Attached files
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EX-21 - EX-21 - COMMUNITY SHORES BANK CORP | k49054exv21.htm |
EX-13 - EX-13 - COMMUNITY SHORES BANK CORP | k49054exv13.htm |
EX-23 - EX-23 - COMMUNITY SHORES BANK CORP | k49054exv23.htm |
EX-32.2 - EX-32.2 - COMMUNITY SHORES BANK CORP | k49054exv32w2.htm |
EX-32.1 - EX-32.1 - COMMUNITY SHORES BANK CORP | k49054exv32w1.htm |
EX-31.1 - EX-31.1 - COMMUNITY SHORES BANK CORP | k49054exv31w1.htm |
EX-31.2 - EX-31.2 - COMMUNITY SHORES BANK CORP | k49054exv31w2.htm |
EX-10.15 - EX-10.15 - COMMUNITY SHORES BANK CORP | k49054exv10w15.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2009
or
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 000-51166
Community Shores Bank Corporation
(Exact name of registration as specified in its charter)
Michigan | 38-3423227 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
1030 W. Norton Avenue, Muskegon, MI | 49441 | |
(Address of principal executive offices) | (Zip Code) |
(231) 780-1800
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of the registrants knowledge,
in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. þ
Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post
such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the
Exchange Act).
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Act). Yes o No þ
The aggregate value of the common equity held by non-affiliates (persons other than directors
and executive officers) of the registrant, computed by reference to the closing price of the common
stock, and number of shares held, as of the last business day of the registrants most recently
completed second fiscal quarter, was approximately $2.58 million.
As of March 20, 2010, there were issued and outstanding 1,468,800 shares of the registrants
common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Parts I and II | Portions of the 2009 annual report to shareholders. | |
Part III | Portions of the proxy statement for the 2010 annual meeting of shareholders |
TABLE OF CONTENTS
Table of Contents
PART I
ITEM 1. BUSINESS
General
Community Shores Bank Corporation (the Company), organized in 1998, is a Michigan corporation and
a bank holding company. The Company owns all of the common stock of Community Shores Bank (the
Bank). The Bank was organized and commenced operations in January, 1999 as a Michigan chartered
bank with depository accounts insured by the FDIC to the extent permitted by law. The Bank
provides a full range of commercial and consumer banking services primarily in the communities of
Muskegon County and Northern Ottawa County. The Banks services include checking and savings
accounts, certificates of deposit, safe deposit boxes, courier service, and loans for commercial
and consumer purposes.
Community Shores Mortgage Company (the Mortgage Company) was incorporated on December 13, 2001.
The Mortgage Company, a wholly owned subsidiary of the Bank, originates both commercial and
residential real estate loans. Most fixed rate residential real estate loans originated are sold to
a third party. Commercial and residential real estate loans that are held in the Mortgage Companys
portfolio are serviced by the Bank pursuant to a servicing agreement.
On September 27, 2002, pursuant to Title I of the Gramm-Leach-Bliley Act, the Company received
regulatory approval to become a financial holding company. After becoming a financial holding
company the Company created Community Shores Financial Services, Inc. (CS Financial Services).
Currently the only source of revenue that CS Financial Services receives is referral fee income
from a local insurance agency, Lakeshore Employee Benefits, formerly Lead Financial. Lakeshore
Employee Benefits offers, among other things, employer sponsored benefit plans. CS Financial
Services has the opportunity to earn a referral fee for each sale of employer sponsored benefits
that is transacted by Lakeshore Employee Benefits as a result of a referral made by CS Financial
Services. On April 16, 2009, the Company withdrew its election to be a financial holding company.
The election was acknowledged by the Federal Reserve Bank. The passive income derived from CS
Financial Services affiliation with Lakeshore Employee Benefits is unaffected by this change.
In December of 2004, the Company formed Community Shores Capital Trust I, a Delaware business trust
(the Trust). The Trust is administered by a Delaware trust company, and two individual
administrative trustees who are employees and officers of the Company. The Trust was established
for the purpose of issuing and selling its preferred securities and common securities and used the
proceeds from the sales of those securities to acquire subordinated debentures issued by the
Company. A majority of the net proceeds received by the Company was used to pay down the
outstanding balance on the Companys line of credit. The remaining proceeds were used to contribute
capital to the Bank as well as support the general operating expenses of the Company including the
debt service on the Companys subordinated debentures.
The Companys total assets declined by 9.5% to $231.4 million at December 31, 2009 and there was a
net loss recorded of $4,962,000. For 2009, diluted losses per share of the Company were $3.38. In
both 2008 and 2009 the Company had consolidated losses stemming from deterioration in credit
quality and the need for large loan loss provisions, devaluation of foreclosed real estate and
escalating credit administration expenses.
The Companys main office is located at 1030 W. Norton Avenue, Muskegon, Michigan, 49441 and its
telephone number is (231) 780-1800.
2
Table of Contents
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. Electronic banking
services such as ACH and online bill pay are offered to both personal and business customers. All
qualified deposit accounts are insured by the FDIC up to the maximum amount permitted by law.
Additionally, the Bank is participating in the FDICs Transaction Account Guarantee Program. The
Bank solicits these accounts from individuals, businesses, schools, associations, churches,
nonprofit organizations, financial institutions and government authorities. The Bank also uses
alternative funding sources as needed, including advances from the Federal Home Loan Bank and
obtaining deposits through a deposit broker. Additionally, the Bank makes available mutual funds
and annuities, which are non-insured, through an alliance with Sorrento Pacific. Discount brokerage
services are made available to our customers through Sorrento as well. The Bank receives referral
fees for customers that open a brokerage account and conduct trades.
Real Estate Loans. Both the Bank and the Mortgage Company originate residential mortgage loans,
which are generally long-term with either fixed or variable interest rates. The general operating
policy for both entities, which is subject to review by management due to changing market and
economic conditions and other factors, is to sell a majority of the fixed rate residential real
estate loans originated. Generally loan sales are on a servicing released basis in the secondary
market, regardless of term or product. Each entity, based on its lending guidelines, may
periodically elect to underwrite and retain certain mortgages in its portfolio. Only the Bank
offers fixed rate home equity loans and variable rate home equity lines of credit, which are
usually retained in its portfolio.
The retention of variable rate loans in the Banks loan portfolio helps to reduce the Banks
exposure to fluctuations in interest rates. However, such loans generally pose credit risks
different from the risks inherent in fixed rate loans, primarily because as interest rates rise,
the underlying payments from the borrowers rise, thereby increasing the potential for default.
Personal Loans and Lines of Credit. The Bank makes personal loans and lines of credit available to
consumers for various purposes, such as the purchase of automobiles, boats and other recreational
vehicles, home improvements and personal investments. The Banks current policy is to retain
substantially all of these loans in its portfolio.
Commercial and Commercial Real Estate Loans. Commercial loans are made primarily to small and
mid-sized businesses. These loans are and will be both secured and unsecured and are made
available for general operating purposes, acquisition of fixed assets including real estate,
purchases of equipment and machinery, financing of inventory and accounts receivable, as
well as any other purposes considered appropriate. From March 2002 through December 2007,
substantially all Commercial Real Estate Loan originations were executed by the Mortgage Company;
however both the Bank and the Mortgage Company have a portfolio of Commercial Real Estate loans.
Both entities generally look to a borrowers business operations as the principal source of
repayment, but will also receive, when appropriate, liens on real estate, security interests in
inventory, accounts receivable and other personal property or personal guarantees.
In addition to the Banks internal loan review, an independent company is hired to perform an
external loan review, to help monitor the quality of the Banks loans. Any past due loans and
identified problem loans are reviewed with the Board of Directors on a regular basis.
3
Table of Contents
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 has established relationships with correspondent banks and other independent financial
institutions to provide other services requested by the Banks customers, and loan participations
where the requested loan amounts exceed the Banks policies or legal lending limits.
