Executives
in these markets reporting to him. He held this position until his resignation
in June of 1998 to form the Bank. Mr. Infante has served as Chairman of the
Board, President and Chief Executive Officer of the Company since 1998, and of
the Bank since it commenced business in early 1999. Mr. Infante is a Board
Member and on the Finance Committee of Mercy General Health Partners, a member
of The State of Michigan Governor's Workforce Committee, a member of the Board
of Trustees of Grand Valley State University and a member of the Committee of
the Kent, Ottawa and Muskegon Counties Foreign Trade Zone. Previously he served
on the Boards of Muskegon United Way, West Shore Symphony Organization, Greater
Muskegon Urban League, Churchill Porter Athletic Association, YFCA, Muskegon
Growth Alliance, and Muskegon & Grand Rapids Jaycees. He also was a weekly TV
commentator on WZZM/ABC "Your Money".
JOY R. NELSON (Director) retired from Huntington Bank in 1998 with 40
years experience in the Muskegon market area. She began her career in 1958 with
National Lumberman's Bank, later known as FMB-Lumberman's. During her tenure
with FMB-Lumberman's, she held various positions including Retail Branch
Manager, Vice President of Branch Administration, Trust Department Head and Vice
President in charge of Private Banking. She was a member of FMB-Lumberman's
Senior Management Team from 1983 to 1998. Mrs. Nelson is the Chairperson of the
Boards of Baker College of Muskegon and the Workforce Development Board of
Muskegon County. She has previously held positions with numerous civic
organizations including Chairperson of Muskegon/Oceana Red Cross, Co-Chair of
the United Way Campaign of Muskegon, Vice President of the Board of Mercy
Hospital, Executive Committee and member of the Board of Hospice of Muskegon,
Committee Member of Muskegon County Heart Walk, and member of the Nominating
Committee of Pine & Dunes Girl Scouts.
RALPH R. BERGGREN (Senior Vice President and Secretary of the Company
and Senior Vice President, Secretary, Cashier and Senior Lender of the Bank) has
over 24 years of commercial banking experience in the West Michigan area. Mr.
Berggren started his banking career in 1975 with Hackley Bank and Trust in
Muskegon ("Hackley Bank"), primarily in commercial lending. Hackley Bank was
acquired by Comerica Bank in 1977. In 1984, Mr. Berggren left Comerica Bank and
joined FMB-Lumberman's (which was acquired by Huntington Bank in 1997) as an
Assistant Vice President in the Commercial Loan Department. In 1992, Mr.
Berggren was promoted to Commercial Loan Department Manager, and then later to
Senior Lender, a position he held until joining the Company in June of 1998. Mr.
Berggren has served as Senior Vice President and Secretary of the Company since
1998, and as Senior Vice President, Secretary, Cashier and Senior Lender of the
Bank since it commenced business in early 1999. Mr. Berggren is active in the
Muskegon community, serving as past President of Muskegon Civic Theatre, a
member of Ambucs and a member of the Finance Committee of the local YFCA.
6
<PAGE> 10
HEATHER D. BROLICK (Senior Vice President of the Company and Senior
Vice President, Retail Lending and Operations Manager of the Bank) has over 18
years of commercial banking experience. Ms. Brolick began her career in 1981
with United California Bank, later known as FICal. In her nine years at FICal,
Ms. Brolick held various positions in retail branch operations, consumer lending
and compliance. In 1990 she joined FMB-Lumberman's, where she served as a Retail
Branch Manager from 1990 to 1994, and Vice President/Regional Branch
Administrator from 1994 to 1996, and Mortgage/Consumer Loan Department Head from
1996 to 1997. From 1997 until joining the Company in September of 1998, she was
a Vice President and regional Branch Manager for the Huntington Mortgage Company
with all Mortgage responsibilities from Grand Haven to the Upper Peninsula. Ms.
Brolick has served as Senior Vice President of the Company since 1998, and as
Senior Vice President Retail Lending and Operations Manager of the Bank since it
commenced business in early 1999. Ms. Brolick is a board member of the West
Shore Symphony Orchestra and is an Ambassador for the Tri-Cities Chamber of
Commerce.
ROBERT J. JACOBS (Senior Vice President of the Company and Senior Vice
President, Retail Banking of the Bank) has over 25 years of financial services
experience. Mr. Jacobs' career, which began at Old Kent in 1974, included
positions in branch management, sales management, marketing and private banking.
In 1991, Mr. Jacobs became Senior Vice President with Founders Trust of Grand
Rapids, Michigan. In 1992, he joined FMB-Lumberman's as Branch Administrator,
and in 1994 was promoted to Senior Vice President of Retail Banking. After
Huntington Bank's acquisition of FMB-Lumberman's in 1997, Mr. Jacobs became a
Vice President of Huntington Bank, responsible for Cash Management Sales in the
West Michigan area. Mr. Jacobs served Huntington Bank in this position until he
joined the Company in July of 1998. Mr. Jacobs has served as Senior Vice
President of the Company since 1998, and as Senior Vice President, Retail
Banking of the Bank since it commenced business in early 1999. Mr. Jacobs is a
board member of the Muskegon United Way and Muskegon's Summer Celebration. He
has been active in the YMCA, American Heart Association, West Michigan Better
Business Bureau, Jaycees and Rotary.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
The Company has standing Audit, Compensation, and Nominating Committees
of the Board of Directors.
The members of the Audit Committee consist of John C. Carlyle, Michael
D. Gluhanich and Joy R. Nelson. The Audit Committee's responsibilities include
recommending to the Board of Directors the selection of independent accountants,
approving the scope of audit and non-audit services performed by the independent
accountants, reviewing the results of their audit, reviewing the Company's
internal auditing activities and financial statements, and reviewing the
Company's system of accounting controls and recordkeeping.
7
<PAGE> 11
The members of the Compensation Committee consist of Dennis L.
Cherette, Bruce J. Essex, John L. Hilt and Joy R. Nelson. The Compensation
Committee's responsibilities include considering and recommending to the Board
of Directors any changes in compensation and benefits for officers of the
Company. At present, all officers of the Company are also officers of the Bank,
and although they receive compensation from the Bank in their capacity as
officers of the Bank, they presently receive no separate cash compensation from
the Company.
The members of the Nominating Committee consist of David C. Bliss, John
C. Carlyle, Robert L. Chandonnet, Donald E. Hegedus, and Jose' A. Infante. The
Nominating Committee is responsible for reviewing and making recommendations to
the Board of Directors as to its size and composition, and recommending to the
Board of Directors candidates for election as directors at the Company's annual
meetings. The Nominating Committee will consider as potential nominees persons
recommended by shareholders. Recommendations should be submitted to the
Nominating Committee in care of Jose' A. Infante, Chairman of the Board,
President and Chief Executive Officer of the Company. Each recommendation should
include a personal biography of the suggested nominee, an indication of the
background or experience that qualifies such person for consideration, and a
statement that such person has agreed to serve if nominated and elected.
Shareholders who themselves wish to effectively nominate a person for election
to the Board of Directors, as contrasted with recommending a potential nominee
to the Nominating Committee for its consideration, are required to comply with
the advance notice and other requirements set forth in the Company's Articles of
Incorporation.
During 1999, there were a total of 3 meetings of the Board of Directors
of the Company. Each director attended at least 75% of the total number of
meetings of the Board of Directors and Committees of the Board held during the
period that the director served, except Mr. Hilt, who attended 61% of the
meetings, and Mr. Essex who attended 44% of the meetings. There were 3 meetings
of the Audit Committee, 1 meeting of the Compensation Committee, and no
meetings of the Nominating Committee during 1999.
During 1999, no compensation was paid to any directors of the Company
for their services as directors.
SUMMARY COMPENSATION TABLE
The following table details the compensation earned or paid to the
named executive officer for the period from July 23, 1998 (inception) to
December 31, 1998, and the year ended December 31, 1999.
<TABLE>
<CAPTION>
Annual Compensation Long Term
------------------- ---------
Compensation
------------
Name and
Principal All Other
Other Position Year Salary Bonus Options Compensation
---- ------ ----- ------- ------------
<S> <C> <C> <C> <C> <C>
Jose' A. Infante, 1999 $150,000 $ 0 0 $6,000 (1)
Chairman of the Board, 1998 $ 58,089 $ 0 40,000 $ 0
President and Chief
Executive Officer
- -----------------------------
</TABLE>
(1) Consists of the matching contribution made by the Bank to Mr. Infante's
401(k) plan account.
