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 March 31, 2013



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, or a smaller reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



|Large accelerated filer  ̈ | Accelerated filer  ̈                           | Non-accelerated filer  ̈ | Smaller reporting company x
|------------------------- | --------------------------------------------- | ----------------------- | ---------------------------
|                          | (Do not check if a smaller reporting company)



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

 ̈
Yes xNo



At
May 1, 2013, 1,468,800 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 | 41      
|         |                                                                                               |         
|         | Item 3. Quantitative and Qualitative Disclosures about Market Risk                            | 57      
|         |                                                                                               |         
|         | Item 4. Controls and Procedures                                                               | 57      
|         |                                                                                               |         
|PART II. | Other Information                                                                             |         
|         |                                                                                               |         
|         | Item 1. Legal Proceedings                                                                     | 58      
|         |                                                                                               |         
|         | Item 1A. Risk Factors                                                                         | 58      
|         |                                                                                               |         
|         | Item 2. Unregistered Sales of Equity Securities and Use of Proceeds                           | 58      
|         |                                                                                               |         
|         | Item 3. Defaults upon Senior Securities                                                       | 59      
|         |                                                                                               |         
|         | Item 4. Mine Safety Disclosures                                                               | 59      
|         |                                                                                               |         
|         | Item 5. Other Information                                                                     | 59      
|         |                                                                                               |         
|         | Item 6. Exhibits                                                                              | 59      
|         |                                                                                               |         
|         | Signatures                                                                                    | 60      











PART I – FINANCIAL INFORMATION



| | ITEM 1. | FINANCIAL STATEMENTS
| | ------- | --------------------



COMMUNITY
SHORES BANK CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS



|                                                                                          |  | March 31,   |             |   | December 31, |  
|----------------------------------------------------------------------------------------- |  | ----------- | ----------- | - | ------------ | -
|                                                                                          |  | 2013        |             |   | 2012         |  
|                                                                                          |  | (unaudited) |             |   | (audited)    |  
|ASSETS                                                                                    |  |             |             |   |              |  
|Cash and due from financial institutions                                                  |  | $           | 2,093,442   |   |              | $
|Interest-bearing deposits in other financial institutions                                 |  |             | 21,418,199  |   |              |  
|Total cash and cash equivalents                                                           |  |             | 23,511,641  |   |              |  
|Securities available for sale (at fair value)                                             |  |             | 38,448,580  |   |              |  
|Loans held for sale                                                                       |  |             | 5,270,597   |   |              |  
|Loans                                                                                     |  |             | 126,320,598 |   |              |  
|Less: Allowance for loan losses                                                           |  |             | 3,302,297   |   |              |  
|Net loans                                                                                 |  |             | 123,018,301 |   |              |  
|Federal Home Loan Bank stock (at cost)                                                    |  |             | 450,800     |   |              |  
|Premises and equipment, net                                                               |  |             | 9,362,015   |   |              |  
|Accrued interest receivable                                                               |  |             | 584,029     |   |              |  
|Foreclosed assets                                                                         |  |             | 3,098,532   |   |              |  
|Other assets                                                                              |  |             | 954,871     |   |              |  
|Total assets                                                                              |  | $           | 204,699,366 |   |              | $
|LIABILITIES AND SHAREHOLDERS’ EQUITY                                                      |  |             |             |   |              |  
|Deposits                                                                                  |  |             |             |   |              |  
|Non-interest-bearing                                                                      |  | $           | 31,966,192  |   |              | $
|Interest-bearing                                                                          |  |             | 151,930,993 |   |              |  
|Total deposits                                                                            |  |             | 183,897,185 |   |              |  
|Federal funds purchased and repurchase agreements                                         |  |             | 10,174,229  |   |              |  
|Subordinated debentures                                                                   |  |             | 4,500,000   |   |              |  
|Notes payable                                                                             |  |             | 1,280,000   |   |              |  
|Accrued expenses and other liabilities                                                    |  |             | 858,753     |   |              |  
|Total liabilities                                                                         |  |             | 200,710,167 |   |              |  
|Shareholders’ equity                                                                      |  |             |             |   |              |  
|Preferred Stock, no par value: 1,000,000 shares authorized and none issued                |  |             | 0           |   |              |  
|Common Stock, no par value: 9,000,000 shares authorized; 1,468,800 issued and outstanding |  |             | 13,296,691  |   |              |  
|Retained deficit                                                                          |  |             | (9,512,060  | ) |              |  
|Accumulated other comprehensive income                                                    |  |             | 204,568     |   |              |  
|Total shareholders’ equity                                                                |  |             | 3,989,199   |   |              |  
|Total liabilities and shareholders’ equity                                                |  | $           | 204,699,366 |   |              | $



See accompanying notes to consolidated financial
statements.



-1-







COMMUNITY SHORES BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(LOSS)

(UNAUDITED)



|                                                               |  | Three Months Ended |           |  | Three Months Ended |  
|-------------------------------------------------------------- |  | ------------------ | --------- |  | ------------------ | -
|                                                               |  | March 31, 2013     |           |  | March 31, 2012     |  
|Interest and dividend income                                   |  |                    |           |  |                    |  
|Loans, including fees                                          |  | $                  | 1,876,474 |  |                    | $
|Securities                                                     |  |                    | 156,889   |  |                    |  
|Federal funds sold, FHLB dividends and other income            |  |                    | 10,329    |  |                    |  
|Total interest income                                          |  |                    | 2,043,692 |  |                    |  
|Interest expense                                               |  |                    |           |  |                    |  
|Deposits                                                       |  |                    | 278,912   |  |                    |  
|Repurchase agreements, federal funds purchased, and other debt |  |                    | 15,214    |  |                    |  
|Federal Home Loan Bank advances and notes payable              |  |                    | 32,717    |  |                    |  
|Total interest expense                                         |  |                    | 326,843   |  |                    |  
|Net Interest Income                                            |  |                    | 1,716,849 |  |                    |  
|Provision for loan losses                                      |  |                    | 0         |  |                    |  
|Net Interest Income After Provision for Loan Losses            |  |                    | 1,716,849 |  |                    |  
|Non-interest income                                            |  |                    |           |  |                    |  
|Service charges on deposit accounts                            |  |                    | 149,451   |  |                    |  
|Mortgage loan referral fees                                    |  |                    | 0         |  |                    |  
|Gain on sale of loans                                          |  |                    | 67,243    |  |                    |  
|Gain on sale of securities                                     |  |                    | 0         |  |                    |  
|Loss on sale of foreclosed assets                              |  |                    | 0         |  |                    |  
|Gain on sale of premises and equipment                         |  |                    | 1,000     |  |                    |  
|Gain on the extinguishment of debt                             |  |                    | 5,262,653 |  |                    |  
|Other                                                          |  |                    | 156,276   |  |                    |  
|Total non-interest income                                      |  |                    | 5,636,623 |  |                    |  
|Non-interest expense                                           |  |                    |           |  |                    |  
|Salaries and employee benefits                                 |  |                    | 914,910   |  |                    |  
|Occupancy                                                      |  |                    | 167,030   |  |                    |  
|Furniture and equipment                                        |  |                    | 106,043   |  |                    |  
|Advertising                                                    |  |                    | 15,011    |  |                    |  
|Data processing                                                |  |                    | 146,684   |  |                    |  
|Professional services                                          |  |                    | 90,648    |  |                    |  
|Foreclosed asset impairment                                    |  |                    | 7,599     |  |                    |  
|FDIC insurance                                                 |  |                    | 172,841   |  |                    |  
|Other                                                          |  |                    | 323,173   |  |                    |  
|Total non-interest expense                                     |  |                    | 1,943,939 |  |                    |  
|Income (Loss) Before Federal Income Taxes                      |  |                    | 5,409,533 |  |                    |  
|Federal income tax expense                                     |  |                    | 105,000   |  |                    |  
|Net Income (Loss)                                              |  | $                  | 5,304,533 |  |                    | $
|Weighted average shares outstanding                            |  |                    | 1,468,800 |  |                    |  
|Diluted average shares outstanding                             |  |                    | 1,468,800 |  |                    |  
|Basic earnings (loss) per share                                |  | $                  | 3.61      |  |                    | $
|Diluted earnings (loss) per share                              |  | $                  | 3.61      |  |                    | $



See accompanying notes to consolidated financial
statements.



-2-







COMMUNITY
SHORES BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME (LOSS)

(UNAUDITED)



|                                                                       |  | Three Months Ended |           |   | Three Months Ended |  
|---------------------------------------------------------------------- |  | ------------------ | --------- | - | ------------------ | -
|                                                                       |  | March 31, 2013     |           |   | March 31, 2012     |  
|                                                                       |  |                    |           |   |                    |  
|Net income (loss)                                                      |  | $                  | 5,304,533 |   |                    | $
|                                                                       |  |                    |           |   |                    |  
|Other comprehensive income (loss):                                     |  |                    |           |   |                    |  
|Unrealized holding losses on available for sale securities             |  |                    | (76,238   | ) |                    |  
|Less reclassification adjustments for gains later recognized in income |  |                    | 0         |   |                    |  
|Net unrealized loss                                                    |  |                    | (76,238   | ) |                    |  
|Tax effect                                                             |  |                    | 0         |   |                    |  
|Total other comprehensive loss                                         |  |                    | (76,238   | ) |                    |  
|                                                                       |  |                    |           |   |                    |  
|Comprehensive income (loss)                                            |  | $                  | 5,228,295 |   |                    | $



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 |   |            | Retained |  |   | Comprehensive |   |  | Shareholders’ |        
|                           |  | Shares |           |  | Stock  |   |            | Deficit  |  |   | Income        |   |  | Equity        |        
|                           |  |        |           |  |        |   |            |          |  |   |               |   |  |               |        
|Balance at January 1, 2012 |  |        | 1,468,800 |  |        | $ | 13,296,691 |          |  | $ | (15,084,431   | ) |  | $             | 367,358
|                           |  |        |           |  |        |   |            |          |  |   |               |   |  |               |        
|Net loss                   |  |        |           |  |        |   |            |          |  |   | (64,101       | ) |  |               |        
|Other comprehensive loss   |  |        |           |  |        |   |            |          |  |   |               |   |  |               | (42,293
|                           |  |        |           |  |        |   |            |          |  |   |               |   |  |               |        
|Balance at March 31, 2012  |  |        | 1,468,800 |  |        | $ | 13,296,691 |          |  | $ | (15,148,532   | ) |  | $             | 325,065
|                           |  |        |           |  |        |   |            |          |  |   |               |   |  |               |        
|Balance at January 1, 2013 |  |        | 1,468,800 |  |        | $ | 13,296,691 |          |  | $ | (14,816,593   | ) |  | $             | 280,806
|                           |  |        |           |  |        |   |            |          |  |   |               |   |  |               |        
|Net income                 |  |        |           |  |        |   |            |          |  |   | 5,304,533     |   |  |               |        
|Other comprehensive loss   |  |        |           |  |        |   |            |          |  |   |               |   |  |               | (76,238
|                           |  |        |           |  |        |   |            |          |  |   |               |   |  |               |        
|Balance at March 31, 2013  |  |        | 1,468,800 |  |        | $ | 13,296,691 |          |  | $ | (9,512,060    | ) |  | $             | 204,568



See accompanying notes to consolidated financial
statements.



-4-







COMMUNITY
SHORES BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS

(UNAUDITED)



|                                                                                  |  | Three Months Ended |            |   | Three Months Ended |  
|--------------------------------------------------------------------------------- |  | ------------------ | ---------- | - | ------------------ | -
|                                                                                  |  | March 31, 2013     |            |   | March 31, 2012     |  
|Cash flows from operating activities                                              |  |                    |            |   |                    |  
|Net income (loss)                                                                 |  | $                  | 5,304,533  |   |                    | $
|Adjustments to reconcile net income (loss) to net cash from operating activities: |  |                    |            |   |                    |  
|Provision for loan losses                                                         |  |                    | 0          |   |                    |  
|Depreciation and amortization                                                     |  |                    | 100,643    |   |                    |  
|Net amortization of securities                                                    |  |                    | 98,256     |   |                    |  
|Net realized gain on sale of securities                                           |  |                    | 0          |   |                    |  
|Net realized gain on sale of loans                                                |  |                    | (67,243    | ) |                    |  
|Net realized loss on sale of foreclosed assets                                    |  |                    | 0          |   |                    |  
|Net realized gain on sale of premises and equipment                               |  |                    | (1,000     | ) |                    |  
|Net realized gain on the extinguishment of debt                                   |  |                    | (5,262,653 | ) |                    |  
|Foreclosed asset impairment                                                       |  |                    | 7,599      |   |                    |  
|Originations of loans for sale                                                    |  |                    | (3,319,130 | ) |                    |  
|Proceeds from loan sales                                                          |  |                    | 3,162,248  |   |                    |  
|Net change in:                                                                    |  |                    |            |   |                    |  
|Accrued interest receivable and other assets                                      |  |                    | (231,657   | ) |                    |  
|Accrued interest payable and other liabilities                                    |  |                    | 17,499     |   |                    |  
|Net cash used in operating activities                                             |  |                    | (190,905   | ) |                    |  
|Cash flows from investing activities                                              |  |                    |            |   |                    |  
|Activity in available for sale securities:                                        |  |                    |            |   |                    |  
|Sales                                                                             |  |                    | 0          |   |                    |  
|Maturities, prepayments and calls                                                 |  |                    | 2,837,322  |   |                    |  
|Purchases                                                                         |  |                    | 0          |   |                    |  
|Loan originations and payments, net                                               |  |                    | 42,620     |   |                    |  
|Additions to premises and equipment, net                                          |  |                    | (41,772    | ) |                    |  
|Proceeds from the sale of premises and equipment                                  |  |                    | 1,000      |   |                    |  
|Proceeds from the sale of foreclosed assets                                       |  |                    | 81,399     |   |                    |  
|Net cash from investing activities                                                |  |                    | 2,920,569  |   |                    |  
|Cash flows from financing activities                                              |  |                    |            |   |                    |  
|Net change in deposits                                                            |  |                    | (279,308   | ) |                    |  
|Net change in federal funds purchased and repurchase agreements                   |  |                    | (15,830    | ) |                    |  
|Other borrowing activity:                                                         |  |                    |            |   |                    |  
|Repayment of note payable                                                         |  |                    | (500,000   | ) |                    |  
|Issuance of senior debt                                                           |  |                    | 1,280,000  |   |                    |  
|Net cash from financing activities                                                |  |                    | 484,862    |   |                    |  
|Net change in cash and cash equivalents                                           |  |                    | 3,214,526  |   |                    |  
|Beginning cash and cash equivalents                                               |  |                    | 20,297,115 |   |                    |  
|Ending cash and cash equivalents                                                  |  | $                  | 23,511,641 |   |                    | $
|Supplemental cash flow information:                                               |  |                    |            |   |                    |  
|Cash paid during the period for interest                                          |  | $                  | 283,969    |   |                    | $
|Transfers from loans to foreclosed assets                                         |  |                    | 380,749    |   |                    |  
|Transfers from loans held for sale to portfolio                                   |  |                    | 994,397    |   |                    |  



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 ended March 31, 2013 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 March 31, 2013 should not be considered as indicative of results for a full year. For further information,
refer to the consolidated financial statements and footnotes included in the Company’s annual report on Form 10-K for the
period ended December 31, 2012. 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, 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 but for the most part 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 revisited 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 2012.



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
3. The most significant risks to the commercial and commercial real estate segments are the level of development and sales of real
estate and the collateral values.  Locally and nationally, real estate development and sales activity is slowly picking up
but has not yet returned to pre-recession levels. There are widespread pockets of value stabilization but in some cases real estate
values can be erratic for properties such as golf courses and non-owner occupied office space. Even so impaired loan charge-off
activity directly related to falling collateral values has been less frequent. In 2012, with charge-off activity lessening, the
calculated historical loss factor assigned to general allocations was 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,
home equity lines of credit and credit cards. The level of delinquencies and charge-off experience directly impacts the general
allocations to the consumer classes. Both delinquencies and charge-offs have gone down in the last year allowing a reduction of
the general allocations in the allowance for loan losses.



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. Stabilizing real estate values have resulted in reduced general allocations
in the allowance for loan losses.



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, collateral value, 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.



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 any 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.



There was no material change in the allowance for loan loss
methodology in the first quarter of 2013.



-8-







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



RECENT DEVELOPMENTS: In February 2013, the
FASB issued ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, which is intended
to improve the reporting of reclassifications out of accumulated other comprehensive income.  The ASU requires an entity
to report, either on the face of the income statement or in the notes to the financial statements, the effect of significant reclassifications
out of accumulated other comprehensive income on the respective line items in the income statement.  This ASU was adopted
by the Company prospectively in the first quarter of 2013.



In 2012, the Company recorded consolidated
net income for the first time since 2006. The trend of profitability continued in the first quarter of 2013. As a result of a $5.3
million gain on extinguishment of debt recorded late in the first quarter, the Company’s consolidated earnings rose to $5.3
million. The return to core earning profitability stems mainly from stabilized credit quality and real estate valuations and the
effect on the calculated reserve for loan losses. There has been no provision for loan losses made since the first quarter of 2012
and at March 31, 2013, there was a little more than $200,000 of unallocated reserves stemming from improvement in macro-economic
factors as well as decreases to the Bank’s 36 month historical loss calculation. The unallocated reserves are not specific
to any particular portfolio segment.



In spite of the improved financial outcome for the last several
quarters, the Company’s significant consolidated losses from 2007 through 2011 eroded capital and reduced regulatory capital
ratios. As a result, the Bank was deemed undercapitalized according to regulatory capital standards beginning December 31, 2010.
At that time, the Bank had a total risk-based capital ratio of 7.06%. Earnings recorded by the Bank along with a significant reduction
in risk-weighted assets during 2012 improved the total risk-based capital ratio to 7.88% at December 31, 2012. At March 31, 2013,
the Bank’s total risk-based capital ratio advanced to 8.04% as a result of the Bank’s first quarter earnings and a
$25,000 capital contribution from the Company. The Bank is now considered adequately capitalized according to regulatory capital
standards.