Competition
The Companys 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, thrifts and credit union offices located in the
Companys market area. Most are branches of larger financial institutions 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. Most of the Companys 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 Reserve Board. The
Federal Reserve Boards 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, maintain employment, and mitigate
economic recession. The policies of the Federal Reserve Board have a major effect upon the levels
of bank loans, investments and deposits through its open market operations in United States
government securities, and through its regulation of, among other things, the discount rate on
borrowings of member banks and the reserve requirements against member bank deposits. It is not
possible to predict the nature and impact of future changes in monetary and fiscal policies.
Regulation and Supervision
As a bank holding company under the Bank Holding Company Act, the Company is required to file an
annual report with the Federal Reserve Board and such additional information as the Federal Reserve
Board may require. The Company is also subject to examination by the Federal Reserve Board.
The Bank Holding Company Act limits the activities of bank holding companies that have not
qualified as financial holding companies to banking and the management of banking organizations,
and to certain non-banking activities. These non-banking activities include those activities that
the Federal Reserve Board found, by order or regulation as of the day prior to enactment of the
Gramm-Leach-Bliley Act, to be so closely related to banking as to be a proper incident to banking.
These non-banking activities include, among other things: operating a mortgage company, finance
company, 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 providing discount securities
brokerage services for customers. With the exception of the activities of the Mortgage Company and
the third
4
Table of Contents
party arrangements with Lakeshore Employee Benefits and Sorrento Pacific discussed above, neither
the Company nor any of its subsidiaries engages in any of the non-banking activities listed above.
In September, 2002, the Companys election to become a financial holding company, as permitted by
the Bank Holding Company Act, as amended by Title I of the Gramm-Leach-Bliley Act, was accepted by
the Federal Reserve Board. In order to continue as a financial holding company, the Company and
the Bank must satisfy statutory requirements regarding capitalization, management, and compliance
with the Community Reinvestment Act. As a financial holding company, the Company is permitted to
engage in a broader range of activities than are permitted to bank holding companies which have not
qualified as financial holding companies. Those expanded activities include any activity which the
Federal Reserve Board (in certain instances in consultation with the Department of the Treasury)
determines, by order or regulation, to be financial in nature or incidental to such financial
activity, or to be complementary to a financial activity and not to pose a substantial risk to the
safety or soundness of depository institutions or the financial system generally. Such expanded
activities include, among others: insuring, guaranteeing, or indemnifying against loss, harm,
damage, illness, disability or death, or issuing annuities, and acting as principal, agent, or
broker for such purposes; providing financial, investment, or economic advisory services, including
advising a mutual fund; and underwriting, dealing in, or making a market in securities. On April
16, 2009, the Company withdrew its election to be a financial holding company. The election was
acknowledged by the Federal Reserve Bank. The passive income derived from the above activities is
unaffected by this change.
The Bank is subject to restrictions imposed by federal law and regulation. Among other things,
these restrictions apply to any extension of credit to the Company or its other subsidiaries, to
investments in stock or other securities issued by the Company, to the taking of such stock or
securities as collateral for loans to any borrower, and to acquisitions of assets or services from,
and sales of certain types of assets to, the Company or its other subsidiaries. Federal law
restricts the ability of the Company or its other subsidiaries to borrow from the Bank by limiting
the aggregate amount that may be borrowed and by requiring that all the loans be secured in
designated amounts by specified forms of collateral.
With respect to the acquisition of banking organizations, the Company is generally 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 or
bank holding company, if, after the acquisition, the Company would own or control more than 5% of
the voting shares of the bank or bank holding company. Acquisitions of banking organizations
across state lines are subject to certain restrictions imposed by Federal and state law and
regulations.
Loan Policy
The Bank makes loans primarily to individuals and businesses located within the Banks 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 Banks 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 borrowers ability to support debt, including character of the borrower, evidence of
financial responsibility, knowledge of collateral type,
5
Table of Contents
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 Commercial Loan Department Head, the Credit Administrator, the
President, and other designated credit personnel. The Loan Committee is presently permitted to
approve requests for loans in an amount not exceeding $2,000,000. The Loan Committee may recommend
that requests exceeding this amount be approved by a committee of the Board of Directors (the
Executive Loan Committee) whose lending authority is $2,750,000. Loan requests in excess of the
Executive Loan Committee limit require the approval of the Board of Directors.
The Board of Directors has the maximum lending authority permitted by law. However, generally, the
loan policy establishes an in house limit slightly lower than the actual legal lending limit.
The Banks general legal lending limit, as of December 31, 2009, was approximately $2,774,000,
subject to a higher legal lending limit of approximately $4,648,000 in specific cases with approval
by two-thirds of the Banks Board of Directors. Under Michigan banking law, these amounts would
change if the Banks capital and surplus changed.
In addition to the lending authority described above, the Banks 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 President of the Bank and the Commercial Loan
Department Head each have been delegated individual authority, where they deem it appropriate, to
approve loans up to $1,000,000. Together, their delegated authority, where they deem it
appropriate, is $2,000,000. Other officers have been delegated authority to approve loans of lesser
amounts, where they deem it appropriate, without approval by the Loan Committee.
The loan policy outlines the amount of funds that may be loaned against specific types of
collateral. The loan to value ratios for first mortgages on residences are expected to comply with
the guidelines of secondary market investors. First mortgages held within the Banks portfolio are
expected to mirror secondary market requirements. In those instances where loan to value ratio
exceeds 80%, it is intended that private mortgage insurance will be obtained to minimize the Banks
risk. 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 Banks lending practices.
Lending Activity
Commercial Loans. The Banks commercial lending group originates commercial loans primarily in the
Western Michigan Counties of Muskegon and Northern Ottawa. Commercial loans are originated by
experienced lenders under the leadership of the Chief Lending Officer. 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 borrowers year end financial reporting. These loans generally are secured by
assets of the borrower and have
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an interest rate tied to the prime rate. Loans for machinery and equipment purposes typically have
a maturity of five to seven years and are fully amortizing. Commercial real estate loans may have
an interest rate that is fixed to maturity or floats with a spread to the prime rate or a U.S.
Treasury Index.
The Bank evaluates many aspects of a commercial loan transaction in order to minimize credit and
interest rate risk. Underwriting commercial loans requires an assessment of management, products,
markets, cash flow, capital, income and collateral. The analysis includes a review of historical
and projected financial results. On certain transactions, where real estate is the primary
collateral, and in some cases where equipment is the primary collateral, appraisals are obtained
from licensed or certified appraisers. In certain situations, for creditworthy customers, the Bank
may accept title reports instead of requiring lenders policies of title insurance.
Commercial real estate lending involves more risk than residential lending, because loan balances
are greater and repayment is dependent upon the borrowers 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 Banks legal lending limit, and (ii) avoiding certain types
of commercial real estate financing.
Single Family Residential Real Estate Loans. The Bank originates first mortgage residential real
estate loans in its market area according to secondary market underwriting standards. These loans
are likely to provide borrowers with a fixed or adjustable interest rate with terms up to 30 years.
A majority of the single family residential real estate loans are expected to be sold on a
servicing released basis in the secondary market with all interest rate risk and credit risk passed
to the purchaser. The Bank and the Mortgage Company may periodically elect to underwrite certain
residential real estate loans 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, monthly income and appropriate insurance coverage.
Consumer loans are generally repaid on a monthly basis with the source of repayment tied to the
borrowers periodic income. It is recognized that consumer loan delinquency and losses are
dependent on the borrowers 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 Banks efforts to meet the credit needs of the communities and customers that it serves.
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Loan Portfolio Quality
The Bank hires an independent firm to help management monitor and validate their ongoing assessment
of the credit quality of the Banks loan portfolio. The independent firm accomplishes this through
a sampling of the loan portfolios for both commercial and retail loans. The independent firm also
evaluates the loan underwriting, loan approval, loan monitoring, loan documentation, and problem
loan administration practices of the Bank. Loan reviews are performed twice a year. In 2009, they
occurred in May and November. The Bank is scheduled to undergo its next review in April of 2010.
The Bank has a comprehensive loan grading system for commercial loans. Administered as part of the
loan review program, all commercial loans are graded on a nine grade rating system utilizing a
standardized grade paradigm that analyzes several critical factors, such as cash flow, management
and collateral coverage. All commercial loans are graded at inception and at various intervals
thereafter. All commercial loan relationships exceeding $500,000 are formally reviewed at least
annually. Watch list credits exceeding $50,000 are formally reviewed quarterly.
