U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File No. 333-63769
COMMUNITY SHORES BANK CORPORATION
(Exact name of small business issuer as specified in its charter)
Michigan 38-3423227
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1030 W. NORTON AVENUE, MUSKEGON, MICHIGAN 49441
(Address of principal executive offices)
(231) 780-1800
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
----- -----
At April 30, 2002, 1,170,000 shares of Common Stock of the issuer were
outstanding.
Transitional Small Business Disclosure Format:
Yes No X
----- -----
Community Shores Bank Corporation Index
PART I. Financial Information Page No.
--------
Item 1. Financial Statements .................................. 1
Item 2. Management's Discussion and Analysis or Plan of
Operation............................................ 11
PART II. Other Information
Item 1. Legal Proceedings....................................... 20
Item 2. Changes in Securities .................................. 20
Item 3. Defaults upon Senior Securities......................... 20
Item 4. Submission of Matters to a Vote of Security Holders..... 20
Item 5. Other Information....................................... 20
Item 6. Exhibits and Reports on Form 8-K........................ 20
Signatures....................................................... 22
----------
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COMMUNITY SHORES BANK CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2002 2001
------------- -------------
(Unaudited)
ASSETS
Cash and due from financial institutions $ 6,091,400 $ 2,191,280
Interest-bearing deposits in other financial institutions 70,461 79,641
Federal funds sold 6,250,000 0
------------- -------------
Total cash and cash equivalents 12,411,861 2,270,921
Securities
Available for sale (at fair value) 34,241,824 24,671,925
Held to maturity (fair value of $60,000 at March 31, 2002) 60,000 60,000
------------- -------------
Total securities 34,301,824 24,731,925
Loans 124,660,237 118,115,580
Less: Allowance for loan losses 1,675,599 1,535,543
------------- -------------
Net loans 122,984,638 116,580,037
Federal Home Loan Bank stock 425,000 425,000
Premises and equipment, net 3,112,831 3,173,724
Accrued interest receivable 694,911 703,433
Other assets 397,822 306,236
------------- -------------
Total assets $ 174,328,887 $ 148,191,276
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Non interest-bearing $ 9,945,750 $ 9,217,298
Interest-bearing 127,665,265 100,931,036
------------- -------------
Total deposits 137,611,015 110,148,334
Federal funds purchased and repurchase agreements 17,556,381 18,964,598
Federal Home Loan Bank advances 6,000,000 6,000,000
Notes payable 3,500,000 3,400,000
Accrued expenses and other liabilities 669,374 544,256
------------- -------------
Total liabilities 165,336,770 139,057,188
Shareholders' Equity
Preferred Stock, no par value: 1,000,000 shares
authorized and none issued 0 0
Common Stock, no par value: 9,000,000
shares authorized and 1,170,000 shares issued and
outstanding 10,871,211 10,871,211
Retained deficit (2,025,261) (2,190,931)
Accumulated other comprehensive income 146,167 453,808
------------- -------------
Total shareholders' equity 8,992,117 9,134,088
------------- -------------
Total liabilities and shareholders' equity $ 174,328,887 $ 148,191,276
============= =============
See accompanying notes to condensed consolidated financial statements.
-1-
COMMUNITY SHORES BANK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
March 31, March 31,
2002 2001
---------- ----------
INTEREST AND DIVIDEND INCOME
Loans, including fees $2,159,850 $2,218,522
Securities 326,999 319,317
Federal funds sold, FHLB dividends and other income 67,991 100,199
---------- ----------
Total interest income 2,554,840 2,638,038
INTEREST EXPENSE
Deposits 1,078,248 1,440,499
Repurchase agreements and federal funds purchased
and other debt 84,986 109,131
Federal Home Loan Bank advances and notes payable 138,876 135,766
---------- ----------
Total interest expense 1,302,110 1,685,396
NET INTEREST INCOME 1,252,730 952,642
Provision for loan losses 127,800 101,500
---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,124,930 851,142
Noninterest income
Service charges on deposit accounts 99,673 97,739
Mortgage loan referral fees 44,935 35,553
Gain on disposition of securities 0 5,036
Other 41,843 28,493
---------- ----------
Total noninterest income 186,451 166,821
Noninterest expense
Salaries and employee benefits 619,423 557,565
Occupancy 71,376 60,148
Furniture and equipment 110,867 112,940
Advertising 14,211 22,020
Data Processing 57,126 40,968
Professional services 42,284 55,674
Other 230,423 164,852
---------- ----------
Total noninterest expense 1,145,710 1,014,167
INCOME BEFORE INCOME TAXES 165,671 3,796
Federal income tax expense 0 0
---------- ----------
NET INCOME $ 165,671 $ 3,796
========== ==========
Weighted average shares outstanding 1,170,000 1,170,000
========== ==========
Basic and diluted income per share $ 0.14 $ 0.00
========== ==========
See accompanying notes to condensed consolidated financial statements.
-2-
COMMUNITY SHORES BANK CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF
CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
Accumulated
Other Total
Common Retained Comprehensive Shareholders'
Shares Stock Deficit Income (Loss) Equity
--------------------------------------------------------------------------------
Balance, January 1, 2001 1,170,000 $ 10,871,211 $ (2,619,299) $ 241,334 $ 8,493,246
Comprehensive Income:
Net Income 3,796 3,796
Unrealized gain on securities
available for sale 175,815 175,815
------------
Total comprehensive income 179,611
--------------------------------------------------------------------------------
Balance, March 31, 2001 1,170,000 $ 10,871,211 $ (2,615,503) $ 417,149 $ 8,672,857
================================================================================
Balance, January 1, 2002 1,170,000 $ 10,871,211 $ (2,190,932) $ 453,808 $ 9,134,087
Comprehensive loss:
Net Income 165,671 165,671
Unrealized loss on securities
available for sale (307,641) (307,641)
------------
Total comprehensive loss (141,970)
--------------------------------------------------------------------------------
Balance, March 31, 2002 1,170,000 $ 10,871,211 $ (2,025,261) $ 146,167 $ 8,992,117
================================================================================
See accompanying notes to condensed consolidated financial statements.