8
<PAGE> 12
OPTIONS GRANTED IN 1999
Under the Company's 1998 Employee Stock Option Plan, stock options are
granted to the Company's and the Bank's senior management and other key
employees. The Board of Directors of the Company is responsible for awarding the
stock options. These options are awarded to give senior management and key
employees an additional interest in the Company from a shareholder's
perspective, and enable them to participate in the future growth and
profitability of the Company. In making awards, the Board may consider the
position and responsibilities of the employee, the nature and value of his or
her services and accomplishments, the present and potential contribution of the
employee to the success of the Company, and such other factors as the Board may
deem relevant.
The following table provides information on options granted to the
named executive officer during the year ended December 31, 1999.
<TABLE>
<CAPTION>
Individual Grants
-----------------
Number of % of Total
Shares Options
Underlying Granted to Exercise or
Options Employees Base Price Expiration
Name Granted in 1999 Per Share Date
- ---- ---------------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Jose' A. Infante None N/A N/A N/A
</TABLE>
AGGREGATED STOCK OPTION EXERCISES IN 1999 AND YEAR END OPTION VALUES
The following table provides information on the exercise of stock
options during the year ended December 31, 1999 by the named executive and the
value of unexercised options at December 31, 1999:
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Shares Options at Options at
Acquired on Value 12/31/99 12/31/99(1)
Name Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Jose' A. Infante None N/A 20,000/20,000 $ 0/$ 0
- --------------------------
</TABLE>
(1) In accordance with the SEC's rules, values are calculated by
subtracting the exercise price from the fair market value of the
underlying Common Stock. There were no in-the-money options at December
31, 1999.
9
<PAGE> 13
CERTAIN TRANSACTIONS
The Bank has had, and expects in the future to have, loan and other
financial transactions in the ordinary course of business with the Company's
directors, executive officers, and principal shareholders (and their associates)
on substantially the same terms as those prevailing for comparable transactions
with others. All such transactions (i) were made in the ordinary course of
business, (ii) were made on substantially the same terms, including interest
rates and collateral on loans, as those prevailing at the time for comparable
transactions with other persons, and (iii) in the opinion of management did not
involve more than the normal risk of collectibility or present other unfavorable
features.
As of February 1, 2000, the Bank had outstanding 36 loans to directors
or executive officers of the Company and affiliated entities totaling
approximately $5,767,995 in aggregate amount under commitments totaling
approximately $7,902,045 million.
During 1998, organizers of the Bank loaned approximately $1,138,000 in
aggregate amount to the Company to cover organizational and other preopening
expenses of the Bank and the Company. Interest was paid on these loans at the
rate of 5% per annum. All of these loans were repaid by the Company from net
proceeds of its initial public offering in December of 1998. Each of the
organizers who loaned money to the Company was a member of the Company's Board
of Directors.
SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Crowe, Chizek and Company LLP as
the Company's principal independent auditors for the year ending December 31,
2000. Representatives of Crowe, Chizek and Company LLP plan to attend the Annual
Meeting of shareholders, will have the opportunity to make a statement if they
desire to do so, and will respond to appropriate questions by shareholders.
SHAREHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
A proposal submitted by a shareholder for the 2001 Annual Meeting of
shareholders must be sent to the Secretary of the Company, 1030 W. Norton
Avenue, Muskegon, Michigan 49441, and received by November 24, 2000 in order to
be eligible to be included in the Company's Proxy Statement for that meeting.
OTHER MATTERS
The Board of Directors does not know of any other matters to be brought
before the Annual Meeting. If other matters are presented upon which a vote may
properly be taken it is the intention of the persons named in the proxy to vote
the proxies in accordance with their best judgment.
10
<PAGE> 14
COMMUNITY SHORES
BANK
CORPORATION
1999 ANNUAL REPORT
DECEMBER 31, 1999
<PAGE> 15
COMMUNITY SHORES BANK CORPORATION
Muskegon, Michigan
1999 ANNUAL REPORT
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
MESSAGE TO THE SHAREHOLDERS................................................................................... S-2
MANAGEMENT'S DISCUSSION AND ANALYSIS.......................................................................... S-4
REPORT OF INDEPENDENT AUDITORS................................................................................ S-9
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET............................................................................... S-10
CONSOLIDATED STATEMENT OF INCOME......................................................................... S-11
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY................................................ S-12
CONSOLIDATED STATEMENT OF CASH FLOWS..................................................................... S-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS............................................................... S-14
SHAREHOLDER INFORMATION....................................................................................... S-28
DIRECTORS AND EXECUTIVE OFFICERS.............................................................................. S-30
</TABLE>
- --------------------------------------------------------------------------------
S-1
<PAGE> 16
MESSAGE TO THE SHAREHOLDERS
Muskegon, Michigan
February 27, 2000
What a great first year!
At the end of 1999, Community Shores Bank had $72.7 million in total assets.
That is a 205% increase from our original projection.
Your faith in this organization has allowed our team the opportunity to have an
impact in our market. You, as stockholders of Community Shores Bank Corporation,
and in many cases customers of Community Shores Bank, should be very proud of
your ownership in this community resource.
The success we have had would never have occurred if it were not for the truly
outstanding Community Shores Bank employee team and Board of Directors. They
have worked long hours, whether at their own job or covering for teammates when
the need arises, in order to assure our customers the best possible service. Our
Board of Directors has been one of our best sources of referrals, business and
support. Our team is made up of highly skilled individuals with a strong work
ethic. We are striving to be the best community bank in our market.
Let me take the opportunity to tell you about our accomplishments as an
organization. On January 18, 1999, we opened our doors at our present location
in a set of modular units. We worked out of those units while our building was
under construction at the same location. While construction was moving forward,
our team made strides in letting the community know that we were here, not only
to serve them, but also as partners in the growth of this community. That is
what community banking is all about.
Our ability to serve a diverse customer base, with an array of advanced
products, has been one of our successes. We can take care of the smallest to the
largest client and we have, after one year, the record to prove it.
On November 1, 1999, we moved into our building. The positive response to our
community open house reinforced how well we have been received in this market.
We have had hundreds of visitors in the past few months, including existing
customers, prospective customers, vendors and interested individuals from within
our market area.
- --------------------------------------------------------------------------------
S-2
<PAGE> 17
On September 20, 1999, we opened our first branch at the corner of U.S. 31 and
Robbins Road in the City of Grand Haven. This location will allow us to better
serve the Tri-Cities market. Over the next few years, we will investigate the
opportunity to open other branch locations.
The future of the organization is a bright one. The market is as strong as ever
and the economic diversification of the Muskegon and Northern Ottawa areas only
reinforces the opportunities. Our organization is poised to grab that
opportunity. We have been and will continue to be aggressive with business
development efforts. All indicators show that those efforts are paying off. We
are exploring new products in order to serve the community better. We implement
innovative, but prudent, ideas that makes us a breed apart from our competition.
In the year 2000 the employees of Community Shores Bank pledge to you, our
stockholders, that this organization will do the best job possible. We will work
toward meeting your investment expectations, with regard to financial growth and
economic return.
Many of you have seen our two locations, but if you have not, please stop by so
I, or one of our team members, can proudly give you a tour and tell you more
about our mutual accomplishments. If you are not a customer, please consider
giving us the opportunity to show you what a true community bank is all about.
Again, thank you for your support and encouragement. Many of you have taken the
time to introduce yourself to us and, just as importantly, provide us with a
word of encouragement...it is greatly appreciated.
- --------------------------------------------------------------------------------
S-3
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Community Shores Bank Corporation (the "Company") is a Michigan
corporation and is the bank holding company for Community Shores Bank (the
"Bank"). The Bank commenced operations on January 18, 1999. The Bank is a
Michigan chartered bank with depository accounts insured by the Federal Deposit
Insurance Corporation. The Bank provides a full range of commercial and consumer
banking services in Muskegon County and Northern Ottawa County, Michigan.