Investments
Bank Holding Company Investments. The principal investments of the Company are the investments in
the common stock of the Bank and the common securities of the Trust. Other funds of the Company
may be invested from time to time in various debt instruments.
As a bank holding company, the Company is also permitted to make portfolio investments in equity
securities and to make equity investments in subsidiaries engaged in a variety of non-banking
activities. Among the permitted non-banking activities are real estate-related activities such as
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 plans at this time to make directly any of these equity investments
at the bank holding company level. The Companys Board of Directors may, however, alter the
investment policy at any time without shareholder approval.
The Banks Investments. 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. Among the equity
investments permitted for the Bank under various conditions and subject in some instances to amount
limitations, are shares of a subsidiary insurance agency, mortgage company (such as the Mortgage
Company), real estate company, or Michigan business and industrial development company. Under
another such exception, in certain circumstances and with prior notice to or approval of the FDIC,
the Bank could invest up to 10% of its total assets in the equity securities of a subsidiary
corporation engaged in the acquisition and development of real property for sale, or the
improvement of real property by construction or rehabilitation of residential or commercial units
for sale or lease. 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 for specified
periods. The Bank is also permitted to invest in such real estate as is necessary for the
convenient transaction of its business. The Banks Board of Directors may alter the Banks
investment policy without shareholder approval at any time.
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.
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Employees
As of December 31, 2009, the Bank had 60 full-time and 22 part-time employees. No area of the Bank
is represented by collective bargaining agents.
Selected Statistical Data and Return on Equity and Assets
Selected statistical data for the Company is shown for 2009, 2008 and 2007.
2009 | 2008 | 2007 | ||||||||||
Consolidated Results of Operations: |
||||||||||||
Interest income |
$ | 13,284,651 | $ | 15,970,162 | $ | 18,106,834 | ||||||
Interest expense |
6,498,815 | 9,079,925 | 10,132,591 | |||||||||
Net interest
income |
6,785,836 | 6,890,237 | 7,974,243 | |||||||||
Provision for loan losses |
2,607,643 | 1,943,976 | 1,931,963 | |||||||||
Non interest income |
1,971,444 | 2,121,969 | 1,691,052 | |||||||||
Non interest expense |
10,993,190 | 8,727,292 | 9,033,273 | |||||||||
Income (loss) before income tax expense |
(4,843,553 | ) | (1,659,062 | ) | (1,299,941 | ) | ||||||
Income tax expense (benefit) |
118,826 | (631,603 | ) | (527,710 | ) | |||||||
Net income (loss) |
$ | (4,962,379 | ) | $ | (1,027,459 | ) | $ | (772,231 | ) | |||
Consolidated Balance Sheet Data: |
||||||||||||
Total assets |
$ | 231,430,059 | $ | 255,611,964 | $ | 273,458,063 | ||||||
Cash and cash equivalents |
2,824,088 | 5,671,801 | 7,876,916 | |||||||||
Securities |
27,491,447 | 25,379,590 | 19,822,179 | |||||||||
Loans held for sale |
1,070,692 | 2,354,956 | 2,285,966 | |||||||||
Gross loans |
183,247,827 | 205,153,203 | 230,219,420 | |||||||||
Allowance for loan losses |
3,782,132 | 4,350,903 | 3,602,948 | |||||||||
Other assets |
20,578,138 | 21,403,317 | 16,856,530 | |||||||||
Deposits |
198,576,609 | 219,565,540 | 237,950,445 | |||||||||
Federal funds purchased
and repurchase agreements |
7,000,327 | 5,813,605 | 4,400,611 | |||||||||
Federal Home Loan Bank Advances |
6,000,000 | 6,000,000 | 6,000,000 | |||||||||
Notes Payable |
5,000,000 | 4,200,000 | 4,206,043 | |||||||||
Subordinated Debentures |
4,500,000 | 4,500,000 | 4,500,000 | |||||||||
Other |
613,132 | 586,365 | 786,639 | |||||||||
Shareholders equity |
9,739,991 | 14,946,454 | 15,614,325 |
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2009 | 2008 | 2007 | ||||||||||
Consolidated Financial Ratios: |
||||||||||||
Return on average assets |
(1.97 | %) | (0.38 | %) | (0.30 | %) | ||||||
Return on average shareholders equity |
(36.34 | %) | (6.55 | %) | (4.71 | %) | ||||||
Average equity to average assets |
5.42 | % | 5.83 | % | 6.34 | % | ||||||
Dividend payout ratio |
N/A | N/A | N/A | |||||||||
Non performing loans
to total loans and leases |
4.94 | % | 2.82 | % | 2.59 | % | ||||||
Tier 1 leverage capital ratio |
7.79 | % | 8.30 | % | 8.44 | % | ||||||
Tier 1 leverage risk-based capital ratio |
9.15 | % | 9.70 | % | 9.04 | % | ||||||
Total risk-based capital ratio |
10.41 | % | 10.96 | % | 10.29 | % |
2009 | 2008 | 2007 | ||||||||||
Per Share Data: |
||||||||||||
Net Income (loss): |
||||||||||||
Basic |
($3.38 | ) | ($0.70 | ) | ($0.53 | ) | ||||||
Diluted |
(3.38 | ) | (0.70 | ) | (0.53 | ) | ||||||
Book value at end of period |
6.63 | 10.18 | 10.63 | |||||||||
Dividends declared |
N/A | N/A | N/A | |||||||||
Weighted average shares outstanding |
1,468,800 | 1,468,800 | 1,468,778 | |||||||||
Diluted average shares outstanding |
1,468,800 | 1,468,800 | 1,476,778 |
10
Table of Contents
Net Interest Earnings
Years Ended December 31: | 2009 | 2008 | 2007 | |||||||||||||||||||||||||||||||||
Average | Average | Average | Average | Average | Average | |||||||||||||||||||||||||||||||
Balance | Interest | Yield/Rate | Balance | Interest | Yield/Rate | Balance | Interest | Yield/Rate | ||||||||||||||||||||||||||||
Assets |
||||||||||||||||||||||||||||||||||||
Federal funds sold and interest
bearing deposits with banks |
$ | 8,883,563 | $ | 34,022 | 0.38 | % | $ | 13,646,704 | $ | 211,377 | 1.55 | % | $ | 2,673,291 | $ | 135,603 | 5.07 | % | ||||||||||||||||||
Securities 1, 2 |
28,101,164 | 1,095,665 | 3.90 | 20,537,446 | 1,026,260 | 5.00 | 19,432,193 | 955,636 | 4.92 | |||||||||||||||||||||||||||
Loans 3 |
193,354,546 | 12,297,691 | 6.36 | 220,856,974 | 14,884,209 | 6.74 | 219,965,633 | 17,131,662 | 7.79 | |||||||||||||||||||||||||||
230,339,273 | 13,427,378 | 5.83 | 255,041,124 | 16,121,846 | 6.32 | 242,071,117 | 18,222,901 | 7.53 | ||||||||||||||||||||||||||||
Other assets |
21,829,189 | 13,791,580 | 16,642,868 | |||||||||||||||||||||||||||||||||
$ | 252,168,462 | $ | 268,832,704 | $ | 258,713,985 | |||||||||||||||||||||||||||||||
Liabilities and Shareholders Equity |
||||||||||||||||||||||||||||||||||||
Interest-bearing deposits |
$ | 193,243,953 | $ | 5,749,296 | 2.98 | % | $ | 214,546,984 | $ | 8,208,550 | 3.83 | % | $ | 203,018,232 | $ | 9,017,500 | 4.44 | % | ||||||||||||||||||