-3-
COMMUNITY SHORES BANK CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Three months Three months
ended ended
March 31, 2002 March 31, 2001
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 165,671 $ 3,796
Adjustments to reconcile net income (loss) to net
cash from operating activities
Provision for loan losses 127,800 101,500
Depreciation and amortization 96,353 105,609
Net accretion of securities (16,014) (36,143)
Net realized gain on disposition of securities 0 (5,036)
Net change in:
Accrued interest receivable and other assets (83,064) 35,213
Accrued interest payable and other liabilities 49,820 183,792
------------ ------------
Net cash from operating activities 340,566 388,731
CASH FLOWS FROM INVESTING ACTIVITIES
Activity in available-for-sale securities:
Sales 0 0
Maturities, prepayments and calls 3,212,888 3,028,220
Purchases (12,999,117) (2,997,111)
Loan originations and payments, net (6,532,401) (5,551,817)
Additions to premises and equipment (35,460) (135,762)
------------ ------------
Net cash used in investing activities (16,354,090) (5,656,470)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 27,462,681 9,874,405
Net change in federal funds purchased and
repurchase agreements (1,408,217) 1,888,613
Federal Home Loan Bank activity:
New Advances 1,500,000 0
Maturities and payments (1,500,000) 0
Net proceeds from note payable 100,000 850,000
------------ ------------
Net cash from financing activities 26,154,464 12,613,018
Net change in cash and cash equivalents 10,140,940 7,345,279
Beginning cash and cash equivalents 2,270,921 6,262,326
------------ ------------
ENDING CASH AND CASH EQUIVALENTS $ 12,411,861 $ 13,607,605
============ ============
Supplemental cash flow information:
Cash paid during the period for interest $ 1,253,489 $ 1,551,117
See accompanying notes to condensed consolidated financial statements.
-4-
COMMUNITY SHORES BANK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION:
The unaudited financial statements as of and for the three months ended
March 31, 2002 include the condensed consolidated results of operations
of Community Shores Bank Corporation ("Company") and its wholly-owned
subsidiaries, Community Shores Bank ("Bank") and Community Shores
Mortgage Company ("Mortgage Company"). These condensed consolidated
financial statements have been prepared in accordance with the
instructions for Form 10-QSB and Item 310(b) of Regulation S-B and do
not include all disclosures required by generally accepted accounting
principles for a complete presentation of the Company's financial
condition and results of operations. In the opinion of management, the
information reflects all adjustments (consisting only of normal
recurring adjustments) which are necessary in order to make the
financial statements not misleading and for a fair representation of
the results of operations for such periods. The results for the period
ended March 31, 2002 should not be considered as indicative of results
for a full year. For further information, refer to the condensed
consolidated financial statements and footnotes included in the
Company's annual report on Form 10-KSB for the period ended December
31, 2001. Some items in the prior year financial statements were
reclassified to conform to the current presentation.
2. SECURITIES
The following tables represent the securities held in the Company's
portfolio at March 31, 2002 and at December 31, 2001:
Gross Gross
Amortized Unrealized Unrealized Fair
(Unaudited) Cost Gains Losses Value %
- -------------------------------------------------------------------------------------------------------------
Available for sale:
US Treasuries $ 11,487,618 0 (5,190) $ 11,482,428 33.5%
US Government and federal agency 10,648,307 292,006 (28,428) 10,911,885 31.8
Municipal securities 219,584 0 (676) 218,908 0.6
Mortgaged-backed securities 11,664,850 52,418 (88,665) 11,628,603 33.9
---------------------------------------------------------------------
34,020,359 344,424 (122,959) 34,241,824 99.8
Held to maturity:
Municipal securities 60,000 0 0 60,000 0.2
---------------------------------------------------------------------
Total securities at March 31, 2002 $ 34,080,359 $ 344,424 $ (122,959) $ 34,301,824 100.0%
=====================================================================
-5-
COMMUNITY SHORES BANK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. SECURITIES-continued
Gross Gross
Amortized Unrealized Unrealized Fair
(Unaudited) Cost Gains Losses Value %
- ------------------------------------------------------------------------------------------------------------
Available for sale:
US Treasuries $ 499,955 0 (273) $ 499,682 2.0%
US Government and federal agency 12,129,428 391,297 (12,849) 12,507,876 50.6
Municipal securities 219,579 0 (2,212) 217,367 0.9
Mortgaged-backed securities 11,369,155 115,988 (38,143) 11,447,000 46.3
--------------------------------------------------------------------
24,218,117 507,285 (53,477) 24,671,925 99.8
Held to maturity:
Municipal securities 60,000 0 0 60,000 0.2
--------------------------------------------------------------------
Total securities at December 31, 2001 $ 24,278,117 $ 507,285 $ (53,477) $ 24,731,925 100.0%
====================================================================
Securities increased $9,569,899 during the first three months of
2002. Below is the schedule of maturities for investments held at
March 31, 2002:
Securities available for sale Securities held to maturity
Amortized Fair Amortized Fair
Cost Value Cost Value
--------------------------------------------------------------------------------------------
Due in one year or less $15,383,527 $15,437,751 $ - $ -
Due from one to five years 6,752,399 6,956,562 0 0
Due in more than five years 219,584 218,909 0 0
Mortgage-backed and Municipal 11,664,849 11,628,602 60,000 60,000
---------------------------------------------------------
$34,020,359 $34,241,824 $ 60,000 $ 60,000
=========================================================
3. LOANS
