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EX-32.2 - EXHIBIT 32.2 - COMMUNITY SHORES BANK CORPv472980_ex32-2.htm
EX-32.1 - EXHIBIT 32.1 - COMMUNITY SHORES BANK CORPv472980_ex32-1.htm
EX-31.2 - EXHIBIT 31.2 - COMMUNITY SHORES BANK CORPv472980_ex31-2.htm
EX-31.1 - EXHIBIT 31.1 - COMMUNITY SHORES BANK CORPv472980_ex31-1.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2017

 

or

 

¨ 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
(Registrant’s telephone number, including area code)

 

 
(Former name, former address and former fiscal year, if changed since last report)

 

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.

x Yes ¨ No

 

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 x No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company x
Emerging Growth Company ¨   (Do not check if a smaller reporting company)

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

¨ Yes x No

 

At August 14, 2017, 4,101,664 shares of common stock were outstanding.

 

 

 

 

 

Community Shores Bank Corporation Index

 

    Page No.
       
PART I. Financial Information    
       
  Item 1. Financial Statements 1  
         
  Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 46  
         
  Item 3. Quantitative and Qualitative Disclosures about Market Risk 60  
         
  Item 4. Controls and Procedures 60  
       
PART II. Other Information    
       
  Item 1. Legal Proceedings 61  
         
  Item 1A. Risk Factors 61  
         
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 61  
         
  Item 3. Defaults upon Senior Securities 61  
         
  Item 4. Mine Safety Disclosures 61  
         
  Item 5. Other Information 61  
         
  Item 6. Exhibits 61  
         
    Signatures 62  

 

 

 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1.FINANCIAL STATEMENTS

 

COMMUNITY SHORES BANK CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   June 30,   December 31, 
   2017   2016 
   (unaudited)   (audited) 
ASSETS          
Cash and due from financial institutions  $3,726,821   $3,339,650 
Interest-bearing deposits in other financial institutions   20,629,648    17,642,525 
Total cash and cash equivalents   24,356,469    20,982,175 
Term deposit   100,000    100,000 
Securities available for sale (at fair value)   17,104,789    15,765,764 
Loans held for sale   44,000    128,000 
Loans   138,708,122    140,824,584 
Less: Allowance for loan losses   1,778,315    1,611,820 
Net loans   136,929,807    139,212,764 
Federal Home Loan Bank stock (at cost)   300,500    300,500 
Premises and equipment, net   8,337,437    8,486,355 
Accrued interest receivable   396,717    393,444 
Foreclosed assets   1,355,560    1,460,394 
Net deferred tax assets   3,951,891    4,032,675 
Other assets   602,445    547,638 
Total assets  $193,479,615   $191,409,709 
LIABILITIES AND SHAREHOLDERS’ EQUITY          
Deposits          
Non-interest-bearing  $43,340,389   $46,893,163 
Interest-bearing   125,621,468    120,830,147 
Total deposits   168,961,857    167,723,310 
Repurchase agreements   5,255,475    4,639,766 
Subordinated debentures   4,500,000    4,500,000 
Accrued expenses and other liabilities   538,519    485,153 
Total liabilities   179,255,851    177,348,229 
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; 4,101,664 issued and outstanding at both June 30, 2017 and December 31, 2016   19,631,670    19,626,201 
Accumulated deficit   (5,380,684)   (5,542,341)
Accumulated other comprehensive loss   (27,222)   (22,380)
Total shareholders’ equity   14,223,764    14,061,480 
Total liabilities and shareholders’ equity  $193,479,615   $191,409,709 

 

See accompanying notes to consolidated financial statements.

 

-1

 

 

COMMUNITY SHORES BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

   Three Months   Three Months   Six Months   Six Months 
   Ended   Ended   Ended   Ended 
   June 30,   June 30,   June 30,   June 30, 
   2017   2016   2017   2016 
Interest and dividend income                    
Loans, including fees  $1,707,206   $1,575,056   $3,370,300   $3,095,809 
Securities (including FHLB dividends)   65,670    74,625    128,867    159,332 
Federal funds sold and other income   72,174    22,256    119,359    42,132 
Total interest and dividend income   1,845,050    1,671,937    3,618,526    3,297,273 
Interest expense                    
Deposits   168,320    157,311    334,867    318,849 
Repurchase agreements and other short-term debt   5,091    3,900    9,354    8,299 
Federal Home Loan Bank advances and notes payable   38,675    31,417    74,821    91,894 
Total interest expense   212,086    192,628    419,042    419,042 
Net Interest Income   1,632,964    1,479,309    3,199,484    2,878,231 
Provision for loan losses   173,719    0    173,719    0 
Net Interest Income After Provision for Loan Losses   1,459,245    1,479,309    3,025,765    2,878,231 
Non-interest income                    
Service charges on deposit accounts   102,877    107,489    214,239    229,379 
Gain on sale of loans   65,729    37,018    154,069    70,719 
Gain on sale of foreclosed assets   25,022    112,132    51,051    147,013 
Other   203,547    216,211    395,063    408,051 
Total non-interest income   397,175    472,850    814,422    855,162 
Non-interest expense                    
Salaries and employee benefits   996,096    982,170    2,027,119    1,993,034 
Occupancy   141,836    146,893    292,772    302,629 
Furniture and equipment   85,612    101,499    174,379    189,496 
Advertising   1,425    2,400    5,968    6,203 
Data processing   127,926    120,485    251,344    239,006 
Professional services   102,487    123,188    189,812    221,777 
Foreclosed asset impairment   68,062    85,414    97,483    85,414 
FDIC insurance   35,513    60,473    73,846    127,586 
Other   258,885    215,356    482,530    490,461 
Total non-interest expense   1,817,842    1,837,878    3,595,253    3,655,606 
Income Before Federal Income Taxes   38,578    114,281    244,934    77,787 
Federal income tax expense   13,116    35,610    83,277    23,202 
Net Income  $25,462   $78,671   $161,657   $54,585 
Basic average shares outstanding   4,101,664    4,101,664    4,101,664    2,843,097 
Diluted average shares outstanding   4,128,697    4,101,664    4,130,172    2,843,097 
Basic income earnings per share  $0.01   $0.02   $0.04   $0.02 
Diluted income earnings per share  $0.01   $0.02   $0.04   $0.02 

 

See accompanying notes to consolidated financial statements.