As planned, the Bank began operations in two separate, adjacent and
temporary locations. Construction of a permanent, main office facility commenced
in March of 1999 and the Bank completed its physical move to the new building on
November 1, 1999. The Company also completed its plans to expand its presence
into Northern Ottawa County by leasing a functional, branch banking facility in
Grand Haven Township. The Grand Haven Branch opened for business on September
20, 1999.
The Company has experienced rapid and substantial growth, significantly
exceeding initial asset projections for the year ending December 31, 1999.
Although management believes the Company will continue to grow in 2000, the rate
of increase is not expected to be as rapid as it was in 1999. Initial
projections for 2000 indicate that the bank has sufficient funds to meet its
cash requirements. Management recognizes that growth exceeding projections may
lead to the need for additional funding in the near future.
As of December 31, 1999, the bank had 24 full time employees and five
part time employees. To continue to accommodate growth, management anticipates
increasing staff by five full time equivalents during the year 2000.
The purpose of this section of the Annual Report is to provide a
narrative discussion about the Company's financial condition and results of
operations during 1999. Please refer to the consolidated financial statements
and the selected financial data presented within this report in addition to the
following discussion and analysis. It should also be noted that comparative
information on the results of operations between 1998 and 1999 is not provided
because the Bank did not commence operations until January 18, 1999.
1999 FINANCIAL HIGHLIGHTS
The Company's assets grew to $72,699,000 in less than twelve months.
This growth was driven by significant net loan originations of $55,946,000. To
provide for losses inherent in the loan portfolio and considering the rapid
growth, the Company established an allowance for loan losses which was 1.5% of
loans outstanding at December 31, 1999. More than 3,500 deposit accounts were
opened with year-end balances totaling $55,976,000. The Company built the
infrastructure for future growth with the construction of a permanent main
office in Muskegon, Michigan which was completed in the fall. In addition, the
Company opened a branch in Grand Haven, Michigan expanding our service area.
- --------------------------------------------------------------------------------
S-4
<PAGE> 19
FINANCIAL CONDITION
Total assets increased by $62,837,661 to $72,698,927 at December 31,
1999 from $9,861,266 at December 31, 1998. The increase in assets is mainly
attributable to tremendous commercial loan growth which is in line with
management's strategy of initially focusing on small- to medium-sized business
customers. Next year, the second year of operations, the Company anticipates
continued growth but does not believe that the rate of increase will be
equivalent to that experienced in 1999.
Cash and cash equivalents decreased by $6,645,803 to $1,966,574 at
December 31, 1999 from $8,612,377 at December 31, 1998. This change is mostly an
effect of using the proceeds of the initial public offering to infuse capital
into the Bank so that it could commence banking operations.
Securities available for sale increased $10,767,804 during the year.
There were no securities held by the Company at December 31, 1998. Security
purchases were driven by growth in repurchase agreements. This deposit is not
FDIC insured but is instead collateralized by high quality government
securities. Other purchases were made during the year to satisfy pledging
requirements for Federal Funds Lines and qualification for Federal Home Loan
Bank membership.
Total loans increased to $56,798,379 at December 31, 1999. There were
no loans outstanding at December 31, 1998. The growth in loans exceeded
expectations and management anticipates the rate of increase to slow during the
second year of operations.
In 1999, with the commencement of banking operations, an allowance for
loan loss was established. At December 31, 1999 the allowance totaled $852,000
or approximately 1.5% of gross loans booked during the year. Management has
determined this is an appropriate level based on their estimate of losses
inherent in the loan portfolio from comparison with allowance levels maintained
by other institutions with similar, but seasoned loan portfolios. Management
will continue to monitor the allowance for loan loss levels and make necessary
adjustments through the provision for loan losses. The Bank recorded no credit
losses in 1999.
Bank premises and equipment increased $2,514,607 to $3,752,096 at
December 31, 1999 from $1,237,489 at December 31, 1998. Accumulated depreciation
represented $282,143 at year-end compared to $0 in 1998. These increases are due
to the construction of the permanent main office in Muskegon at 1030 West Norton
Avenue during 1999. In addition, leasehold improvements were made to the Grand
Haven branch and furniture and other necessary banking equipment were purchased
during 1999 for both locations.
Deposit balances were $55,976,077 at December 31, 1999. Management has
chosen to fund a portion of the rapid loan growth by obtaining brokered
deposits. Brokered deposits are time deposits obtained from depositors located
outside of our market area and are placed with the Bank by a deposit broker.
Approximately 19% of the total deposits reported were brokered at year-end.
- --------------------------------------------------------------------------------
S-5
<PAGE> 20
Federal funds purchased and repurchase agreements increased $6,934,491
during 1999. This increase represents a growth of $5,134,491 in the Bank's
Repurchase Account deposit product as well as a $1,800,000 overnight purchase of
federal funds at year-end.
Accrued expenses and other liabilities increased $1,181,383 to
$1,253,597 at December 31, 1999 from $72,214 at December 31, 1998. Included in
1999's balance were two US Agency securities purchased on December 30, 1999 with
a par value of $1,000,000. The securities settled on January 4, 2000.
Common Stock increased by $643,607 to $10,871,211 at December 31, 1999
compared to $10,227,604 at December 31, 1998 as a result of the January 12, 1999
receipt of the proceeds from the over-allotment from the initial public offering
completed in 1998.
RESULTS OF OPERATIONS
The net loss of $1,801,782 at December 31, 1999 was $1,363,230 higher
than that recorded at December 31, 1998. The Company's retained deficit was
$2,240,334 at December 31, 1999. Both the retained deficit and net losses are in
line with expectations. The primary factors contributing to the retained deficit
and net loss are the provision for loan losses and employee salaries and
benefits. It is management's opinion that expenditures being made during the
start-up period are necessary and critical for establishing a solid foundation
for the future growth and stability of the Company.
As mentioned above, comparative information on the results of
operations between 1998 and 1999 is not provided because the Bank did not
commence operations until January 18, 1999.
Net interest income was $1,457,965 at December 31, 1999. Interest
income of $2,960,088 was generated primarily from booking loans, purchasing
securities, and selling federal funds. Interest expense incurred on deposits,
repurchase agreements and federal funds purchased totaled $1,502,123 at
year-end.
The provision for loan losses was $852,000 at December 31, 1999. This
amount was directly related to the strong lending activity that occurred
throughout the year. The allowance was maintained at 1.5% of gross loans
outstanding throughout 1999. Management believes that this ratio is prudent and
justifiable but will continue to review the reserve to ensure that it is aligned
with loss experience. This ratio may be increased or decreased in the future as
management continues to monitor the loan portfolio and actual loan loss
experience.
Non-interest income of $172,141 was recorded in 1999. Approximately 53%
of the total was related to mortgage loan referral fees and 38% resulted from
regular and customary service charges on deposit accounts. Management believes
that the service charge portion of non-interest income will continue to increase
in future years due to anticipated growth in the number of deposit accounts.
However, it is difficult to predict increases in the mortgage loan referral fees
because of their dependence on interest rates which are subject to market
forces.
- --------------------------------------------------------------------------------
S-6
<PAGE> 21
Non-interest expenses were $2,579,888 at December 31, 1999. The main
component was employee salaries and benefits (55% of the total). Other
significant expenses, occupancy, furniture and equipment, professional services
and supplies, comprised 28% of the total.
LIQUIDITY AND INTEREST RATE SENSITIVITY
The Company's sources of liquidity include loan payments by borrowers,
maturity and sales of available for sale securities, depletion of federal funds
sold, growth of deposits and secured borrowings, purchases of federal funds,
borrowings from the Federal Home Loan Bank, subordinated debt and the issuance
of common stock.
Asset liability management aids the Company in achieving reasonable and
predictable earnings and liquidity while maintaining a balance between interest
earning assets and interest bearing liabilities. Liquidity management involves
the ability to meet the cash flow requirements of the Company's customers. These
customers may be either borrowers with credit needs or depositors wanting to
withdraw funds. Management of interest rate sensitivity attempts to avoid widely
varying net interest margins and achieve consistent net interest income through
periods of changing interest rates.