Loans increased $6,544,657 since December 31, 2001. The components of
the outstanding balances, their percentage of the total portfolio and
the percentage increase from the end of 2001 to the end of the first
quarter of 2002 were as follows:
Percent
March 31, 2002 December 31, 2001 Increase/
Balance % Balance % (Decrease)
---------------- ------------------ ----------
Commercial, financial and other $94,348,582 75.7 % $89,258,193 75.6 % 5.7 %
Real estate-construction 2,954,040 2.4 3,081,361 2.6 (4.1)
Real estate-mortgages 4,034,393 3.2 3,761,403 3.2 7.3
Installment loans to individuals 23,323,222 18.7 22,014,623 18.6 5.9
-------------------- ---------------------
124,660,237 100.0 % 118,115,580 100.0 %
===== =====
Less allowance for loan losses 1,675,599 1,535,543
-------------- --------------
$ 122,984,638 $ 116,580,037
============== ==============
-6-
COMMUNITY SHORES BANK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. ALLOWANCE FOR LOAN LOSSES
The following is a summary of activity in the allowance for loan losses
account for the three month period ended March 31, 2002 and 2001:
Three Months Three Months
Ended Ended
(Unaudited) 03/31/02 03/31/01
----------------------------------------------- ---------------- ----------------
Beginning Balance $1,535,543 $1,269,050
Charge-offs (10,624) (72,321)
Recoveries 22,880 22,865
Provision charged against operating expense 127,800 101,500
---------------- ----------------
Ending Balance $1,675,599 $1,321,094
================ ================
5. DEPOSITS
Deposit balances increased $27,462,681 since December 31, 2001. The
components of the outstanding balances, their percentage of the total
portfolio and the percentage increase from the end of 2001 to the end
of the first quarter of 2002 were as follows:
Percent
March 31, 2002 December 31, 2001 Increase/
Balance % Balance % (Decrease)
----------------------- --------------------- ---------
Noninterest-bearing
Demand $ 9,945,750 7.2 % $ 9,217,298 8.4 % 42.1 %
Interest-bearing
Checking 33,644,275 24.5 20,979,462 19.0 241.8
Money Market 22,052,133 16.0 18,612,647 16.9 165.4
Savings 2,732,384 2.0 2,332,538 2.1 195.2
Time, under $100,000 32,116,471 23.3 30,913,935 28.1 1.6
Time, over $100,000 37,120,002 27.0 28,092,454 25.5 (7.7)
----------------------- --------------------
Total Deposits $ 137,611,015 100.0 % $ 110,148,334 100.0 %
======================= ====================
6. SHORT-TERM BORROWINGS
Both federal funds purchased and repurchase agreements were outstanding
at December 31, 2001. At March 31, 2002, the Bank's short-term
borrowings were made up of repurchase agreements only. In the three
month period since December 31, 2001 outstanding borrowings decreased
$1,408,217. The March 31, 2002 and December 31, 2001 information was as
follows:
-7-
COMMUNITY SHORES BANK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. SHORT-TERM BORROWINGS-continued
Repurchase Federal Funds
Agreements Purchased
---------- ---------
Outstanding at March 31, 2002 $ 17,556,381 $ 0
Average interest rate at period end 1.93% 0.00%
Average balance during period 15,234,208 1,200,000
Average interest rate during period 2.07% 2.09%
Maximum month end balance during period 17,556,381 0
Outstanding at December 31, 2001 $ 12,264,598 $ 6,700,000
Average interest rate at year end 2.04% 1.82%
Average balance during year 12,282,957 1,053,836
Average interest rate during year 3.36% 3.16%
Maximum month end balance during year 14,589,092 6,700,000
7. FEDERAL HOME LOAN BANK BORROWINGS
The Bank was approved in the first quarter of 1999 to be a member of
the Federal Home Loan Bank of Indianapolis. Based on its current
Federal Home Loan Bank Stock holdings the Bank has the capacity to
borrow $8,500,000. Each borrowing requires a direct pledge of
securities or loans. At this time, the Bank has securities with a
market value of $6,123,889 pledged to the Federal Home Loan Bank to
support current borrowings. Details of the Bank's outstanding
borrowings at both March 31, 2002 and December 31, 2001 are:
Current
Interest
Maturity Date: Rate March 31, 2002 December 31, 2001
--------------------- -------- -------------- -----------------
March 24, 2010 5.99 $1,500,000 $ 1,500,000
November 3, 2010 5.95 2,000,000 2,000,000
December 13, 2010 5.10 2,500,000 2,500,000
-------------- ----------------
Total outstanding at $6,000,000 $ 6,000,000
============== ================
8. NOTES PAYABLE
Since June 28, 2000, the Company borrowed $3,500,000 from four of its
Directors and Community Shores LLC. Community Shores LLC (the "LLC")
was formed by 7 of the Company's Directors for the purpose of obtaining
and lending money to the Company. The members of the LLC are David C.
Bliss, Gary F. Bogner, Robert L. Chandonnet, Dennis L. Cherette, Bruce
J. Essex, Michael D. Gluhanich and Jose A. Infante. Two of the
-8-
COMMUNITY SHORES BANK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
8. NOTES PAYABLE-continued
LLC members lent money directly as well as taking part in the LLC. A
summary of the loans is given below:
----------------------------------------------------------------------
Loan from: Aggregate Current Rate Maturity
Principal
Amount
----------------------------------------------------------------------
Robert L. Chandonnet $ 200,000 6.25% June 30, 2007
Michael D. Gluhanich $ 100,000 6.25% June 30, 2007
Donald E. Hegedus $ 500,000 6.25% June 30, 2007
John L. Hilt $ 750,000 6.25% June 30, 2007
Community Shores LLC $1,950,000 6.25% June 30, 2007
----------------------------------------------------------------------
Total $3,500,000
----------------------------------------------------------------------
The rate on the above notes is floating and is officially defined as
1.50% over the US Bank, N.A. Prime rate. US Bank's current prime rate
is 4.75%. Interest is owed quarterly in arrears on the fifteenth of
April, July, October and January until the principal of these Notes is
paid or made available for payment. The notes may be prepaid without
any prepayment penalty with at least one day's prior written notice.