Federal funds purchased and
repurchase agreements |
7,640,761 | 59,065 | 0.77 | 4,788,721 | 67,762 | 1.42 | 8,943,301 | 370,463 | 4.14 | |||||||||||||||||||||||||||
Subordinated debentures, notes
Payable and FHLB Advances |
15,228,219 | 690,454 | 4.53 | 14,700,512 | 803,613 | 5.47 | 11,243,167 | 744,628 | 6.62 | |||||||||||||||||||||||||||
216,112,933 | 6,498,815 | 3.01 | 234,036,217 | 9,079,925 | 3.88 | 223,204,700 | 10,132,591 | 4.54 | ||||||||||||||||||||||||||||
Noninterest-bearing deposits |
21,694,511 | 18,365,460 | 18,120,516 | |||||||||||||||||||||||||||||||||
Other liabilities |
703,732 | 747,765 | 986,711 | |||||||||||||||||||||||||||||||||
Shareholders Equity |
13,657,286 | 15,683,262 | 16,402,058 | |||||||||||||||||||||||||||||||||
$ | 252,168,462 | $ | 268,832,704 | $ | 258,713,985 | |||||||||||||||||||||||||||||||
Net interest income (tax equivalent
basis) |
$ | 6,928,563 | $ | 7,041,921 | $ | 8,090,310 | ||||||||||||||||||||||||||||||
Net interest spread on earning
assets (tax equivalent basis) |
2.82 | % | 2.44 | % | 2.99 | % | ||||||||||||||||||||||||||||||
Net interest margin on earning
assets (tax equivalent basis) |
3.01 | % | 2.76 | % | 3.34 | % | ||||||||||||||||||||||||||||||
Average interest-earning assets to
Average interest-bearing liabilities |
106.58 | % | 108.98 | % | 108.45 | % | ||||||||||||||||||||||||||||||
Tax equivalent adjustment |
142,727 | 151,684 | 116,067 | |||||||||||||||||||||||||||||||||
Net Interest Income |
$ | 6,785,836 | $ | 6,890,237 | $ | 7,974,243 | ||||||||||||||||||||||||||||||
1 | Includes Federal Home Loan Bank Stock. | |
2 | Adjusted to a fully tax equivalent basis. | |
3 | Includes loans held for sale and non-accrual loans. |
11
Table of Contents
Rate Volume Analysis
Year ended December 31, | Year ended December 31, | |||||||||||||||||||||||
2009 over 2008 | 2008 over 2007 | |||||||||||||||||||||||
Total | Volume | Rate | Total | Volume | Rate | |||||||||||||||||||
Increase (decrease) in interest income |
||||||||||||||||||||||||
Federal funds sold and interest-
bearing deposits with banks |
$ | (177,355 | ) | $ | (56,184 | ) | $ | (121,171 | ) | $ | 75,774 | $ | 225,932 | $ | (150,158 | ) | ||||||||
Securities 1, 2 |
69,405 | 325,944 | (256,539 | ) | 70,624 | 55,036 | 15,588 | |||||||||||||||||
Loans 3 |
(2,586,518 | ) | (1,781,649 | ) | (804,869 | ) | (2,247,453 | ) | 69,148 | (2,316,601 | ) | |||||||||||||
Net change in interest income |
(2,694,468 | ) | (1,511,889 | ) | (1,182,579 | ) | (2,101,055 | ) | 350,116 | (2,451,171 | ) | |||||||||||||
Increase (decrease) in interest expense |
||||||||||||||||||||||||
Interest-bearing deposits |
(2,459,254 | ) | (954,963 | ) | (1,504,291 | ) | (808,950 | ) | 579,764 | (1,388,714 | ) | |||||||||||||
Federal funds purchased and
repurchase agreements |
(8,697 | ) | 29,964 | (38,661 | ) | (302,701 | ) | (125,223 | ) | (177,478 | ) | |||||||||||||
Subordinated debentures, notes
payable and FHLB advances |
(113,159 | ) | 27,992 | (141,151 | ) | 58,985 | 203,477 | (144,492 | ) | |||||||||||||||
Net change in interest expense |
(2,581,110 | ) | (897,007 | ) | (1,684,103 | ) | (1,052,666 | ) | 658,018 | (1,710,684 | ) | |||||||||||||
Net change in net interest income |
(113,358 | ) | (614,882 | ) | 501,524 | (1,048,389 | ) | (307,902 | ) | (740,487 | ) | |||||||||||||
Investment Portfolio
The composition of the investment portfolio is detailed in the table below.
Balance at | Balance at | Balance at | ||||||||||
December 31, 2009 | December 31, 2008 | December 31, 2007 | ||||||||||
U.S. Government and federal
agency |
$ | 14,495,407 | $ | 6,906,470 | $ | 4,565,235 | ||||||
Municipals |
7,018,707 | 7,500,162 | 6,973,483 | |||||||||
Mortgage-backed residential |
5,977,333 | 10,972,958 | 8,283,461 | |||||||||
$ | 27,491,447 | $ | 25,379,590 | $ | 19,822,179 | |||||||
The maturity schedule of the Companys investment portfolio as well as the weighted average yield
for each timeframe is included in the table below.
2009 | One Yr or Less | 1 - 5 Years | Over 5 Years | Total | ||||||||||||
Government Agency |
$ | 1,011,077 | $ | 12,939,501 | $ | 544,829 | $ | 14,495,407 | ||||||||
Municipals |
0 | 2,568,789 | 4,449,918 | 7,018,707 | ||||||||||||
Mortgage-backed
residential |
315,518 | 946,940 | 4,714,875 | 5,977,333 | ||||||||||||
Total |
$ | 1,326,595 | $ | 16,455,230 | $ | 9,709,622 | $ | 27,491,447 | ||||||||
Weighted Average Yield |
1.84 | % | 2.64 | 4.28 | 3.17 |
Yields on tax exempt obligations have not been computed on a tax equivalent basis.
1 | Includes Federal Home Loan Bank Stock. | |
2 | Adjusted to a fully tax equivalent basis. | |
3 | Includes loans held for sale and non-accrual loans. |
12
Table of Contents
Investment Portfolio (continued)
The table below lists the security issuers in which the aggregate holding exceeds 10% of the
Companys stockholders equity as of December 31, 2009.
Issuer | Book Value | Market Value | ||||||
FNMA |
$ | 8,071,837 | $ | 8,250,109 | ||||
FHLMC |
5,838,297 | 5,935,666 | ||||||
FHLB |
3,619,816 | 3,660,295 | ||||||
FFCB |
2,505,164 | 2,545,239 |
Loan Portfolio
The composition of the loan portfolio for each period is detailed in the following table.
December 31, 2009 | December 31, 2008 | December 31, 2007 | December 31, 2006 | December 31, 2005 | ||||||||||||||||||||||||||||||||||||
Balance | % | Balance | % | Balance | % | Balance | % | Balance | % | |||||||||||||||||||||||||||||||
Commercial |
$ | 69,862,430 | 38.1 | $ | 76,623,763 | 37.4 | $ | 86,543,187 | 37.6 | $ | 90,297,059 | 43.5 | $ | 85,751,222 | 44.6 | |||||||||||||||||||||||||
Real estate Commercial |
70,504,399 | 38.5 | 81,257,794 | 39.6 | 92,048,614 | 40.0 | 78,012,565 | 37.6 | 68,445,169 | 35.5 | ||||||||||||||||||||||||||||||
Real estate Residential |
18,625,574 | 10.2 | 16,275,219 | 7.9 | 15,842,205 | 6.9 | 10,172,321 | 5.0 | 9,366,098 | 4.9 | ||||||||||||||||||||||||||||||
Real estate
Construction |
1,518,378 | 0.8 | 3,850,176 | 1.9 | 6,264,591 | 2.7 | 1,334,276 | 0.6 | 1,636,526 | 0.8 | ||||||||||||||||||||||||||||||
Consumer |
22,737,046 | 12.4 | 27,146,251 | 13.2 | 29,520,823 | 12.8 | 27,616,155 | 13.3 | 27,445,727 | 14.2 | ||||||||||||||||||||||||||||||
$ | 183,247,827 | 100.0 | $ | 205,153,203 | 100.0 | $ | 230,219,420 | 100.0 | $ | 207,432,376 | 100.0 | $ | 192,644,742 | 100.0 | ||||||||||||||||||||||||||
Less allowance for loan
losses |
3,782,132 | 4,350,903 | 3,602,948 | 2,549,016 | 2,612,581 | |||||||||||||||||||||||||||||||||||
$ | 179,465,695 | $ | 200,802,300 | $ | 226,616,472 | $ | 204,883,360 | $ | 190,032,161 | |||||||||||||||||||||||||||||||
The non-accrual, past due and restructured loans as of the end of each period are reported
below.