Interest rate sensitivity varies with different types of earning assets
and interest bearing liabilities. Overnight investments, on which rates change
daily, and loans tied to the prime rate, differ considerably from long term
investment securities and fixed rate loans. Time deposits over $100,000 and
money market accounts are more interest sensitive than regular savings accounts.
Comparison of the repricing intervals of interest earning assets to interest
bearing liabilities is a measure of interest sensitivity gap. Balancing this gap
is a continual challenge in a changing rate environment. The Company uses a
sophisticated computer program to perform analysis of interest rate risk, assist
with asset liability management, and model and measure interest rate
sensitivity.
CAPITAL RESOURCES
The Company generated net proceeds of $10,227,604 in its initial public
offering in December, 1998 In January of 1999 the over allotment was exercised
which resulted in additional net proceeds of $643,607. The Company has $1
million that it could contribute to the Bank's capital if necessary.
The Company and Bank are subject to regulatory capital requirements
administered by the federal banking agencies. Capital adequacy guidelines and
prompt corrective action regulations involve quantitative measures of assets,
liabilities, and certain off-balance-sheet items calculated under regulatory
accounting practices. Capital amounts and classifications are also subject to
qualitative judgments by regulators about components, risk weightings, and other
factors, and the regulators can lower classifications in certain cases. Failure
to meet various capital requirements can initiate regulatory action that could
have a direct material effect on the financial statements.
- --------------------------------------------------------------------------------
S-7
<PAGE> 22
As a condition to regulatory approval during the Bank's formation it
was mandated that the Company and the Bank maintain capital ratios, which equal
a ratio of Tier 1 Capital to total assets, of at least 8.00%. The Company's and
the Bank's ratios were 20.52% and 18.06% respectively at December 31, 1999.
However, as a result of the rapid growth experienced in 1999 and the first few
months of 2000, management expects additional capital will be needed in order to
continue compliance with these regulatory requirements. At this time several
options are being discussed with the Board of Directors.
RECENT REGULATORY DEVELOPMENTS
At the end of 1999 the United States Congress passed, and the President
signed into law, the Gramm-Leach-Bliley Act. This new law, commonly known as the
Financial Modernization Act, establishes the legal ability and regulatory
framework necessary to transform banking into a broad-based financial services
industry. The act does three fundamental things: It repeals key provisions of
the 66 year old Glass Steagall Act to permit commercial banks to affiliate with
investment banks. It substantially modifies the Bank Holding Company Act of 1956
to permit companies that own commercial banks and satisfy certain statutory
criteria to engage in many additional types of financial activity. It allows
subsidiaries of qualifying banks to engage in a broad range of financial
activities that are not permitted to banks themselves. The law also includes new
legislation regarding such matters as privacy of consumer information and
community reinvestment. Because of the statute's recent enactment and the
delayed effectiveness of some of its provisions, the Company has not yet
determined what impact, if any, the statute may have on its operations.
FORWARD LOOKING STATEMENTS
This discussion and analysis of financial condition and results of
operations, and other sections of the Annual 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 Company and the Bank. Words such as "anticipates",
"believes", "estimates", "expects", "forecasts", "intends", "is likely",
"plans", "projects", variations of such words and similar expressions are
intended to identify such forward-looking statements. These forward-looking
statements are intended to be covered by the safe-harbor provisions of the
Private Securities Litigation Reform Act of 1995. These statements are not
guarantees of future performance and involve certain risks, uncertainties and
assumptions ("Future Factors") that are difficult to predict with regard to
timing, extent, likelihood and degree of occurrence. The Company undertakes no
obligation to update, amend, or clarify forward looking statements, whether as a
result of new information, future events (whether anticipated or unanticipated),
or otherwise.
Future Factors include changes in interest rates and interest rate
relationships; demand for products and services; the degree of competition by
traditional and non-traditional competitors; changes in banking regulation;
changes in tax laws; changes in prices, levies, and assessments; the impact of
technological advances; governmental and regulatory policy changes; the outcomes
of contingencies; trends in customer behavior as well as their ability to repay
loans; changes in the national and local economy; and other factors, including
risk factors, referred to from time to time in filings made by the Company with
the Securities and Exchange Commission. These are representative of the Future
Factors that could cause a difference between an ultimate actual outcome and a
preceding forward-looking statement.
- --------------------------------------------------------------------------------
S-8
<PAGE> 23
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Community Shores Bank Corporation
Muskegon, Michigan
We have audited the accompanying consolidated balance sheets of Community Shores
Bank Corporation as of December 31, 1999 and 1998 and the related consolidated
statements of income, changes in shareholders' equity, and cash flows for the
year ended December 31, 1999 and period from July 23, 1998 (inception) through
December 31, 1998. These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Community Shores
Bank Corporation as of December 31, 1999 and 1998, and the results of its
operations and its cash flows for the year ended December 31, 1999 and for the
period from July 23, 1998 (inception) through December 31, 1998 in conformity
with generally accepted accounting principles.
/s/ Crowe, Chizek and Company LLP
Grand Rapids, Michigan
February 25, 2000
- --------------------------------------------------------------------------------
S-9
<PAGE> 24
COMMUNITY SHORES BANK CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998
---- ----
<S> <C> <C>
ASSETS
Cash and due from financial institutions $ 1,964,847 $ 612,377
Interest-bearing deposits in other financial institutions 1,727 8,000,000
-------------- ---------------
Cash and cash equivalents 1,966,574 8,612,377
Securities available for sale 10,767,804
Loans, net 55,946,379
Federal Home Loan Bank stock 138,200
Premises and equipment, net 3,469,953 1,237,489
Accrued interest receivable 326,484 11,400
Other assets 83,533
-------------- ---------------
$ 72,698,927 $ 9,861,266
============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Non-interest bearing $ 4,074,635
Interest bearing 51,901,442
--------------
Total deposits 55,976,077
Federal funds purchased and repurchase agreements 6,934,491
Accrued expenses and other liabilities 1,253,597 $ 72,214
-------------- ---------------
Total liabilities 64,164,165 72,214
Shareholders' equity
Preferred stock, no par value 1,000,000 shares
authorized, none issued
Common stock, no par value; 9,000,000 shares authorized; 1,170,000 and
1,100,000 issued, and outstanding for 1999 and 1998,
respectively 10,871,211 10,227,604
Retained deficit (2,240,334) (438,552)
Accumulated other comprehensive income (loss) (96,115)
-------------- ---------------
Total shareholders' equity 8,534,762 9,789,052
-------------- ---------------
$ 72,698,927 $ 9,861,266
============== ===============
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
S-10
<PAGE> 25
COMMUNITY SHORES BANK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
For the year ended December 31, 1999 and for the period
July 23, 1998 (inception) through December 31, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998
---- ----
<S> <C> <C>
Interest and dividend income
Loans, including fees $ 2,362,461
Securities 412,957
Federal funds sold, FHLB dividends and other income 184,670 $ 12,716
-------------- ---------------
2,960,088 12,716
Interest expense
Deposits 1,415,714
Repurchase agreements, federal funds purchased, and
other debt 86,409 17,536
-------------- ---------------
1,502,123 17,536
NET INTEREST INCOME (LOSS) 1,457,965 (4,820)
Provision for loan losses 852,000 0
-------------- ---------------
NET INTEREST INCOME (LOSS) AFTER PROVISION FOR LOAN LOSSES 605,965 (4,820)
Noninterest income
Service charges on deposit accounts 64,804
Mortgage loan referral fees 92,002
Loss on sale of securities (18,750)
Other 15,335
--------------
153,391
Noninterest expense
Salaries and employee benefits 1,424,982 279,481
Occupancy 194,882 17,336
Furniture and equipment 254,119 7,943
Advertising 43,002
Data processing 53,234
Professional services 187,276 67,842
Telephone 43,147 11,644
Supplies 96,280
Directors and officers insurance 4,081 13,300
Other 260,135 36,186
-------------- ---------------
2,561,138 433,732
-------------- ---------------
LOSS BEFORE INCOME TAXES (1,801,782) (438,552)
Income tax expense 0 0
-------------- ---------------
NET LOSS $ (1,801,782) $ (438,552)
============== ===============
Weighted average common shares outstanding:
Basic and diluted 1,166,164 1,100,000
============== ===============
Loss per share:
Basic and diluted $ (1.55) $ (.40)
============== ==============
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
S-11
<PAGE> 26
COMMUNITY SHORES BANK CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the year ended December 31, 1999 and for the period
July 23, 1998 (inception) through December 31, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated
Other Total
Common Retained Comprehensive Shareholders'
Shares Stock Deficit Income Equity
<S> <C> <C> <C> <C> <C>
BALANCE AT JULY 23, 1998 (INCEPTION) 0 $ 0 $ 0 $ 0 $ 0
Common stock sale, December 22, 1998 1,100,000 10,227,604 10,227,604
Net loss (438,552) (438,552)
----------- ----------- ----------- ------------ -----------
BALANCE AT DECEMBER 31, 1998 1,100,000 10,227,604 (438,552) 0 9,789,052
Comprehensive income (loss):
Net loss (1,801,782) (1,801,782)
Unrealized loss on securities available-for-sale (96,115) (96,115)
-----------
Total comprehensive income (loss) (1,897,897)
Common stock sale, January 21, 1999 70,000 643,607 643,607
----------- ----------- ----------- ------------ -----------
BALANCE AT DECEMBER 31, 1999 1,170,000 $10,871,211 $(2,240,334) $ (96,115) $ 8,534,762
=========== =========== =========== ============ ===========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
S-12
<PAGE> 27
COMMUNITY SHORES BANK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the year ended December 31, 1999 and for the period
July 23, 1998 (inception) through December 31, 1998
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,801,782) $ (438,552)
Adjustments to reconcile net loss to net cash
from operating activities
Provision for loan losses 852,000
Depreciation and amortization 282,143
Net accretion of securities 49,618
Net realized loss on sales of securities 18,750
Net change in:
Accrued interest receivable (315,084) (11,400)
Other assets (83,533)
Accrued interest payable and other liabilities 1,181,383 72,214
------------ -------------
Net cash from operating activities 183,495 (377,738)
CASH FLOWS FROM INVESTING ACTIVITIES
Activity in available-for-sale securities:
Sales 6,981,250
Maturities, prepayments and calls 17,323,661
Purchases (35,237,198)
Purchase of Federal Home Loan Bank Stock (138,200)
Loan originations and payments, net (56,798,379)
Additions to premises and equipment (2,514,607) (1,237,489)
------------ -------------
Net cash from investing activities (70,383,473) (1,237,489)
CASH FLOW FROM FINANCING ACTIVITIES
Net change in deposits 55,976,077
Net change in federal funds purchased and
repurchase agreements 6,934,491
Proceeds from related party deposits 1,137,500
Repayment of related party deposits (1,137,500)
Net proceeds from stock offering 643,607 10,227,604
------------ -------------
Net cash from financing activities 63,554,175 10,227,604
------------ -------------
Net change in cash and cash equivalents (6,645,803) 8,612,377
Beginning cash and cash equivalents 8,612,377
------------ -------------
ENDING CASH AND CASH EQUIVALENTS $ 1,966,574 $ 8,612,377
============ =============
Supplemental cash flow information:
Interest paid $ 1,389,553 $ 17,536
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
S-13
<PAGE> 28
COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include the
accounts of Community Shores Bank Corporation (Corporation) and its wholly-owned
subsidiary, Community Shores Bank (Bank), after elimination of significant
intercompany transactions and accounts.
Nature of Operations: The Corporation was incorporated on July 23, 1998 under
Michigan law and is a bank holding company owning all of the common stock of the
Bank. The Bank is a Michigan banking corporation with depository accounts
insured by the Bank Insurance Fund of the Federal Deposit Insurance Corporation
(the "FDIC"). The Bank provides a range of commercial and consumer banking
services in West Michigan, primarily in Muskegon County, which includes the City
of Muskegon, and Northern Ottawa County, which includes the City of Grand Haven.
Those services reflect the Bank's strategy of serving small- to medium-sized
businesses, and individual customers in its market area. Services for businesses
will include commercial loans and traditional business accounts. Management
focuses the Bank's retail banking strategy on providing products and services,
including automated teller machine, computer home banking, telephone banking and
automated bill paying services to individuals in the Bank's market area. The
Bank began operations on January 18, 1999.
Use of Estimates: To prepare financial statements in conformity with generally
accepted accounting principles, management makes estimates and assumptions based
on available information. These estimates and assumptions affect the amounts
reported in the financial statements and the disclosures provided, and future
results could differ. The primary estimates incorporated into the Company's
consolidated financial statements which are susceptible to change in the near
term include the allowance for loan losses, the deferred tax asset valuation
allowance and the fair value of financial instruments.
Cash Flows: Cash and cash equivalents includes cash, demand deposits with other
financial institutions, short-term investments (securities with daily put
provisions) and federal funds sold. Cash flows are reported net for customer
loan and deposit transactions, interest-bearing time deposits with other
financial institutions and short-term borrowings with maturities of 90 days or
less.
Securities: 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.
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.
- --------------------------------------------------------------------------------
(Continued)
S-14
<PAGE> 29
COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans: Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at the principal
balance outstanding, net of unearned interest, deferred loan fees and costs, and
an allowance for loan losses.
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.
Allowance for Loan Losses: The allowance for loan losses is a valuation
allowance for probable incurred credit losses, increased by the provision for
loan losses and decreased by charge-offs less recoveries. Management estimates
the allowance balance required using past industry loan loss experience, 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 judgment,
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.
There were no loans classified as impaired as of December 31, 1999 and 1998 or
for the year ended December 31, 1999 or for the period from July 23, 1998 (date
of inception) through December 31, 1998.
Premises and Equipment: Land is carried at cost. Premises and equipment are
stated at cost less accumulated depreciation. Depreciation is computed over the
asset useful lives on an accelerated basis, except for buildings for which the
straight line basis is used.
Long-term Assets: Premises and equipment and other long-term assets are reviewed
for impairment when events indicate their carrying amount may not be recoverable
from future undiscounted cash flows. If impaired, the assets are recorded at
discounted amounts.
Repurchase Agreements: 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.
- --------------------------------------------------------------------------------
(Continued)
S-15
<PAGE> 30
COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Stock Compensation: Expense for employee compensation under stock option plans
is based on Accounting Principles Board ("APB") Opinion 25, with expense
reported only if options are granted below market price at grant date. If
applicable, disclosures of net income and earnings per share are provided as if
the fair value method of SFAS No.123 were used for stock-based compensation.
Income Taxes: Income tax expense is the total of the current year income tax due
or refundable and the change in deferred tax assets and liabilities. Deferred
tax assets and liabilities are the expected future tax amounts for the temporary
differences between carrying amounts and tax bases of assets and liabilities,
computed using enacted tax rates. A valuation allowance has been established due
to a lack of operating performance.
Financial Instruments: Financial instruments include off-balance sheet credit
instruments, such as commitments to make loans and standby letters of credit,
issued to meet customer financing needs. The face amount for these items
represents the exposure to loss, before considering customer collateral or
ability to repay. Such financial instruments are recorded when they are funded.
Earnings Per Common Share: Basic earnings per common share is net income or loss
divided by the weighted average number of common shares outstanding during the
period. Diluted earnings per common share includes the dilutive effect of
additional potential common shares issuable under stock options. Earnings and
dividends per share are restated for all stock splits and dividends through the
date of issue of the financial statements.
Comprehensive Income: Comprehensive income consists of net income or loss 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.
New Accounting Pronouncements: Beginning January 1, 2001, a new accounting
standard will require all derivatives to be recorded at fair value. Unless
designated as hedges, changes in these fair values will be recorded in the
income statement. Fair value changes involving hedges will generally be recorded
by offsetting gains and losses on the hedge and on the hedged item, even if the
fair value of the hedged item is not otherwise recorded. This is not expected to
have a material effect but the effect will depend on derivative holdings when
this standard applies.
Restrictions on Cash: The Bank was required to have $25,000 of cash on hand or
on deposit with the Federal Reserve Bank to meet regulatory reserve and clearing
requirements at year end 1999. These balances do not earn interest.
- --------------------------------------------------------------------------------
(Continued)
S-16
<PAGE> 31
COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Dividend Restriction: Community Shores and the Bank are subject to banking
regulations which require the maintenance of certain capital levels and positive
retained earnings, which will prevent payment of dividends until positive
retained earnings are achieved and may limit the amount of dividends thereafter.