The principal and interest related to these Notes is expressly
subordinated to any and all senior debt of the Company. The proceeds
from these Notes were primarily used to infuse capital into the Bank to
maintain sufficient capital ratios to comply with banking regulations.
9. COMMITMENTS AND OFF-BALANCE SHEET RISK
Some financial instruments are used to meet financing needs and to
reduce exposure to interest rate changes. These financial instruments
include commitments to extend credit and standby letters of credit.
These involve, to varying degrees, credit and interest-rate risk in
excess of the amount reported in the financial statements. Commitments
to extend credit are agreements to lend to a customer as long as there
is no violation of any condition established in the commitment, and
generally have fixed expiration dates. Standby letters of credit are
conditional commitments to guarantee a customer's performance to a
third party. Exposure to credit loss if the other party does not
perform is represented by the contractual amount for commitments to
extend credit and standby letters of credit. Collateral or other
security is normally not obtained for these financial instruments prior
to their use, and many of the commitments are expected to expire
without being used.
A summary of the notional and contractual amounts of outstanding
financing instruments with off-balance-sheet risk as of March 31, 2002
and December 31, 2001 follows:
-9-
COMMUNITY SHORES BANK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9. COMMITMENTS AND OFF-BALANCE SHEET RISK-continued
March 31, 2002 December 31,
2002 2001
(Unaudited)
-------------- ---------------
Letters of credit $ 255,000 $ 306,000
Commercial unused lines of credit 23,215,000 23,700,000
Consumer unused lines of credit 3,958,000 3,329,000
Residential construction commitments 378,000 749,000
Commitments to make loans generally terminate one year or less from the
date of commitment and may require a fee. Since many of the above
commitments expire without being used, the above amounts do not
necessarily represent future cash commitments. No losses are
anticipated as a result of these transactions.
10. REGULATORY MATTERS
The Company and Bank are subject to regulatory capital requirements
administered by the federal banking agencies. Capital adequacy
guidelines and prompt corrective action regulations involve
quantitative measures of assets, liabilities, and certain
off-balance-sheet items calculated under regulatory accounting
practices. Capital amounts and classifications are also subject to
qualitative judgments by regulators about components, risk weightings,
and other factors, and the regulators can lower classifications in
certain cases. Failure to meet various capital requirements can
initiate regulatory action that could have a direct material effect on
the financial statements.
The prompt corrective action regulations provide five classifications,
including well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized,
although these terms are not used to represent overall financial
condition. If adequately capitalized, regulator approval is required to
accept brokered deposits. If undercapitalized, capital distributions
are limited, as is asset growth and expansion, and plans for capital
restoration are required.
Capital to risk weighted
assets
----------------------- Tier 1 Capital
Total Tier 1 to average assets
-------- -------- --------------------
Well capitalized 10 % 6 % 5 %
Adequately capitalized 8 4 4
Undercapitalized 6 3 3
-10-
COMMUNITY SHORES BANK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
10. REGULATORY MATTERS-continued
Actual capital levels and minimum required levels at March 31, 2002 for
the Company and Bank were:
Actual Adequately Capitalized Well Capitalized
-------------------------- ---------------------------- ------------------------
March 31,2002 Amount Ratio Amount Ratio Amount Ratio
-------------------------- ---------------------------- ------------------------
-------------------------
Total capital (to risk-
weighted assets)
Consolidated $ 14,021,549 10.38 % $ 10,802,391 8.00 % $ 13,502,989 10.00 %
Bank 13,980,417 10.35 10,801,511 8.00 13,501,889 10.00
Tier 1 capital (to risk-
weighted assets)
Consolidated 8,845,950 6.55 5,401,195 4.00 8,101,793 6.00
Bank 12,304,817 9.11 5,400,755 4.00 8,101,133 6.00
Tier 1 capital (to
average assets)
Consolidated 8,845,950 5.28 6,704,373 4.00 8,380,466 5.00
Bank 12,304,817 7.34 6,703,933 4.00 8,379,916 5.00
The Company and the Bank were in the well capitalized category at March 31,
2002. The Company is closely monitoring the Bank's growth and expects to infuse
additional capital as necessary to maintain at least a 10% (well capitalized)
total capital to risk weighted assets ratio.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The discussion below details the financial results of the Company and its wholly
owned subsidiaries, the Bank and the Mortgage Company, through March 31, 2002
and is separated into two parts which are labeled, Financial Condition and
Results of Operations. The part labeled Financial Condition compares the
financial condition at March 31, 2002 to that at December 31, 2001. The part
labeled Results of Operations discusses the three month period ended March 31,
2002 as compared to the same period of 2001. Both parts should be read in
conjunction with the interim condensed consolidated financial statements and
footnotes included in Item 1 of this Form 10-QSB.
-11-
COMMUNITY SHORES BANK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
This discussion and analysis and other sections of this 10-QSB contains
forward-looking statements that are based on management's beliefs, assumptions,
current expectations, estimates and projections about the financial services
industry, the economy, and about the Company, the Bank and the Mortgage Company.
Words such as "anticipates", "believes", "estimates", "expects", "forecasts",
"intends", "is likely", "plans", "projects", variations of such words and
similar expressions are intended to identify such forward-looking statements.
These forward-looking statements are intended to be covered by the safe-harbor
provisions of the Private Securities Litigation Reform Act of 1995. These
statements are not guarantees of future performance and involve certain risks,
uncertainties and assumptions ("Future Factors") that are difficult to predict
with regard to timing, extent, likelihood and degree of occurrence. The Company
undertakes no obligation to update, amend, or clarify forward looking
statements, whether as a result of new information, future events (whether
anticipated or unanticipated), or otherwise.