December 31, | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||
Loans on nonaccrual
status |
$ | 7,649,000 | $ | 5,780,000 | $ | 4,532,000 | $ | 401,000 | $ | 749,000 | ||||||||||
Loans 90 days or
more past due and
accruing interest |
982,000 | 80,000 | 1,485,000 | 730,000 | 379,000 | |||||||||||||||
Troubled debt
restructuring |
2,658,000 | 4 | 0 | 0 | 0 | 0 | ||||||||||||||
$ | 11,289,000 | $ | 5,860,000 | $ | 6,017,000 | $ | 1,131,000 | $ | 1,128,000 | |||||||||||
Included below is the 2009 interest information on impaired loans.
2009 | ||||
Average of impaired loans during the year |
$ | 11,754,330 | ||
Interest income recognized during impairment |
389,548 | |||
Cash-basis interest income recognized |
339,636 |
4 | Includes $469,000 of loans that are on nonaccrual status at December 31, 2009 |
13
Table of Contents
Loan Portfolio (continued)
Below are two tables that summarize the activity in and the allocation of the Allowance for Loan
Losses.
Activity in the Allowance for Loan Losses:
12/31/09 | 12/31/08 | 12/31/07 | 12/31/06 | 12/31/05 | ||||||||||||||||
Beginning Balance |
$ | 4,350,903 | $ | 3,602,948 | $ | 2,549,016 | $ | 2,612,581 | $ | 2,039,198 | ||||||||||
Charge-offs |
||||||||||||||||||||
Commercial |
(2,392,214 | ) | (530,211 | ) | (647,238 | ) | (548,601 | ) | (130,602 | ) | ||||||||||
Real Estate Commercial |
(449,975 | ) | (277,663 | ) | (85,039 | ) | (54,000 | ) | (1,236 | ) | ||||||||||
Real Estate Residential |
0 | (52,453 | ) | 0 | (5,234 | ) | 0 | |||||||||||||
Real Estate Construction |
0 | 0 | 0 | 0 | 0 | |||||||||||||||
Consumer |
(386,378 | ) | (400,524 | ) | (188,707 | ) | (233,858 | ) | (179,218 | ) | ||||||||||
(3,228,567 | ) | (1,260,851 | ) | (920,984 | ) | (841,693 | ) | (311,056 | ) | |||||||||||
Recoveries |
||||||||||||||||||||
Commercial |
29,378 | 30,293 | 8,862 | 11,471 | (2,799 | ) | ||||||||||||||
Real Estate Commercial |
150 | 0 | 0 | 0 | 0 | |||||||||||||||
Real Estate Residential |
0 | 0 | 0 | 0 | 0 | |||||||||||||||
Real Estate Construction |
0 | 0 | 0 | 0 | 0 | |||||||||||||||
Consumer |
22,625 | 34,537 | 34,091 | 45,956 | 33,510 | |||||||||||||||
52,153 | 64,830 | 42,953 | 57,427 | 30,711 | ||||||||||||||||
Net Charge-offs |
(3,176,414 | ) | (1,196,021 | ) | (878,031 | ) | (784,266 | ) | (280,345 | ) | ||||||||||
Provision charged against
operating expense |
2,607,643 | 1,943,976 | 1,931,963 | 720,701 | 853,728 | |||||||||||||||
Ending Balance |
$ | 3,782,132 | $ | 4,350,903 | $ | 3,602,948 | $ | 2,549,016 | $ | 2,612,581 | ||||||||||
Allocation of the Allowance for Loan Losses:
2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||||||||||||||||||||||
% of | % of | % of | % of | |||||||||||||||||||||||||||||||||||||
Loans | Loans | Loans | Loans | % of | ||||||||||||||||||||||||||||||||||||
in | in | in | in | Loans in | ||||||||||||||||||||||||||||||||||||
Each | Each | Each | Each | Each | ||||||||||||||||||||||||||||||||||||
Category to | Category to | Category to | Category to | Category | ||||||||||||||||||||||||||||||||||||
Total | Total | Total | Total | to Total | ||||||||||||||||||||||||||||||||||||
Amount | Loans | Amount | Loans | Amount | Loans | Amount | Loans | Amount | Loans | |||||||||||||||||||||||||||||||
Balance at End of Period
Applicable To: |
||||||||||||||||||||||||||||||||||||||||
Commercial |
$ | 1,529,470 | 38.1 | $ | 2,640,269 | 37.4 | $ | 1,687,805 | 37.6 | $ | 1,239,909 | 43.5 | $ | 1,460,911 | 44.6 | |||||||||||||||||||||||||
Real Estate Commercial |
1,828,022 | 38.5 | 1,237,913 | 39.6 | 1,331,132 | 40.0 | 943,907 | 37.6 | 777,331 | 35.5 | ||||||||||||||||||||||||||||||
Real Estate Residential |
91,532 | 10.2 | 104,033 | 7.9 | 129,906 | 6.9 | 50,862 | 5.0 | 46,830 | 4.9 | ||||||||||||||||||||||||||||||
Real Estate Construction |
17,461 | 0.8 | 49,667 | 1.9 | 89,672 | 2.7 | 15,344 | 0.6 | 18,820 | 0.8 | ||||||||||||||||||||||||||||||
Consumer |
315,647 | 12.4 | 319,021 | 13.2 | 364,433 | 12.8 | 298,994 | 13.3 | 308,689 | 14.2 | ||||||||||||||||||||||||||||||
Unallocated |
0 | 0.0 | 0 | 0.0 | 0 | 0.0 | 0 | 0.0 | 0 | 0.0 | ||||||||||||||||||||||||||||||
Total |
$ | 3,782,132 | 100.0 | $ | 4,350,903 | 100.0 | $ | 3,602,948 | 100.0 | $ | 2,549,016 | 100.0 | $ | 2,612,581 | 100.0 | |||||||||||||||||||||||||
As of all period ends, all loans in the portfolio were domestic; there were no foreign
outstandings. For further discussion of the risk elements of the portfolio and the factors
considered in determining the amount of the allowance for loan losses and for a table summarizing
the scheduled maturities and interest rate sensitivity of the Companys loan portfolio see the
table and information in Managements Discussion and Analysis on pages
14
Table of Contents
Loan Portfolio (continued)
10 through 18 of the 2009 Annual Report furnished to the Securities and Exchange Commission as
Exhibit 13 to this Report, which are incorporated here by reference.
Deposits
The table below represents the average balance of deposits by category as well as the average rate.
Deposits in Domestic Bank Offices:
Average | Average | Average | Average | Average | Average | |||||||||||||||||||
Balance | Rate | Balance | Rate | Balance | Rate | |||||||||||||||||||
2009 | 2009 | 2008 | 2008 | 2007 | 2007 | |||||||||||||||||||
Non-Interest-Bearing
Demand |
$ | 21,694,511 | N/A | $ | 18,365,460 | N/A | $ | 18,120,516 | N/A | |||||||||||||||
Interest-Bearing Demand |
47,097,872 | 0.63 | % | 43,582,433 | 1.49 | % | 25,673,960 | 4.75 | % | |||||||||||||||
Savings |
9,964,155 | 0.40 | 11,646,877 | 1.51 | 14,283,455 | 3.04 | ||||||||||||||||||
Time Deposits |
136,181,926 | 3.98 | 159,317,674 | 4.63 | 163,060,817 | 4.52 | ||||||||||||||||||
Total |
$ | 214,938,464 | 2.98 | % | $ | 232,912,444 | 3.83 | % | $ | 221,138,748 | 4.44 | % | ||||||||||||
The Company had no foreign banking offices at December 31, 2009.
The table below represents the maturity distribution of time deposits of $100,000 or more at
December 31, 2009.
Over Six | ||||||||||||||||||||
Over Three | Through | Over | ||||||||||||||||||
Within Three | Through Six | Twelve | Twelve | |||||||||||||||||
Months | Months | Months | Months | Total | ||||||||||||||||
Time Deposits > $100,000 |
$ | 5,459,347 | $ | 8,719,695 | $ | 28,999,739 | $ | 39,798,128 | $ | 82,976,909 |
15
Table of Contents
Short-term Borrowings
On December 31, 2009, 2008, and 2007 the consolidated short-term borrowings of the Company
consisted of repurchase agreements, but no federal funds purchased. Federal funds purchased are
overnight borrowings from various correspondent banks. Repurchase agreements are advances by
customers that are not covered by federal deposit insurance. This liability is secured by Bank
owned securities, which are pledged on behalf of the repurchase account holders.
Details of the Companys holdings at the specified year-ends are as follows:
Repurchase | Federal Funds | Discount | ||||||||||
Agreements | Purchased | Window | ||||||||||
Outstanding at December 31, 2009 |
$ | 7,000,327 | $ | 0 | $ | 0 | ||||||
Average interest rate at year end |
0.66 | % | 0 | % | 0 | % | ||||||
Average balance during year |
7,489,802 | 0 | 150,959 | |||||||||
Average interest rate during year |
0.78 | % | 0 | % | 0.50 | % | ||||||
Maximum month end balance during year |
10,393,960 | 0 | 2,120,000 | |||||||||
Outstanding at December 31, 2008 |
$ | 5,813,605 | $ | 0 | $ | 0 | ||||||
Average interest rate at year end |
0.50 | % | 0 | 0 | % | |||||||
Average balance during year |
4,604,290 | 55,497 | 128,934 | |||||||||
Average interest rate during year |
1.38 | % | 2.14 | % | 2.22 | % | ||||||
Maximum month end balance during year |
5,856,382 | 0 | 0 | |||||||||
Outstanding at December 31, 2007 |
$ | 4,400,611 | $ | 0 | $ | 0 | ||||||
Average interest rate at year end |
2.94 | % | 0 | 0 | % | |||||||
Average balance during year |
5,141,931 | 3,787,671 | 13,699 | |||||||||
Average interest rate during year |
3.29 | % | 5.29 | % | 5.25 | % | ||||||
Maximum month end balance during year |
5,695,329 | 8,500,000 | 0 |
Interest Rate Sensitivity
The interest sensitivity of the Companys consolidated balance sheet at December 31, 2009 and
discussion of interest rate sensitivity are incorporated here by reference to Managements
Discussion and Analysis at pages 24 through 27 of the 2009 Annual Report furnished to the
Securities and Exchange Commission as Exhibit 13 to this Report.
ITEM 1A. RISK FACTORS
Not required for smaller reporting companies.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not required for smaller reporting companies.
16
Table of Contents
ITEM 2. PROPERTIES
The Companys and Banks 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,
including a night depository and ATM.
The Banks second location is at 1120 S. Beacon Boulevard, Grand Haven, Michigan. In August of
2007, the Bank relocated its banking facility from leased space at 15190 Newington Drive, Grand
Haven, Michigan to a newly constructed building. The Grand Haven branch has 4,374 square feet of
office space. The facility has a three lane drive-up, including a night depository and an ATM.
The third banking location is at 180 Causeway Road in the City of North Muskegon and is slightly
more than 4,000 square feet. The facility has a three lane drive-up, including a night depository
and an ATM.
In November of 2006, the Bank completed construction of its fourth banking location at Harvey and
Mt. Garfield Road, in Norton Shores. The two-story facility is a little less than 20,000 square
feet with a three lane drive-up, including a night depository and an ATM.
In October 2006, the Bank finalized the purchase of vacant land located on Apple Avenue at
Quarterline in the City of Muskegon. The purchase price of the property was $721,000. The land
could be used for a fifth banking location.
The Company owns each of its offices.
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, such as loan workouts and foreclosures. 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 2009 to a vote of the Companys
shareholders.
17
Table of Contents
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES
The information listed under the caption Stock Information on page 65 of the 2009 Annual Report
furnished to the Securities and Exchange Commission as Exhibit 13 to this Report is incorporated
here by reference.
There were no sales of unregistered securities or repurchases of Company stock.
ITEM 6. SELECTED FINANCIAL DATA
Not required for smaller reporting companies.
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
The information shown under the caption Managements Discussion and Analysis beginning on page 5
of the 2009 Annual Report furnished to the Securities and Exchange Commission as Exhibit 13 to this
Report is incorporated here by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required for smaller reporting companies.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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 Registered Public Accounting Firm, Crowe Horwath LLP, dated March 26, 2010, in the
2009 Annual Report furnished to the Securities and Exchange Commission as Exhibit 13 to this Report
is incorporated here by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
18
Table of Contents
ITEM 9A. CONTROLS AND PROCEDURES
As of December 31, 2009, an evaluation was performed under the supervision of and with the
participation of the Companys management, including the Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the Companys disclosure
controls and procedures. Based on that evaluation, the Companys management, including the Chief
Executive Officer and Chief Financial Officer, concluded that the Companys disclosure controls and
procedures were effective as of December 31, 2009.
The management of Community Shores Bank Corporation is responsible for establishing and maintaining
an effective system of internal control over financial reporting. The Companys system of internal
control over financial reporting is designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. There are inherent
limitations in the effectiveness of any system of internal control over financial reporting,
including the possibility of human error and circumvention or overriding of controls. Accordingly,
even an effective system of internal control over financial reporting can provide only reasonable
assurance with respect to financial statement preparation. Projections of any evaluation of
effectiveness to future periods are subject to the risks that controls may become inadequate
because of changes in conditions or that the degree of compliance with the policies or procedures
may deteriorate.
Management of Community Shores Bank Corporation assessed the effectiveness of the Companys
internal control over financial reporting as of December 31, 2009. In making this assessment, it
used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal ControlIntegrated Framework. Based on our assessment we believe that, as of
December 31, 2009, the Companys internal control over financial reporting is effective based on
those criteria.
This annual report does not include an attestation report of the Companys registered public
accounting firm regarding internal control over financial reporting. Managements report was not
subject to attestation by the Companys registered public accounting firm pursuant to temporary
rules of the Securities and Exchange Commission that permit the Company to provide only
managements report in the annual report.
There have been no significant changes in the internal controls over financial reporting during the
quarter ended December 31, 2009, that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over financial reporting.
Dated: March 29, 2010
/s/ Heather D. Brolick | ||||
Heather D. Brolick | ||||
President and Chief Executive Officer | ||||
/s/ Tracey A. Welsh | ||||
Tracey A. Welsh |
||||
Senior Vice President, Treasurer and Chief Financial Officer |
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ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information presented under the captions Election of Directors-Information about Directors,
Nominees and Executive Officers and Section 16(a) Beneficial Ownership Reporting Compliance in
the Companys definitive Proxy Statement for its May 13, 2010 annual meeting of shareholders (the
Proxy Statement), a copy of which will be filed with the Securities and Exchange Commission
before the meeting date, is incorporated here by reference.
The Company has a separately designated standing Audit Committee established in accordance with
Section 3(a)(58)(A) of the Securities Exchange Act of 1934. The members of the Audit Committee
consist of Steven P. Moreland, Bruce C. Rice and Roger W. Spoelman. The Board of Directors has
determined that it does not have a member of the Audit Committee that is qualified as an audit
committee financial expert, as that term is defined in the rules of the Securities and Exchange
Commission. The Board of Directors of the Company believes that the financial sophistication of
the Audit Committee is sufficient to meet the needs of the Company and its shareholders.
The Company has adopted a Code of Ethics that applies to all of the directors, officers and
employees, including the principal executive officer, principal financial officer, principal
accounting officer or controller, and persons performing similar functions. The Code of Ethics is
filed as Exhibit 14 to this Report.
ITEM 11. EXECUTIVE COMPENSATION
The information presented under the caption Executive Compensation in the Proxy Statement is
incorporated here by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information presented under the caption Stock Ownership of Certain Beneficial Owners and
Management in the Proxy Statement is incorporated here by reference.
20
Table of Contents
Equity Plan Compensation Information
The
following table summarizes information, as of December 31, 2009, relating to the Companys
compensation plans under which equity securities are authorized for issuance.
Number of securities | ||||||||||||
Number of securities | Weighted average | remaining available for | ||||||||||
to be issued upon | exercise price of | future issuance under equity | ||||||||||
exercise of | outstanding | compensation plans | ||||||||||
outstanding options, | options, warrants | (excluding securities | ||||||||||
Plan Category | warrants and rights | and rights | reflected in column (a)) | |||||||||
(a) | (b) | (c) | ||||||||||
Equity compensation
plans approved by
security holders
(1) |
47,300 | $ | 11.01 | 115,000 | (2) | |||||||
Equity compensation
plans not approved
by security holders |
| | | |||||||||
Total |
47,300 | $ | 11.01 | 115,000 | (2) |
(1) | The plans referred to are the Companys Employee Stock Option Plans of 1998 and 2005 and the Director Stock Option Plans of 2003 and 2005. | |
(2) | Includes 60,000 shares of restricted stock available for issuance pursuant to the Companys Executive Incentive Plan. |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS; AND DIRECTOR
INDEPENDENCE
The information presented under the captions Corporate Governance-Director Independence and
Transactions with Related Persons in the Proxy Statement is incorporated here by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information presented under the caption Ratification of Appointment of Independent Registered
Public Accounting Firm-Principal Accountant Fees and Services in the Proxy Statement is
incorporated here by reference.
21
Table of Contents
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) (1) Financial Statements. The following financial statements and report of independent
registered public accounting firm of the Company and its subsidiaries are filed as part of this
report:
Report of Independent Registered Public Accounting Firm dated March 26, 2010 Crowe Horwath
LLP
Consolidated Balance Sheets December 31, 2009 and 2008
Consolidated Statements of Income Years ended December 31, 2009 and 2008
Consolidated Statements of Changes in Shareholders Equity December 31, 2009 and 2008
Consolidated Statements of Cash Flows Years ended December 31, 2009 and 2008
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
Not applicable
(b) Exhibits:
EXHIBIT NO. | EXHIBIT DESCRIPTION | |
3.1
|
Articles of Incorporation are incorporated by reference to exhibit 3.1 of the Companys June 30, 2004 Form 10-QSB (SEC file no. 333-63769). | |
3.2
|
Bylaws of the Company are incorporated by reference to exhibit 3(ii) of the Companys 8-K filed July 5, 2006 (SEC file no. 000-51166). | |
4.1
|
Second Amendment to Loan Agreement between the Company and Fifth Third Bank dated December 18, 2009, and Promissory Note dated December 18, 2009 payable to Fifth Third Bank are included as exhibit 10.19 to this report. | |
10.1
|
1998 Employee Stock Option Plan is incorporated by reference to exhibit 10.1 of the Companys Registration Statement on Form SB-2 (SEC file no. 333-63769), which became effective on December 17, 1998.* | |
10.2
|
First Amendment to 1998 Employee Stock Option Plan is incorporated by reference to exhibit 10.3 of the Companys Registration Statement on Form SB-2 (SEC file no. 333-63769), which became effective on December 17, 1998. * |
* | Management contract or compensatory plan or arrangement. |
22
Table of Contents
EXHIBIT NO. | EXHIBIT DESCRIPTION | |
10.3
|
Director Stock Option Plan is incorporated by reference to exhibit 10.53 of the Companys December 31, 2003 Form 10-KSB (SEC file no. 333-63769). * | |
10.4
|
Agreement between Fiserv Solutions, Inc. and Community Shores Bank is incorporated by reference to exhibit 10.4 of the Companys Registration Statement on Form SB-2 (SEC file no. 333-63769) which became effective on December 17, 1998. | |
10.5
|
Junior Subordinated Indenture between Community Shores Bank Corporation and Deutsche Bank Trust Company Americas, as Trustee dated as of December 17, 2004 is incorporated by reference to exhibit 10.20 of the Companys December 31, 2004 Form 10-KSB (SEC file no. 000-51166). | |
10.6
|
Amended and Restated Trust Agreement among Community Shores Bank Corporation, as Depositor, Deutsche Bank Trust Company Americas, as Property Trustee, Deutsche Bank Trust Company Delaware, as Delaware Trustee, and The Administrative Trustees Named Herein as Administrative Trustees dated as of December 17, 2004 is incorporated by reference to exhibit 10.21 of the Companys December 31, 2004 Form 10-KSB (SEC file no. 000-51166). | |
10.7
|
Guarantee Agreement between Community Shores Bank Corporation, as Guarantor, and Deutsche Bank Trust Company Americas, as Guarantee Trustee dated as of December 17, 2004 is incorporated by reference to exhibit 10.22 of the Companys December 31, 2004 Form 10-KSB (SEC file no. 000-51166). | |
10.8
|
Placement Agreement among Community Shores Bank Corporation, Community Shores Capital Trust I and Suntrust Capital Markets, Inc. dated as of December 17, 2004 is incorporated by reference to exhibit 10.23 of the Companys December 31, 2004 Form 10-KSB (SEC file no. 000-51166). | |
10.9
|
2005 Employee Stock Option Plan is incorporated by reference to Appendix A of the Companys proxy statement for its May 12, 2005 annual meeting of shareholders (SEC file no. 000-51166).* | |
10.10
|
2005 Director Stock Option Plan is incorporated by reference to Appendix B of the Companys proxy statement for its May 12, 2005 annual meeting of shareholders (SEC file no. 000-51166).* |
* | Management contract or compensatory plan or arrangement. |
23
Table of Contents
EXHIBIT NO. | EXHIBIT DESCRIPTION | |
10.11
|
Form of stock option agreement for options granted under the 2005 Employee Stock Option Plan is incorporated by reference to exhibit 10.3 of the Companys Form 8-K filed May 17, 2005 (SEC file no. 000-51166).* | |
10.12
|
Form of stock option agreement for options granted to directors under the 2005 Director Stock Option Plan is incorporated by reference to exhibit 10.1 of the Companys Form 8-K filed December 13, 2005 (SEC file no. 000-51166).* | |
10.13
|
Extension to the agreement between Fiserv Solutions, Inc. and Community Shores Bank is incorporated by reference to exhibit 10.2 of the Companys Form 8-K filed July 7, 2006 (SEC file no. 000-51166). | |
10.14
|
Community Shores Bank Corporation Executive Incentive Plan is incorporated by reference to Appendix A of the Companys proxy statement for its May 10, 2007 annual meeting of shareholders that was filed April 5, 2007 (SEC file no. 000-51166)*. | |
10.15
|
Summary of Director Compensation Arrangement.* | |
10.16
|
Loan Agreement between Community Shores Bank Corporation and Fifth Third Bank dated September 7, 2007 is incorporated by reference to exhibit 10.1 of the Companys September 30, 2007 Form 10-QSB (SEC file no. 000-51166). | |
10.17
|
Amendment to Loan Agreement, Revolving Credit Note and Pledge Agreement between Community Shores Bank Corporation and Fifth Third Bank dated September 16, 2008 are incorporated by reference to exhibit 10.1 of the Companys Form 8-K filed September 23, 2008 (SEC file number 000-51166). | |
10.18
|
Extension notice from Fifth Third Bank dated September 22, 2009 relating to line of credit is incorporated by reference to exhibit 10.1 of the Companys September 30, 2009 Form 10-Q (SEC file no. 000-51166). | |
10.19
|
Second Amendment to Loan Agreement between the Company and Fifth Third Bank dated December 18, 2009, and Promissory Note dated December 18, 2009 payable to Fifth Third Bank are incorporated by reference to exhibit 4.1 of the Companys Form 8-K filed December 22, 2009 (SEC file no. 000-51166). | |
13
|
2009 Annual Report to Shareholders of the Company. Except for the portions of the 2009 Annual Report that are expressly incorporated by reference in this Annual Report on Form 10-K, the 2009 Annual Report of the Company shall not be deemed filed as a part of this Annual Report on Form 10-K. |
* | Management contract or compensatory plan or arrangement. |
24
Table of Contents
EXHIBIT NO. | EXHIBIT DESCRIPTION | |
14
|
Code of Ethics is incorporated by reference to exhibit 14 of the Companys Form 8-K filed January 22, 2010 (SEC file no. 000-51166). | |
21
|
Subsidiaries of the registrant. | |
23
|
Consent of Independent Registered Public Accounting Firm. | |
31.1
|
Rule 13a-14(a) Certification of the principal executive officer. | |
31.2
|
Rule 13a-14(a) Certification of the principal financial officer. | |
32.1
|
Section 1350 Certification of the Chief Executive Officer. | |
32.2
|
Section 1350 Certification of the Chief Financial Officer. |
25
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized on March 31, 2010.
COMMUNITY SHORES BANK CORPORATION |
||||
/s/ Heather D. Brolick | ||||
Heather D. Brolick | ||||
President and Chief Executive Officer | ||||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities indicated on March
31, 2010.
/s/ Gary F. Bogner |
/s/ Bruce C. Rice |
|||
(non-officer) |
||||
/s/ Heather D. Brolick |
/s/ Jonathon L. Smith |
|||
/s/ Robert L. Chandonnet |
/s/ Roger W. Spoelman |
|||
/s/ Bruce J. Essex |
/s/ Tracey A. Welsh |
|||
/s/ Steven P. Moreland |
26
Table of Contents
EXHIBIT INDEX
EXHIBIT NO. | EXHIBIT DESCRIPTION | |
3.1
|
Articles of Incorporation are incorporated by reference to exhibit 3.1 of the Companys June 30, 2004 Form 10-QSB (SEC file no. 333-63769). | |
3.2
|
Bylaws of the Company are incorporated by reference to exhibit 3(ii) of the Companys 8-K filed July 5, 2006 (SEC file no. 000-5166). | |
4.1
|
Second Amendment to Loan Agreement between the Company and Fifth Third Bank dated December 18, 2009, and Promissory Note dated December 18, 2009 payable to Fifth Third Bank are included as exhibit 10.19 to this report. | |
10.1
|
1998 Employee Stock Option Plan is incorporated by reference to exhibit 10.1 of the Companys Registration Statement on Form SB-2 (SEC file no. 333-63769), which became effective on December 17, 1998.* | |
10.2
|
First Amendment to 1998 Employee Stock Option Plan is incorporated by reference to exhibit 10.3 of the Companys Registration Statement on Form SB-2 (SEC file no. 333-63769), which became effective on December 17, 1998. * | |
10.3
|
Director Stock Option Plan is incorporated by reference to exhibit 10.53 of the Companys December 31, 2003 Form 10-KSB (SEC file no. 333-63769). * | |
10.4
|
Agreement between Fiserv Solutions, Inc. and Community Shores Bank is incorporated by reference to exhibit 10.4 of the Companys Registration Statement on Form SB-2 (SEC file no. 333-63769) which became effective on December 17, 1998. | |
10.5
|
Junior Subordinated Indenture between Community Shores Bank Corporation and Deutsche Bank Trust Company Americas, as Trustee dated as of December 17, 2004 is incorporated by reference to exhibit 10.20 of the Companys December 31, 2004 Form 10-KSB (SEC file no. 000-51166). | |
10.6
|
Amended and Restated Trust Agreement among Community Shores Bank Corporation, as Depositor, Deutsche Bank Trust Company Americas, as Property Trustee, Deutsche Bank Trust Company Delaware, as Delaware Trustee, and The Administrative Trustees Named Herein as Administrative Trustees dated as of December 17, 2004 is incorporated by reference to exhibit 10.21 of the Companys December 31, 2004 Form 10-KSB (SEC file no. 000-51166). |
* | Management contract or compensatory plan or arrangement. |
27
Table of Contents
EXHIBIT NO. | EXHIBIT DESCRIPTION | |
10.7
|
Guarantee Agreement between Community Shores Bank Corporation, as Guarantor, and Deutsche Bank Trust Company Americas, as Guarantee Trustee dated as of December 17, 2004 is incorporated by reference to exhibit 10.22 of the Companys December 31, 2004 Form 10-KSB (SEC file no. 000-51166). | |
10.8
|
Placement Agreement among Community Shores Bank Corporation, Community Shores Capital Trust I and Suntrust Capital Markets, Inc. dated as of December 17, 2004 is incorporated by reference to exhibit 10.23 of the Companys December 31, 2004 Form 10-KSB (SEC file no. 000-51166). | |
10.9
|
2005 Employee Stock Option Plan is incorporated by reference to Appendix A of the Companys proxy statement for its May 12, 2005 annual meeting of shareholders (SEC file no. 000-51166).* | |
10.10
|
2005 Director Stock Option Plan is incorporated by reference to Appendix B of the Companys proxy statement for its May 12, 2005 annual meeting of shareholders (SEC file no. 000-51166).* | |
10.11
|
Form of stock option agreement for options granted under the 2005 Employee Stock Option Plan is incorporated by reference to exhibit 10.3 of the Companys Form 8-K filed May 17, 2005 (SEC file no. 000-51166).* | |
10.12
|
Form of stock option agreement for options granted to directors under the 2005 Director Stock Option Plan is incorporated by reference to exhibit 10.1 of the Companys Form 8-K filed December 13, 2005 (SEC file no. 000-51166).* | |
10.13
|
Extension to the agreement between Fiserv Solutions, Inc. and Community Shores Bank is incorporated by reference to exhibit 10.2 of the Companys Form 8-K filed July 7, 2006 (SEC file no. 000-51166). | |
10.14
|
Community Shores Bank Corporation Executive Incentive Plan is incorporated by reference to Appendix A of the Companys proxy statement for its May 10, 2007 annual meeting of shareholders that was filed April 5, 2007 (SEC file no. 000-51166)*. | |
10.15
|
Summary of Director Compensation Arrangement.* | |
10.16
|
Loan Agreement between Community Shores Bank Corporation and Fifth Third Bank dated September 7, 2007 is incorporated by reference to exhibit 10.1 of the Companys September 30, 2007 Form 10-QSB (SEC file no. 000-51166). |
* | Management contract or compensatory plan or arrangement. |
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Table of Contents
EXHIBIT NO. | EXHIBIT DESCRIPTION | |
10.17
|
Amendment to Loan Agreement, Revolving Credit Note and Pledge Agreement between Community Shores Bank Corporation and Fifth Third Bank dated September 16, 2008 are incorporated by reference to exhibit 10.1 of the Companys Form 8-K filed September 23, 2008 (SEC file number 000-51166). | |
10.18
|
Extension notice from Fifth Third Bank dated September 22, 2009 relating to line of credit is incorporated by reference to exhibit 10.1 of the Companys September 30, 2009 Form 10-Q (SEC file no. 000-51166). | |
10.19
|
Second Amendment to Loan Agreement between the Company and Fifth Third Bank dated December 18, 2009, and Promissory Note dated December 18, 2009 payable to Fifth Third Bank are incorporated by reference to exhibit 4.1 of the Companys Form 8-K filed December 22, 2009 (SEC file no. 000-51166). | |
13
|
2009 Annual Report to Shareholders of the Company. Except for the portions of the 2009 Annual Report that are expressly incorporated by reference in this Annual Report on Form 10-K, the 2009 Annual Report of the Company shall not be deemed filed as a part of this Annual Report on Form 10-K. | |
14
|
Code of Ethics is incorporated by reference to exhibit 14 of the Companys Form 8-K filed January 22, 2010 (SEC file no. 000-51166). | |
21
|
Subsidiaries of the registrant. | |
23
|
Consent of Independent Registered Public Accounting Firm. | |
31.1
|
Rule 13a-14(a) Certification of the principal executive officer. | |
31.2
|
Rule 13a-14(a) Certification of the principal financial officer. | |
32.1
|
Section 1350 Certification of the Chief Executive Officer. | |
32.2
|
Section 1350 Certification of the Chief Financial Officer. |
29