Fair Value of Financial Instruments: Fair values of financial instruments are
estimated using relevant market information and other assumptions, as more fully
disclosed in a separate note. Fair value estimates involve uncertainties and
matters of significant judgment regarding interest rates, credit risk,
prepayments, and other factors, especially in the absence of broad markets for
particular items. Changes in assumptions or in market conditions could
significantly affect the estimates.
Industry Segments: Internal financial information is primarily reported and
aggregated in one line of business, banking.
Reclassifications: Some items in the prior year financial statements were
reclassified to conform to the current presentation.
NOTE 2 - SECURITIES
Year-end securities are as follows:
<TABLE>
<CAPTION>
Gross
Amortized Unrealized Fair
Cost Losses Value
---- ------ -----
<S> <C> <C> <C>
Available for Sale
- ------------------
1999
- ----
U.S. Government and federal agency $ 8,919,449 $ (51,659) $ 8,867,790
Mortgage-backed 1,944,470 (44,456) 1,900,014
-------------- ------------- ----------------
Total debt securities $ 10,863,919 $ (96,115) $ 10,767,804
============== ============= ================
Sales of available for sale securities were as follows:
<CAPTION>
1999
----
<S> <C>
Proceeds $ 6,981,250
Gross losses 18,750
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
S-17
<PAGE> 32
COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 2 - SECURITIES (Continued)
Contractual maturities of debt securities at year-end 1999 were as follows.
Securities not due at a single maturity date, primarily mortgage-backed
securities, are shown separately.
<TABLE>
<CAPTION>
Available for sale
Amortized Fair
Cost Value
---- -----
<S> <C> <C>
Due in one year or less $ 495,905 $ 492,500
Due from one to five years 8,423,544 8,375,290
Mortgage-backed 1,944,470 1,900,014
--------------- ----------------
Total $ 10,863,919 $ 10,767,804
=============== ================
</TABLE>
Securities pledged at year end 1999 had a carrying amount of $7,918,000, and
were pledged to secure short-term borrowings.
NOTE 3 - LOANS
Loans at year-end were as follows:
<TABLE>
<CAPTION>
1999
----
<S> <C>
Commercial, financial and other $ 28,934,031
Commercial real estate and construction 18,905,279
Residential real estate, mortgages and construction 3,366,758
Consumer loans 5,592,311
------------
Subtotal 56,798,379
Less: Allowance for loan losses 852,000
------------
Loans, net $ 55,946,379
============
</TABLE>
Activity in the allowance for loan losses for the year was as follows:
<TABLE>
<CAPTION>
1999
----
<S> <C>
Beginning balance $ 0
Provision for loan losses 852,000
------------
Ending balance $ 852,000
============
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
S-18
<PAGE> 33
COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 4 - PREMISES AND EQUIPMENT
Year-end premises and equipment were as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Land & Land Improvements $ 673,240 $ 450,440
Buildings & Building Improvements 1,715,842
Furniture, fixtures and equipment 1,363,014 477,119
Construction in Progress 0 309,930
--------------- ----------------
3,752,096 1,237,489
Less: Accumulated depreciation 282,143 0
--------------- ----------------
$ 3,469,953 $ 1,237,489
=============== ================
</TABLE>
Depreciation expense was $282,143 and $ 0 for 1999 and 1998.
NOTE 5 - DEPOSITS
Deposits at year end are summarized as follows:
<TABLE>
<CAPTION>
1999
----
<S> <C>
Non-interest bearing $ 4,074,635
DDA 4,662,155
Money market 3,068,971
Saving 565,741
Certificate of deposit 43,604,575
---------------
$ 55,976,077
===============
</TABLE>
Time deposits of $100,000 or more were $ 22,520,013 at year-end 1999.
Scheduled maturities of time deposits for the next five years were as follows:
<TABLE>
<S> <C>
2000 $ 40,752,531
2001 2,616,885
2002 25,601
2003 123,213
2004 86,345
---------------
$ 43,604,575
===============
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
S-19
<PAGE> 34
COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 6 - BENEFIT PLANS
A 401(k) benefit plan allows employee contributions up to 15% of their
compensation, which are matched equal to 75% of the first 6% of the compensation
contributed. Expense for 1999 was $ 45,216. The plan was approved January of
1999 with payroll contributions beginning at that time.
NOTE 7 - INCOME TAXES
The consolidated provision for income taxes is as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Deferred benefit $ (610,618) $ (149,108)
Change in valuation allowance 610,618 149,108
--------------- ----------------
$ 0 $ 0
=============== ================
</TABLE>
The recorded consolidated income tax provision in both 1999 and 1998 differs
from that computed by multiplying pre-tax income by the statutory federal income
tax rates due to the valuation allowance and nondeductible expenses.
The net deferred tax asset recorded includes the following amounts of deferred
tax assets and liabilities as of December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Deferred tax asset
Net operating loss carryforward $ 444,371 $ 1,639
Provision for loan losses 240,304
Organization costs 120,068 147,469
Other 10,829
--------------- ----------------
815,572 149,108
Deferred tax liabilities
Depreciation (52,504)
Other (3,342)
Net deferred tax asset before valuation allowance 759,726 149,108
Valuation allowance (759,726) (149,108)
--------------- ----------------
$ 0 $ 0
=============== ================
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
S-20
<PAGE> 35
COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 7 - INCOME TAXES (Continued)
A valuation allowance related to deferred tax assets is required when it is
considered more likely than not that all or part of the benefit related to such
assets will not be realized. Management has determined that a valuation
allowance of $759,726 is required for 1999 and that a valuation allowance of
$149,108 is required for 1998. Net operating loss carryforwards of $1,639 expire
in 2018 and $442,732 expire in 2019.
The Company also has deferred tax assets of $32,679 related to the unrealized
net losses on securities available-for-sale at December 31, 1999, which have
been recorded as an adjustment to equity, offset by a valuation allowance of an
equal amount.
NOTE 8 - RELATED PARTY TRANSACTIONS
Loans to principal officers, directors, and their affiliates totaled $7,078,161
at year end December 31, 1999
Deposits from principal officers, directors, and their affiliates were
$1,612,518 at year end December 31, 1999.
NOTE 9 - STOCK OPTIONS
Options to buy stock are granted to officers under the Employee Stock Option
Plan, which provides for issue of up to 150,000 options. Exercise price is the
market price at date of grant. The maximum option term is ten years, and options
vest over three years.
Had compensation cost for stock options been measured using SFAS Statement No.
123, net income (loss) and earnings (loss) per share would have been the pro
forma amounts indicated below. The pro forma effect may increase in the future
if more options are granted.
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net loss as reported $ (1,801,782) $ (438,552)
Pro forma net loss (1,903,292) (502,558)
Basic loss per share as reported (1.55) (.40)
Pro forma basic loss per share (1.63) (.46)
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
S-21
<PAGE> 36
COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 9 - STOCK OPTIONS (Continued)
The pro forma effects are computed using option pricing models, using the
following weighted-average assumptions as of grant date.
<TABLE>
<CAPTION>
1998
----
<S> <C>
Risk-free interest rate 4.62%
Expected option life 7 years
Expected stock price volatility 25%
Dividend yield 0%
</TABLE>
A summary of the activity in the plan is as follows.
<TABLE>
<CAPTION>
1 9 9 9 1 9 9 8
------- -------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------ ----- ------ -----
<S> <C> <C> <C> <C>
Outstanding at beginning
of year 94,000 $ 10 0 $ 0
Granted 0 0 94,000 10
Exercised 0 0 0 0
Forfeited 0 0 0 0
------------- ------------
Outstanding at end of year 94,000 10 94,000 10
============= ============
</TABLE>
<TABLE>
<CAPTION>
1 9 9 9 1 9 9 8
------- -------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------ ----- ------ -----
<S> <C> <C> <C> <C>
Options exercisable at
year-end 47,000 $ 10 23,500 $ 10
</TABLE>
The weighted average fair value per option for options granted during the year
ended December 31, 1998 was $2.76. There were no options granted during 1999.