Future Factors include changes in interest rates and interest rate
relationships; demand for products and services; the degree of competition by
traditional and non-traditional competitors; changes in banking regulation;
changes in tax laws; changes in prices, levies, and assessments; the impact of
technological advances; governmental and regulatory policy changes; the outcomes
of contingencies; trends in customer behavior as well as their ability to repay
loans; changes in the national and local economy; and other factors, including
risk factors, referred to from time to time in filings made by the Company with
the Securities and Exchange Commission. These are representative of the Future
Factors that could cause a difference between an ultimate actual outcome and a
preceding forward-looking statement.
FINANCIAL CONDITION
Total assets increased by $26,137,611 to $174,328,887 at March 31, 2002 from
$148,191,276 at December 31, 2001. This is an 18% increase in assets during the
first three months of 2002. Growth is mostly attributable to an increase in the
Bank's security portfolio and loan volume. Management continues to focus on
small- to medium-sized business customers, the original strategy since opening
in January 1999.
Cash and cash equivalents increased by $10,140,940 to $12,411,861 at March 31,
2002 from $2,270,921 at December 31, 2001. This increase was the result of an
additional $3,900,120 being held at other financial institutions as well as an
increase in federal funds sold. The Bank's reserve requirement at the Federal
Reserve Bank had increased significantly due to various intra-period deposits in
interest-bearing demand accounts. Additionally there was $6,250,000 in federal
funds sold on March 31, 2002 compared to none being sold on December 31, 2001.
Securities held increased by $9,569,899 in the first quarter of 2002. The
majority of the purchases were driven by unexpected, short-term liquidity and
general growth in the Bank's repurchase agreement account holdings. A repurchase
agreement is not considered a deposit
-12-
COMMUNITY SHORES BANK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
by the FDIC and is therefore not eligible for FDIC insurance coverage. The
recorded liability is treated like a short-term borrowing of the Bank. To secure
the short-term borrowing (repurchase agreement), balances held by customers are
typically collateralized by high quality government securities held within the
Bank's security portfolio. If the repurchase balances continue to increase, the
purchase of additional Treasuries and Agencies will be required to fulfill the
collateralization requirement. As of March 31, 2002, there were unpledged
securities in the Bank's investment portfolio with a fair market value of
approximately $10,200,000.
Total loans climbed to $124,660,237 at March 31, 2002 from $118,115,580 at
December 31, 2001. Of the $6,544,657 increase experienced, 78% occurred in the
commercial loan portfolio and 20% occurred in the installment loan portfolio.
The "wholesale" banking focus applied since opening in 1999 continued during the
first three months of 2002. Presently, the commercial category of loans
comprises 76% of the Bank's total loan portfolio. There are five experienced
commercial lenders on staff devoted to pursuing and originating these types of
loans. Growth was also experienced on the "retail" lending side. Installment
loans increased $1,308,599 or 6%, over the balance reported at December 31,
2001. Growth in this category was mostly the result of new business in direct
and indirect automobile loans and home equity loans. Overall, the growth in
total loans was above expectations. Management is optimistic about additional
volume in the remaining quarters of 2002 given the favorable interest rate
environment and the opportunities in the Bank's market resulting from the
acquisition of a competitor bank by an out-of-state bank holding company.
The loan maturities and rate sensitivity of the loan portfolio at March 31, 2002
have been included below:
Within Three to One to After
three twelve five five
months months years years Total
------------------------------------------------------------------------
Commercial, financial and other $ 20,717,374 $ 20,583,777 $ 50,438,454 $ 2,608,977 $ 94,348,582
Real estate-construction 1,697,473 1,256,567 0 0 2,954,040
Real estate-mortgages 21,236 73,068 675,888 3,264,201 4,034,393
Installment loans to individuals 1,842,846 3,105,801 15,645,783 2,728,792 23,323,222
------------------------------------------------------------------------
$ 24,278,929 $ 25,019,213 $ 66,760,125 $ 8,601,970 $124,660,237
========================================================================
Loans at fixed rates 4,932,459 3,263,018 50,062,924 8,253,044 $ 66,511,445
Loans at variable rates 19,346,470 21,756,195 16,697,201 348,926 58,148,792
------------------------------------------------------------------------
$ 24,278,929 $ 25,019,213 $ 66,760,125 $ 8,601,970 $124,660,237
========================================================================
The loan portfolio is reviewed and analyzed on a regular basis for the purpose
of estimating probable credit losses. The allowance for loan losses is adjusted
accordingly to maintain an adequate level to absorb probable losses given the
risk characteristics of the loan portfolio. At March 31, 2002, the allowance
totaled $1,675,599 or approximately 1.34% of gross loans outstanding. Management
has determined that this is an appropriate level based on their estimate of
losses inherent in the loan portfolio after their detailed review as well as
from
-13-
COMMUNITY SHORES BANK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
comparison of allowance levels maintained by other institutions with similar,
but seasoned loan portfolios. The allocation of the allowance at March 31, 2002
was as follows:
March 31, 2002 December 31, 2001
Percent of Percent of
allowance allowance
Balance at End of Period Applicable to: related to related to
Amount loan category Amount loan category
---------- ------------- ---------- -------------
Commercial $1,317,098 78.6 % $1,180,208 76.9 %
Residential real estate 68,660 4.1 68,268 4.4
Installment 289,841 17.3 287,067 18.7
Unallocated 0 0.0 0 0.0
---------- ------------- ---------- -------------
Total $1,675,599 100.0 % $1,535,543 100.0 %
========== ============= ========== =============
Given the size and composition of the bank's loan portfolio and its
concentration of commercial loans, this allocation is felt to be in line with
the banking industry's historical loan loss experience. Management will continue
to monitor the allocation and make necessary adjustments based on portfolio
concentration levels, actual loss experience and the financial condition of the
borrowers. As such, an additional $127,800 was provided for since December 31,
2001. At the end of March 2002, loans 30-59 days past due totaled $1,725,431 up
from $735,005 at December 31, 2001. Approximately $1,088,000 of the increase in
these past due balances was related to commercial loans which was partially
offset by a decrease in retail past dues of $100,000. There was a total of
$171,980 past due 60-89 days and $316,532 past due more than 89 days at the end
of 2001 compared to $762,365 past due 60-89 days and $225,435 past due more than
89 days at the end of the first quarter of 2002. Although the percentage of
loans past due has increased in most categories since December 31, 2001,
management feels that it is all in the normal seasoning of the portfolio and
that our past due statistics are in line with our peer banks. At March 31, 2002
the Bank had four non-accrual notes with an aggregate total of $316,417. The
Bank had no non-accrual loans at the end of December 2001. Net charge-offs
recorded in 2001 were $128,527. In the first three months of 2002, the Bank had
net recoveries of $12,256.