 

-2

 

 

COMMUNITY SHORES BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

 

   Three Months   Three Months   Six Months   Six Months 
   Ended   Ended   Ended   Ended 
   June 30, 2017   June 30, 2016   June 30, 2017   June 30, 2016 
                     
Net income  $25,462   $78,671   $161,657   $54,585 
                     
Other comprehensive income (loss):                    
Unrealized holding gains (losses) on available for sale securities   (3,573)   47,655    (7,337)   208,833 
Less reclassification adjustments for unrealized gains later recognized in income   0    0    0    0 
    (3,573)   47,655    (7,337)   208,833 
Tax effect   1,215    (16,203)   2,495    (71,004)
Other comprehensive income (loss), net of tax   (2,358)   31,452    (4,842)   137,829 
                     
Comprehensive income  $23,104   $110,123   $156,815   $192,414 

 

See accompanying notes to consolidated financial statements.

 

-3

 

 

COMMUNITY SHORES BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(UNAUDITED)

 

               Accumulated     
               Other   Total 
       Common   Accumulated   Comprehensive   Shareholders’ 
   Shares   Stock   Deficit   Income (Loss)   Equity 
                          
Balance at January 1, 2016   1,468,800   $13,296,691   $(5,705,469)  $(28,795)  $7,562,427 
                          
Proceeds from rights offering, net of issuance costs   1,383,299    3,290,183              3,290,183 
Proceeds from private placement   579,412    1,477,501              1,477,501 
Note payable conversion, including derivative liability, net of taxes   670,153    1,561,592              1,561,592 
Net income             54,585         54,585 
Other comprehensive income                  137,829    137,829 
                          
Balance at June 30, 2016   4,101,664   $19,625,967   $(5,650,884)  $109,034   $14,084,117 
                          
Balance at January 1, 2017   4,101,664   $19,626,201   $(5,542,341)  $(22,380)  $14,061,480 
                          
Expense related to share-based compensation        5,469              5,469 
Net income             161,657         161,657 
Other comprehensive loss                  (4,842)   (4,842)
                          
Balance at June 30, 2017   4,101,664   $19,631,670   $(5,380,684)  $(27,222)  $14,223,764 

 

See accompanying notes to consolidated financial statements.

 

-4

 

 

COMMUNITY SHORES BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

   Six Months Ended   Six Months Ended 
   June 30, 2017   June 30, 2016 
Cash flows from operating activities          
Net income  $161,657   $54,585 
Adjustments to reconcile net income to net cash from (used in) operating activities:          
Provision for loan losses   173,719    0 
Depreciation and amortization   173,466    184,893 
Net amortization of securities   67,340    110,551 
Net realized gain on sale of loans   (154,069)   (70,719)
Net realized gain on sale of foreclosed assets   (51,051)   (147,013)
Foreclosed asset impairment   97,483    85,414 
Originations of loans for sale   (4,449,580)   (2,820,750)
Proceeds from loan sales   4,641,791    2,792,469 
Deferred federal income tax expense   83,277    23,202 
Share based compensation   5,469    0 
Net change in:          
Accrued interest receivable and other assets   (58,076)   367,013 
Accrued interest payable and other liabilities   53,366    (719,193)
Net cash from (used in) operating activities   744,792    (139,548)
Cash flows from investing activities          
Activity in available for sale securities:          
Maturities, prepayments and calls   3,091,138    3,953,641 
Purchases   (4,504,841)   0 
Loan originations and payments, net   1,664,020    (4,467,416)
Proceeds from the sale of the credit card portfolio   491,075    0 
Additions to premises and equipment, net   (24,548)   (18,736)
Proceeds from the sale of foreclosed assets   58,402    556,570 
Net cash from investing activities   775,246    24,059 
Cash flows from financing activities          
Net change in deposits   1,238,547    (5,235,502)
Repayment of note payable   0    (8)
Net change in repurchase agreements   615,709    (923,948)
Capital-raising activities          
Proceeds from rights offering, net of issuance costs   0    3,290,183 
Proceeds from private placement, net of issuance cost   0    1,477,501 
Net cash from (used in) financing activities   1,854,256    (1,391,774)
Net change in cash and cash equivalents   3,374,294    (1,507,263)
Beginning cash and cash equivalents   20,982,175    17,899,952 
Ending cash and cash equivalents  $24,356,469   $16,392,689 
Supplemental cash flows information:          
Cash paid during the period for interest  $152,087   $1,080,845 
Cash paid during the period for federal income tax   0    0 
Non-cash financing activities:          
Transfers from loans to foreclosed assets   0    89,019 
Note payable conversion to common stock, including derivative and net of taxes   0    1,561,592 

 

See accompanying notes to consolidated financial statements.

 

-5

 

 

COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1.BASIS OF PRESENTATION, LOAN POLICY AND RECENT DEVELOPMENTS

 

BASIS OF PRESENTATION: The unaudited, consolidated financial statements as of and for the three months and six months ended June 30, 2017 include the consolidated results of operations of Community Shores Bank Corporation (“Company”) and its wholly-owned subsidiaries, Community Shores Financial Services (“CS Financial Services”), and Community Shores Bank (the “Bank”), and the Bank’s wholly-owned subsidiary, Community Shores Mortgage Company (the “Mortgage Company”) and the Mortgage Company’s wholly-owned subsidiary, Berryfield Development, LLC (“Berryfield”). Community Shores Capital Trust I (“the Trust”) is not consolidated and exists solely to issue capital securities. These consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and Article 8 of Regulation S-X 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 June 30, 2017 should not be considered as indicative of results for a full year. For further information, refer to the consolidated financial statements and notes included in the Company’s annual report on Form 10-K for the period ended December 31, 2016. Some items in the prior year financial statements may be reclassified to conform to the current presentation.