The weighted average remaining contractual life of options outstanding at
year-end 1999 was 8.7 years.
- --------------------------------------------------------------------------------
(Continued)
S-22
<PAGE> 37
COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 10 - CAPITAL REQUIREMENTS AND RESTRICTIONS ON RETAINED
EARNINGS
Banks and bank holding companies are subject to regulatory capital requirements
administered by federal banking agencies. Capital adequacy guidelines and prompt
corrective action regulations involve quantitative measures of assets,
liabilities, and certain off-balance-sheet items calculated under regulatory
accounting practices. Capital amounts and classifications are also subject to
qualitative judgements by regulators. Failure to meet capital requirements can
initiate regulatory action. The Bank must maintain a minimum Tier 1 risk
weighted capital ratio of at least 8% for its first three years of operations.
Prompt corrective action regulations provide five classifications: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized, although these terms are not
used to represent overall financial condition. If adequately capitalized,
regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and capital restoration plans are required.
Actual and required capital amounts and ratios are presented below at year-end.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------ ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
1999
Total Capital to risk
weighted assets
Consolidated $ 9,430,098 14.57% $ 5,177,636 8.00% $ 6,472,045 10.00%
Bank 8,387,185 12.96 5,177,636 8.00 6,472,045 10.00
Tier 1 (Core) Capital to risk
weighted assets
Consolidated $ 8,663,556 13.39% $ 2,588,818 4.00% $ 3,883,227 6.00%
Bank 7,620,642 11.77 2,588,818 4.00 3,883,227 6.00
Tier 1 (Core) Capital to
average assets
Consolidated $ 8,663,556 20.60% $ 1,682,377 4.00% $ 2,102,972 5.00%
Bank 7,620,642 18.14 1,680,395 4.00 2,100,494 5.00
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
S-23
<PAGE> 38
COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 11 - OFF-BALANCE-SHEET ACTIVITIES
Some financial instruments, such as loan commitments, credit lines, letters of
credit, and overdraft protection, are issued to meet customer financing needs.
These are agreements to provide credit or to support the credit of others, as
long as conditions established in the contract are met, and usually have
expiration dates. Commitments may expire without being used. Off-balance-sheet
risk to credit loss exists up to the face amount of these instruments, although
material losses are not anticipated. The same credit policies are used to make
such commitments as are used for loans, including obtaining collateral at
exercise of the commitment.
Outstanding commitments to make loans and unused lines of credit totaled
$24,888,000 and $0 at December 31, 1999 and 1998, respectively. Commitments
under letters of credit were $278,000 and $0 at December 31, 1999 and 1998,
respectively.
NOTE 12 - FAIR VALUES OF FINANCIAL INSTRUMENTS
Carrying amount and estimated fair values of financial instruments were as
follows at year-end.
<TABLE>
<CAPTION>
1 9 9 9 1 9 9 8
------- -------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Financial assets
Cash and cash equivalents $ 1,967 $ 1,967 $ 8,612 $ 8,612
Securities available for sale 10,768 10,768
Loans, net 55,946 55,890
Federal Home Loan Bank stock 138 138
Accrued interest receivable 326 326 11 11
Financial liabilities
Deposits 55,976 55,988
Federal funds purchased and
repurchase agreements 6,934 6,934
Accrued interest payable 158 158
</TABLE>
The methods and assumptions used to estimate fair value are described as
follows.
- --------------------------------------------------------------------------------
(Continued)
S-24
<PAGE> 39
COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 12 - FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)
Carrying amount is the estimated fair value for cash and cash equivalents,
short-term borrowings, Federal Home Loan Bank stock, accrued interest receivable
and payable, demand deposits, short-term debt, and variable rate loans or
deposits that reprice frequently and fully. Security fair values are based on
market prices or dealer quotes, and if no such information is available, on the
rate and term of the security and information about the issuer. For fixed rate
loans or deposits and for variable rate loans or deposits with infrequent
repricing or repricing limits, fair value is based on discounted cash flows
using current market rates applied to the estimated life and credit risk. Fair
values for impaired loans are estimated using discounted cash flow analysis or
underlying collateral values. Fair value of loans held for sale is based on
market quotes. Fair value of debt is based on current rates for similar
financing. Estimated fair value for other financial instruments and
off-balance-sheet loan commitments are considered to approximate carrying value.
NOTE 13 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
Following are condensed parent company only financial statements.
CONDENSED BALANCE SHEETS
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,046,803 $ 8,609,866
Investment in and advances to Community Shores Bank 7,491,849 1,240,000
Other assets 0 11,400
--------------- ----------------
Total assets $ 8,538,652 $ 9,861,266
=============== ================
LIABILITIES AND EQUITY
Accrued expenses and other liabilities $ 3,890 $ 72,214
Shareholders' equity 8,534,762 9,789,052
--------------- ----------------
Total liabilities and shareholders' equity $ 8,538,652 $ 9,861,266
=============== ================
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
S-25
<PAGE> 40
COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 13 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
(Continued)
CONDENSED STATEMENTS OF INCOME
Years ended December 31
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Interest on securities $ 0 $ 12,716
Other income 59,521 0
Interest expense 0 (451,268)
Other expense (149,267) 0
--------------- ----------------
LOSS BEFORE INCOME TAX AND UNDISTRIBUTED
SUBSIDIARY INCOME (89,746) (438,552)
Equity in undistributed subsidiary loss (1,712,036) 0
--------------- ----------------
NET LOSS $ (1,801,782) $ (438,552)
=============== ================
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
Years ended December 31
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (1,801,782) $ (438,552)
Equity in undistributed subsidiary loss 1,712,036
Adjustments:
Change in other assets 11,400 (11,400)
Change in other liabilities (68,324) 72,214
--------------- ----------------
Net cash from operating activities (146,670) (377,738)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from stock issue 643,607 10,227,604
Capital investment into Community Shores (8,060,000) (1,240,000)
--------------- ----------------
Net cash from financing activities (7,416,393) 8,987,604
--------------- ----------------
Net change in cash and cash equivalents 7,563,063 8,609,866
Beginning cash and cash equivalents 8,609,866 0
--------------- ----------------
ENDING CASH AND CASH EQUIVALENTS $ 1,046,803 $ 8,609,866
=============== ================
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
S-26
<PAGE> 41
COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 14 - OTHER COMPREHENSIVE INCOME
Other comprehensive income (loss) components and related taxes were as follows.
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net Loss $ (1,801,782) $ 0
Unrealized holding gains and losses on
available-for-sale securities (96,115)
--------------- --------------
Other comprehensive loss $ (1,897,897) $ 0
=============== ==============
</TABLE>
- --------------------------------------------------------------------------------
S-27
<PAGE> 42
SHAREHOLDER INFORMATION
SEC FORM 10-KSB
COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB, AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION ARE AVAILABLE TO SHAREHOLDERS WITHOUT CHARGE,
UPON WRITTEN REQUEST. PLEASE MAIL YOUR REQUEST TO RALPH R. BERGGREN, SENIOR VICE
PRESIDENT AND SECRETARY OF THE COMPANY, AT 1030 W. NORTON AVENUE, MUSKEGON,
MICHIGAN 49441.
STOCK INFORMATION
The Common Stock of Community Shores Bank Corporation is quoted on the
OTC Bulletin Board of the National Association of Securities Dealers, Inc. ("OTC
Bulletin Board") under the ticker symbol "CSHB." At March 1, 2000, there were
approximately 80 record holders of the Company's Common Stock. The Company has
paid no dividends since its formation in 1998.
The following table shows the high and low bid prices by quarter during
the period from the date of the Company's initial public stock offering
(December 17, 1998) through December 31, 1999. The quotations reflect bid prices
as reported by the OTC Bulletin Board and do not include retail mark-up,
mark-down or commission.