From 2007 through 2011 when the Company recorded significant
losses primarily as a result of deteriorating asset quality, the Bank endured additional regulatory scrutiny and entered into a
Consent Order with the Federal Deposit Insurance Corporation (“FDIC”) and the State of Michigan’s Department
of Insurance and Financial Services (“DIFS”) previously the Office of Financial and Insurance Regulation (“OFIR”),
its primary regulators, on September 2, 2010. The Bank agreed to the terms of the Consent Order without admitting or denying any
charge of unsafe or unsound banking practices relating to capital, asset quality, or earnings. The Consent Order imposes no fines
or penalties on the Bank. The Consent Order will remain in effect and enforceable until it is modified, terminated, suspended,
or set aside by the FDIC and DIFS. Under the Consent Order, the Bank was required, within 90 days of
September 2, 2010, to have and maintain its level of Tier 1 capital, as a percentage of its total assets, at a minimum of 8.5%,
and its level of qualifying total capital, as a percentage of risk-weighted assets, at a minimum of 11%. The Bank was not able
to meet these requirements within the required 90-day period and remained out of compliance with the Consent Order as of March
31, 2013.



-9-







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



The lack of financial soundness of
the Bank and the Company’s inability to serve as a source of strength for the Bank resulted in the board of directors entering
into a Written Agreement with the Federal Reserve Bank of Chicago (the “FRB”), the Company’s primary regulator.
The Written Agreement became effective on December 16, 2010, when it was executed by the FRB. The Written Agreement provides that:
(i) the Company must take appropriate steps to fully utilize its financial and managerial resources to serve as a source of strength
to the Bank; (ii) the Company may not declare or pay any dividends or take dividends or any other payment representing a reduction
in capital from the Bank or make any distributions of interest, principal or other sums on subordinated debentures or trust preferred
securities without prior FRB approval; (iii) the Company may not incur, increase or guarantee any debt or purchase or redeem any
shares of its stock without prior FRB approval; (iv) the Company must submit a written statement of its planned sources and uses
of cash for debt service, operating expenses and other purposes to the FRB within 30 days of the Written Agreement; (v) the Company
shall take all necessary actions to ensure that the Bank, the Company and all nonbank subsidiaries of both the Bank and the Company
comply with sections 23A and 23B of the Federal Reserve Act and Regulation W of the Board of Governors (12 C.F.R. Part 223) in
all transactions between affiliates; (vi) the Company may not appoint any new director or senior executive officer, or change the
responsibilities of any senior executive officer so that the officer would assume a different senior executive officer position,
without prior regulatory approval; and finally (vii) within 30 days after the end of each calendar quarter following the date of
the Written Agreement, the board of directors shall submit to the FRB written progress reports detailing the form and manner of
all actions taken to secure compliance with the provisions of the Written Agreement as well as current copies of the parent company
only financial statements. The Company has not yet been able to meet the obligation detailed in part (i) above; as the Company
currently has limited resources with which to assist the Bank in achieving the capital level required by the Consent Order. The
Company’s main liquidity resource is its cash account balance which, as of March 31, 2013, was approximately $745,000.



On January 3, 2011, the Company was not able to repay its $5
million term loan owed to Fifth Third Bank (“Fifth Third”); nor was the Company able to make the proceeding ten quarterly
interest payments. The term loan was in default for 25 months. At December 31, 2012, the total amount owed Fifth Third was $5,763,000.
On March 20, 2013, the Company, with approval from the FRB, borrowed $1,280,000 from 1030 Norton LLC, a Michigan limited liability
company owned by nine individuals; three directors of the Company, one former director and five local businessmen, and settled
its debt with Fifth Third for $500,000. Settling the Fifth Third debt resulted in a gain of approximately $5.3 million in the first
quarter of 2013. As a result of this transaction, the Company was able to achieve positive shareholders’ equity of approximately
$4 million at March 31, 2013.



In addition to the payment to Fifth Third, the proceeds of the
new senior debt will be used for interest carry, general operations and potential capital support for the Bank. The note bears
interest at 8% per annum until paid in full. Interest is payable quarterly in arrears. The note matures on March 31, 2015 and is
secured by all of the issued and outstanding shares of the Bank as evidenced by a pledge agreement between the Company and 1030
Norton LLC dated March 20, 2013. The reduced amount of borrowings is expected to decrease interest expense by approximately $200,000
annually. Refer to Note 11 for further discussion.



On August 17, 2011, the Bank was issued a Supervisory Prompt
Corrective Action Directive (the “Directive”) because of its undercapitalized capital category at December 31, 2010,
its failure to submit a capital restoration plan that satisfies the requirements stipulated in the FDIC Rules and Regulations,
and the continued deterioration of the Bank. The Directive stipulated that the Bank be restored to an “adequately capitalized”
capital category within 60 days of the issuance of the Directive.



-10-







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



During the 60 days, the board made efforts to secure
funding and comply with the Directive but was not successful. Through several quarters of earnings and a $25,000 capital contribution
from the Company, the Bank reached an adequately capitalized regulatory capital category at March 31, 2013. Achievement of the
capital level stipulated in the Directive was formally communicated to the FDIC through the submission of the quarterly Call Report
as well as the quarterly written communication both submitted by management at the end of April.



Regardless of meeting the stipulations in the Directive, failure
to comply with the provisions of the Consent Order or the Written Agreement may subject the Bank to further regulatory enforcement
action.



The Company’s extended period of net
losses, failure to repay its term loan at maturity, timely compliance with the higher capital ratios of the Directive and the
Consent Order, and the provisions of the Written Agreement raise substantial doubt about the Company’s ability to continue
as a going concern. As a result of this substantial doubt, our auditors added an explanatory paragraph to their opinion on the
Company’s December 31, 2012, 2011 and 2010 consolidated financial statements expressing substantial doubt about the Company’s
ability to continue as a going concern. These financial statements do not include any adjustments that might be necessary if the
Company is unable to continue as a going concern.



| | 2. | SECURITIES AVAILABLE FOR SALE:
| | -- | ------------------------------



The following tables represent the securities held in the Company’s
portfolio at March 31, 2013 and at December 31, 2012:



|                                                                     |  |           |            |  | Gross      |   |         | Gross      |  |   |         |  
|-------------------------------------------------------------------- |  | --------- | ---------- |  | ---------- | - | ------- | ---------- |  | - | ------- | -
|                                                                     |  | Amortized |            |  | Unrealized |   |         | Unrealized |  |   | Fair    |  
|March 31, 2013                                                       |  | Cost      |            |  | Gains      |   |         | Losses     |  |   | Value   |  
|                                                                     |  |           |            |  |            |   |         |            |  |   |         |  
|US Treasury                                                          |  | $         | 3,039,590  |  |            | $ | 46,426  |            |  | $ | 0       |  
|US Government and federal agency                                     |  |           | 18,964,298 |  |            |   | 228,567 |            |  |   | (5,235  | )
|Municipals                                                           |  |           | 2,258,474  |  |            |   | 62,612  |            |  |   | 0       |  
|Mortgage-backed and collateralized mortgage obligations– residential |  |           | 13,660,752 |  |            |   | 232,931 |            |  |   | (39,835 | )
|                                                                     |  | $         | 37,923,114 |  |            | $ | 570,536 |            |  | $ | (45,070 | )



|                                                                     |  |           |            |  | Gross      |   |         | Gross      |  |   |         |  
|-------------------------------------------------------------------- |  | --------- | ---------- |  | ---------- | - | ------- | ---------- |  | - | ------- | -
|                                                                     |  | Amortized |            |  | Unrealized |   |         | Unrealized |  |   | Fair    |  
|December 31, 2012                                                    |  | Cost      |            |  | Gains      |   |         | Losses     |  |   | Value   |  
|                                                                     |  |           |            |  |            |   |         |            |  |   |         |  
|US Treasury                                                          |  | $         | 4,044,909  |  |            | $ | 49,623  |            |  | $ | 0       |  
|US Government and federal agency                                     |  |           | 20,013,843 |  |            |   | 250,523 |            |  |   | (4,623  | )
|Municipals                                                           |  |           | 2,260,272  |  |            |   | 73,469  |            |  |   | 0       |  
|Mortgage-backed and collateralized mortgage obligations– residential |  |           | 14,539,668 |  |            |   | 264,090 |            |  |   | (31,378 | )
|                                                                     |  | $         | 40,858,692 |  |            | $ | 637,705 |            |  | $ | (36,001 | )



-11-







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



| | 2. | SECURITIES AVAILABLE FOR SALE (Continued):
| | -- | ------------------------------------------



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 March 31, 2013:



|                                                                          |  | Amortized |            |  | Fair  |  
|------------------------------------------------------------------------- |  | --------- | ---------- |  | ----- | -
|                                                                          |  | Cost      |            |  | Value |  
|Due in one year or less                                                   |  | $         | 5,523,671  |  |       | $
|Due from one to five years                                                |  |           | 17,676,287 |  |       |  
|Due from five to ten years                                                |  |           | 1,062,404  |  |       |  
|Due in more than ten years                                                |  |           | 0          |  |       |  
|Mortgage-backed and
    collateralized mortgage obligations – residential |  |           | 13,660,752 |  |       |  
|                                                                          |  | $         | 37,923,114 |  |       | $



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 March 31,
2013 and December 31, 2012:



|                                                                          |  | Less than 12 Months |           |  | 12 Months or Longer |   |         | Total | 
|------------------------------------------------------------------------- |  | ------------------- | --------- |  | ------------------- | - | ------- | ----- | 
|                                                                          |  | Fair                |           |  | Unrealized          |   |         | Fair  | 
|March 31, 2013                                                            |  | Value               |           |  | Losses              |   |         | Value | 
|US Government
    and federal agency                                      |  | $                   | 2,044,127 |  |                     | $ | (5,235  | )     | 
|Mortgage-backed
    and collateralized mortgage obligations - residential |  |                     | 6,342,046 |  |                     |   | (38,998 | )     | 
|                                                                          |  | $                   | 8,386,173 |  |                     | $ | (44,233 | )     | 



|                                                                          |  | Less than 12 Months |           |  | 12 Months or Longer |   |         | Total | 
|------------------------------------------------------------------------- |  | ------------------- | --------- |  | ------------------- | - | ------- | ----- | 
|                                                                          |  | Fair                |           |  | Unrealized          |   |         | Fair  | 
|December 31, 2012                                                         |  | Value               |           |  | Losses              |   |         | Value | 
|US Government
    and federal agency                                      |  | $                   | 3,050,187 |  |                     | $ | (4,623  | )     | 
|Mortgage-backed
    and collateralized mortgage obligations - residential |  |                     | 3,882,818 |  |                     |   | (21,580 | )     | 
|                                                                          |  | $                   | 6,933,005 |  |                     | $ | (26,203 | )     | 



No securities were sold in the three months
ended March 31, 2013. There was one security sold in the first three months of 2012. Management chose to remove the security from
the portfolio because it no longer complied with the Bank’s internal investment policy. Proceeds from the sale were $257,997
resulting in a realized gain of $2,856. In the first three months of 2013, there were no transfers out of accumulated other comprehensive
income for loan sales.



-12-







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



| | 2. | SECURITIES AVAILABLE FOR SALE (Continued):
| | -- | ------------------------------------------



Other-Than-Temporary-Impairment



Management evaluates securities for 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 March 31, 2013, 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
Fannie Mae, Freddie Mac and Ginnie Mae, institutions which the government has affirmed its commitment to support. At March 31,
2013, eleven debt securities had unrealized losses with aggregate depreciation of 0.52% from the amortized cost basis. Five of
the eleven securities are issued by government agencies and six are issued by a government-sponsored entity. 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 March 31, 2013.



-13-







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



| | 3. | LOANS
| | -- | -----



Outstanding loan balances by portfolio
segment and class were as follows:



|                                |  | March 31, 2013 |             |   | December 31, 2012 |  
|------------------------------- |  | -------------- | ----------- | - | ----------------- | -
|Commercial                      |  | $              | 42,433,661  |   |                   | $
|Commercial Real Estate:         |  |                |             |   |                   |  
|General                         |  |                | 54,300,500  |   |                   |  
|Construction                    |  |                | 2,283,357   |   |                   |  
|Consumer:                       |  |                |             |   |                   |  
|Lines of credit                 |  |                | 8,805,290   |   |                   |  
|Other                           |  |                | 1,844,773   |   |                   |  
|Credit card                     |  |                | 487,350     |   |                   |  
|Residential                     |  |                | 16,220,753  |   |                   |  
|Net deferred loan fees          |  |                | (55,086     | ) |                   |  
|                                |  |                | 126,320,598 |   |                   |  
|Less: Allowance for loan losses |  |                | (3,302,297  | ) |                   |  
|Loans, net                      |  | $              | 123,018,301 |   |                   | $



-14-







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 month periods ended March 31, 2013 and 2012 by portfolio segment:



|Three Months Ended March 31, 2013 |  | Commercial |         |   | Commercial Real Estate |   |           | Consumer |  |   | Residential |   |  | Unallocated |         |   | Total |  
|--------------------------------- |  | ---------- | ------- | - | ---------------------- | - | --------- | -------- |  | - | ----------- | - |  | ----------- | ------- | - | ----- | -
|Allowance for loan losses:        |  |            |         |   |                        |   |           |          |  |   |             |   |  |             |         |   |       |  
|Beginning balance                 |  | $          | 582,198 |   |                        | $ | 2,266,302 |          |  | $ | 331,459     |   |  | $           | 203,018 |   |       | $
|Charge-offs                       |  |            | (40,253 | ) |                        |   | (9,711    | )        |  |   | (18,291     | ) |  |             | (54,599 | ) |       |  
|Recoveries                        |  |            | 39,584  |   |                        |   | 0         |          |  |   | 2,590       |   |  |             | 0       |   |       |  
|Provision for loan losses         |  |            | (57,146 | ) |                        |   | (183,835  | )        |  |   | 14,270      |   |  |             | 21,130  |   |       |  
|Ending balance                    |  | $          | 524,383 |   |                        | $ | 2,072,756 |          |  | $ | 330,028     |   |  | $           | 169,549 |   |       | $



|Three Months Ended March 31, 2012 |  | Commercial |           |   | Commercial Real Estate |   |           | Consumer |  |   | Residential |   |  | Unallocated |         |  | Total |  
|--------------------------------- |  | ---------- | --------- | - | ---------------------- | - | --------- | -------- |  | - | ----------- | - |  | ----------- | ------- |  | ----- | -
|Allowance for loan losses:        |  |            |           |   |                        |   |           |          |  |   |             |   |  |             |         |  |       |  
|Beginning balance                 |  | $          | 1,309,632 |   |                        | $ | 3,386,433 |          |  | $ | 410,001     |   |  | $           | 193,388 |  |       | $
|Charge-offs                       |  |            | (188,792  | ) |                        |   | (762,700  | )        |  |   | (14,788     | ) |  |             | 0       |  |       |  
|Recoveries                        |  |            | 8,109     |   |                        |   | 0         |          |  |   | 17,785      |   |  |             | 0       |  |       |  
|Provision for loan losses         |  |            | 9,114     |   |                        |   | (137,025  | )        |  |   | 100,262     |   |  |             | 12,613  |  |       |  
|Ending balance                    |  | $          | 1,138,063 |   |                        | $ | 2,486,708 |          |  | $ | 513,260     |   |  | $           | 206,001 |  |       | $



-15-







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



The remaining loan footnote tables on the following pages present
loans at the recorded investment which includes unpaid principal, accrued interest receivable and net deferred, unearned fees.
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 March 31, 2013 and December 31, 2012:



|March 31, 2013                                  |  | Commercial |            |  | Commercial
    Real Estate |   |            | Consumer |  |   | Residential |  |  | Unallocated |            |  | Total |  
|----------------------------------------------- |  | ---------- | ---------- |  | -------------------------- | - | ---------- | -------- |  | - | ----------- |  |  | ----------- | ---------- |  | ----- | -
|Allowance for loan losses:                      |  |            |            |  |                            |   |            |          |  |   |             |  |  |             |            |  |       |  
|Ending allowance balance attributable to loans: |  |            |            |  |                            |   |            |          |  |   |             |  |  |             |            |  |       |  
|Individually evaluated for impairment           |  | $          | 36,168     |  |                            | $ | 1,365,307  |          |  | $ | 111,767     |  |  | $           | 86,507     |  |       | $
|Collectively evaluated for impairment           |  |            | 488,215    |  |                            |   | 707,449    |          |  |   | 218,261     |  |  |             | 83,042     |  |       |  
|Unallocated                                     |  |            | 0          |  |                            |   | 0          |          |  |   | 0           |  |  |             | 0          |  |       |  
|Total ending allowance
    balance              |  | $          | 524,383    |  |                            | $ | 2,072,756  |          |  | $ | 330,028     |  |  | $           | 169,549    |  |       | $
|                                                |  |            |            |  |                            |   |            |          |  |   |             |  |  |             |            |  |       |  
|Loans:                                          |  |            |            |  |                            |   |            |          |  |   |             |  |  |             |            |  |       |  
|Individually evaluated for impairment           |  | $          | 1,458,810  |  |                            | $ | 6,884,619  |          |  | $ | 292,757     |  |  | $           | 583,288    |  |       | $
|Collectively evaluated
    for impairment       |  |            | 41,101,283 |  |                            |   | 49,828,691 |          |  |   | 10,885,245  |  |  |             | 15,682,434 |  |       |  
|Total ending loans balance                      |  | $          | 42,560,093 |  |                            | $ | 56,713,310 |          |  | $ | 11,178,002  |  |  | $           | 16,265,722 |  |       | $



|December 31, 2012                               |  | Commercial |            |  | Commercial
    Real Estate |   |            | Consumer |  |   | Residential |  |  | Unallocated |            |  | Total |  
|----------------------------------------------- |  | ---------- | ---------- |  | -------------------------- | - | ---------- | -------- |  | - | ----------- |  |  | ----------- | ---------- |  | ----- | -
|Allowance for loan losses:                      |  |            |            |  |                            |   |            |          |  |   |             |  |  |             |            |  |       |  
|Ending allowance balance attributable to loans: |  |            |            |  |                            |   |            |          |  |   |             |  |  |             |            |  |       |  
|Individually evaluated for impairment           |  | $          | 104,727    |  |                            | $ | 1,489,569  |          |  | $ | 89,050      |  |  | $           | 127,030    |  |       | $
|Collectively evaluated for impairment           |  |            | 477,471    |  |                            |   | 776,733    |          |  |   | 242,409     |  |  |             | 75,988     |  |       |  
|Unallocated                                     |  |            | 0          |  |                            |   | 0          |          |  |   | 0           |  |  |             | 0          |  |       |  
|Total ending allowance
    balance              |  | $          | 582,198    |  |                            | $ | 2,266,302  |          |  | $ | 331,459     |  |  | $           | 203,018    |  |       | $
|                                                |  |            |            |  |                            |   |            |          |  |   |             |  |  |             |            |  |       |  
|Loans:                                          |  |            |            |  |                            |   |            |          |  |   |             |  |  |             |            |  |       |  
|Individually evaluated for impairment           |  | $          | 3,288,294  |  |                            | $ | 7,322,850  |          |  | $ | 321,820     |  |  | $           | 782,732    |  |       | $
|Collectively evaluated
    for impairment       |  |            | 36,739,269 |  |                            |   | 49,391,498 |          |  |   | 11,329,495  |  |  |             | 17,063,417 |  |       |  
|Total ending loans balance                      |  | $          | 40,027,563 |  |                            | $ | 56,714,348 |          |  | $ | 11,651,315  |  |  | $           | 17,846,149 |  |       | $