 

LOAN POLICY: Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs and an allowance for loan losses. The loan portfolio consists of the following segments:

 

Commercial- Loans to businesses that are sole proprietorships, partnerships, limited liability companies and corporations. These loans are for commercial, industrial, or professional purposes. The risk characteristics of these loans vary based on the borrowers business and industry as repayment is typically dependent on cash flows generated from the underlying business.

 

Commercial Real Estate- Loans to individuals or businesses that are secured by improved and unimproved vacant land, farmland, commercial real property, 1-4 family and multifamily residential properties, and all other conforming, nonresidential properties. Proceeds may be used for land acquisition, development or construction. These loans typically fall into two general categories: property that is owner occupied and, income or investment property. Owner occupied commercial real estate loans typically involve the same risks as commercial and industrial loans, however, the underlying collateral is the real estate which is subject to changes in market value after the loan’s origination. Adverse economic events and changes in real estate market valuations generally describe the risks that accompany commercial real estate loans involving income or investment property. The ability of the borrower to repay tends to depend on the success of the underlying project or the ability of the borrower to sell or lease the property at certain anticipated values.

 

Consumer- Term loans or lines of credit for the purchase of consumer goods, vehicles or home improvement. The risk characteristics of the loans in this segment vary depending on the type of collateral, however, repayment is expected from an individual continuing to generate a cash flow that supports the calculated payment obligation. Secondary support could involve liquidation of collateral.

 

-6

 

 

COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1.BASIS OF PRESENTATION, LOAN POLICY AND RECENT DEVELOPMENTS (Continued)

 

Residential- Loans to purchase or refinance single family residences. The risks associated with this segment are similar to the risks for consumer loans as far as individual payment obligations, however, the underlying collateral is the real estate. Real estate is subject to changes in market valuation and can be unstable for a variety of reasons.

 

For all loan segments, interest income is accrued on the unpaid principal using the interest method assigned to the loan product and includes amortization of net deferred loan fees and costs over the loan term. Interest income is not reported when full loan repayment is in doubt. A loan is moved to non-accrual status when it is past due over 90 days unless the loan is well secured and in the process of collection. If a loan is not past due but deemed to be impaired it may also be moved to non-accrual status. These rules apply to loans in all segments. However, certain classes of loans in the consumer segment may simply get charged-off as opposed to moving to non-accrual status.

 

All interest accrued but not received for a loan placed on non-accrual is reversed against interest income at the time the loan is assigned non-accrual status. Payments received on such loans are applied to principal when there is doubt about recovering the full principal outstanding. Loans are eligible to return to accrual status after six months of timely payment and future payments are reasonably assured.

 

The allowance for loan losses is a valuation allowance for probable incurred credit losses, increased by the provision for loan losses and from recoveries of previously charged-off loans and decreased by charge-offs.

 

The allowance for loan loss analysis is performed monthly. Management’s methodology consists of specific and general components. The general component covers non-impaired loans and is based on historical loss experience adjusted for current economic factors.

 

The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Bank over the most recent 12 quarters. The historical loss experience is recalculated at the end of each quarter. This actual loss experience is supplemented with current economic factors based on the risks present for each portfolio segment. These current economic factors are also reassessed at the end of each quarter and include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; quality of loan review system; degree of oversight by the Board of Directors; national and local economic trends and conditions; industry conditions; competition and legal and regulatory requirements; and effects of changes in credit concentrations. There were no significant changes to this methodology in the first half of 2017.

 

For the commercial and commercial real estate portfolio segments, the historical loss is tracked by original loan grade. The Bank utilizes a numeric grading system for commercial and commercial real estate loans. Grades are assigned to each commercial and commercial real estate loan by assessing information about the specific borrower’s situation and the estimated collateral values. The description of the loan grade criteria is included in Note 4. In recent periods, with charge-off activity lessening, the calculated historical loss factor assigned to general allocations was considerably reduced.

 

-7

 

 

COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1.BASIS OF PRESENTATION, LOAN POLICY AND RECENT DEVELOPMENTS (Continued)

 

Within the commercial and industrial, and commercial real estate portfolios, there are classes of loans with like risk characteristics that are periodically segregated because management has determined that the historical losses or current factors are unique and ought to be considered separately from the entire segment.

 

For the consumer segment, historical loss experience is based on the actual loss history of the following four classes; general consumer loans, personal lines of credit, and home equity lines of credit. The level of delinquencies and charge-off experienced directly impacts the general allocations to the consumer classes. Similar to the commercial segment, charge-off activity in the consumer segment has been lessening, thus reducing the calculated historical loss factor assigned to the general allocations.

 

For the residential segment, loss experience is not segregated by grades or classes. The level of delinquencies, charge-off experience, and direction of real estate values directly impacts the general allocations to the residential real estate segment. Similar to the commercial, charge-off activity in the residential segment has been lessening, thus reducing the calculated historical loss factor assigned to the general allocations.

 

The specific component of the allowance for loan losses relates to loans that are individually classified as impaired. A loan is impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and are classified as impaired.

 

Factors considered by management in determining impairment include payment status and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.

 

Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

 

Any loan within a segment can be considered for individual impairment if it meets the above criteria. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Troubled debt restructurings are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan’s effective rate at inception. If a troubled debt restructuring is considered to be a collateral dependent loan, the loan is reported net, at the fair value of the collateral less costs to sell.

 

Allocations of the allowance may be made for specific loans and groups, but the entire allowance is available for any loan that, in management’s judgment, should be charged-off. Loan balances are generally charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Statutorily, the Bank must charge-off bad debt that reaches delinquency of 360 days. In the case of an impaired loan, management typically charges off any portion of the debt that is unsecured based on an internal analysis of future cash flows and or collateral.

 

-8

 

 

COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1.BASIS OF PRESENTATION, LOAN POLICY AND RECENT DEVELOPMENTS (Continued)

 

There was no material change in these operating doctrines during the six months ended June 30, 2017.

 

ADOPTION OF NEW ACCOUNTING STANDARDS:

 

None

 

NEWLY ISSUED NOT YET EFFECTIVE ACCOUNTING STANDARDS:

 

In May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers. This ASU establishes a comprehensive revenue recognition standard for virtually all industries under U.S. GAAP, including those that previously followed industry-specific guidance such as the real estate, construction and software industries. The revenue standard’s core principle is built on the contract between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled. To accomplish this objective, the standard requires five basic steps: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The guidance in this ASU is effective for annual and interim periods beginning after December 15, 2016, with three transition methods available – full retrospective, retrospective and cumulative effect approach. At the July 9, 2015 FASB meeting, the FASB voted to delay the effective date by one year to January 1, 2018. The adoption of this guidance will not have a material impact because the core revenue of the Company, net interest income on financial assets and liabilities, is explicitly excluded from the scope of ASU 2014-09. The Company is currently reviewing the impact on non-interest income, but does not expect this guidance to have a material effect on the Company’s results of operations.

 

In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities”. The amendments in ASU 2016-01 address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. One such amendment requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option. The presentation addresses financial statement users’ feedback that presenting the total change in fair value of a liability in net income reduced the decision usefulness of an entity’s net income when it had deterioration in its credit worthiness. ASU 2016-01 is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The new guidance must be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values (including disclosure requirements) should be applied prospectively to equity investments that exist as of the date of adoption. The only financial instruments measured at fair value are the Company’s securities which have always been addressed separately in other comprehensive income so this guidance is not expected to have any material effect on the Company’s financial position or results of other comprehensive income.

 

-9

 

 

COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1.BASIS OF PRESENTATION, LOAN POLICY AND RECENT DEVELOPMENTS (Continued)

 

In February 2016, the FASB issued ASU 2016-02 "Leases." From the lessee's perspective, the new standard establishes a right-of-use ("ROU") model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement for a lessee. From the lessor's perspective, the new standard requires a lessor to classify leases as either sales-type, finance or operating. A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing. If the lessor doesn’t convey risks and rewards or control, an operating lease results. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. A modified retrospective transition approach is required for lessors for sales-type, direct financing, and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company owns all of its branch locations so the impact of this ASU is not expected to have a material impact on the Company’s financial position or results of operations.

 

In June 2016, the FASB issued ASU 2016-13 "Financial Instruments-Credit Losses" which introduces the current expected credit losses methodology (CECL) for estimating allowances for credit losses. The new accounting standard allows a financial institution to leverage its current internal credit risk systems as a framework for estimating expected credit losses. For public business entities (PBE) that are U.S. SEC filers, the new standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is in process of evaluating this new ASU to determine the potential impact on the Company’s financial position or results of operations.

 

In August 2016, FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the FASB Emerging Issues Task Force). This ASU addresses concerns regarding diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. In particular, this ASU addresses eight specific cash flow issues in an effort to reduce this diversity in practice: (1) debt prepayment or debt extinguishment costs; (2) settlement of zero-coupon bonds; (3) contingent consideration payments made after a business combination; (4) proceeds from the settlement of insurance claims; (5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (6) distributions received from equity method investees; (7) beneficial interests in securitization transactions; and (8) separately identifiable cash flows and application of the predominance principle. The amendments are effective for annual periods beginning after December 15, 2017, and for interim periods within those annual periods. Out of the eight specific cash flow issues addressed by this guidance many are not relevant to the Company’s current operations. As such, the adoption of this guidance is not expected to have a material effect on the Company’s financial position or results of operations.

 

-10

 

 

COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1.BASIS OF PRESENTATION, LOAN POLICY AND RECENT DEVELOPMENTS (Continued)

 

In March 2017, the FASB issued ASU No. 2017-08, Premium Amortization on Purchased Callable Debt Securities. This ASU requires the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. Previously, entities were allowed to amortize to contractual maturity or to call date. This ASU is effective for annual reporting periods beginning after December 15, 2018, and early adoption is permitted. The Company does not currently own any callable debt securities so the adoption of this guidance is not expected to have a material effect on the Company’s financial position or results of operations.

 

Other issued but not yet effective accounting standards were reviewed and management has concluded that none apply or will be material to the Company’s financial statements.

 

RECENT DEVELOPMENTS

 

The Company was subject to a Written Agreement with the Federal Reserve Bank of Chicago (“FRB”) beginning in December 2010 but in light of improvements to the Company’s financial condition and the strengthened capital position of the Bank as a result of the capital raise, the FRB terminated the Written Agreement on March 16, 2017.

 

Going forward, the FRB has requested that the Company obtain written approval at least 30 days prior to declaring or paying a dividend on any class of its stock; increasing its debt, including the issuance of trust preferred securities; or redeeming any Company stock.

 

-11

 

 

COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2.SECURITIES AVAILABLE FOR SALE

 

The following tables represent the securities held in the Company’s portfolio at June 30, 2017 and at December 31, 2016:

 

       Gross   Gross     
   Amortized   Unrealized   Unrealized   Fair 
June 30, 2017  Cost   Gains   Losses   Value 
                     
US Treasury  $4,000,294   $36   $(6,502)  $3,993,828 
US Government and federal agency   4,453,835    1,151    (1,642)   4,453,344 
Mortgage-backed and collateralized mortgage obligations– residential   8,691,905    34,125    (68,413)   8,657,617 
   $17,146,034   $35,312   $(76,557)  $17,104,789 

 

       Gross   Gross     
   Amortized   Unrealized   Unrealized   Fair 
December 31, 2016  Cost   Gains   Losses   Value 
                     
US Treasury  $503,045   $1,721   $0   $504,766 
US Government and federal agency   6,469,467    10,657    (147)   6,479,977 
Mortgage-backed and collateralized mortgage obligations – residential   8,827,160    43,455    (89,594)   8,781,021 
   $15,799,672   $55,833   $(89,741)  $15,765,764 

 

The amortized cost and fair value of the securities portfolio are shown by expected maturity. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment fees. Below is the schedule of contractual maturities for securities held at June 30, 2017:

 

   Amortized   Fair                 
   Cost   Value                 
Due in one year or less  $4,954,268   $4,953,812                 
Due from one to five years   3,499,861    3,493,360                 
Due from five to ten years   0    0                 
Due in more than ten years   0    0                 
Mortgage-backed and collateralized mortgage obligations – residential   8,691,905    8,657,617                 
   $17,146,034   $17,104,789                 

 

-12

 

  

COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2.SECURITIES AVAILABLE FOR SALE (Continued)

 

Below is the table of securities with unrealized losses, aggregated by investment category and length of time such securities were in an unrealized loss position at June 30, 2017 and December 31, 2016:

 

   Less than 12 Months   12 Months or Longer   Total 
   Fair   Unrealized   Fair   Unrealized   Fair   Unrealized 
June 30, 2017  Value   Losses   Value   Losses   Value   Losses 
US Treasuries  $3,493,360   $(6,502)  $0   $0   $3,493,360   $(6,502)
US Government and federal agency   2,948,349    (1,642)   0    0    2,948,349    (1,642)
Mortgage-backed and collateralized mortgage obligations – residential   5,892,612    (48,618)   947,909    (19,795)   6,840,521    (68,413)
   $12,334,321   $(56,762)  $947,909   $(19,795)  $13,282,230   $(76,557)

 

   Less than 12 Months   12 Months or Longer   Total 
   Fair   Unrealized   Fair   Unrealized   Fair   Unrealized 
December 31, 2016  Value   Losses   Value   Losses   Value   Losses 
US Treasuries  $0   $0   $0   $0   $0   $0 
US Government and federal agency   499,633    (147)   0    0    499,633    (147)
Mortgage-backed and collateralized mortgage obligations – residential   5,406,053    (69,170)   881,617    (20,424)   6,287,670    (89,594)
   $5,905,686   $(69,317)  $881,617   $(20,424)  $6,787,303   $(89,741)

 

No securities were sold in the three or six months ended June 30, 2017 or June 30, 2016.

 

-13

 

 

COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2.SECURITIES AVAILABLE FOR SALE (Continued)

Other-Than-Temporary-Impairment

Management evaluates securities for other than temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. In determining OTTI, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

When OTTI occurs, the amount of the OTTI recognized in earnings depends on whether an entity intends to sell the security or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss. If an entity intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss, the OTTI will be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If an entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current-period loss, the OTTI will be separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total OTTI related to other factors is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.

 

At June 30, 2017 and December 31, 2016, all of the mortgage-backed securities and collateralized mortgage obligations held by the Company were issued by U.S. government-sponsored entities and agencies, primarily Ginnie Mae, Fannie Mae and Freddie Mac. Ginnie Mae has the full faith and credit of the US government. Fannie Mae and Freddie Mac are highly rated by the rating agencies and although their debt is not guaranteed by the US government, the US government in 2008, acknowledged its commitment to support their financial health. At June 30, 2017, 32 debt securities had unrealized losses with aggregate depreciation of 0.57% from the amortized cost basis; four of the 32 had unrealized losses greater than 12 months.

 

Nine of the 32 securities, which had an unrealized loss at June 30, 2017, are issued by government agencies and 23 are issued by government-sponsored entities. It is likely that these debt securities will be retained given the fact that they are pledged to various public funds. The reported decline in value is not material and is deemed to be market driven. Because the decline in fair value is attributable to changes in interest rates and not credit quality and, because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery. The Company does not consider these securities to be other-than-temporarily impaired at June 30, 2017.

 

At June 30, 2017 and December 31, 2016, there were no holdings of securities of any one issuer, other than U.S. Government and federal agencies, in an amount greater than 10% of common stock and surplus.

 

-14

 

 

COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2.SECURITIES AVAILABLE FOR SALE (Continued)

 

Securities pledged at June 30, 2017 had a carrying amount of $15,569,658 and were pledged to secure public fund customers and customer repurchase agreements. Pledged securities at December 31, 2016 had a carrying amount of $14,266,378.

 

3.LOANS

 

Outstanding loan balances by portfolio segment and class at June 30, 2017 and December 31, 2016 were as follows:

 

   June 30, 2017   December 31, 2016 
Commercial  $46,071,803   $50,869,327 
Commercial Real Estate:          
General   62,075,432    55,412,701 
Construction   5,498,002    8,383,035 
Consumer:          
Lines of credit   6,390,778    5,965,344 
Other   1,126,005    1,169,365 
Credit card   0    450,920 
Residential   17,611,873    18,654,044 
Net deferred loan fees   (65,771)   (80,152)
    138,708,122    140,824,584 
Less:  Allowance for loan losses   (1,778,315)   (1,611,820)
Loans, net  $136,929,807   $139,212,764 

 

-15

 

 

COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

4.ALLOWANCE FOR LOAN LOSSES AND IMPAIRED LOANS

 

The following tables present the activity in the allowance for loan losses for the three and six month periods ended June 30, 2017 and 2016 by portfolio segment:

 

Three Months Ended June 30, 2017  Commercial  

Commercial

Real Estate

   Consumer   Residential   Unallocated   Total 
Allowance for loan losses:                              
Beginning balance  $627,469   $525,477   $219,008   $186,518   $59,926   $1,618,398 
Charge-offs   (21,870)   0    (719)   0    0    (22,589)
Recoveries   5,690    1,305    1,792    0    0    8,787 
Provision for loan losses   (50,449)   291,268    (747)   (6,427)   (59,926)   173,719 
Ending balance  $560,840   $818,050   $219,334   $180,091   $0   $1,778,315 

 

Three Months Ended June 30, 2016  Commercial  

Commercial

Real Estate

   Consumer   Residential   Unallocated   Total 
Allowance for loan losses:                              
Beginning balance  $556,274   $453,238   $314,571   $215,109   $165,852   $1,705,044 
Charge-offs   (69,664)   (21,871)   (33,748)   0    0    (125,283)
Recoveries   29,150    25,710    3,960    0    0    58,820 
Provision for loan losses   66,651    3,525    (20,893)   (3,195)   (46,088)   0 
Ending balance  $582,411   $460,602   $263,890   $211,914   $119,764   $1,638,581 

 

-16

 

 

COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

4.ALLOWANCE FOR LOAN LOSSES AND IMPAIRED LOANS (Continued)

 

Six Months Ended June 30, 2017  Commercial  

Commercial

Real Estate

   Consumer   Residential   Unallocated   Total 
Allowance for loan losses:                              
Beginning balance  $617,002   $459,805   $259,194   $203,312   $72,507   $1,611,820 
Charge-offs   (21,870)   0    (795)   0    0    (22,665)
Recoveries   11,090    1,305    3,046    0    0    15,441 
Provision for loan losses   (45,382)   356,940    (42,111)   (23,221)   (72,507)   173,719 
Ending balance  $560,840   $818,050   $219,334   $180,091   $0   $1,778,315 

 

Six Months Ended June 30, 2016  Commercial  

Commercial

Real Estate

   Consumer   Residential   Unallocated   Total 
Allowance for loan losses:                              
Beginning balance  $522,558   $432,145   $322,185   $210,653   $183,875   $1,671,416 
Charge-offs   (69,664)   (21,871)   (39,293)   0    0    (130,828)
Recoveries   39,553    25,710    32,730    0    0    97,993 
Provision for loan losses   89,964    24,618    (51,732)   1,261    (64,111)   0 
Ending balance  $582,411   $460,602   $263,890   $211,914   $119,764   $1,638,581 

 

-17

 

 

COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

4.ALLOWANCE FOR LOAN LOSSES AND IMPAIRED LOANS (Continued)

 

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment based on impairment method as of June 30, 2017 and December 31, 2016:

 

June 30, 2017  Commercial  

Commercial

Real Estate

   Consumer   Residential   Unallocated   Total 
Allowance for loan losses:                              
Ending allowance balance attributable to loans:                              
Individually evaluated for impairment  $240,290   $349,209   $70,767   $42,415   $    0   $702,681 
Collectively evaluated for impairment   320,550    468,841    148,567    137,676    0    1,075,634 
Unallocated   0    0    0    0    0    0 
Total ending allowance balance  $560,840   $818,050   $219,334   $180,091   $0   $1,778,315 
                               
Loans:                              
Individually evaluated for impairment  $1,401,269   $7,840,947   $126,435   $517,404   $0   $9,886,055 
Collectively evaluated for impairment   44,766,083    59,839,522    7,415,262    17,140,547    0    129,161,414 
Total ending loans balance  $46,167,352   $67,680,469   $7,541,697   $17,657,951   $0   $139,047,469 

 

December 31, 2016  Commercial  

Commercial

Real Estate

   Consumer   Residential   Unallocated   Total 
Allowance for loan losses:                              
Ending allowance balance attributable to loans:                              
Individually evaluated for impairment  $268,274   $20,595   $80,503   $62,962   $0   $432,334 
Collectively evaluated for impairment   348,728    439,210    178,691    140,350    0    1,106,979 
Unallocated   0    0    0    0    72,507    72,507 
Total ending allowance balance  $617,002   $459,805   $259,194   $203,312   $72,507   $1,611,820 
                               
Loans:                              
Individually evaluated for impairment  $2,294,672   $6,328,334   $165,174   $526,736   $0   $9,314,916 
Collectively evaluated for impairment   48,666,710    57,560,977    7,448,194    18,176,652    0    131,852,533 
Total ending loans balance  $50,961,382   $63,889,311   $7,613,368   $18,703,388   $0   $141,167,449 

 

-18

 

 

COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

4.ALLOWANCE FOR LOAN LOSSES AND IMPAIRED LOANS (Continued)

 

The following tables present loans individually evaluated for impairment by class of loans as of June 30, 2017 and December 31, 2016. The recorded investment includes unpaid principal balance net of interest payments applied to principal (non-accrual loans only) as well as accrued interest receivable, deferred fees and costs. For purposes of this disclosure, the unpaid principal balance is not reduced for partial charge-offs.

 

   Recorded   Unpaid Principal   Related 
June 30, 2017  Investment   Balance   Allowance 
With no related allowance recorded:               
Commercial  $515,288   $597,124   $0 
Commercial Real Estate:               
General   5,778,273    6,855,992    0 
Consumer:               
Lines of credit   9,150    9,139    0 
Other   0    0    0 
Residential   467,387    498,858    0 
Subtotal  $6,770,098   $7,961,113   $0 
                
With a related allowance recorded:               
Commercial  $885,981   $884,614   $240,290 
Commercial Real Estate:               
General   2,062,674    2,048,270    349,209 
Consumer:               
Lines of credit   98,150    97,670    51,734 
Other   19,135    19,033    19,033 
Residential   50,017    59,465    42,415 
Subtotal  $3,115,957   $3,109,052   $702,681 
Total  $9,886,055   $11,070,165   $702,681 

 

-19

 

  

COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

4.ALLOWANCE FOR LOAN LOSSES AND IMPAIRED LOANS (Continued)

 

   Recorded   Unpaid Principal   Related 
December 31, 2016  Investment   Balance   Allowance 
With no related allowance recorded:               
Commercial  $1,334,036   $1,394,625   $0 
Commercial Real Estate:               
General   6,270,915    7,349,245    0 
Consumer:               
Lines of credit   35,868    35,791    0 
Other   0    0    0 
Residential   181,557    214,031    0 
Subtotal  $7,822,376   $8,993,692   $0 
With a related allowance recorded:               
Commercial  $960,636   $970,799   $268,274 
Commercial Real Estate:               
General   57,419    57,323    20,595 
Consumer:               
Lines of credit   108,825    108,217    60,132 
Other   20,481    20,372    20,371 
Residential   345,179    353,232    62,962 
Subtotal  $1,492,540   $1,509,943   $432,334 
Total  $9,314,916   $10,503,635   $432,334 

 

-20

 

 

COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

4.ALLOWANCE FOR LOAN LOSSES AND IMPAIRED LOANS (Continued)

 

The following tables present the average recorded investment of loans individually evaluated for impairment by class of loans as of June 30, 2017 and 2016 and the associated interest income. For purposes of this disclosure, the unpaid principal balance is not reduced for partial charge-offs.

 

   Three Months   Three Months   Three Months 
   Average Recorded   Interest Income   Cash Basis 
June 30, 2017  Investment   Recognized   Interest Recognized 
With no related allowance recorded:               
Commercial  $505,866   $6,553   $5,091 
Commercial Real Estate:               
General   5,708,252    64,428    56,643 
Consumer:               
Lines of credit   9,214    162    162 
Other   0    0    0 
Residential   469,083    3,400    4,190 
Subtotal  $6,692,415   $74,543   $66,086 
                
With a related allowance recorded:               
Commercial  $934,887   $9,845   $2,271 
Commercial Real Estate:               
General   1,704,785    27,031    14,037 
Consumer:               
Lines of credit   98,159    1,526    1,526 
Other   19,343    345    345 
Residential   50,057    0    0 
Subtotal  $2,807,231   $38,747   $18,179 
Total  $9,499,646   $113,290   $84,265 

 

-21

 

 

COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

4.ALLOWANCE FOR LOAN LOSSES AND IMPAIRED LOANS (Continued)

 

   Three Months   Three Months   Three Months 
   Average Recorded   Interest Income   Cash Basis 
June 30, 2016  Investment   Recognized   Interest Recognized 
With no related allowance recorded:               
Commercial  $1,364,290   $11,865   $11,730 
Commercial Real Estate:               
General   4,981,629    46,671    50,113 
Consumer:               
Lines of credit   109,978    2,232    2,259 
Other   0    0    0 
Residential   404,421    379    379 
Subtotal  $6,860,318   $61,147   $64,481 
                
With a related allowance recorded:               
Commercial  $1,003,161   $9,900   $15,296 
Commercial Real Estate:               
General   56,756    363    363 
Consumer:               
Lines of credit   154,895    1,711    1,760 
Other   14,010    353    424 
Residential   313,648    3,210    4,269 
Subtotal  $1,542,470   $15,537   $22,112 
Total  $8,402,788   $76,684   $86,593 

 

-22

 

 

COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

4.ALLOWANCE FOR LOAN LOSSES AND IMPAIRED LOANS (Continued)

 

   Six Months   Six Months   Six Months 
   Average Recorded   Interest Income   Cash Basis 
June 30, 2017  Investment   Recognized   Interest Recognized 
With no related allowance recorded:               
Commercial  $620,851   $10,362   $7,661 
Commercial Real Estate:               
General   6,044,422    131,748    121,736 
Consumer:               
Lines of credit   18,143    329    329 
Other   0    0    0 
Residential   420,921    8,414    8,414 
Subtotal  $7,104,337   $150,853   $138,140 
                
With a related allowance recorded:               
Commercial  $949,148   $21,070   $8,128 
Commercial Real Estate:               
General   1,194,435    47,236    34,202 
Consumer:               
Lines of credit   101,669    3,047    3,047 
Other   19,655    712    712 
Residential   147,605    0    0 
Subtotal  $2,412,512   $72,065   $46,089 
Total  $9,516,849   $222,918   $184,229 

 

-23

 

 

COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

4.ALLOWANCE FOR LOAN LOSSES AND IMPAIRED LOANS (Continued)

 

   Six Months   Six Months   Six Months 
   Average Recorded   Interest Income   Cash Basis 
June 30, 2016  Investment   Recognized   Interest Recognized 
With no related allowance recorded:               
Commercial  $1,365,016   $23,796   $23,661 
Commercial Real Estate:               
General   5,053,723    95,489    95,489 
Consumer:               
Lines of credit   92,006    3,947    3,903 
Other   0    0    0 
Residential   408,334    790    790 
Subtotal  $6,919,079   $124,022   $123,843 
                
With a related allowance recorded:               
Commercial  $1,016,545   $20,386   $20,386 
Commercial Real Estate:               
General   84,415    363    363 
Consumer:               
Lines of credit   185,403    4,006    3,926 
Other   14,217    674    643 
Residential   314,413    6,445    6,445 
Subtotal  $1,614,993   $31,874   $31,763 
Total  $8,534,072   $155,896   $155,606 

 

-24

 

  

COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

4.ALLOWANCE FOR LOAN LOSSES AND IMPAIRED LOANS (Continued)

 

The following tables present the aging of the recorded investment in past due and non-accrual loans by class of loans as of June 30, 2017:

 

Accruing Loans  30-59 Days Past Due   60-89 Days Past Due   Greater Than 90 Days Past Due   Total Accruing Past Due Loans   Current Accruing Loans   Total Recorded Investment of Accruing Loans 
Commercial  $15,185   $566,752   $0   $581,937   $45,526,490   $46,108,427 
Commercial Real Estate:                              
General   1,397,931    0    0    1,397,931    60,731,071    62,129,002 
Construction   0    0    0    0    5,509,754    5,509,754 
Consumer:                              
Lines of credit   0    0    0    0    6,411,596    6,411,596 
Other   0    0    0    0    1,130,101    1,130,101 
Credit card   0    0    0    0    0    0 
Residential   0    0    0    0    17,553,203    17,553,203 
Total  $1,413,116   $566,752   $0   $1,979,868   $136,862,215   $138,842,083 

 

Non-Accrual Loans  30-59 Days Past Due   60-89 Days Past Due   Greater Than 90 Days Past Due   Total Non-Accrual Past Due Loans   Current Non-Accrual Loans   Total Non-Accrual Recorded Investment 
Commercial  $0   $0   $48,400   $48,400   $10,525   $58,925 
Commercial Real Estate:                              
General   0    0    41,713    41,713    0    41,713 
Construction   0    0    0    0    0    0 
Consumer:                              
Lines of credit   0    0    0    0    0    0 
Other   0    0    0    0    0    0 
Credit card   0    0    0    0    0    0 
Residential   0    0    59,050    59,050    45,698    104,748 
Total  $0   $0   $149,163   $149,163   $56,223   $205,386 

 

-25

 

 

COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

4.ALLOWANCE FOR LOAN LOSSES AND IMPAIRED LOANS (Continued)

 

The following tables present the aging of the recorded investment in past due and non-accrual loans by class of loans as of December 31, 2016:

 

Accruing Loans  30-59 Days Past Due   60-89 Days Past Due   Greater Than 90 Days Past Due   Total Accruing Past Due Loans   Current Accruing Loans   Total Recorded Investment of Accruing Loans 
Commercial  $298,912   $592,498   $0   $891,410   $50,058,531   $50,949,941 
Commercial Real Estate:                              
General   100,058    0    0    100,058    55,404,749    55,504,807 
Construction   0    0    0    0    8,384,504    8,384,504 
Consumer:                              
Lines of credit   36,652    0    0    36,652    5,951,862    5,988,514 
Other   0    0    0    0    1,173,934    1,173,934 
Credit card   0    0    0    0    450,920    450,920 
Residential   36,621    144,039    0    180,660    18,410,821    18,591,481 
Total  $472,243   $736,537   $0   $1,208,780   $139,835,321   $141,044,101 

 

Non-Accrual Loans  30-59 Days Past Due   60-89 Days Past Due   Greater Than 90 Days Past Due   Total Non-Accrual Past Due Loans   Current Non-Accrual Loans   Total Non-Accrual Recorded Investment 
Commercial  $0   $0   $0   $0   $11,441   $11,441 
Commercial Real Estate:                              
General   0    0    0    0    0    0 
Construction   0    0    0    0    0    0 
Consumer:                              
Lines of credit   0    0    0    0    0    0 
Other   0    0    0    0    0    0 
Credit card   0    0    0    0    0    0 
Residential   63,049    0    48,858    111,907    0    111,907 
Total  $63,049   $0   $48,858   $111,907   $11,441   $123,348 

 

-26

 

 

COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

4.ALLOWANCE FOR LOAN LOSSES AND IMPAIRED LOANS (Continued)

 

Troubled Debt Restructurings:

 

A loan is considered to be a Troubled Debt Restructure (“TDR”) when the Bank grants a concession to the borrower that it would not normally consider because the borrower is experiencing financial difficulty. The concession is typically a modification of one or more of the terms such as a rate reduction below the current market rate for new debt with similar risk; interest only payments on an amortizing note; a reduced payment amount which does not cover the interest; financing concessions; or a permanent reduction of the recorded investment of the loan.

 

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed utilizing the Company’s internal underwriting policy.

 

The Company has allocated $693,716 of specific reserves on $9,620,258 of unpaid principal balance of loans to customers whose loan terms have been modified in troubled debt restructurings as of June 30, 2017 and $413,252 on $9,102,558 of unpaid principal balance of loans as of December 31, 2016. As of June 30, 2017, there were no loan commitments to any customer whose loan terms were modified in a troubled debt restructuring.

 

The following tables present loans by class modified as troubled debt restructurings that occurred during the three and six month periods ended June 30, 2017:

 

       Pre-Modification   Post-Modification     
       Outstanding Recorded   Outstanding Recorded   Current 
Three Months Ended June 30, 2017  Number of Loans   Investment   Investment   Balance 
Troubled Debt Restructurings:                    
Commercial Real Estate:                    
General   2   $549,725   $550,068   $599,247 
Total   2   $549,725   $550,068   $599,247 

 

       Pre-Modification   Post-Modification     
       Outstanding Recorded   Outstanding Recorded   Current 
Six Months Ended June 30, 2017  Number of Loans   Investment   Investment   Balance 
Troubled Debt Restructurings:                    
Commercial   1   $125,604   $125,604   $125,604 
Commercial Real Estate:                    
General   2    549,725    550,068    599,247 
Total   3   $675,329   $675,672   $724,851 

 

For the three and six month periods ending June 30, 2017, all three modifications consisted of the borrowers receiving a modified payment structure for a range of 5 to 15 years.

 

-27

 

 

COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

4.ALLOWANCE FOR LOAN LOSSES AND IMPAIRED LOANS (Continued)

 

For the six month period ended June 30, 2017, there were no charge-offs related to troubled debt restructurings. As of June 30, 2017, an additional $66,371 of specific reserves were established on these troubled debt restructurings.

 

The following tables present loans by class modified as troubled debt restructurings that occurred during the three and six month periods ended June 30, 2016:

 

       Pre-Modification   Post-Modification     
       Outstanding Recorded   Outstanding Recorded   Current 
Three Months Ended June 30, 2016  Number of Loans   Investment   Investment   Balance 
Troubled Debt Restructurings:                    
Commercial   1   $15,107   $15,107   $15,107 
Commercial Real Estate:                    
General   1    58,194    58,194    58,194 
Consumer:                    
Other   1    11,566    11,566    11,566 
Total   3   $84,867   $84,867   $84,867 

 

       Pre-Modification   Post-Modification     
       Outstanding Recorded   Outstanding Recorded   Current 
Six Months Ended June 30, 2016  Number of Loans   Investment   Investment   Balance 
Troubled Debt Restructurings:                    
Commercial   1   $15,107   $15,107   $15,107 
Commercial Real Estate:                    
General   1    58,194    58,194    58,194 
Consumer:                    
Other   1    11,566    11,566    11,566