BID PRICES
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
CALENDAR YEAR 1999
First Quarter....................................................................$10.00 $ 8.00
Second Quarter...................................................................$ 8.00 $ 6.50
Third Quarter....................................................................$ 7.00 $ 5.25
Fourth Quarter ..................................................................$ 7.00 $ 4.50
CALENDAR YEAR 1998
Fourth Quarter (from December 17)................................................$10.00 $10.00
</TABLE>
MARKET MAKERS
At December 31, 1999, the following firms were registered with the OTC
Bulletin Board as market makers in Community Shores Bank Corporation common
stock:
Raymond James Robert W. Baird & Co. Incorporated
One Griswold Street 777 East Wisconsin Avenue
Detroit, Michigan 48226 Milwaukee, Wisconsin 53202
- --------------------------------------------------------------------------------
S-28
<PAGE> 43
J. J. B. Hilliard, W. L. Lyons, Inc. Monroe Securities Inc.
501 South Fourth Street 47 State Street
Louisville, Kentucky 40202 Rochester, New York 14614
STOCK REGISTRAR AND TRANSFER AGENT
State Street Bank & Trust Company
c/o EquiServe
P.O. Box 8200
Boston, MA 02266-8200
Shareholder Inquiries 1-800-426-5523
LEGAL COUNSEL
Dickinson Wright PLLC
500 Woodward Avenue, Suite 4000
Detroit, Michigan 48226
and
200 Ottawa Avenue, N.W., Suite 900
Grand Rapids, Michigan 49503
INDEPENDENT AUDITORS
Crowe, Chizek and Company LLP
300 Riverfront Plaza Building
55 Campau Avenue, N.W.
Grand Rapids, Michigan 49503
ADDITIONAL INFORMATION
News media representatives and those seeking additional information
about the Company should contact Jose' A. Infante, Chairman of the Board,
President and Chief Executive Officer of the Company, at (231) 780-1800, or by
writing him at 1030 W. Norton Avenue, Muskegon, Michigan 49441.
ANNUAL MEETING
This year's Annual Meeting will be held at 2:00 p.m., on Thursday,
April 20, 2000, at the Holiday Inn at 939 Third Street, Muskegon, Michigan.
- --------------------------------------------------------------------------------
S-29
<PAGE> 44
DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS OF THE COMPANY AND THE BANK
David C. Bliss, Chairman of Quality Stores, Inc. (retail farm and do-it-yourself
stores)
Gary F. Bogner, real estate investor
John C. Carlyle, partner of the law firm of Varnum, Riddering, Schmidt and
Howlett LLP, and a certified public accountant
Robert L. Chandonnet, President and owner of The Nugent Sand Company, Inc.
(provider of foundry sand to foundries)
Dennis L. Cherette, President and an owner of Investment Property Associates,
Inc., IPA Construction Inc. and IPA Management (real estate development and
management)
Bruce J. Essex, owner and operator of Port City Die Cast, Port City Metal
Products, Muskegon Castings Corp., and Mirror Image Tool (die casting)
Michael D. Gluhanich, President of Geerpres, Inc. (manufacturer of janitorial
supply equipment)
Donald E. Hegedus, Chairman of the Board, President and owner of Tridonn
Development Company (real estate development)
John L. Hilt, retired Chairman Emeritus of Quality Stores, Inc. (retail farm and
do-it-yourself stores)
Jose' A. Infante, Chairman of the Board, President and Chief Executive Officer
of the Company and the Bank
Joy R. Nelson, retired bank executive
EXECUTIVE OFFICERS OF THE COMPANY
Jose' A. Infante, Chairman of the Board, President and Chief Executive Officer
of the Company and the Bank
Ralph R. Berggren, Senior Vice President and Secretary of the Company, and
Senior Vice President, Secretary, Cashier and Senior Lender of the Bank
Heather D. Brolick, Senior Vice President of the Company and Senior Vice
President, Retail Lending and Operations Manager of the Bank
Robert J. Jacobs, Senior Vice President of the Company and Senior Vice
President, Retail Banking of the Bank
- --------------------------------------------------------------------------------
S-30
<PAGE> 45
[LOGO]
COMMUNITY SHORES
BANK CORPORATION
<PAGE> 46
CSB21B DETACH HERE
PROXY
COMMUNITY SHORES BANK CORPORATION
1030 W. NORTON AVENUE
MUSKEGON, MICHIGAN 49441
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 20, 2000
The undersigned hereby appoints Gary Bogner and Robert Chandonnet, or
either of them, with power of substitution in each proxies of the undersigned
to vote all Common Stock of the undersigned in Community Shores Bank
Corporation, at the Annual Meeting of Shareholders to be held on April 20,
2000, and at all adjournments thereof.
IF THIS PROXY IS PROPERLY EXECUTED, THE SHARES REPRESENTED BY THIS PROXY WILL
BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, THE SHARES WILL BE VOTED FOR
THE ELECTION OF ALL NOMINEES NAMED IN THE PROXY.
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
<PAGE> 47
COMMUNITY SHORES
BANK CORPORATION
C/O EQUISERVE
P.O. BOX 9398
BOSTON, MA 02205-9398
Dear Shareholder,
Enclosed with this proxy is your Notice of Community Shores Bank
Corporation's Annual Meeting, Proxy Statement & 1999 Annual Report. We
encourage you to carefully read these materials and exercise your right to
vote your shares.
Please mark the boxes on this proxy card to indicate how your shares will
be voted. Then sign the proxy card, detach it, and return your proxy vote
in the enclosed postage paid envelope. If you plan to attend the meeting,
please mark the appropriate box on the proxy card.
Your proxy card must be received prior to the Annual Meeting of
Shareholders on April 20, 2000.
Sincerely,
Community Shores Bank Corporation
<TABLE>
<S><C>
DETACH HERE
/ X / PLEASE MARK ----
VOTES AS IN |
THIS EXAMPLE |
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR ALL NOMINEES.
1. Election of Directors. 2. In their discretion, the Proxies are authorized
to vote upon such other matters as may properly
NOMINEES: (01) John Carlyle, (02) Dennis Cherette, come before the meeting, or at any adjournment of
(03) Michael Gluhanich, (04) Donald Hegedus the meeting.
FOR / / / / WITHHELD
ALL FROM ALL
NOMINEES NOMINEES
/ / MARK HERE IF YOU PLAN TO ATTEND THE MEETING / /
---------------------------------------
For all nominees except those whose
names are written on the line above. MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT / /
PLEASE VOTE, DATE AND SIGN BELOW AND RETURN PROMPTLY
IN THE ENCLOSED ENVELOPE.
Please sign exactly as your name(s) appear(s)
hereon. Joint owners should each sign personally.
Trustees and other fiduciaries should indicate the
capacity in which they sign. If a corporation or
partnership, the signature should be that of an
authorized person who should state his or her title.
Signature: Date: Signature: Date:
-------------------------------- ----------------------- --------------------------- ----------------
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement of
Community Shores Bank Corporation on Form S-8 (Registration No.333-89655) of our
report dated February 25, 2000 on the 1999 consolidated financial statements of
Community Shores Bank Corporation, which report is included in the 1999 Annual
report on form 10KSB of Community Shores Bank Corporation.
/s/ Crowe, Chizek and Company LLP
Grand Rapids, Michigan
March 28, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,964,847
<INT-BEARING-DEPOSITS> 1,727
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 10,767,804
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 56,798,379
<ALLOWANCE> 852,000
<TOTAL-ASSETS> 72,698,927
<DEPOSITS> 55,976,077
<SHORT-TERM> 6,934,491
<LIABILITIES-OTHER> 1,253,597
<LONG-TERM> 0
0
0
<COMMON> 10,871,211
<OTHER-SE> (2,240,334)
<TOTAL-LIABILITIES-AND-EQUITY> 72,698,927
<INTEREST-LOAN> 2,362,461
<INTEREST-INVEST> 412,957
<INTEREST-OTHER> 184,670
<INTEREST-TOTAL> 2,960,088
<INTEREST-DEPOSIT> 1,415,714
<INTEREST-EXPENSE> 86,409
<INTEREST-INCOME-NET> 1,457,965
<LOAN-LOSSES> 852,000
<SECURITIES-GAINS> (18,750)
<EXPENSE-OTHER> 2,561,138
<INCOME-PRETAX> (1,801,782)
<INCOME-PRE-EXTRAORDINARY> (1,801,782)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,801,782)
<EPS-BASIC> (1.55)
<EPS-DILUTED> (1.55)
<YIELD-ACTUAL> 2.16
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> (852,000)
<ALLOWANCE-DOMESTIC> (852,000)
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