Bank premises and equipment decreased $60,893 to $3,112,831 at March 31, 2002
from $3,173,724 at December 31, 2001. Accumulated depreciation and amortization
represented $1,001,789 at year-end compared to $1,098,142 at March 31, 2002. No
significant capital expenditures were made in the first quarter of 2002.
Other assets increased $91,586 from December 31, 2001 to March 31, 2002. The
Bank's prepaid expenses were responsible for all of the increase. In general,
prepaid expenses are at their lowest point at year-end and highest at the
beginning of the year. Deposit balances were $137,611,015 at March 31, 2002 up
from $110,148,334 at December 31, 2001. The increase in
-14-
COMMUNITY SHORES BANK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
the categories of interest-bearing checking and money market accounts was
$16,104,299 for the first quarter of 2002. The growth was mostly due to an
increase in balances on deposit by several existing public fund customers. Based
on the cash flow projections of these particular customers it is anticipated
that a large portion of their balances on deposit will be used in the month of
May. Time deposits and savings accounts increased $10,629,930 or 15% since
December 31, 2001. Occasionally management chooses to fund a portion of the
Bank's loan growth by obtaining brokered deposits. Brokered deposits went from
23% to 24% of total deposits during the quarter. Brokered deposits are time
deposits obtained from depositors located outside of our market area and are
placed with the Bank by a deposit broker. Conversely, in January the Bank
conducted a time deposit promotion in honor of its third anniversary and was
able to attract approximately $5,489,000 of local money during the four-week
campaign.
Repurchase agreements increased $5,291,783 since December 31, 2001. This
represents an increase of 43% for the first three months of 2002. The growth is
attributable to existing customers increasing their carrying balances from those
held at year-end as well as the addition of new customers using this banking
product. The Bank's Federal Home Loan Bank ("FHLB") advances outstanding was
$6,000,000 at both March 31, 2002 and December 31, 2001. On January 9, 2002, the
Bank arranged to borrow $1,500,000 for 180 days at a variable rate. The proceeds
were used to resolve a short-term liquidity deficit at the beginning of 2002.
The loan was repaid on January 22, 2002. In March, two of the three putable
advances owned by the Bank were eligible for conversion to a floating rate at
the option of the FHLB. The FHLB did not exercise its right in either case. The
putable advances of $2,500,000 and $1,500,000 continue to accrue interest at
rates of 5.10% and 5.99% respectively. Going forward the FHLB will have the
right to exercise its option on both notes every ninety days. In the event that
either note converts to a floating rate, management has the right to pay off the
note with no pre-payment penalty. At this time, it is not anticipated that
either advance will convert to a floating rate given the nature of the current
rate environment.
As of March 31, 2002, the Company had borrowed $3,500,000 from some of its
Directors and Community Shores LLC for the purpose of infusing capital into the
Bank and to provide cash for the operating expenses of the Company. The current
balance is $100,000 more than the outstanding balance on December 31, 2001. This
debt is subordinated to all senior debt of the Company. The notes have a
floating rate and are currently accruing interest at 6.25% per annum. Interest
payments are due quarterly on the fifteenth of the month. The next scheduled
interest payment is due on July 15, 2002. Based on anticipated asset growth
rates for the next three quarters, the Bank is expecting to need additional
funds beyond the growth in its retained earnings to maintain a well capitalized
capital ratio. The Company has evaluated several possible strategies to
effectively increase capital levels. During the first half of May of 2002, the
Company obtained $200,000 of capital. The Company intends to obtain more capital
in the near future and to contribute the $200,000 and most of the additional
capital to the Bank to maintain the desired capital ratio.
-15-
COMMUNITY SHORES BANK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
The net income for the first quarter of 2002 was $165,671 which compares
favorably to the net income of $3,796 recorded in the first quarter of 2001. For
the first quarter of 2002, the annualized return on the Company's average total
assets and average equity was .40% and 7.24% respectively. At March 31, 2002,
the ratio of average equity to average assets was 5.46%. The Company's retained
deficit was $2,025,261 at March 31, 2002 compared to $2,190,931 at December 31,
2001. The actual operating results for the first three months of 2002 were
better than management's internal, budgeted goal. The main contributing factor
to the above results is the improvement in net interest income.
The following tables sets forth certain information relating to the Company's
consolidated average interest earning assets and interest-bearing liabilities
and reflects the average yield on assets and average cost of liabilities for the
periods indicated. Such yields and costs are derived by dividing annualized
income or expenses by the average daily balance of assets or liabilities,
respectively, for the periods presented.