-16-







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 March 31, 2013 and December 31, 2012. For purposes of this disclosure, the unpaid principal
balance is not reduced for partial charge-offs.



|                                    |  |            |           |  |                  |   |           |           |  |   | Three Months     |  |  | Three Months    |            |  | Three Months        |  
|----------------------------------- |  | ---------- | --------- |  | ---------------- | - | --------- | --------- |  | - | ---------------- |  |  | --------------- | ---------- |  | ------------------- | -
|                                    |  | Recorded   |           |  | Unpaid Principal |   |           | Related   |  |   | Average Recorded |  |  | Interest Income |            |  | Cash Basis          |  
|March 31, 2013                      |  | Investment |           |  | Balance          |   |           | Allowance |  |   | Investment       |  |  | Recognized      |            |  | Interest Recognized |  
|With no related allowance recorded: |  |            |           |  |                  |   |           |           |  |   |                  |  |  |                 |            |  |                     |  
|Commercial                          |  | $          | 1,352,118 |  |                  | $ | 1,472,359 |           |  | $ | 0                |  |  | $               | 1,912,112  |  |                     | $
|Commercial Real Estate:             |  |            |           |  |                  |   |           |           |  |   |                  |  |  |                 |            |  |                     |  
|General                             |  |            | 2,332,622 |  |                  |   | 2,397,940 |           |  |   | 0                |  |  |                 | 2,468,797  |  |                     |  
|Construction                        |  |            | 0         |  |                  |   | 0         |           |  |   | 0                |  |  |                 | 0          |  |                     |  
|Consumer:                           |  |            |           |  |                  |   |           |           |  |   |                  |  |  |                 |            |  |                     |  
|Lines of credit                     |  |            | 76,906    |  |                  |   | 76,846    |           |  |   | 0                |  |  |                 | 109,721    |  |                     |  
|Other                               |  |            | 30,495    |  |                  |   | 30,495    |           |  |   | 0                |  |  |                 | 23,605     |  |                     |  
|Credit card                         |  |            | 0         |  |                  |   | 0         |           |  |   | 0                |  |  |                 | 0          |  |                     |  
|Residential                         |  |            | 124,336   |  |                  |   | 157,001   |           |  |   | 0                |  |  |                 | 158,018    |  |                     |  
|Subtotal                            |  | $          | 3,916,477 |  |                  | $ | 4,134,641 |           |  | $ | 0                |  |  | $               | 4,672,253  |  |                     | $
|                                    |  |            |           |  |                  |   |           |           |  |   |                  |  |  |                 |            |  |                     |  
|With an allowance recorded:         |  |            |           |  |                  |   |           |           |  |   |                  |  |  |                 |            |  |                     |  
|Commercial                          |  | $          | 106,692   |  |                  | $ | 106,656   |           |  | $ | 36,168           |  |  | $               | 733,604    |  |                     | $
|Commercial Real Estate:             |  |            |           |  |                  |   |           |           |  |   |                  |  |  |                 |            |  |                     |  
|General                             |  |            | 4,551,997 |  |                  |   | 4,563,541 |           |  |   | 1,365,307        |  |  |                 | 4,511,715  |  |                     |  
|Construction                        |  |            | 0         |  |                  |   | 0         |           |  |   | 0                |  |  |                 | 0          |  |                     |  
|Consumer:                           |  |            |           |  |                  |   |           |           |  |   |                  |  |  |                 |            |  |                     |  
|Lines of credit                     |  |            | 68,638    |  |                  |   | 68,541    |           |  |   | 67,930           |  |  |                 | 118,341    |  |                     |  
|Other                               |  |            | 114,028   |  |                  |   | 113,869   |           |  |   | 41,147           |  |  |                 | 107,710    |  |                     |  
|Credit card                         |  |            | 2,690     |  |                  |   | 2,690     |           |  |   | 2,690            |  |  |                 | 897        |  |                     |  
|Residential                         |  |            | 458,952   |  |                  |   | 467,010   |           |  |   | 86,507           |  |  |                 | 470,185    |  |                     |  
|Subtotal                            |  | $          | 5,302,997 |  |                  | $ | 5,322,307 |           |  | $ | 1,599,749        |  |  | $               | 5,942,452  |  |                     | $
|Total                               |  | $          | 9,219,474 |  |                  | $ | 9,456,948 |           |  | $ | 1,599,749        |  |  | $               | 10,614,705 |  |                     | $



-17-







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



|                                    |  |            |            |  |                  |   |            |           |  |   | Twelve Months    |  |  | Twelve Months   |            |  | Twelve Months       |  
|----------------------------------- |  | ---------- | ---------- |  | ---------------- | - | ---------- | --------- |  | - | ---------------- |  |  | --------------- | ---------- |  | ------------------- | -
|                                    |  | Recorded   |            |  | Unpaid Principal |   |            | Related   |  |   | Average Recorded |  |  | Interest Income |            |  | Cash Basis          |  
|December 31, 2012                   |  | Investment |            |  | Balance          |   |            | Allowance |  |   | Investment       |  |  | Recognized      |            |  | Interest Recognized |  
|With no related allowance recorded: |  |            |            |  |                  |   |            |           |  |   |                  |  |  |                 |            |  |                     |  
|Commercial                          |  | $          | 2,147,075  |  |                  | $ | 2,295,401  |           |  | $ | 0                |  |  | $               | 2,413,625  |  |                     | $
|Commercial Real Estate:             |  |            |            |  |                  |   |            |           |  |   |                  |  |  |                 |            |  |                     |  
|General                             |  |            | 2,662,984  |  |                  |   | 2,739,027  |           |  |   | 0                |  |  |                 | 2,783,388  |  |                     |  
|Construction                        |  |            | 0          |  |                  |   | 0          |           |  |   | 0                |  |  |                 | 167,274    |  |                     |  
|Consumer:                           |  |            |            |  |                  |   |            |           |  |   |                  |  |  |                 |            |  |                     |  
|Lines of credit                     |  |            | 55,659     |  |                  |   | 55,524     |           |  |   | 0                |  |  |                 | 46,916     |  |                     |  
|Other                               |  |            | 26,221     |  |                  |   | 26,221     |           |  |   | 0                |  |  |                 | 17,290     |  |                     |  
|Credit card                         |  |            | 0          |  |                  |   | 0          |           |  |   | 0                |  |  |                 | 0          |  |                     |  
|Residential                         |  |            | 208,178    |  |                  |   | 240,491    |           |  |   | 0                |  |  |                 | 285,420    |  |                     |  
|Subtotal                            |  | $          | 5,100,117  |  |                  | $ | 5,356,664  |           |  | $ | 0                |  |  | $               | 5,713,913  |  |                     | $
|With an allowance recorded:         |  |            |            |  |                  |   |            |           |  |   |                  |  |  |                 |            |  |                     |  
|Commercial                          |  | $          | 1,141,219  |  |                  | $ | 1,139,885  |           |  | $ | 104,727          |  |  | $               | 1,510,788  |  |                     | $
|Commercial Real Estate:             |  |            |            |  |                  |   |            |           |  |   |                  |  |  |                 |            |  |                     |  
|General                             |  |            | 4,659,866  |  |                  |   | 4,675,981  |           |  |   | 1,489,569        |  |  |                 | 5,228,456  |  |                     |  
|Construction                        |  |            | 0          |  |                  |   | 0          |           |  |   | 0                |  |  |                 | 21,201     |  |                     |  
|Consumer:                           |  |            |            |  |                  |   |            |           |  |   |                  |  |  |                 |            |  |                     |  
|Lines of credit                     |  |            | 135,111    |  |                  |   | 134,976    |           |  |   | 40,180           |  |  |                 | 176,507    |  |                     |  
|Other                               |  |            | 104,829    |  |                  |   | 104,664    |           |  |   | 48,870           |  |  |                 | 114,664    |  |                     |  
|Credit card                         |  |            | 0          |  |                  |   | 0          |           |  |   | 0                |  |  |                 | 988        |  |                     |  
|Residential                         |  |            | 574,554    |  |                  |   | 594,307    |           |  |   | 127,030          |  |  |                 | 486,301    |  |                     |  
|Subtotal                            |  | $          | 6,615,579  |  |                  | $ | 6,649,813  |           |  | $ | 1,810,376        |  |  | $               | 7,538,905  |  |                     | $
|Total                               |  | $          | 11,715,696 |  |                  | $ | 12,006,477 |           |  | $ | 1,810,376        |  |  | $               | 13,252,818 |  |                     | $



Non-performing loans and impaired loans are defined differently.
Some loans may be included in both categories, whereas other loans may only be included in one category. However, non-accrual
loans and loans past due 90 days still on accrual are all individually classified impaired loans.



-18-







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 March 31, 2013:



|                        |  |                 |        |  |                 |   |        | Greater Than 90 |  |   | Total Accruing |  |  |                |         |  | Total Recorded |  
|----------------------- |  | --------------- | ------ |  | --------------- | - | ------ | --------------- |  | - | -------------- |  |  | -------------- | ------- |  | -------------- | -
|                        |  | 30-59 Days Past |        |  | 60-89 Days Past |   |        | Days Past       |  |   | Past Due       |  |  | Current        |         |  | Investment of  |  
|Accruing Loans          |  | Due             |        |  | Due             |   |        | Due             |  |   | Loans          |  |  | Accruing Loans |         |  | Accruing Loans |  
|Commercial              |  | $               | 1,087  |  |                 | $ | 0      |                 |  | $ | 0              |  |  | $              | 1,087   |  |                | $
|Commercial Real Estate: |  |                 |        |  |                 |   |        |                 |  |   |                |  |  |                |         |  |                |  
|General                 |  |                 | 0      |  |                 |   | 0      |                 |  |   | 0              |  |  |                | 0       |  |                |  
|Construction            |  |                 | 0      |  |                 |   | 0      |                 |  |   | 0              |  |  |                | 0       |  |                |  
|Consumer:               |  |                 |        |  |                 |   |        |                 |  |   |                |  |  |                |         |  |                |  
|Lines of credit         |  |                 | 71,480 |  |                 |   | 0      |                 |  |   | 0              |  |  |                | 71,480  |  |                |  
|Other                   |  |                 | 0      |  |                 |   | 3,370  |                 |  |   | 0              |  |  |                | 3,370   |  |                |  
|Credit card             |  |                 | 3,559  |  |                 |   | 0      |                 |  |   | 0              |  |  |                | 3,559   |  |                |  
|Residential             |  |                 | 0      |  |                 |   | 79,700 |                 |  |   | 0              |  |  |                | 79,700  |  |                |  
|Total                   |  | $               | 76,126 |  |                 | $ | 83,070 |                 |  | $ | 0              |  |  | $              | 159,196 |  |                | $



|                        |  |                 |       |  |                 |   |   | Greater Than 90 |  |   | Total          |  |  | Current     |         |  | Total Non Accrual |  
|----------------------- |  | --------------- | ----- |  | --------------- | - | - | --------------- |  | - | -------------- |  |  | ----------- | ------- |  | ----------------- | -
|                        |  | 30-59 Days Past |       |  | 60-89 Days Past |   |   | Days Past       |  |   | Non Accrual    |  |  | Non Accrual |         |  | Recorded          |  
|Non Accrual Loans       |  | Due             |       |  | Due             |   |   | Due             |  |   | Past Due Loans |  |  | Loans       |         |  | Investment        |  
|Commercial              |  | $               | 0     |  |                 | $ | 0 |                 |  | $ | 135,404        |  |  | $           | 135,404 |  |                   | $
|Commercial Real Estate: |  |                 |       |  |                 |   |   |                 |  |   |                |  |  |             |         |  |                   |  
|General                 |  |                 | 0     |  |                 |   | 0 |                 |  |   | 405,742        |  |  |             | 405,742 |  |                   |  
|Construction            |  |                 | 0     |  |                 |   | 0 |                 |  |   | 0              |  |  |             | 0       |  |                   |  
|Consumer:               |  |                 |       |  |                 |   |   |                 |  |   |                |  |  |             |         |  |                   |  
|Lines of credit         |  |                 | 0     |  |                 |   | 0 |                 |  |   | 19,429         |  |  |             | 19,429  |  |                   |  
|Other                   |  |                 | 6,999 |  |                 |   | 0 |                 |  |   | 13,124         |  |  |             | 20,123  |  |                   |  
|Credit card             |  |                 | 0     |  |                 |   | 0 |                 |  |   | 0              |  |  |             | 0       |  |                   |  
|Residential             |  |                 | 0     |  |                 |   | 0 |                 |  |   | 0              |  |  |             | 0       |  |                   |  
|Total                   |  | $               | 6,999 |  |                 | $ | 0 |                 |  | $ | 573,699        |  |  | $           | 580,698 |  |                   | $



-19-







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, 2012:



|                        |  |                 |         |  |                 |   |         | Greater Than 90 |  |   | Total Accruing |  |  |                |         |  | Total Recorded |  
|----------------------- |  | --------------- | ------- |  | --------------- | - | ------- | --------------- |  | - | -------------- |  |  | -------------- | ------- |  | -------------- | -
|                        |  | 30-59 Days Past |         |  | 60-89 Days Past |   |         | Days Past       |  |   | Past Due       |  |  | Current        |         |  | Investment of  |  
|Accruing Loans          |  | Due             |         |  | Due             |   |         | Due             |  |   | Loans          |  |  | Accruing Loans |         |  | Accruing Loans |  
|Commercial              |  | $               | 1,956   |  |                 | $ | 0       |                 |  | $ | 0              |  |  | $              | 1,956   |  |                | $
|Commercial Real Estate: |  |                 |         |  |                 |   |         |                 |  |   |                |  |  |                |         |  |                |  
|General                 |  |                 | 97,605  |  |                 |   | 0       |                 |  |   | 0              |  |  |                | 97,605  |  |                |  
|Construction            |  |                 | 0       |  |                 |   | 0       |                 |  |   | 0              |  |  |                | 0       |  |                |  
|Consumer:               |  |                 |         |  |                 |   |         |                 |  |   |                |  |  |                |         |  |                |  
|Lines of credit         |  |                 | 26,037  |  |                 |   | 44,866  |                 |  |   | 0              |  |  |                | 70,903  |  |                |  
|Other                   |  |                 | 3,707   |  |                 |   | 0       |                 |  |   | 0              |  |  |                | 3,707   |  |                |  
|Credit card             |  |                 | 2,010   |  |                 |   | 0       |                 |  |   | 0              |  |  |                | 2,010   |  |                |  
|Residential             |  |                 | 0       |  |                 |   | 85,242  |                 |  |   | 0              |  |  |                | 85,242  |  |                |  
|Total                   |  | $               | 131,315 |  |                 | $ | 130,108 |                 |  | $ | 0              |  |  | $              | 261,423 |  |                | $



|                        |  |                 |        |  |                 |   |         | Greater Than 90 |  |   | Total          |  |  | Current     |           |  | Total Non Accrual |  
|----------------------- |  | --------------- | ------ |  | --------------- | - | ------- | --------------- |  | - | -------------- |  |  | ----------- | --------- |  | ----------------- | -
|                        |  | 30-59 Days Past |        |  | 60-89 Days Past |   |         | Days Past       |  |   | Non Accrual    |  |  | Non Accrual |           |  | Recorded          |  
|Non Accrual Loans       |  | Due             |        |  | Due             |   |         | Due             |  |   | Past Due Loans |  |  | Loans       |           |  | Investment        |  
|Commercial              |  | $               | 8,958  |  |                 | $ | 20,469  |                 |  | $ | 320,592        |  |  | $           | 350,019   |  |                   | $
|Commercial Real Estate: |  |                 |        |  |                 |   |         |                 |  |   |                |  |  |             |           |  |                   |  
|General                 |  |                 | 8,414  |  |                 |   | 280,399 |                 |  |   | 406,792        |  |  |             | 695,605   |  |                   |  
|Construction            |  |                 | 0      |  |                 |   | 0       |                 |  |   | 0              |  |  |             | 0         |  |                   |  
|Consumer:               |  |                 |        |  |                 |   |         |                 |  |   |                |  |  |             |           |  |                   |  
|Lines of credit         |  |                 | 0      |  |                 |   | 21,583  |                 |  |   | 0              |  |  |             | 21,583    |  |                   |  
|Other                   |  |                 | 0      |  |                 |   | 0       |                 |  |   | 6,050          |  |  |             | 6,050     |  |                   |  
|Credit card             |  |                 | 0      |  |                 |   | 0       |                 |  |   | 0              |  |  |             | 0         |  |                   |  
|Residential             |  |                 | 0      |  |                 |   | 0       |                 |  |   | 195,649        |  |  |             | 195,649   |  |                   |  
|Total                   |  | $               | 17,372 |  |                 | $ | 322,451 |                 |  | $ | 929,083        |  |  | $           | 1,268,906 |  |                   | $



-20-







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



Troubled Debt Restructurings:



The Company has allocated $1,542,741 of specific reserves on
$8,435,539 of unpaid principal balance of loans to customers whose loan terms have been modified in troubled debt restructurings
as of March 31, 2013 and $1,699,851 on $10,441,218 of unpaid principal balance of loans as of December 31, 2012. At March 31,
2013, the Company had an additional $60,923 in performing loans outstanding to one of those customers. As of December 31, 2012,
there was $184,364 committed to one customer.



During the three month periods ended March 31, 2013 and 2012,
the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included
one or a combination of the following: a stated rate of interest lower than the current market rate for new debt with similar
risk; interest only payments on an amortizing note; a reduced payment amount which does not fully cover the interest; financing
concessions; or a permanent reduction of the recorded investment in the loan.



One A-B note modification involved a permanent reduction of
the recorded investment in the loan.



The following table presents loans by class modified as troubled
debt restructurings that occurred during the three month period ended March 31, 2013:



|                                  |  |                 |   |  | Pre-Modification     |   |         | Post-Modification    | 
|--------------------------------- |  | --------------- | - |  | -------------------- | - | ------- | -------------------- | 
|                                  |  |                 |   |  | Outstanding Recorded |   |         | Outstanding Recorded | 
|Three Months Ended March 31, 2013 |  | Number of Loans |   |  | Investment           |   |         | Investment           | 
|Troubled Debt Restructurings:     |  |                 |   |  |                      |   |         |                      | 
|Commercial                        |  |                 | 1 |  |                      | $ | 143,136 |                      | 
|Total                             |  |                 | 1 |  |                      | $ | 143,136 |                      | 



In the three month period ended March 31, 2013, there were
$9,700 of charge-offs related to the A-B note modification. As of March 31, 2013, there were no specific reserves on the remaining
balance of this troubled debt restructuring.



-21-







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



The following table presents loans by class modified as troubled
debt restructurings that occurred during the three month period ended March 31, 2012:



|                                  |  |                 |   |  | Pre-Modification     |   |           | Post-Modification    | 
|--------------------------------- |  | --------------- | - |  | -------------------- | - | --------- | -------------------- | 
|                                  |  |                 |   |  | Outstanding Recorded |   |           | Outstanding Recorded | 
|Three Months Ended March 31, 2012 |  | Number of Loans |   |  | Investment           |   |           | Investment           | 
|Troubled Debt Restructurings:     |  |                 |   |  |                      |   |           |                      | 
|Commercial                        |  |                 | 1 |  |                      | $ | 11,880    |                      | 
|Commercial Real Estate:           |  |                 |   |  |                      |   |           |                      | 
|General                           |  |                 | 5 |  |                      |   | 3,446,269 |                      | 
|Consumer:                         |  |                 |   |  |                      |   |           |                      | 
|Lines of credit                   |  |                 | 1 |  |                      |   | 104,444   |                      | 
|Residential                       |  |                 | 1 |  |                      |   | 62,085    |                      | 
|Total                             |  |                 | 8 |  |                      | $ | 3,624,678 |                      | 



In the three month period ended March 31, 2012, there were
$638,000 of charge-offs as part of a troubled debt restructuring arrangement and an additional $30,000 of specific reserves were
established on these troubled debt restructurings.



Generally, a modified loan is considered to be in payment default
when the borrower is not performing according to the renegotiated terms.



For the three month periods ended March 31, 2013 and 2012,
there were no troubled debt restructurings that experienced a payment default within 12 months following the modification.



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.



-22-







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



Credit Quality Indicators:



The Bank utilizes a numeric grading system for commercial and
commercial real estate loans to indicate the strength of the credit. At origination, grades are assigned to each commercial and
commercial real estate loan by assessing information about the specific borrower’s situation including cash flow analysis
and the estimated collateral values. The loan grade is reassessed at each renewal or amendment but any credit may receive a review
based on lender identification of changes in the situation or behavior of the borrower. All commercial and commercial real estate
loans exceeding $500,000 are formally reviewed at least annually. Once a loan is graded a 5M or greater number, and is over $100,000,
the loan grade will be reanalyzed once a quarter to assess the borrowers’ compliance with the Bank’s documented action plan.
In addition to these methods for assigning loan grades, changes may occur through the external loan review or regulatory exam
process. The loan grades are as follows:



| | 1. | Exceptional. Loans with an exceptional credit rating.
| | -- | -----------------------------------------------------

| | 2. | Quality. Loans with excellent sources of repayment that conform,
                                                               in all respects, to Bank policy and regulatory requirements. These
                                                               are loans for which little repayment risk has been identified.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | Above Average. Loans with above average sources of repayment
                                                               and minimal identified credit or collateral exceptions and minimal
                                                               repayment risk.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | Average. Loans with average sources of repayment that materially
                                                               conform to Bank policy and regulatory requirements. Repayment risk
                                                               is considered average.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 5. | Acceptable. Loans with acceptable sources of repayment and
                                                               risk.
| | -- | -------------------------------------------------------------------------------------------------------------------------------

| | 5M. | Monitor. Loans considered to be below average quality.
The loans are often fundamentally sound but require more frequent management review because of an adverse financial event. Risk
of non payment is elevated.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 6. | Special Mention. Loans that have potential weaknesses and deserve
                                                               close attention. If uncorrected, further deterioration is likely.
                                                               Risk of non payment is above average.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 7. | Substandard. Loans that are inadequately protected by the borrower’s
                                                               capacity to pay or the collateral pledged. Risk of non payment
                                                               is high.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 8. | Doubtful. Loans in this grade have identified weaknesses that
                                                               make full repayment highly questionable and improbable.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



When a loan is downgraded to a nine, it is considered a loss
and is charged-off.



-23-







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



As of March 31, 2013 and December 31, 2012, and based on the
most recent analysis performed, the recorded investment by risk category and class of loans is as follows:



|      |  |            |            |  | Commercial Real Estate |   |            | Commercial Real Estate | 
|----- |  | ---------- | ---------- |  | ---------------------- | - | ---------- | ---------------------- | 
|      |  | Commercial |            |  | General                |   |            | Construction           | 
|      |  | March 31,  |            |  | December 31,           |   |            | March 31,              | 
|      |  | 2013       |            |  | 2012                   |   |            | 2013                   | 
|1     |  | $          | 0          |  |                        | $ | 0          |                        | 
|2     |  |            | 253,151    |  |                        |   | 298,200    |                        | 
|3     |  |            | 2,558,219  |  |                        |   | 2,004,476  |                        | 
|4     |  |            | 14,419,073 |  |                        |   | 14,017,221 |                        | 
|5     |  |            | 17,908,163 |  |                        |   | 16,373,423 |                        | 
|5M    |  |            | 4,574,018  |  |                        |   | 3,318,016  |                        | 
|6     |  |            | 1,389,134  |  |                        |   | 2,180,119  |                        | 
|7     |  |            | 1,298,786  |  |                        |   | 1,369,803  |                        | 
|8     |  |            | 159,549    |  |                        |   | 466,305    |                        | 
|Total |  | $          | 42,560,093 |  |                        | $ | 40,027,563 |                        | 



The Company considers the performance of the loan portfolio
and its impact on the allowance for loan losses. For residential and consumer loan classes, the Company evaluates credit quality
based on the aging status of the loan, which was previously presented and by payment activity. The following tables present the
recorded investment in residential and consumer loans based on payment activity as of March 31, 2013 and December 31, 2012:



|           |  | Residential |           
|---------- |  | ----------- | ----------
|           |  | March 31,   |           
|           |  | 2013        |           
|Performing |  | $           | 15,682,434
|Impaired   |  |             | 583,288   
|Total      |  | $           | 16,265,722



|           |  | Consumer – Lines of credit |           |  | Consumer – Other |   |           | Consumer – Credit card | 
|---------- |  | -------------------------- | --------- |  | ---------------- | - | --------- | ---------------------- | 
|           |  | March 31,                  |           |  | December 31,     |   |           | March 31,              | 
|           |  | 2013                       |           |  | 2012             |   |           | 2013                   | 
|Performing |  | $                          | 8,692,005 |  |                  | $ | 8,944,652 |                        | 
|Impaired   |  |                            | 145,544   |  |                  |   | 190,770   |                        | 
|Total      |  | $                          | 8,837,549 |  |                  | $ | 9,135,422 |                        | 



-24-







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



| | 5. | FORECLOSED ASSETS
| | -- | -----------------



Foreclosed asset activity:



|                                               |  | March 31, |           |   | March 31, |  
|---------------------------------------------- |  | --------- | --------- | - | --------- | -
|                                               |  | 2013      |           |   | 2012      |  
|Beginning of year                              |  | $         | 2,806,781 |   |           | $
|Additions                                      |  |           | 380,749   |   |           |  
|Reductions from sales                          |  |           | (81,399   | ) |           |  
|Direct write-downs                             |  |           | (7,599    | ) |           |  
|End of period                                  |  | $         | 3,098,532 |   |           | $
|                                               |  |           |           |   |           |  
|Expenses related to foreclosed assets include: |  |           |           |   |           |  
|Operating expenses, net of rental income       |  | $         | 87,838    |   |           | $



| | 6. | PREMISES AND EQUIPMENT
| | -- | ----------------------



Period end premises and equipment were as follows:



|                                  |  | March 31, |            |  | December 31, |  
|--------------------------------- |  | --------- | ---------- |  | ------------ | -
|                                  |  | 2013      |            |  | 2012         |  
|Land & land improvements          |  | $         | 4,700,464  |  |              | $
|Buildings & building improvements |  |           | 6,144,749  |  |              |  
|Furniture, fixtures and equipment |  |           | 3,829,645  |  |              |  
|                                  |  |           | 14,674,858 |  |              |  
|Less: accumulated depreciation    |  |           | 5,312,843  |  |              |  
|                                  |  | $         | 9,362,015  |  |              | $



-25-







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



| | 7. | DEPOSITS
| | -- | --------



The components of the outstanding
deposit balances at March 31, 2013 and December 31, 2012 were as follows:



|                         |  | March 31, |             |  | December 31, |  
|------------------------ |  | --------- | ----------- |  | ------------ | -
|                         |  | 2013      |             |  | 2012         |  
|Non-interest-bearing DDA |  | $         | 31,966,192  |  |              | $
|Interest-bearing DDA     |  |           | 26,247,580  |  |              |  
|Money market             |  |           | 27,103,974  |  |              |  
|Savings                  |  |           | 8,561,554   |  |              |  
|Time, under $100,000     |  |           | 80,233,437  |  |              |  
|Time, over $100,000      |  |           | 9,784,448   |  |              |  
|Total Deposits           |  | $         | 183,897,185 |  |              | $



There were no brokered deposits at March 31, 2013 and December
31, 2012. Since the Bank was not categorized as “well capitalized” at March 31, 2013 and is under a Consent Order,
a regulatory waiver is required to accept, renew or rollover brokered deposits. The Bank has not issued brokered deposits since
January of 2010.



| | 8. | SHORT-TERM BORROWINGS
| | -- | ---------------------



The Company’s short-term borrowings consist of repurchase
agreements and less frequently borrowings from the FRB Discount Window. There have been no borrowings from the FRB Discount Window
since January 2010. The March 31, 2013 and December 31, 2012 short-term borrowing information was as follows:



|                                        |  | Repurchase |           
|--------------------------------------- |  | ---------- | ----------
|                                        |  | Agreements |           
|                                        |  |            |           
|Outstanding at March 31, 2013           |  | $          | 10,174,229
|Average interest rate at period end     |  |            | 0.60      
|Average balance during period           |  |            | 10,117,007
|Average interest rate during period     |  |            | 0.60      
|Maximum month end balance during period |  |            | 10,878,256
|                                        |  |            |           
|Outstanding at December 31, 2012        |  | $          | 10,190,059
|Average interest rate at year-end       |  |            | 0.59      
|Average balance during year             |  |            | 9,241,260 
|Average interest rate during year       |  |            | 0.75      
|Maximum month end balance during year   |  |            | 12,037,087



-26-







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



| | 9. | FEDERAL HOME LOAN BANK BORROWINGS:
| | -- | ----------------------------------



The Bank
is a member of the Federal Home Loan Bank (“FHLB”) of Indianapolis. Based on its current FHLB stock holdings and collateral,
the Bank has the capacity to borrow $3,144,864. Each borrowing requires a direct pledge of securities and or loans. To support
potential borrowings with the FHLB, the Bank had residential loans with a fair market value of $3,931,080 pledged at March 31,
2013. The Bank had no outstanding borrowings with the FHLB at either March 31, 2013 or December 31, 2012.



| | 10. | SUBORDINATED DEBENTURES
| | --- | -----------------------



The Trust, as defined in Note 1, sold 4,500 Cumulative Preferred
Securities (“trust preferred securities”) at $1,000 per security in a December 2004 offering. The proceeds from the
sale of the trust preferred securities were used by the Trust to purchase an equivalent amount of subordinated debentures from
the Company. The trust preferred securities and subordinated debentures carry a floating rate of 2.05% over the 3-month LIBOR
and was 2.33% at March 31, 2013 and 2.36% at December 31, 2012. The stated maturity is December 30, 2034. The trust preferred
securities are redeemable at par value on any interest payment date and are, in effect, guaranteed by the Company. Interest on
the subordinated debentures is payable quarterly on March 30th, June 30th, September 30th and
December 30th. The Company is not considered the primary beneficiary of the Trust (under the variable interest entity
rules), therefore the Trust is not consolidated in the Company’s financial statements, but rather the subordinated debentures
are shown as a liability, and the interest expense is recorded on the Company’s consolidated statement of income.



The terms of the subordinated debentures, the trust preferred
securities and the agreements under which they were issued, give the Company the right, from time to time, to defer payment of
interest for up to 20 consecutive quarters, unless certain specified events of default have occurred and are continuing. The deferral
of interest payments on the subordinated debentures results in the deferral of distributions on the trust preferred securities.
In May 2010, the Company exercised its option to defer regularly scheduled quarterly interest payments beginning with the quarterly
interest payment that was scheduled to be paid on June 30, 2010. The Company’s deferral of interest does not constitute
an event of default.



During the deferral period, interest will continue to accrue
on the subordinated debentures. Also, the deferred interest will accrue interest. At the expiration of the deferral period, all
accrued and unpaid interest will become immediately due and payable.



The indenture
under which the subordinated debentures were issued prohibits certain actions by the Company during the deferral period. Among
other things, during the deferral period and subject to certain exceptions, the Company is prohibited from declaring or paying
any dividends or distributions on, or redeeming, purchasing, acquiring or making any liquidation payment with respect to, any
shares of its capital stock. Although the Company has not determined the duration of the deferral period, as of December 16, 2010,
under the FRB Written Agreement, the Company is prohibited from making any distributions of interest,
principal or other sums on subordinated debentures or trust preferred securities without prior FRB approval. At March 31, 2013,
the accruedinterest payable on the subordinated debentures was $355,215.



-27-







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



| | 11. | NOTES PAYABLE
| | --- | -------------



On January 3, 2011, the Company’s $5,000,000 term loan
with Fifth Third Bank (“Fifth Third”) matured. The Company did not have the resources to pay the amount due. The loan
was in default at year-end 2012. In addition to the outstanding principal due, there was accrued interest of $763,000 at December
31, 2012. The outstanding principal had an interest rate of 6.00% per annum; 275 basis points above Fifth Third’s prime
rate.



On March 20, 2013, the Company, with approval from the FRB,
borrowed $1,280,000 from 1030 Norton LLC, a Michigan limited liability company owned by nine individuals; three directors of the
Company, one former director and five local businessmen, and settled its debt in full with Fifth Third for $500,000. In addition
to the payment to Fifth Third, the proceeds of the new senior debt will be used for interest carry, general operations and potential
capital support for the Bank. The note bears interest at a fixed rate of 8.00% per annum until paid in full. Interest is payable
quarterly, in arrears. The note matures on March 31, 2015. The note is secured by a pledge of all of the issued and outstanding
shares of the Bank as evidenced by a pledge agreement between the Company and 1030 Norton LLC. The accrued interest at March 31,
2013 was approximately $3,000. The entire interest balance due was paid on April 1, 2013.



Settling the Fifth Third debt resulted in a gain of approximately
$5.3 million in the first quarter of 2013. As a result of this transaction, the Company was able to achieve positive shareholders’
equity of approximately $4 million at March 31, 2013.



| | 12. | COMMITMENTS AND OFF-BALANCE SHEET RISK
| | --- | --------------------------------------



Some financial instruments are used to meet
financing needs and to reduce exposure to interest rate changes. These financial instruments include commitments to extend credit
and standby letters of credit. These involve, to varying degrees, credit and interest-rate risk in excess of the amount reported
in the financial statements. Commitments to extend credit are agreements to lend to a customer as long as there is no violation
of any condition established in the commitment, and generally have fixed expiration dates. Standby letters of credit are conditional
commitments to guarantee a customer’s performance to another party. Exposure to credit loss, if the customer does not perform,
is represented by the contractual amount for commitments to extend credit and standby letters of credit. Collateral or other security
is normally obtained for these financial instruments prior to their use and many of the commitments are expected to expire without
being used.



A summary of the notional and contractual amounts of outstanding
financing instruments with off-balance-sheet risk as of March 31, 2013 and December 31, 2012 follows:



|                                             |  | March 31, 2013 |            |  | December 31, 2012 |  
|-------------------------------------------- |  | -------------- | ---------- |  | ----------------- | -
|                                             |  |                |            |  |                   |  
|Unused lines of credit and letters of credit |  | $              | 21,475,446 |  |                   | $
|Commitments to make loans                    |  |                | 374,002    |  |                   |  



Commitments to make loans generally terminate one year or less
from the date of commitment and may require a fee. Since many of the above commitments on lines of credit and letters of credit
expire without being used, the above amounts related to those categories do not necessarily represent future cash disbursements.



-28-







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



| | 13. | FAIR VALUE MEASUREMENTS
| | --- | -----------------------



Fair value is the exchange price that would be received for
an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability
in an orderly transaction between market participants on the measurement date. A fair value hierarchy requires an entity to maximize
the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of
inputs that may be used to measure fair value:



Level 1: Quoted prices (unadjusted) for identical assets or
liabilities in active markets that the entity has the ability to access as of the measurement date.



Level 2: Significant other observable inputs other than Level
1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs
that are observable or can be corroborated by observable market data.



Level 3: Significant unobservable inputs that reflect a reporting
entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.



The Company used the following methods and significant assumptions
to estimate fair value:



Securities: The fair values of securities are obtained from
a third party who utilizes quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing (Level
2 inputs), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively
on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted
securities.



Servicing Rights: The fair value of SBA servicing rights is
obtained from a third party using assumptions provided by the Company. The individual servicing rights are valued individually
taking into consideration the original term to maturity, the current age of the loan and the remaining term to maturity. The valuation
methodology utilized for the servicing rights begins with projecting future cash flows for each servicing asset, based on its
unique characteristics and market-based assumptions for prepayment speeds. The present value of the future cash flows are then
calculated utilizing a market-based discount rate assumption. These inputs are generally observable in the marketplace resulting
in a Level 2 classification.



Impaired Loans: The method used to determine the valuation
of impaired loans depends on the anticipated source of repayment. Collateral dependent impaired loans with specific allocations
of the allowance for loan losses are measured using the fair value of the collateral which is generally based on recent real estate
appraisals or internal evaluations. Management may add discounts to third party appraisals. The appraisals are generally obtained
annually and are performed by qualified licensed appraisers approved by the Board of Directors. These appraisals may utilize a
single valuation approach or a combination of approaches including comparable sales and the income approach. The comparable sales
approach evaluates the sales price of similar properties in the same market area. This approach is inherently subjective due to
the wide range of comparable sale dates. The income approach considers net operating income generated by the property and the
investor’s required return. This approach utilizes various inputs including lease rates and cap rates which are subject
to judgment. Such adjustments can be significant and result in a Level 3 classification of the inputs for determining fair value.



-29-







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



| | 13. | FAIR VALUE MEASUREMENTS (Continued)
| | --- | -----------------------------------



Non-real estate collateral may be valued using appraisals,
independent valuation tools, net book value per the borrower’s financial statements, or aging reports.  To determine
the fair value, these values are adjusted or discounted based on several factors, including but not limited to: the Bank’s
historical losses within that particular asset category;  knowledge of the collateral, including age and condition; and  changes
in market conditions from the time of the valuation,  resulting in a Level 3 fair value classification.  Impaired loans
are evaluated on a quarterly basis for additional impairment and adjusted accordingly.



Foreclosed Assets: Commercial and residential real estate properties
classified as foreclosed assets are measured at fair value, less costs to sell. Fair values are generally based on recent real
estate appraisals or internal evaluations. Management may add discounts to third party appraisals. The appraisals are generally
obtained annually and are performed by qualified licensed appraisers approved by the Board of Directors. These appraisals may
utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. The comparable
sales approach evaluates the sales price of similar properties in the same market area. This approach is inherently subjective
due to the wide range of comparable sale dates. The income approach considers net operating income generated by the property and
the investor’s required return. This approach utilizes various inputs including lease rates and cap rates which are subject
to judgment. Adjustments of the carrying amount utilizing this process result in a Level 3 classification.



-30-







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



| | 13. | FAIR VALUE MEASUREMENTS (Continued)
| | --- | -----------------------------------



Assets measured at fair value on a recurring basis are summarized
below as of the periods ended March 31, 2013 and December 31, 2012:



|                                                                     |  |       |            |  | Fair Value Measurements Using |  
|-------------------------------------------------------------------- |  | ----- | ---------- |  | ----------------------------- | -
|                                                                     |  |       |            |  | Quoted Prices                 |  
|                                                                     |  |       |            |  | in Active                     |  
|                                                                     |  |       |            |  | Markets for                   |  
|                                                                     |  |       |            |  | Identical Assets              |  
|March 31, 2013                                                       |  | Total |            |  | (Level 1)                     |  
|Available for sale securities:                                       |  |       |            |  |                               |  
|US Treasury                                                          |  | $     | 3,086,016  |  |                               | $
|US Government and federal agency                                     |  |       | 19,187,630 |  |                               |  
|Municipals                                                           |  |       | 2,321,086  |  |                               |  
|Mortgage-backed and collateralized mortgage obligations– residential |  |       | 13,853,848 |  |                               |  
|Total                                                                |  | $     | 38,448,580 |  |                               | $
|                                                                     |  |       |            |  |                               |  
|Servicing assets                                                     |  | $     | 40,741     |  |                               | $
|                                                                     |  |       |            |  |                               |  
|December 31, 2012                                                    |  |       |            |  |                               |  
|Available for sale securities:                                       |  |       |            |  |                               |  
|US Treasury                                                          |  | $     | 4,094,532  |  |                               | $
|US Government and federal agency                                     |  |       | 20,259,743 |  |                               |  
|Municipals                                                           |  |       | 2,333,741  |  |                               |  
|Mortgage-backed and collateralized mortgage obligations– residential |  |       | 14,772,380 |  |                               |  
|Total                                                                |  | $     | 41,460,396 |  |                               | $
|                                                                     |  |       |            |  |                               |  
|Servicing assets                                                     |  | $     | 41,650     |  |                               | $



There were no transfers between levels during the first quarters
of 2013 or 2012.



-31-







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



| | 13. | FAIR VALUE MEASUREMENTS (Continued)
| | --- | -----------------------------------



Assets measured at fair value on a non-recurring basis are
summarized below as of the periods ended March 31, 2013 and December 31, 2012. Impaired loans and foreclosed assets are included
if the fair value of such assets was revised during the quarterly period then ended.



|                        |  |       |           |  | Significant         |  
|----------------------- |  | ----- | --------- |  | ------------------- | -
|                        |  |       |           |  | Unobservable Inputs |  
|                        |  | Total |           |  | (Level 3)           |  
|March 31, 2013          |  |       |           |  |                     |  
|Impaired loans:         |  |       |           |  |                     |  
|Commercial              |  | $     | 132,798   |  |                     | $
|Commercial Real Estate: |  |       |           |  |                     |  
|General                 |  |       | 851,530   |  |                     |  
|Consumer:               |  |       |           |  |                     |  
|Lines of credit         |  |       | 42        |  |                     |  
|Other                   |  |       | 22,561    |  |                     |  
|Residential             |  |       | 68,590    |  |                     |  
|Total                   |  | $     | 1,075,521 |  |                     | $
|Foreclosed assets:      |  |       |           |  |                     |  
|Commercial Real Estate: |  |       |           |  |                     |  
|General                 |  | $     | 737,294   |  |                     | $
|Residential             |  |       | 154,250   |  |                     |  
|Total                   |  | $     | 891,544   |  |                     | $
|                        |  |       |           |  |                     |  
|December 31, 2012       |  |       |           |  |                     |  
|Impaired loans:         |  |       |           |  |                     |  
|Commercial              |  | $     | 84,755    |  |                     | $
|Commercial Real Estate: |  |       |           |  |                     |  
|General                 |  |       | 786,282   |  |                     |  
|Residential             |  |       | 140,269   |  |                     |  
|Total                   |  | $     | 1,011,306 |  |                     | $
|Foreclosed assets:      |  |       |           |  |                     |  
|Commercial Real Estate: |  |       |           |  |                     |  
|General                 |  | $     | 141,596   |  |                     | $
|Construction            |  |       | 380,142   |  |                     |  
|Total                   |  | $     | 521,738   |  |                     | $



-32-







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



| | 13. | FAIR VALUE MEASUREMENTS (Continued)
| | --- | -----------------------------------



The following describes the impairment charges recognized during
the period:



At March 31, 2013, impaired loans carried at fair value had
a recorded investment of $2,316,212 and a valuation allowance of $1,240,691, resulting in additional provision of $10,000. At
December 31, 2012, impaired loans carried at fair value had a recorded investment of $2,394,211 and a valuation allowance of $1,382,905,
resulting in additional provision of $13,000.



Foreclosed assets carried at fair value
at March 31, 2013 were $891,544 compared to $521,738 at December 31, 2012. During 2013, three properties included in this total
were written down by $7,599. During 2012, three properties included in this total were written down by $128,139.



-33-







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



| | 13. | FAIR VALUE MEASUREMENTS (Continued)
| | --- | -----------------------------------



The following tables present information as of March
31, 2013 and December 31, 2012 about significant unobservable inputs related to the Bank’s individually material1
Level 3 financial assets, by class, measured on a non-recurring basis:



|                        |  |                |         |  | Valuation         |                           | Significant Unobservable |                                     | Range         |  |                                                                                                                                                                                                                                                                       | Weighted | 
|----------------------- |  | -------------- | ------- |  | ----------------- | ------------------------- | ------------------------ | ----------------------------------- | ------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------- | 
|                        |  | Fair
    Value |         |  | Technique
    (s) |                           | Inputs                   |                                     | of
    Inputs |  |                                                                                                                                                                                                                                                                       | Average  | 
|March 31, 2013          |  |                |         |  |                   |                           |                          |                                     |               |  |                                                                                                                                                                                                                                                                       |          | 
|                        |  |                |         |  |                   |                           |                          |                                     |               |  |                                                                                                                                                                                                                                                                       |          | 
|Impaired loans:         |  |                |         |  |                   |                           |                          | Adjustments for differences between |               |  |                                                                                                                                                                                                                                                                       |          | 
|Commercial Real Estate: |  |                |         |  |                   | Sales comparison approach |                          | the comparable sales                |               |  | 0                                                                                                                                                                                                                                                                     | %        | 
|General                 |  | $              | 851,530 |  |                   | Income approach           |                          | Capitalization rate                 |               |  | 10.0                                                                                                                                                                                                                                                                  | %        | 
|Total                   |  | $              | 851,530 |  |                   |                           |                          |                                     |               |  |                                                                                                                                                                                                                                                                       |          | 
|Foreclosed assets:      |  |                |         |  |                   |                           |                          | Adjustments for differences between |               |  |                                                                                                                                                                                                                                                                       |          | 
|Commercial Real Estate: |  |                |         |  |                   | Sales comparison approach |                          | the comparable sales                |               |  | (16.8)
                                                                                                       - 16.0                                                                                                                                                  | %        | 
|General                 |  | $              | 503,595 |  |                   | Income approach           |                          | Capitalization rate                 |               |  | 10.0                                                                                                                                                                                                                                                                  | %        | 
|                        |  |                |         |  |                   |                           |                          | Adjustments for differences in net  |               |  |                                                                                                                                                                                                                                                                       |          | 
|                        |  |                |         |  |                   | Income approach           |                          | operating income expectations       |               |  | (64.0)
                                                                                                                            -
                                                                                                                            28.6 | %        | 
|Total                   |  | $              | 503,595 |  |                   |                           |                          |                                     |               |  |                                                                                                                                                                                                                                                                       |          | 



|                        |  |                |         |  | Valuation         |                           | Significant Unobservable |                                     | Range         |  |                                                                                                    | Weighted | 
|----------------------- |  | -------------- | ------- |  | ----------------- | ------------------------- | ------------------------ | ----------------------------------- | ------------- |  | -------------------------------------------------------------------------------------------------- | -------- | 
|                        |  | Fair
    Value |         |  | Technique
    (s) |                           | Inputs                   |                                     | of
    Inputs |  |                                                                                                    | Average  | 
|December 31, 2012       |  |                |         |  |                   |                           |                          |                                     |               |  |                                                                                                    |          | 
|                        |  |                |         |  |                   |                           |                          |                                     |               |  |                                                                                                    |          | 
|Impaired loans:         |  |                |         |  |                   |                           |                          | Adjustments for differences between |               |  |                                                                                                    |          | 
|Commercial Real Estate: |  |                |         |  |                   | Sales comparison approach |                          | the comparable sales                |               |  | 0                                                                                                  | %        | 
|General                 |  | $              | 698,475 |  |                   | Income approach           |                          | Capitalization rate                 |               |  | 10.0                                                                                               | %        | 
|Total                   |  | $              | 698,475 |  |                   |                           |                          |                                     |               |  |                                                                                                    |          | 
|Foreclosed assets:      |  |                |         |  |                   |                           |                          |                                     |               |  |                                                                                                    |          | 
|Commercial Real Estate: |  |                |         |  |                   |                           |                          | Adjustments for differences between |               |  |                                                                                                    |          | 
|Construction            |  | $              | 269,100 |  |                   | Sales comparison approach |                          | the comparable sales                |               |  | (45.0)
                                                                                        - 0 | %        | 
|Total                   |  | $              | 269,100 |  |                   |                           |                          |                                     |               |  |                                                                                                    |          | 








| | 1 | For
purposes of this disclosure, only material Level 3 assets are disclosed. These assets are included in the total non-recurring
Level 3 financial assets reported in the preceding tables.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



-34-







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



| | 13. | FAIR VALUE MEASUREMENTS (Continued)
| | --- | -----------------------------------



The carrying amounts and estimated fair values of financial
instruments not previously presented above are as follows:



|                                                  |  |                |         |  | Fair Value Measurements |  
|------------------------------------------------- |  | -------------- | ------- |  | ----------------------- | -
|                                                  |  |                |         |  | at March 31, 2013 Using |  
|                                                  |  | Carrying       |         |  |                         |  
|                                                  |  | Amount         |         |  | Level 1                 |  
|                                                  |  | (in thousands) |        
|Financial assets                                  |  |                |         |  |                         |  
|Cash and cash equivalents                         |  | $              | 23,512  |  |                         | $
|Loans held for sale                               |  |                | 5,271   |  |                         |  
|Loans, net (including impaired)                   |  |                | 123,018 |  |                         |  
|FHLB stock                                        |  |                | 451     |  |                         |  
|Accrued interest receivable                       |  |                | 584     |  |                         |  
|                                                  |  |                |         |  |                         |  
|Financial liabilities                             |  |                |         |  |                         |  
|Deposits                                          |  |                | 183,897 |  |                         |  
|Federal funds purchased and repurchase agreements |  |                | 10,174  |  |                         |  
|Subordinated debentures                           |  |                | 4,500   |  |                         |  
|Notes payable                                     |  |                | 1,280   |  |                         |  
|Accrued interest payable                          |  |                | 408     |  |                         |  



|                                                  |  |                |         |  | Fair Value Measurements    |  
|------------------------------------------------- |  | -------------- | ------- |  | -------------------------- | -
|                                                  |  |                |         |  | at December 31, 2012 Using |  
|                                                  |  | Carrying       |         |  |                            |  
|                                                  |  | Amount         |         |  | Level 1                    |  
|                                                  |  | (in thousands) |        
|Financial assets                                  |  |                |         |  |                            |  
|Cash and cash equivalents                         |  | $              | 20,297  |  |                            | $
|Loans held for sale                               |  |                | 6,041   |  |                            |  
|Loans, net (including impaired)                   |  |                | 122,447 |  |                            |  
|FHLB stock                                        |  |                | 451     |  |                            |  
|Accrued interest receivable                       |  |                | 592     |  |                            |  
|                                                  |  |                |         |  |                            |  
|Financial liabilities                             |  |                |         |  |                            |  
|Deposits                                          |  |                | 184,176 |  |                            |  
|Federal funds purchased and repurchase agreements |  |                | 10,190  |  |                            |  
|Subordinated debentures                           |  |                | 4,500   |  |                            |  
|Notes payable                                     |  |                | 5,000   |  |                            |  
|Accrued interest payable                          |  |                | 1,156   |  |                            |  



-35-







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



| | 13. | FAIR VALUE MEASUREMENTS (Continued)
| | --- | -----------------------------------



The methods and assumptions, not previously presented above,
used to estimate fair values are described as follows:



(a) Cash and cash equivalents



The carrying amounts of cash and short-term instruments
approximate fair values and are classified as Level 1.



(b) FHLB stock



It is not practical to determine the fair
value of FHLB stock due to restrictions placed on its transferability.



(c) Loans



Fair values of loans, excluding loans held for sale,
are estimated as follows: For variable rate loans that reprice frequently and with no significant change in credit risk, fair values
are based on carrying values resulting in a Level 3 classification. Fair values for other loans are estimated using discounted
cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality
resulting in a Level 3 classification. Impaired loans are valued at the lower of cost or fair value as described previously. The
methods utilized to estimate the fair value of loans do not necessarily represent an exit price.



The fair value of loans held for sale is estimated
based upon binding contracts and quotes from third party investors resulting in a Level 2 classification.



(d) Deposits



The fair values disclosed for demand deposits (e.g.,
interest and non-interest checking, savings, and certain types of money market accounts) are, by definition, equal to the amount
payable on demand at the reporting date (i.e., their carrying amount) resulting in a Level 1 classification. Fair values for fixed
rate certificates of deposit are estimated using a discounted cash flows calculation that applies interest rates currently being
offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.



(e) Federal funds purchased and repurchase
agreements



The carrying amounts of federal funds purchased,
borrowings under repurchase agreements, and other short-term borrowings, generally maturing within ninety days, approximate their
fair values resulting in a Level 2 classification.



(f) Subordinated debentures and Notes
payable



The fair values of the Company’s subordinated
debentures and notes payable are estimated using discounted cash flow analyses based on the current borrowing rates for similar
types of borrowing arrangements and consideration of the Company’s liquidity, resulting in a Level 3 classification.



(g) Accrued interest receivable/payable



The carrying amounts of accrued interest approximate
fair value resulting in a Level 1, 2 or 3 classification, depending on the associated asset or liability.



-36-







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



| | 13. | FAIR VALUE MEASUREMENTS (Continued)
| | --- | -----------------------------------



(h) Off-balance sheet instruments



Fair values for off-balance sheet, credit-related
financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms
of the agreements and the counterparties’ credit standing. The fair value of commitments is not material.



| | 14. | INCOME TAXES
| | --- | ------------



Accounting guidance related to income taxes requires that companies
assess whether a valuation allowance should be established against their deferred tax assets based on the consideration of all
available evidence using a “more likely than not” standard.  In making such judgments, we consider both positive
and negative evidence and analyze changes in near-term market conditions as well as other factors which may impact future operating
results. Significant weight is given to evidence that can be objectively verified.  The previous losses dating back to 2007
significantly restricted our ability under the accounting rules to rely on projections of future taxable income to support the
recovery of our deferred tax assets. Consequently, we determined it necessary to carry a valuation allowance against our entire
net deferred tax asset.



Although the Company recognized a profit in 2012 and the first
quarter of 2013, there must be a consistent trend of profitability in order to support the realization of our deferred tax assets.
The valuation allowance against our deferred tax assets may be reversed to income in future periods to the extent that the related
deferred income tax assets are realized or the valuation allowance is otherwise no longer required.  We will continue to monitor
our deferred tax assets quarterly for changes affecting their realizability.



As a result of the large gain on the extinguishment of debt,
the Company recorded income tax expense from operations in the amount of $105,000. This amount represents projected taxable earnings
subject to alternative minimum taxation which may fluctuate throughout the year with changes in operating results. Additionally,
the gain on the extinguishment of debt may result in a reduction of net operating loss carry forward tax attributes by an estimated
$5.3 million.  Even so, the Company’s estimated net operating loss carry forward remaining would be over $6 million.



| | 15. | REGULATORY MATTERS
| | --- | ------------------



Banks are subject to regulatory capital requirements administered
by the federal banking agencies. Since the Company is a one bank holding company with consolidated assets less than $500 million,
regulatory minimum capital ratios are applied only to the Bank. Capital adequacy guidelines and prompt corrective action regulations
involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting
practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet various
capital requirements can initiate regulatory action.



-37-







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



| | 15. | REGULATORY MATTERS (Continued)
| | --- | ------------------------------



Prompt corrective action regulations provide five classifications,
including well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized,
although these terms are not used to represent overall financial condition. If a bank is not well capitalized, regulatory approval
is required to accept brokered deposits. Subject to limited exceptions, a bank may not make a capital distribution if, after making
the distribution, it would be undercapitalized. If a bank is undercapitalized, it is subject to being closely monitored by its
principal federal regulator, its asset growth and expansion are restricted, acquisitions,
new activities, new branches, payment of dividends or management fees are prohibited and plans for capital restoration are required.
In addition, further specific types of restrictions may be imposed on the Bank at the discretion of the federal regulator. The
Bank was in the undercapitalized category at December 31, 2012. At March 31, 2013, through earnings and a $25,000 capital contribution
from the Company, the Bank achieved a total risk-based capital ratio of 8.04%; four basis points above the required level to be
in the adequately capitalized regulatory category.



Actual capital amounts and ratios for the Bank and required
capital amounts and ratios for the Bank to be adequately capitalized and to be at the level mandated by the Consent Order at March
31, 2013 and December 31, 2012 were:



|                                                                          |  |        |            |  |                   |  |      | Minimum Required |  |   | Minimum Required | 
|------------------------------------------------------------------------- |  | ------ | ---------- |  | ----------------- |  | ---- | ---------------- |  | - | ---------------- | 
|                                                                          |  |        |            |  |                   |  |      | For Capital      |  |   | Under            | 
|                                                                          |  | Actual |            |  | Adequacy Purposes |  |      | Consent Order    | 
|                                                                          |  | Amount |            |  | Ratio             |  |      | Amount           |  |   | Ratio            | 
|                                                                          |  |        |            |  |                   |  |      |                  |  |   |                  | 
|March 31, 2013                                                            |  |        |            |  |                   |  |      |                  |  |   |                  | 
|Total
    Capital (Tier 1 and Tier 2) to risk-weighted assets of the Bank |  | $      | 11,012,275 |  |                   |  | 8.04 | %                |  | $ | 10,959,282       | 
|Tier 1 (Core) Capital to risk-weighted assets of the Bank                 |  |        | 9,280,259  |  |                   |  | 6.77 |                  |  |   | 5,479,641        | 
|Tier 1 (Core) Capital to average assets of the Bank                       |  |        | 9,280,259  |  |                   |  | 4.57 |                  |  |   | 8,122,318        | 



|                                                                      |  |        |            |  |                   |  |      | Minimum Required |  |   | Minimum Required | 
|--------------------------------------------------------------------- |  | ------ | ---------- |  | ----------------- |  | ---- | ---------------- |  | - | ---------------- | 
|                                                                      |  |        |            |  |                   |  |      | For Capital      |  |   | Under            | 
|                                                                      |  | Actual |            |  | Adequacy Purposes |  |      | Consent Order    | 
|                                                                      |  | Amount |            |  | Ratio             |  |      | Amount           |  |   | Ratio            | 
|                                                                      |  |        |            |  |                   |  |      |                  |  |   |                  | 
|December 31, 2012                                                     |  |        |            |  |                   |  |      |                  |  |   |                  | 
|Total Capital (Tier 1 and Tier 2) to risk-weighted assets of the Bank |  | $      | 10,760,348 |  |                   |  | 7.88 | %                |  | $ | 10,928,836       | 
|Tier 1 (Core) Capital to risk-weighted assets of the Bank             |  |        | 9,032,034  |  |                   |  | 6.61 |                  |  |   | 5,464,418        | 
|Tier 1 (Core) Capital to average assets of the Bank                   |  |        | 9,032,034  |  |                   |  | 4.53 |                  |  |   | 7,976,194        | 



-38-







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



| | 15. | REGULATORY MATTERS (Continued)
| | --- | ------------------------------



Federal Reserve guidelines limit the amount
of allowance for loan losses that can be included in Tier 2 capital. In general only 1.25% of net risk-weighted assets are allowed
to be included. At March 31, 2013, only $1,732,016 was counted as Tier 2 capital and $1,570,281 was disallowed. At December 31,
2012, $1,728,314 was counted as Tier 2 capital and $1,654,663 was disallowed.



The Bank’s
Consent Order with the FDIC and the DIFS, its primary banking regulators, became effective on September 2, 2010. The Bank agreed
to the terms of the Consent Order without admitting or denying any charge of unsafe or unsound banking practices relating to capital,
asset quality, or earnings. The Consent Order imposes no fines or penalties on the Bank. The Consent Order will remain in effect
and enforceable until it is modified, terminated, suspended, or set aside by the FDIC and DIFS.



The Consent Order required the Bank to implement a written profit
plan, a written contingency funding plan, a written plan to reduce the Bank's reliance on brokered deposits, a comprehensive strategic
plan; and to develop an analysis and assessment of the Bank's management needs. Under the Consent Order, the Bank is required to
maintain higher capital levels than requested under prompt corrective action and the Bank may not declare or pay any dividend without
the prior written consent of the regulators.



Prior to the issuance of the Consent Order, the Bank's Board
of Directors and management had already commenced initiatives and strategies to address a number of the requirements of the Consent
Order. The Bank continues to work in cooperation with its regulators. Our ability to fully comply with all of the requirements
of the Consent Order, including maintaining specified capital levels, is not entirely within our control, and is not assured. Our
ability to comply with the requirements of the Consent Order may be affected by many factors, including the availability of capital
and other funds, the extent of repayment of loans by borrowers, declines in the value of collateral including real estate, the
Bank's ability to realize on collateral and actions by bank regulators. Failure to comply with provisions of the Consent Order
may result in further regulatory action that could have a material adverse effect on us and our shareholders, as well as the Bank.



There were several directives related to loans contained in
the Consent Order. All action plans have been submitted to the FDIC. Management continues to update the action plans and is working
diligently to reduce the risk position as outlined in each action plan.



Under the Consent Order the Bank was required, within 90 days
of September 2, 2010, to have and maintain its level of tier one capital, as a percentage of its total assets, at a minimum of
8.5%, and its level of qualifying total capital, as a percentage of risk-weighted assets, at a minimum of 11%. The Bank was not
in compliance with this requirement at March 31, 2013 or either December 31, 2010, 2011 or 2012. Management continues to explore
options to raise the capital required for full compliance. At March 31, 2013, a capital contribution of $7,980,000 would have been
needed to meet the capital ratios specified in the Consent Order.



Under the Consent Order, the Bank is restricted from declaring
or paying dividends without prior written authorization of the FDIC. The Bank is in full compliance with this restriction.



-39-







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



| | 15. | REGULATORY MATTERS (Continued)
| | --- | ------------------------------



As required by the Consent Order, the Bank adopted a detailed
liquidity plan on November 17, 2010 which provided for intended liquidity sources to meet the Bank’s assessed liquidity needs
over the time horizons of 6, 12 and 18 months. The liquidity plan was meant to address the stipulation in the Consent Order that
prohibited the Bank from accepting brokered deposits. To meet this restriction, the Bank’s liquidity plan entailed replacing
maturing brokered deposits with a combination of local deposits and internet based time deposits. Since the beginning of 2010,
the Bank has successfully used this strategy. There were no brokered deposits outstanding at March 31, 2013. The Bank has been
able to maintain sufficient liquidity for its required payments despite the restriction on issuing brokered deposits.



On August
17, 2011, the Bank was issued a Supervisory Prompt Corrective Action Directive (the “Directive”) because of its undercapitalized
capital category at December 31, 2010, its failure to submit a capital restoration plan that satisfies the requirements stipulated
in the FDIC Rules and Regulations, and the continued deterioration of the Bank. The Directive stipulated that the Bank be restored
to an “adequately capitalized” capital category within 60 days of the issuance of the Directive. During the 60 days,
the board made efforts to secure funding and comply with the Directive but was not successful. Through several quarters of earnings
and a $25,000 capital contribution from the Company, the Bank reached an adequately capitalized regulatory capital category at
March 31, 2013. Achievement of the capital level stipulated in the Directive was formally communicated to the FDIC through the
submission of the quarterly Call Report as well as the required quarterly written communication both submitted by management at
the end of April.



-40-







COMMUNITY SHORES BANK CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS



ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS



The discussion below details the financial
results of the Company and its wholly owned subsidiaries, the Bank and Community Shores Financial Services, and the Bank’s
subsidiary, the Mortgage Company, and Berryfield, the Mortgage Company’s subsidiary, through March 31, 2013 and is separated
into two parts which are labeled Financial Condition and Results of Operations. The part labeled Financial Condition compares the
financial condition at March 31, 2013 to that at December 31, 2012. The part labeled Results of Operations discusses the three
month period ending March 31, 2013 as compared to the same period of 2012. Both parts should be read in conjunction with the interim
consolidated financial statements and footnotes included in Item 1 of Part I of this Form 10-Q.



This discussion and analysis of financial
condition and results of operations, and other sections of the Annual Report contain forward-looking statements that are based
on management’s beliefs, assumptions, current expectations, estimates and projections about the financial services industry,
the economy, and about the Company, the Bank, the Mortgage Company, Berryfield and CS Financial Services. Words such as “anticipates”,
“believes”, “estimates”, “expects”, “forecasts”, “intends”, “is
likely”, “plans”, “projects”, variations of such words and similar expressions are intended to identify
such forward-looking statements. These forward-looking statements are intended to be covered by the safe-harbor provisions of the
Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and involve certain
risks, uncertainties and assumptions (“Future Factors”) that are difficult to predict with regard to timing, extent,
likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed or
forecasted in such forward-looking statements. The Company undertakes no obligation to update, amend, or clarify forward-looking
statements, whether as a result of new information, future events (whether anticipated or unanticipated), or otherwise.



Future Factors include, among others, 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 or actions by bank regulators; 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 local real estate values; changes in the national
and local economy; the ability of the Company to borrow money or raise additional capital to maintain or increase its or the Bank’s
capital position or when desired to support future growth; failure to comply with provisions of the Consent Order, Written Agreement
or Directive may result in further regulatory action that could have a material adverse effect on us and our shareholders, as well
as the Bank; and other factors, including risk factors, referred to from time to time in filings made by the Company with the Securities
and Exchange Commission. These are representative of the Future Factors that could cause a difference between an ultimate actual
outcome and a preceding forward-looking statement. These risks and uncertainties should be considered when evaluating forward-looking
statements. Undue reliance should not be placed on such statements.



-41-







COMMUNITY SHORES BANK CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS



The overall economic environment remains challenging
particularly from an interest rate standpoint, but other economic indicators appear to be stabilizing, both nationally and locally.
Unemployment in both Muskegon and Ottawa counties is declining but nonetheless remains at an elevated level. At March 31, 2013,
unemployment was 8.4% for Muskegon County and 6.2% for Ottawa County which compares favorably to unemployment rates of 8.7% for
Muskegon County and 7.1% for Ottawa County at March 31, 2012. Additionally, property values, although low, are holding. Stable
property values are likely to lead to more real estate sales and construction activity. However, in spite of the improvements in
the economic climate, the effects of the extended downturn had an adverse effect on the financial health of the Bank. Poor earnings
stemming primarily from deteriorating asset quality eroded the Bank’s capital and corresponding regulatory capital ratios
subjecting it to additional regulatory scrutiny.



On September 2, 2010, the Bank entered into
a Consent Order with the FDIC and the State of Michigan’s DIFS, its primary regulators. The Bank agreed to the terms of the
Consent Order without admitting or denying any charge of unsafe or unsound banking practices relating to capital, asset quality,
or earnings. The Consent Order imposes no fines or penalties on the Bank. The Consent Order will remain in effect and enforceable
until it is modified, terminated, suspended, or set aside by the FDIC and DIFS. Under the Consent Order,
the Bank was required, within 90 days of September 2, 2010, to have and maintain its level of Tier 1 capital, as a percentage of
its total assets, at a minimum of 8.5%, and its level of qualifying total capital, as a percentage of risk-weighted assets, at
a minimum of 11%. The Bank was not able to meet these requirements within the required 90-day period and remained out of compliance
with the Consent Order as of March 31, 2013.



The lack of financial soundness of
the Bank and the Company’s inability to serve as a source of strength for the Bank resulted in the board of directors entering
into a Written Agreement with the Federal Reserve Bank of Chicago (the “FRB”), the Company’s primary regulator.
The Written Agreement became effective on December 16, 2010, when it was executed by the FRB. The Written Agreement provides that:
(i) the Company must take appropriate steps to fully utilize its financial and managerial resources to serve as a source of strength
to the Bank; (ii) the Company may not declare or pay any dividends or take dividends or any other payment representing a reduction
in capital from the Bank or make any distributions of interest, principal or other sums on subordinated debentures or trust preferred
securities without prior FRB approval; (iii) the Company may not incur, increase or guarantee any debt or purchase or redeem any
shares of its stock without prior FRB approval; (iv) the Company must submit a written statement of its planned sources and uses
of cash for debt service, operating expenses and other purposes to the FRB within 30 days of the Written Agreement; (v) the Company
shall take all necessary actions to ensure that the Bank, the Company and all nonbank subsidiaries of both the Bank and the Company
comply with sections 23A and 23B of the Federal Reserve Act and Regulation W of the Board of Governors (12 C.F.R. Part 223) in
all transactions between affiliates; (vi) the Company may not appoint any new director or senior executive officer, or change the
responsibilities of any senior executive officer so that the officer would assume a different senior executive officer position,
without prior regulatory approval; and finally (vii) within 30 days after the end of each calendar quarter following the date of
the Written Agreement, the board of directors shall submit to the FRB written progress reports detailing the form and manner of
all actions taken to secure compliance with the provisions of the Written Agreement as well as current copies of the parent company
only financial statements. The Company has not yet been able to meet the obligation detailed in part (i) above; as the Company
currently has limited resources with which to assist the Bank in achieving the capital level required by the Consent Order. The
Company’s main liquidity resource is its cash account balance which, as of March 31, 2013, was approximately $745,000 compared
to just $8,000 at year-end 2012. The increase in cash resulted from the issuance of senior debt during the first quarter of 2013.



-42-







COMMUNITY SHORES BANK CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS



On January 3, 2011, the Company was not able to repay its $5
million term loan owed to Fifth Third Bank; nor was the Company able to make the proceeding ten quarterly interest payments. The
term loan was in default for 25 months. At December 31, 2012, the total amount owed Fifth Third was $5,763,000. On March 20, 2013,
the Company, with approval from the FRB, borrowed $1,280,000 from 1030 Norton LLC, a Michigan limited liability company owned by
nine individuals; three directors of the Company, one former director and five local businessmen, and settled its debt with Fifth
Third for $500,000. In addition to the payment to Fifth Third, the proceeds of the new senior debt will be used for interest carry,
general operations and potential capital support for the Bank. The note bears interest at 8% per annum until paid in full. Interest
is payable quarterly in arrears. The note matures on March 31, 2015. The note is secured by all of the issued and outstanding shares
of the Bank as evidenced by a pledge agreement between the Company and 1030 Norton LLC dated March 20, 2013. The reduced amount
of borrowings is expected to decrease interest expense by approximately $200,000 annually.



Settling the Fifth Third debt resulted in a gain of approximately
$5.3 million in the first quarter of 2013. As a result of this transaction, the Company was able to achieve positive shareholders’
equity of approximately $4 million at March 31, 2013.



On August 17, 2011, the Bank was issued a Supervisory Prompt
Corrective Action Directive (the “Directive”) because of its undercapitalized capital category at December 31, 2010,
its failure to submit a capital restoration plan that satisfies the requirements stipulated in the FDIC Rules and Regulations,
and the continued deterioration of the Bank. The Directive stipulated that the Bank be restored to an “adequately capitalized”
capital category within 60 days of the issuance of the Directive. During the 60 days, the board made efforts to secure funding
and comply with the Directive but was not successful. Through several quarters of earnings and a $25,000 capital contribution from
the Company, the Bank reached an adequately capitalized regulatory capital category at March 31, 2013. Achievement of the capital
level stipulated in the Directive was formally communicated to the FDIC through the submission of the quarterly Call Report as
well as the quarterly written communication both submitted by management at the end of April.



Regardless of meeting the stipulations in the Directive, failure
to comply with the provisions of the Consent Order or the Written Agreement may subject the Bank to further regulatory enforcement
action.



The Company’s extended period of net losses, failure to
repay its term loan at maturity, timely compliance with the higher capital ratios of the Directive and the Consent Order, and the
provisions of the Written Agreement raise substantial doubt about the Company’s ability to continue as a going concern. As
a result of this substantial doubt, our auditors added an explanatory paragraph to their opinion on the Company’s December
31, 2012, 2011 and 2010 consolidated financial statements expressing substantial doubt about the Company’s ability to continue
as a going concern. These financial statements do not include any adjustments that might be necessary if the Company is unable
to continue as a going concern.



-43-







COMMUNITY SHORES BANK CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS



CRITICAL ACCOUNTING POLICIES AND ESTIMATES: The purpose
of this section of the Annual Report is to provide a narrative discussion about the Company’s financial condition and results
of operations during 2012. The “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
as well as disclosures found elsewhere in the Annual Report are based upon the Company’s consolidated financial statements,
which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation
of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses. One material estimate that is particularly susceptible to significant change in the near term
relates to the determination of the allowance for loan losses. Actual results could differ from the estimate.



Allowance for loan losses.The allowance for loan losses
is maintained at a level believed adequate by management to absorb probable incurred losses inherent in the consolidated loan portfolio.
Management’s evaluation of the adequacy of the allowance is an estimate based on reviews of individual loans and loan groupings,
assessments of the impact of current and anticipated economic conditions on the portfolio and historical loss experience. See the
Financial Condition section of Management’s Discussion and Analysis and Notes 1 and 3 to the Company’s consolidated
financial statements for additional information.



Management believes the accounting estimate related to the allowance
for loan losses is a “critical accounting estimate” because (1) the estimate is highly susceptible to change from period
to period because of assumptions concerning the changes in the types and volumes of the portfolios and anticipated economic conditions
and (2) the impact of recognizing an impairment or loan loss could have a material effect on the Company’s assets reported
on the balance sheet as well as its net income. Management has discussed the development of this critical accounting estimate with
the Board of Directors and the Audit Committee.



Income Taxes.Income
taxes are accounted for under the asset and liability method, which requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred
tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and
liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change
in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.



A tax position is recognized
as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with
a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50%
likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit
is recorded.



Net deferred tax assets
are recorded to the extent it is believed that they will more likely than not be realized. In making such a determination, all
available positive and negative evidence is considered, including scheduled reversals of deferred tax liabilities, projected future
taxable income, tax planning strategies and recent financial operations. In the event it is determined that deferred income tax
assets are in excess of their realizable amount, an adjustment to the valuation allowance would be made which would increase the
provision for income taxes.



-44-







COMMUNITY SHORES BANK CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS



In determining the possible
realization of deferred tax assets, future taxable income from operations exclusive of reversing temporary differences and tax
planning strategies that, if necessary, would be implemented to accelerate taxable income into periods in which net operating losses
might otherwise expire is considered.



Interest and penalties related
to unrecognized tax benefits are recognized within the federal income tax expense (benefit) line in the accompanying consolidated
statements of income. Accrued interest and penalties are included within the related tax liability line in the consolidated balance
sheets.



Foreclosed Assets.Foreclosed assets are acquired through
loan foreclosure or other proceedings and are initially recorded at fair value less estimated selling costs when acquired, establishing
a new cost basis. During the time that foreclosed assets are waiting to be sold, there will be occasions that the Bank will need
to re-evaluate the individual market values of each asset. If there is evidence that the fair value has declined since the last
evaluation, the Bank will incur an impairment charge in order to properly reflect the estimated fair value of the asset at the
end of the reporting period. On a quarterly basis, the Bank’s Credit Department analyzes foreclosed asset values to determine
the level at which they should be held on our books.



FINANCIAL CONDITION



Total assets were $204.7 million at March
31, 2013  compared to $204.2 million at December 31, 2012. There was no material asset growth between year-end 2012 and March
31, 2013, only shifts in categories of assets partially as a result of the conclusion of the FDIC Transaction Account
Guarantee Program (“TAG”). TAG provided unlimited deposit insurance for non-interest bearing transaction accounts
at all FDIC insured depository institutions. TAG expired at year-end 2012. To prepare for the program’s end, the
Bank developed and executed a contingency funding plan in the last two months of 2012 to accommodate assessed exposure to
customer withdrawals. The internal plan involved purchasing additional securities for customer pledging and increasing
liquidity in the Bank’s FRB account. Management believes that the balance sheet impact related to TAG’s end has
now been fully addressed in all material respects.



Cash and cash equivalents increased by $3.2 million to $23.5
million at March 31, 2013 from $20.3 million at December 31, 2012. The Bank’s FRB balance increased $4.1 million since year-end
2012 and was $21.4 million on March 31, 2013. The increase in balance is driven largely by securities that matured or were called
and were not replaced. Management is working to address the excess liquidity at the FRB. Although excess liquidity is a conservative
posture, it is detrimental to earnings. Typically, a balance at the FRB of between $7 and $10 million is enough to cover the liquidity
needs of the Bank’s operations as well as provide a comfortable cushion for unexpected needs. To reduce the FRB balance to
the targeted level, the excess funds will be used to repay upcoming time deposit maturities.



The Bank’s security portfolio was $38.4
million at March 31, 2013 and $41.5 million at December 31, 2012. Investment activity in the first three months of the year consisted
of maturities, prepayments and calls totaling $2.8 million. There were no sales or purchases in the first three months of 2013.



The securities portfolio is a key source of liquidity for the
Bank. Given the Bank’s weakened condition, off-balance-sheet borrowing facilities are significantly limited, forcing the
Bank to resort to on-balance-sheet sources.



-45-







COMMUNITY SHORES BANK CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS



Consequently, it remains critical to maintain the unencumbered
portion of the Bank’s security portfolio at a level equal to or perhaps above its general internal policy depending on assessed
liquidity needs. The level of unpledged securities is regularly monitored and needs are formally assessed monthly. Maintaining
an adequate level of pledgeable assets is one of the driving forces behind investment activity. Prior to the Consent Order, the
Bank strived to have between 10% and 20% of its investment portfolio unpledged. At March 31, 2013, 24% of the investment portfolio
was unencumbered. This outcome is down from the 35% unpledged position that existed on December 31, 2012.



At March 31, 2013, $29.4 million of securities were pledged
to public fund customers, FRB Automated Clearing House (“ACH”) debit activity and customer repurchase agreements.



Investment portfolio quality has received
much scrutiny over the past several years. The plight of the U.S. bond market and U.S. economy in general as well as the European
debt crisis have all either directly or indirectly affected security market values. Regardless, the investment portfolio remains
strong with an unrealized net gain of $525,000. Included in this total are unrealized losses of approximately $45,000. At March
31, 2013, there were 11 securities with an amortized cost of $8.7 million having an unrealized loss. One of the 11 had unrealized
losses longer than 12 months. At March 31, 2013, the Bank conducted its standard review for other-than-temporary impairment (“OTTI”).
The unrealized losses referenced above were not determined to be other-than-temporary given the fact that the decline in value
is less than 1%, they are all fully guaranteed by the U.S. government, and the Bank 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 portfolio will continue
to be reviewed for impairment in accordance with the Bank’s investment policy.



To reduce exposure to future loss (both realized
and unrealized) the Bank intends to adhere to the diversification principles outlined in the investment policy and limit issuer
concentrations. Besides fully guaranteed U.S. government and federal agency securities, there were no holdings of securities of
any one issuer in an amount greater than 10% of the Bank’s common stock and surplus at March 31, 2013.



Loans held for sale activity during the first
three months of 2013 included $3.3 million of loan originations, $994,000 of loans transferred to the held for investment portfolio
and $3.1 million of loan sales. The associated gain on the loan sales was $67,000. The loans that were transferred to the held
for investment portfolio were Small Business Administration (“SBA”) loans. The transfer was based on management’s
re-evaluation of the Bank’s intent to sell these loans in the short-term.



Total loans (held for investment) increased
$490,000 and were $126.3 million at March 31, 2013 up from $125.8 million at December 31, 2012. There were decreases in nearly
every loan category that were more than offset by increases to the commercial loan portfolio. With the increase in commercial loans
outstanding, the concentration changed slightly. At March 31, 2013, the concentration of commercial and commercial real estate
loans was 78%; up from a level of 77% at year-end 2012. The wholesale focus of the Bank has remained since opening in 1999. Unfortunately,
the sustained economic weakness both nationally and locally from 2008 through 2011 affected many borrowers but particularly the
borrowers in these two segments. During that time, the credit deterioration of customers in those segments, primarily commercial
real estate, increased the overall risk profile of the Bank. As a result, the Bank incurred significant expenses to address the
assessed risk which negatively affected the Bank’s earnings and capital.



-46-







COMMUNITY SHORES BANK CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS



Management believes that the economy in the local market has
stabilized substantially over the past several quarters. Loan credit quality has improved. Even so, the Bank remains diligent about
monitoring its loan portfolio and will continue to develop and educate lenders and credit staff, and to invest time into the design
and overall strengthening of the Company’s credit risk assessment processes.



Simply put, credit risk is the risk of borrower nonpayment typically
on loans although it can be applicable to the investment portfolio as well. In both cases, avoiding portfolio concentrations in
any one type of credit or in a specific industry helps to decrease risk; however, the risk of nonpayment for any reason exists
with respect to all loans and investments. The Bank recognizes that credit losses will be experienced and will vary with, among
other things, general economic conditions; the creditworthiness of the borrower over the term of the debt; and in the case of a
collateralized loan, the quality of the collateral.



The Bank has developed a detailed process to estimate credit
risk. The process is discussed at length in Note 1 to the Company’s annual financial statements. At each period end, the
balance in the allowance for loan losses is based on management’s estimation of probable incurred credit losses. The estimation
is the result of loan portfolio analysis completed utilizing a detailed methodology prescribed in the Bank’s credit procedures.
Management reviews and analyzes the loan portfolio on a regular basis for the purpose of estimating probable incurred credit losses.



The analysis of the allowance for loan losses is comprised of
two portions: general credit allocations and specific credit allocations. General credit allocations are made to various categories
of loans based on loan ratings, delinquency trends, historical loss experience as well as current economic conditions. The specific
credit allocation includes a detailed review of a borrower and its entire relationship resulting in an allocation being made to
the allowance for that particular borrower. A loan becomes specifically identified when, based on current information and events
related to that particular borrower, it is probable that the Company will be unable to collect the scheduled payments of principal
and interest according to the contractual terms of the loan agreement.



The allowance for loan losses is adjusted accordingly to maintain
an adequate level based on the conclusion of the general and specific analysis. There are occasions when a specifically identified
loan requires no allocated allowance for loan losses. To have no allocated allowance for loan loss, a specifically identified loan
must be well secured and have a collateral analysis that supports a loan loss reserve allocation of zero.



At March 31, 2013, the allowance for loan losses totaled $3.3
million. At year-end 2012, the allowance for loan losses was $3.4 million. The reduction in the allowance is the result of net
charge-offs of $81,000 recorded in the first three months of 2013. The ratio of allowance to gross loans outstanding decreased
to a level of 2.61% at March 31, 2013 compared to 2.69% at year-end 2012. Seventy-one percent of the loan charge-offs occurring
in the first quarter of 2013 held specific allocations at year-end 2012.



-47-







COMMUNITY SHORES BANK CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS



The allocation of the allowance at March 31, 2013 and December
31, 2012 was as follows:



|                         |  | March 31, 2013 |           |  | December 31, 2012 | 
|------------------------ |  | -------------- | --------- |  | ----------------- | 
|                         |  |                |           |  | Percent of        | 
|                         |  |                |           |  | Loans in Each     | 
|Balance at End of Period |  |                |           |  | Category to       | 
|Applicable to:           |  | Amount         |           |  | Total Loans       | 
|Commercial               |  | $              | 524,383   |  |                   | 
|Commercial Real Estate   |  |                | 2,072,756 |  |                   | 
|Consumer                 |  |                | 330,028   |  |                   | 
|Residential              |  |                | 169,549   |  |                   | 
|Unallocated              |  |                | 205,581   |  |                   | 
|Total                    |  | $              | 3,302,297 |  |                   | 



The general component of the allowance for loan
losses as a percentage of non-specifically identified loans was 1.27% at March 31, 2013, a decrease of ten basis points from
year-end 2012. At year-end 2012, the general component of the allowance for loan losses was 1.37% of total non-specifically
identified loans. There  are $206,000 of unallocated reserves in the allowance for loan losses stemming from improvement in
macro-economic factors as well as decreases to the Bank’s 36 month historical loss calculation. Management feels that
the trend of the general component of the allowance for loan losses is in line with improvement in the local economy, local
unemployment and the overall improvement in the credit quality of the loan portfolio.



At March 31, 2013, the allowance contained $1,600,000 in specific
allocations for impaired loans whereas at December 31, 2012 there was $1,810,000 specifically allocated. There was $9.2 million
of recorded investment on impaired loans at March 31, 2013 compared to $11.7 million at year-end 2012. At March 31, 2013, the recorded
investment on impaired loans requiring no reserves was $3.9 million, a decrease of $1.2 million since year-end 2012. In the first
quarter of 2013, there was one relationship that was removed from TDR status. The specific allocation associated with the loan
was $34,000 at year-end 2012. For both March 31, 2013 and year-end 2012, over 40% of specifically identified loans required no
reserves. In many cases, these loans had charge-offs since the time of their initial impairment, which reduced principal to the
current value of assigned collateral or expected repayment, therefore no further specific reserve is required on these loans.



Recorded investment on specifically identified loans requiring
reserves was $5.3 million at March 31, 2013 compared to $6.6 million at year-end 2012.



Another factor considered in the assessment
of the adequacy of the allowance is the quality of the loan portfolio from a past due standpoint. From year-end 2012 to March 31,
2013, the recorded investment in accruing past due and non-accrual loans decreased by $743,000. This was evidenced by a $102,000
decrease in the recorded investment in past due loans and a $641,000 decrease in the recorded investment in non-accrual loans in
the first three months of 2013.



The recorded investment of accruing loans
past due 30-59 days was $76,000 at March 31, 2013; a decrease of $55,000 since December 31, 2012. There were eight loans past due
30-59 days at March 31, 2013.



-48-







COMMUNITY SHORES BANK CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS



The recorded investment of accruing loans past due 60-89 days
decreased $47,000 since year-end 2012 and was $83,000 at March 31, 2013. There were two loans comprising the entire past due balance
at the end of March 2013.



There were no accruing loans with a recorded investment past
due 90 days and greater at either March 31, 2013 or year-end 2012.



The Bank’s delinquency has been reduced compared to prior
periods and compares favorably to typical industry averages. The credit review process will continue to be stringent; however,
it is possible that past dues could fluctuate in future periods.



Non-accrual loans totaled $3.3 million at March 31, 2013 which
is a reduction since year-end 2012 when non-accrual loans totaled $3.9 million. The majority of the non-accrual notes are secured
by developed real estate, only 2% of the total is secured by undeveloped real estate. At March 31, 2013, there were specific allocations
of $1.3 million in the allowance for any estimated collateral deficiency on non-accrual loans.



Overall net charge-offs for the first quarter of 2013 were $81,000
which is much lower than the $940,000 for the first three months of 2012. The corresponding ratio of annualized net charge-offs
to average loans for the first quarter of 2013 was 0.24% while the ratio of annualized net charge-offs to average loans was 2.54%
for the first three months of 2012.



In the first quarter of 2012, a large commercial real estate
credit was restructured in a modification that is commonly referred to as an A-B note structure. In these types of modifications,
a detailed analysis of the borrower’s financial condition is performed and the total debt is separated into two notes. The
first note (“note A”) is underwritten to be supported by current cash flows and collateral and the second note (“note
B”) is made for the remaining debt. Note B is immediately charged-off after closing with collection occurring only after
note A is completely repaid. Sixty-six percent of the charge-offs recorded in the first quarter of 2012 was the note B of a commercial
real estate restructuring. Aside from that single transaction, normal recurring charge offs would have been less than 1% of total
loans during the first three months of 2012.



Another
risk identified by the Company is interest rate risk. The Company attempts to mitigate interest rate risk in its loan portfolio
in many ways. In addition to product diversification, two other methods used are to balance the rate sensitivity of the portfolio
and avoid extension risk11.








| | 1 | Extension
risk, as related to loans, exists when booking fixed rate loans with long final contractual maturities. When a customer is contractually
allowed longer to return its borrowed principal and rates rise, the Bank is delayed from taking advantage of the opportunity to
reinvest the returning principal at the higher market rate.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



-49-







COMMUNITY SHORES BANK CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS



The loan maturities and rate sensitivity of the loan portfolio
at March 31, 2013 are set forth below:



|                        |  | Within       |            |  | Three to      |   |            | One to     |  |   | After      |  |  |       |           
|----------------------- |  | ------------ | ---------- |  | ------------- | - | ---------- | ---------- |  | - | ---------- |  |  | ----- | ----------
|                        |  | Three Months |            |  | Twelve Months |   |            | Five Years |  |   | Five Years |  |  | Total |           
|Commercial              |  | $            | 7,104,648  |  |               | $ | 13,699,120 |            |  | $ | 14,763,014 |  |  | $     | 6,811,793 
|Commercial Real Estate: |  |              |            |  |               |   |            |            |  |   |            |  |  |       |           
|General                 |  |              | 4,009,001  |  |               |   | 9,726,349  |            |  |   | 39,351,338 |  |  |       | 1,213,812 
|Construction            |  |              | 127,390    |  |               |   | 1,582,705  |            |  |   | 573,262    |  |  |       | 0         
|Consumer:               |  |              |            |  |               |   |            |            |  |   |            |  |  |       |           
|Lines of credit         |  |              | 634,412    |  |               |   | 1,017,152  |            |  |   | 3,192,452  |  |  |       | 3,961,274 
|Other                   |  |              | 37,371     |  |               |   | 115,154    |            |  |   | 917,747    |  |  |       | 774,501   
|Credit card             |  |              | 55,953     |  |               |   | 171,924    |            |  |   | 259,473    |  |  |       | 0         
|Residential             |  |              | 0          |  |               |   | 251,780    |            |  |   | 4,214      |  |  |       | 15,964,759
|                        |  | $            | 11,968,775 |  |               | $ | 26,564,184 |            |  | $ | 59,061,500 |  |  | $     | 28,726,139
|Loans at fixed rates    |  | $            | 7,812,723  |  |               | $ | 16,808,071 |            |  | $ | 43,882,976 |  |  | $     | 19,875,102
|Loans at variable rates |  |              | 4,156,052  |  |               |   | 9,756,113  |            |  |   | 15,178,524 |  |  |       | 8,851,037 
|                        |  | $            | 11,968,775 |  |               | $ | 26,564,184 |            |  | $ | 59,061,500 |  |  | $     | 28,726,139



At March 31, 2013, there were 70% of the loan balances carrying
a fixed rate and 30% a floating rate. Since 2008, the Bank’s concentration of fixed rate loans has been increasing. Some
of the shift is a factor of the types of loans that have paid off or have been added to the portfolio and some of the change is
related to customer preference at the time of renewal. It is likely that future rate movements will be rising given the extended
period of low rates that has existed over the past few years. As a result of the current mix of the loan portfolio, management
will be challenged to improve loan income in a rising rate environment.



The maturity distribution of the loan portfolio has lengthened
over the last several years but still remains at a level which is within the parameters determined to be acceptable by management.
Contributing to the change in distribution is the increase in the mortgage loan portfolio. Typically management strives to retain
only 10-15% of residential mortgages originated because of the longer contractual terms generally associated with mortgage products.
At March 31, 2013, approximately 23% of the entire loan portfolio had a contractual maturity longer than five years. To control
extension risk, management tries to ensure that loans with a longer contractual maturity are either floating rate or have a repricing
or balloon date that is much shorter than the amortization period. A majority of the loans in the greater than five year contractual
maturity are residential mortgage loans. Statistically loans of this type do not normally remain on the books until maturity as
a result of customer repricing opportunities or changes in circumstance. Additionally, the mortgage staff remains focused on originating
loans saleable into the secondary market, thus minimizing the number that is booked into the held for investment portfolio.



Foreclosed assets were $3.1 million at March 31, 2013 which
was an increase of $292,000 since December 31, 2012. These assets consist of relinquished properties through the collection process
which were previously customer collateral supporting various borrowings. There were four lot sales during the first three months
of 2013 and four properties were added. At March 31, 2013 there were 28 real estate holdings and at December 31, 2012 there were
24 real estate holdings.



-50-







COMMUNITY SHORES BANK CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS



Deposit balances were $183.9 million at March 31, 2013 down
from $184.2 million at December 31, 2012. Mostly as a result of the expiration of TAG, non-interest bearing deposits decreased
$8.3 million since year-end 2012. A majority of the deposits were transferred to interest bearing accounts. Interest-bearing accounts
increased $8.0 million since year-end 2012. Typically the Bank experiences a notable seasonal fluctuation in the deposit accounts
of its largest public fund customers in the first quarter of each year; partially offsetting 2013’s increase was a $3.4 million
decrease in the time deposit portfolio since year-end 2012. Since year-end 2012, there was only one significant withdrawal as a
result of the expiration of TAG; otherwise all of the Bank’s deposits remained. The withdrawal was executed in January and
was for $2.2 million.



The Company had a $5.0 million term loan with
Fifth Third secured by the common stock of the Bank that was in default at year-end 2012. In addition to the outstanding principal
due, there was accrued interest of $763,000 at December 31, 2012. On March 20, 2013, the Company, with approval from the FRB, borrowed
$1,280,000 from a group of investors and settled its debt in full with Fifth Third for $500,000. At closing, Fifth Third released
its secured interest in the common stock of the Bank. The new senior debt bears interest at a fixed rate of 8.00% per annum and
is payable quarterly, in arrears. The new note matures on March 31, 2015 and is secured by the Bank’s common stock. The extinguishment
of debt resulted in a gain of $5.3 million.



Shareholders’ equity was approximately
$4.0 million on March 31, 2013. On December 31, 2012, the balance was $(1.2) million. The net increase of $5.2 million was made
up of net income recorded in the first three months of 2013 offset partially by decreases in accumulated other comprehensive income
(security market value adjustments). The book value per share was $2.72 at March 31, 2013.



The Bank’s capital ratios have risen
since year-end 2012. At March 31, 2013, the Bank’s total risk-based capital ratio was 8.04% and its tier one to average assets
ratio was 4.57%. The Bank’s total risk-based capital ratio at December 31, 2012 was 7.88%. Its tier one to average assets
ratio was 4.53% at year-end 2012. The total risk-based capital ratio improved because of the Bank’s earnings recorded in
the first three months along with a capital contribution of $25,000 from the Company. Achieving a total risk-based capital ratio
above 8.00% qualifies the Bank to be considered adequately capitalized according to prompt corrective action regulation administered
by federal banking agencies. The Bank was considered under-capitalized at year-end 2012.



Under the Consent Order, the Bank is required
to have and maintain its level of tier one capital, as a percentage of its total assets, at a minimum of 8.5%, and its level of
qualifying total capital, as a percentage of risk-weighted assets, at a minimum of 11%. The Consent Order capital requirements
were effective beginning with the December 31, 2010 capital reporting period. The Bank was not in compliance with required capital
ratios at the December 2010 capital reporting period and remains out of compliance at March 31, 2013. In order to attain the level
of capital required by the Consent Order, the Bank would have needed additional capital of $7,980,000 on March 31, 2013 based on
its asset mix and size. This is comparable to $7,917,000 that would have been needed on December 31, 2012.



The Directive, issued by the FDIC to the Bank
on August 17, 2011, stipulated that the Bank be restored to an “adequately capitalized” capital category by October
17, 2011. Although the board made efforts to secure funding and comply with the Directive, they were not successful. As such, the
Bank was not in compliance with the Directive by the required date.



-51-







COMMUNITY SHORES BANK CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS



The Bank reached an adequately capitalized
regulatory capital category at March 31, 2013. Achievement of the capital level stipulated in the Directive will be formally communicated
to the FDIC through the submission of the quarterly Call Report as well as the quarterly written communication expected to be submitted
by management at the end of April.



RESULTS OF OPERATIONS



The net income for the first three months of 2013 was $5.3 million
which was $5.4 million more than the loss of $64,000 recorded for the first three months of 2012. The corresponding basic and diluted
earnings per share for the first three months of 2013 was $3.61. The basic and diluted loss per share for the first quarter of
2012 was $(0.04). The income recorded in the first three months of 2013 stemmed mainly from a $5.3 million gain on debt extinguishment.



For the first three months
of 2013, the annualized return on the Company’s average total assets was 10.45% compared to (0.12)% for the first three months
of 2012. The annualized return on average equity was not meaningful in either quarter because the average of shareholders’
equity was a negative number in both cases. Going forward the Company’s average equity will be a positive number making the
result relevant to operating performance.



-52-







COMMUNITY SHORES BANK CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS



Another component of the
Company’s revenue is its net interest income. The Company’s net interest income was slightly less for the first three
months of 2013 compared to the similar period in 2012 but the net interest margin was higher. The following table sets forth certain
information relating to the Company’s consolidated average interest earning assets and interest bearing liabilities and reflects
the average yield on assets and average cost of liabilities for the periods indicated. Such yields and costs are derived by dividing
annualized income or expenses by the average daily balance of assets or liabilities, respectively, for the periods presented.



|                                                                            |  | Three Months
    ended March 31, |            
|--------------------------------------------------------------------------- |  | -------------------------------- | -----------
|                                                                            |  | 2013                             |            
|                                                                            |  | Average                          |            
|                                                                            |  | Balance                          |            
|Assets                                                                      |  |                                  |            
|Federal
    funds sold and interest-bearing deposits with banks             |  | $                                | 17,365,897 
|Securities                                                                  |  |                                  | 40,697,873 
|Loans
    (including held for sale and non accrual)                         |  |                                  | 132,155,043
|                                                                            |  |                                  | 190,218,813
|Other assets                                                                |  |                                  | 12,854,466 
|                                                                            |  | $                                | 203,073,279
|Liabilities and Shareholders’ Equity                                        |  |                                  |            
|Interest-bearing deposits                                                   |  | $                                | 146,553,500
|Repurchase
agreements                                                       |  |                                  | 10,117,007 
|Subordinated
    debentures and notes payable                               |  |                                  | 4,670,667  
|                                                                            |  |                                  | 161,341,174
|Non-interest-bearing deposits                                               |  |                                  | 36,507,795 
|Other liabilities                                                           |  |                                  | 5,528,209  
|Shareholders’
    Equity                                                    |  |                                  | (303,899   
|                                                                            |  | $                                | 203,073,279
|Net interest income                                                         |  |                                  |            
|Net interest spread on earning assets                                       |  |                                  |            
|Net interest margin on earning assets                                       |  |                                  |            
|Average interest-earning
    assets to average interest-bearing liabilities |  |                                  |            



The net interest spread on average earning assets increased
five basis points to 3.49% in the past twelve months. The net interest margin increased by three basis points from 3.58% for the
first three months of 2012 to 3.61% for the first three months of 2013. The net interest income for the first three months of 2013
was $1.7 million compared to a figure of $1.8 million for the same three months in 2012. Additionally, there was a decrease in
average earning assets of $11.9 million when comparing the first quarter of 2013 to the first quarter of 2012. In
spite of having less net interest income and fewer average earning assets, the net interest margin improved. Improvement stemmed
primarily from a change in the mix of funding resources and a decrease in the yield paid on interest bearing liabilities.



-53-







COMMUNITY SHORES BANK CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS



The average rate earned on interest earning
assets was 4.30% for the three month period ending March 31, 2013 compared to 4.63% for the same period in 2012. One  of
the reasons for the decrease stems from the yield on the securities portfolio declining by 46 basis points between the first
quarter of 2012 and that of 2013. Throughout last year, as securities matured or were called, the replacement securities
purchased yielded lower rates as a result of differences in the rate environment.



The primary reason for the decrease in the average rate earned
on earning assets was the reduction in the yield on the loan portfolio, the Company’s largest earning asset category. The
average rate earned on the loan portfolio was 5.68% in the first quarter of 2013, a reduction of 14 basis points compared to the
first quarter of 2012. A majority of the yield decrease was due to a $15.7 million contraction in the loan portfolio over the last
twelve months. Several of the loan payoffs were on higher rate credits thus changing the rate distribution of the loan portfolio.
The Bank has an internal prime rate that is 175 basis points above the national prime rate, which can make it difficult to compete
with other local banks when loans come up for renewal.



Decreases to the overall yield on interest earning assets were
more than offset by rate reductions on the funding side. Since the first quarter of 2012, the cost of funds improved 38 basis points.
The main contributing factor was a 26 basis point improvement in the rate paid on interest bearing deposits when comparing the
first three months of 2013 to that of the similar period of 2012; a majority of the improvement was a 15 basis point reduction
in the average rate paid on the time deposit portfolio over the last twelve months. As time deposits are maturing, the Bank has
been successful at securing lower rates and longer maturities if the deposits need to be replaced.



Additionally, there were
improvements in the average rate paid on repurchase agreements, subordinated debentures and notes payable between the first quarter
of 2013 and the first quarter of 2012. The average rate paid on repurchase agreements was 16 basis points less. Decreases to the
average rate on subordinated debentures and notes payable is directly related to the settlement with Fifth Third which occurred
late in the first quarter of 2013. As a result there was a reduction in interest bearing liabilities of $4.8 million. Since the
new senior debt bears interest at a rate 2% higher than the former Fifth Third note payable, there will be an increase in the average
rate paid however it will be offset by a much smaller balance outstanding.



Management has focused on overseeing the continued improvement
in the cost of funds, especially in light of the restrictions placed by the Consent Order as well as the expiration of TAG which
attracted customers to transfer their deposits to interest-bearing accounts. Regardless, excess liquidity at the FRB is slated
to repay maturing time deposits which is anticipated to mostly offset the effects of the TAG expiration. As such, it is expected
that the net interest margin will continue rising throughout the remaining quarters of 2013.



In general, the rate environment remains at historically low
levels and management is continually challenged to improve its mix of assets and its net interest income, thus asset liability
management remains an important tool for assessing interest rate sensitivity; it also provides a tool for monitoring liquidity.
Liquidity management involves the ability to meet the cash flow requirements of the Company’s customers. These customers
may be either borrowers with credit needs or depositors wanting to withdraw funds. Management of interest rate sensitivity attempts
to avoid widely varying net interest margins and achieve consistent net interest income through periods of changing interest rates.



-54-







COMMUNITY SHORES BANK CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS



The Company uses a sophisticated computer program to perform
analysis of interest rate risk, assist with asset liability management, and model and measure interest rate sensitivity. Interest
rate sensitivity varies with different types of earning assets and interest-bearing liabilities. Overnight investments, of which
rates change daily, and loans tied to the prime rate, differ considerably from long term investment securities and fixed rate loans.
Interest bearing checking and money market accounts are more interest sensitive than long term time deposits and fixed rate FHLB
advances. Comparison of the repricing intervals of interest earning assets to interest bearing liabilities is a measure of interest
sensitivity gap. Balancing this gap is a continual challenge in a highly competitive and changing rate environment.



Details of the repricing gap at March 31, 2013 were:



|                                                          |  | Interest Rate Sensitivity Period |            
|--------------------------------------------------------- |  | -------------------------------- | -----------
|                                                          |  | Within                           |            
|                                                          |  | Three                            |            
|                                                          |  | Months                           |            
|Earning assets                                            |  |                                  |            
|Interest-bearing deposits in other financial institutions |  | $                                | 21,418,199 
|Securities (including FHLB stock)                         |  |                                  | 4,593,445  
|Loans held for sale                                       |  |                                  | 32,943     
|Loans                                                     |  |                                  | 51,992,669 
|                                                          |  |                                  | 78,037,256 
|Interest-bearing liabilities                              |  |                                  |            
|Savings and checking                                      |  |                                  | 61,913,108 
|Time deposits <$100,000                                   |  |                                  | 10,858,710 
|Time deposits >$100,000                                   |  |                                  | 1,926,972  
|Repurchase agreements and Federal funds purchased         |  |                                  | 10,174,229 
|Notes payable and other borrowings                        |  |                                  | 4,500,000  
|                                                          |  |                                  | 89,373,019 
|Net asset (liability) repricing gap                       |  | $                                | (11,335,763
|Cumulative net asset (liability) repricing gap            |  | $                                | (11,335,763



Currently, the Company has a negative twelve month repricing
gap which indicates that the Company is liability sensitive in the next twelve month period. This position implies that more rate
bearing products have an opportunity to reprice during this period. If the rate environment remains flat like the Federal Reserve
has forecasted, a negative repricing gap should be helpful for further reduction to the Company’s overall interest expense,
which is likely to translate into higher net interest income and an increased net interest margin. Conversely, if the Company’s
gap position remains negative when interest rates begin to rise, there will likely be a negative effect on net interest income.
The interest rate sensitivity table above simply illustrates what the Company is contractually able to change in certain time frames.



-55-







COMMUNITY SHORES BANK CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS



There was no  provision for loan losses for the first
three months of 2013. In the first three months of 2012, the  provision for loan losses was $75,000. The provision expense
is associated with changes in historical loss calculations, economic condition (local and national) as well as delinquency, charge
offs and changes to credit quality grades; up and down. A methodical assessment of these factors generates the reserves required
for the risk in the Bank’s loan portfolio and the required provision expense. Management will continue to review the allowance
with the intent of maintaining it at an appropriate level for the portfolio’s credit quality and perceived risk factors.
The provision for loan losses is an estimate and may be increased or decreased in the future.



Non-interest income recorded
in the first three months of 2013 was $5.6 million compared to $302,000 recorded for the similar period in 2012. The largest
difference stemmed from the settlement of debt with Fifth Third. On March 20, 2013, the Company, with approval from the FRB,
borrowed $1,280,000 from a group of investors and settled its debt in full with Fifth Third for $500,000. At closing, the
balance owed to Fifth Third was approximately $5.8 million. The extinguishment of debt resulted in a gain of $5.3 million.
Additionally, gains on the sale of residential real estate loans were $29,000 higher in the first quarter of 2013 than the same period in 2012. The rate environment continues to be very conducive to mortgage lending
activity. A large portion of the originated loans are refinance transactions but, in the first three months of 2013,
financing for home purchases has nearly doubled as compared to all of 2012. This change in composition of mortgage activity
supports the idea that there has been an improvement in the local economy.



Non-interest expenses for the first three months of 2013 were
$1.9 million. Non-interest expenses for the first three months of 2012 were $2.1 million. Several categories decreased contributing
to the $157,000 variance between the two periods.



Salary and benefit expenses, the largest category of non-interest
expenses, were $915,000 for the first quarter of 2013. For the similar period in 2012, the total was $970,000. There were on average
3 fewer full time equivalent (“FTE”) employees when comparing the two time periods. A portion of the decrease was related
to retirements. In February of 2012, two commercial lenders retired. Other vacancies were related to the timing of turnover and
may not be a permanent decrease in FTE’s.



Foreclosed asset impairment charges were $8,000 in the first
three months of 2013 compared to $91,000 for the similar period in 2012. The $83,000 decrease stems from fewer properties held
as well as stabilized local real estate values. There were 28 foreclosed properties at March 31, 2013 and 32 at March 31, 2012.



FDIC insurance premiums were comparable when comparing the first
three month period of 2013 and the first quarter of 2012. In the first quarter of 2012, the Bank was considered under-capitalized.
Beginning with the March 31, 2013 regulatory capital reporting period, the Bank achieved an adequately capitalized regulatory capital
status. The improvement in regulatory capital ratio is anticipated to translate into an FDIC premium reduction of at least 30%
per quarter beginning with the second quarter of 2013.



Other non-interest expenses were $323,000 in the first quarter
of 2013 and $369,000 for the like period in 2012; a reduction of $46,000. The main contributing factor is a $64,000 reduction in
expenses to administer impaired assets. In the first three months of 2013, these expenses totaled $103,000. