Community Shores Reports 2010 Third Quarter Results

MUSKEGON, Mich., Nov. 2, 2010 (GLOBE NEWSWIRE) -- Community Shores Bank Corporation CSHB ("Community Shores"), Muskegon's only locally headquartered independent community banking organization, today reported a third quarter net loss of $3.92 million, or ($2.67) per diluted share, compared to a net loss of $0.57 million, or ($0.39) per diluted share, for the 2009 third quarter. For the 2010 nine months year-to-date, the Company recorded a net loss of $5.55 million, or ($3.78) per diluted share, compared to a net loss of $2.17 million, or ($1.48) per diluted share, for the first nine months of 2009. Third quarter's results were heavily impacted by impairments on troubled assets to reflect declining property valuations in Community Shores' markets.

Heather D. Brolick, president and chief executive officer of Community Shores Bank Corporation, commented, "We are disappointed that real estate valuations in our marketplace have not stabilized sufficiently to provide a confidence level for real estate investors to move forward. The lack of comparative data has made it difficult to value our portfolio of foreclosed properties as well as our impaired loans collateralized by real estate. We are hopeful that the substantial write-downs and impairments we recorded this quarter will address these issues and in the case of our foreclosed properties, facilitate sales.

"Although our western Michigan economy is not improving rapidly enough to stimulate a recovery in our real estate markets, we are seeing positive signs on the horizon. Several economic indicators are inching upward from their low points earlier in the year, including manufacturing employment, a pillar of the Michigan economy. Loan demand still remains sluggish, so we have utilized surplus cash to build our investment portfolio and maintain a higher level of liquid reserves. While uncertainties remain in our economy and in our problem asset portfolio, we believe it is of primary importance to maintain large liquidity reserves. With nearly 25 percent of our balance sheet in cash and liquid investments, interest income has been impacted, but we have managed to offset much of this decline with lower funding costs. We believe the value provided by robust liquidity reserves outweighs the incremental additional leverage and the impact on our net interest margin.

"Meanwhile, we continue to address our ongoing banking activities with the same discipline as always. Our operating expenses, exclusive of higher OREO and regulatory costs, have remained stable. Our nonperforming assets are slowly declining. And our banking customers continue to provide a growing level of retail deposits."

Operating Results

Revenue for the third quarter of 2010, including net interest income and noninterest income, was $2.05 million, down 6.9 percent from the year-ago quarter. Net interest income and noninterest income both contributed to the decline. Net interest income was $1.68 million, down 6.46 percent from the $1.80 million earned in the year-ago quarter. Results reflect a 31 basis point contraction in the net interest margin, to 2.83 percent. Although average earning assets increased by 4.43 percent, third quarter 2010 net interest income went down. The 2010 third quarter includes a prepayment charge of $88,000 from the repayment of $4.5 million of FHLB advances bearing an average interest rate of six percent as well as an earning asset mix that is more heavily weighted in cash equivalents and investment securities. Cash equivalents and investment securities averaged $64.1 million for 2010's third quarter; 50 percent higher than the year earlier quarter.

Year-to-date, the Company reported a 4.0 percent decline in total revenue. Net interest income earned in the first nine months of 2010 was $5.16 million, up 2.7 percent from the year-ago period; the net interest margin expanded by eight basis points to 3.00 percent, while average earning assets grew 4.4 percent.

For the 2010 third quarter, the Company reported noninterest income of $369,000. Excluding third quarter losses on the disposal of foreclosed real estate-owned ("OREO") of $50,000 in 2010 and $11,000 in 2009, noninterest income from operations was $419,000 for the 2010 September quarter compared to $416,000 for the prior-year quarter. For the nine-months year to date, 2010 noninterest income was $1.22 million compared to $1.62 for the year-ago period. Excluding net gains on the sale of securities and foreclosed assets noninterest income from operations declined $159,000 or 11.6 percent from the prior-year nine-months. Gains from the sale of mortgage loans reflect quarterly improvement during 2010, but declined year-to-date by $80,000 or 29.6 percent compared to the 2009 nine-month period. Service charges on depository accounts likewise reflect quarterly improvement throughout 2010, but declined year-to-date by $103,000 or 15.1 percent compared to the year-earlier nine-month period. The 2010 third quarter provision for loan and lease losses was $2.02 million, compared to $445,000 for the 2009 third quarter. Year-to-date, Community Shores added $3.38 million to its loan and lease loss reserves compared to $923,000 for the comparable 2009 period. As of September 30, 2010, the allowance for loan and leases losses was $4.54 million, or 2.65 percent of total loans, compared to 2.05 percent at 2009 year-end and 1.47 percent for the year-ago quarter.

Noninterest expense for the third quarter of 2010 was $3.95 million compared to $2.32 million for the year-ago quarter, up $1.6 million or 70 percent. For the nine-month periods, 2010 noninterest expense was $8.54 million compared to $6.91 million for the 2009 period, up $1.6 million or 24 percent. Excluding increased regulatory costs and expenses associated with the management of foreclosed properties, core operating expenses have been extremely well-controlled. Year-to-date, they declined $240,000, or about four percent from the 2009 nine-month period. However, OREO and regulatory expenses increased $1.67 million, to $2.12 million, for the current quarter, and grew $1.9 million, to $3.09 million, for the first nine-months of 2010. A foreclosed asset impairment charge of $1.6 million in the third quarter of 2010 accounts for the majority of the quarterly and year-over-year growth in OREO expense.

Balance Sheet

Total assets as of September 30, 2010 were $248 million, up $16.3 million, or 7.0 percent, from 2009 year-end. Virtually all of the growth has been in the form of liquidity reserves which increased to 25 percent of total assets at September 30, 2010 from 13 percent at year-end 2009; cash-equivalents and securities increased $31.0 million, to $61.3 million, more than doubling over the past nine months. Total loans held for investment as of September 30, 2010 were $171 million, down $12.7 million, or 6.9 percent, from December 31, 2009. Total deposits as of the 2010 September quarter-end were $223 million, an increase of $24.2 million from 2009 year-end.       

Asset Quality

Nonperforming assets, consisting of nonperforming loans (nonaccrual plus loans over 90 days delinquent), OREO, and other repossessed assets, were $15.1 million, or 6.08 percent of total assets, a decline of approximately $700,000 from the $15.8 million (6.82 percent of total assets) at December 31, 2009. Net charge-offs for the third quarter of 2010 were $617,000, or 1.40 percent of average loans on an annualized basis; this compares to $213,000 (0.45 percent annualized) for the prior-year third quarter. In the first nine months of 2010, Community Shores charged-off $2.62 million (1.94 percent annualized) compared to $2.48 million (1.69 percent annualized) for the 2009 nine month period.  

Capital

Consolidated shareholders' equity was $4.58 million as of September 30, 2010, compared to $12.6 million at September 30, 2009. As of September 30, 2010, the Bank's Tier I leverage was 5.20 percent of total assets, while Tier I Capital and Total Risk-based Capital were at 7.25 percent and 8.52 percent of total risk-weighted assets, respectively.

Ms. Brolick concluded, "We continue to fulfill our community banking mandate of providing banking services to small businesses and consumers within our western Michigan footprint. Our operations are more efficient than ever, and we are making every effort to mitigate current and potential risks in our loan portfolio while we wait for further improvement in our economy."

About the Company

Community Shores Bank Corporation is the only independent community banking organization headquartered in Muskegon. The Company serves businesses and consumers in the western Michigan counties of Muskegon and Ottawa from four branch offices. Community Shores Bank opened for business in January 1999, and has grown to $248 million in assets. The Company's stock is listed on the NASDAQ Capital Market under the symbol 'CSHB.' For further information, please visit the Company's web site at: www.communityshores.com.

Forward Looking Statements

This news release contains comments or information that constitute forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995) that are based on current expectations that involve a number of risks and uncertainties. Actual results may differ materially from the results expressed in forward-looking statements. Factors that might cause such a difference include changes in interest rates and interest rate relationships; demand for products and services; the degree of competition by traditional and non-traditional competitors; changes in banking regulation; changes in tax laws; changes in prices, levies, and assessments; the impact of technological advances; governmental and regulatory policy changes; the outcomes of contingencies; trends in customer behavior as well as their ability to repay loans; changes in the national and local economy; changes in the local real estate market; and other factors, including risk factors, referred to from time to time in filings made by Community Shores with the Securities and Exchange Commission. Community Shores undertakes no obligation to update or clarify forward-looking statements, whether as a result of new information, future events or otherwise.