Three months ended March 31:
2002 2001
Average Average Average Average
balance Interest rate balance Interest rate
-------------------------------------- ---------------------------------------
Assets
Federal funds sold and interest-bearing
deposits with other financial institutions $ 14,637,192 $ 61,702 1.69 % $ 6,930,913 $ 94,281 5.44 %
Investment securities 24,147,955 333,288 5.52 19,664,024 325,235 6.62
Loans 121,393,351 2,159,850 7.12 98,836,295 2,218,522 8.98
------------------------------------ --------------------------------------
160,178,498 2,554,840 6.38 125,431,232 2,638,038 8.41
Other assets 7,430,830 6,434,242
------------- -------------
$ 167,609,328 $ 131,865,474
============= =============
Liabilities and Shareholders' Equity
Interest-bearing deposits $ 122,258,027 $1,078,248 3.53 $ 97,244,838 $1,440,499 5.93
Federal funds purchased and repurchase
agreements 16,434,208 84,986 2.07 10,718,634 109,131 4.07
Note payable and Federal Home Loan
Bank advances 9,655,556 138,876 5.75 8,049,444 135,766 6.75
------------------------------------ --------------------------------------
148,347,791 1,302,110 3.51 116,012,916 1,685,396 5.81
Noninterest-bearing deposits 9,401,795 6,458,283
Other liabilities 712,793 886,236
Shareholders' Equity 9,146,949 8,508,039
------------- -------------
$ 167,609,328 $ 131,865,474
============= =============
Net interest income $ 1,252,730 $ 952,642
=========== =========
Net interest spread on earning assets 2.87 % 2.60 %
==== ====
Net interest margin on earning assets 3.13 % 3.04 %
==== ====
-16-
COMMUNITY SHORES BANK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
The net interest spread on average earning assets increased .27 to 2.87 since
March 31, 2001.The net interest margin improved 9 basis points from 3.04% at
March 31, 2001 to 3.13% at March 31, 2002. Year to date net interest income was
$1,252,730 compared to a figure of $952,642 for the same three months in 2001,
an increase of $300,088 or 32%. Interest income recorded for the first three
months was generated primarily from booking loans, purchasing securities, and
selling federal funds. Interest income through March 31, 2002 was $2,554,840
compared to $2,638,038 recorded for the same three month period in 2001. The net
decrease reflects 3% less interest income recorded so far in 2002 compared to
2001. The reduction is a direct result of an average difference in the Bank's
internal prime rate of approximately 3.87%. The average rate earned on
interest-earning assets was 6.38% at March 31, 2002 compared to 8.41% at March
31, 2001. This decrease of 203 basis points resulted primarily from the changes
in the Bank's internal prime rate mentioned above. All changes, no matter what
direction, to the Bank's internal prime rate affect interest earned on variable
rate loans and new loan volume. At March 31, 2002, 47% of the Bank's loan
portfolio was variable and average loans outstanding had increased $22,557,056
over the same period end one-year earlier. Additionally, interest expense
incurred on deposits, repurchase agreements, federal funds purchased, Federal
Home Loan Bank advances and Notes Payable decreased 23% for the quarter. This
category totaled $1,302,110 for the first three months of 2002 which was a
$383,286 reduction over the total recorded for the same period in 2001. The
favorable change in the net interest margin is directly attributable to the
Bank's success in securing a lower cost of funds in a declining rate
environment. The average rate paid on interest-bearing products was 230 basis
points less than what was paid a year earlier.
As the Bank's cost of funds declines and prime rate changes continue being a
possibility, asset liability management has become an important tool for
assessing and monitoring interest rate sensitivity. Management of interest rate
sensitivity attempts to avoid widely varying net interest margins and achieve
consistent net interest income through periods of changing interest rates. Asset
liability management 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. 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.
-17-
COMMUNITY SHORES BANK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
Details of the repricing gap at March 31, 2002 were:
Interest rate sensitivity period
Within Three to One to After
three twelve five five
months months years years Total
--------------------------------------------------------------------------
Earning assets
Interest-bearing deposits
in other financial institutions $ 70,461 $ 0 $ 0 $ 0 $ 70,461
Federal funds sold 6,250,000 0 0 0 6,250,000
Securities (including FHLB stock) 13,727,443 5,491,898 12,216,152 3,291,331 34,726,824
Loans 67,664,438 7,229,982 47,187,570 2,578,247 124,660,237
--------------------------------------------------------------------------
87,712,342 12,721,880 59,403,722 5,869,578 165,707,522
Interest-bearing liabilities
Savings and checking 58,428,792 0 0 0 58,428,792
Time deposits< $100,000 4,096,492 8,407,611 19,612,368 0 32,116,471
Time deposits>$100,000 7,190,616 13,861,767 16,067,619 0 37,120,002
Repurchase agreements and
Federal funds purchased 17,556,381 0 0 0 17,556,381
Notes payable and Federal Home
Loan Bank advances 7,500,000 0 2,000,000 0 9,500,000
--------------------------------------------------------------------------
94,772,281 22,269,378 37,679,987 0 154,721,646
Net asset (liability) repricing gap $ (7,059,939) $ (9,547,498) $ 21,723,735 $ 5,869,578 $ 10,985,876
==========================================================================
Cumulative net asset (liability)
repricing gap $ (7,059,939) $(16,607,437) $ 5,116,298 $ 10,985,876
===========================================================
Currently the Bank has a negative repricing gap which indicates that the bank is
liability sensitive. This position implies that decreases to the national
federal funds rate would have more of an impact on interest expense than on
interest income if there were a parallel shift in rates. For instance if the
Bank's internal prime rate went down by 25 basis points and every interest
earning asset and interest bearing liability on the Bank's March 31, 2002
balance sheet adjusted simultaneously by the same 25 basis points, more
liabilities would be affected than assets. At this point in time it would not be
prudent to assume that future reductions in the Bank's internal prime could be
completely absorbed by reductions to the Bank's deposit rates. Some deposit
rates are reaching the bottom limit of what can be paid.
The provision for loan losses for the first quarter of 2002 was $127,800
compared to a figure of $101,500 for the same period in 2001. Management
believes that the allowance level is adequate and justifiable based on the
factors discussed earlier (see Financial Condition). Management will continue to
review the allowance with the intent of maintaining it at an appropriate level.
The provision may be increased or decreased in the future as management
continues to monitor the loan portfolio and actual loan loss experience.
Non-interest income recorded in the first quarter totaled $186,451 and
represented an increase of 12% over last year's first quarter. Although service
charge income appeared to remain
-18-
COMMUNITY SHORES BANK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
relatively flat between 2002's first quarter and the similar quarter in 2001,
the small increase accounted for 10% of the overall increase in non-interest
income. Additionally, management believes that the service charge portion of
non-interest income will continue to increase in future quarters due to
anticipated growth in the number of deposit accounts. Improving as well were
mortgage loan referral fees. Fees earned for the first quarter ended March 31,
2002 were $9,382 more than the same period in 2001. Comparing the similar
quarter, fees of this type improved 26% over last year. It is difficult to
predict future contributions of mortgage loan referral fees to non-interest
income because of their dependence on interest rates, which are subject to
market forces. Other non-interest income consists of a variety of categories.
The ones showing the most dramatic improvement from last years first quarter to
this years were commissions on credit life insurance sold, debit card fee income
and credit card interchange income. The total increase amongst these were
roughly $6,000 or 31% of the improvement in non-interest income.
Non-interest expenses for the first three months of 2002 increased 13% over the
same period in 2001. The figure for the first quarter of 2002 was $1,145,710
compared to a total of $1,014,167 for the first three months of 2001. Salaries
and benefits comprised 47% of the first quarter increase. There were an
additional 6 full-time equivalent employees at March 31, 2002 compared to March
31, 2001. Occupancy and furniture and equipment expenses grew $9,155 (5%) for
the first three months of 2002 compared to the similar periods in 2001. An
increase in property taxes for the Bank's main office was mostly the cause of
this fluctuation. Advertising expense actually decreased by $7,809 from the
first quarter of 2002 compared to the first quarter of 2001. During last year's
first quarter the Bank incurred additional costs to announce the grand opening
of its North Muskegon location. As expected, data processing expenses have
increased as a result of the Bank's expanding customer base. This category has
grown 39% in the first three months of 2002 compared to the same period in 2001
and is responsible for 12% of the total increase in non-interest expenses so far
this year. Expenses of this nature are an unavoidable cost of doing business for
a financial institution. Professional services expense decreased by $13,390 when
comparing the first three months of 2002 with the similar period one year ago.
Legal expenses incurred by the Corporation have been lower in 2002 by $11,000.
The line item showing other non-interest expenses has increased $65,571 compared
to the similar quarter in 2001. In 2001, the Bank began paying its directors a
fee for attending scheduled Board and Committee meetings. By March 31, 2002, the
Bank had paid $13,900 in director's fees verses $5,700 being paid in 2001. The
change in this category accounts for 13% of the increase in other non-interest
expense. Another category of other non-interest expense that has increased is
correspondent bank service charges. An additional $7,786 has been paid through
March of 2002 compared to the first three months of 2001. Due to the general
growth of the Bank it is expected that the number of items processed on a daily
basis will proportionately increase and cause charges of this type to climb. In
the first three months of 2002 the Bank accrued State of Michigan Business Taxes
of $11,284 compared to none being accrued for the same time period in 2001. No
Federal Income Tax accruals were made for either the first quarter of 2002 or
that of 2001. Given the fact that the Corporation is now profitable the net
operating losses accumulated in the first years of operation are being used to
offset the tax liability on current profits. At this time it is estimated that
the net operating losses will continue offsetting income throughout 2002.
-19-
PART II - OTHER INFORMATION
ITEM 1. 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 the aggregate.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
EXHIBIT NO. EXHIBIT DESCRIPTION
----------- -------------------
3.1 Articles of Incorporation are incorporated by reference to exhibit
3.1 of the Company's Registration Statement on Form SB-2
(Commission File No. 333-63769) that became effective on December
17, 1998.
3.2 Bylaws of the Company are incorporated by reference to exhibit 3.2
of the Company's Registration Statement on Form SB-2 (Commission
File No. 333-63769) that became effective on December 17, 1998.
3.3 First Amendment to the Bylaws of the Company dated December 19,
2001.
10.1 Subordinated Note Purchase Agreement between Community Shores LLC
and Community Shores Bank Corporation dated February 25, 2002.
10.2 Floating Rate Subordinated Note issued to Community Shores LLC by
Community Shores Bank Corporation dated February 25, 2002.
-20-
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter for which this
report is filed.
-21-
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized, on May 14, 2002.
COMMUNITY SHORES BANK CORPORATION
By: /s/ Jose' A. Infante
-------------------------------------
Jose' A. Infante
Chairman of the Board, President and Chief
Executive Officer (principal executive officer)
By: /s/ Tracey A. Welsh
-------------------------------------
Tracey A. Welsh
Chief Financial Officer and Vice President
(principal financial and accounting officer)
-22-
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- ------------------
3.1 Articles of Incorporation are incorporated by reference to exhibit
3.1 of the Company's Registration Statement on Form SB-2
(Commission File No. 333-63769) that became effective on December
17, 1998.
3.2 Bylaws of the Company are incorporated by reference to exhibit 3.2
of the Company's Registration Statement on Form SB-2 (Commission
File No. 333-63769) that became effective on December 17, 1998.
3.3 First Amendment to the Bylaws of the Company dated December 19,
2001.
10.1 Subordinated Note Purchase Agreement between Community Shores LLC
and Community Shores Bank Corporation dated February 25, 2002.
10.2 Floating Rate Subordinated Note issued to Community Shores LLC by
Community Shores Bank Corporation dated February 25, 2002.
-23-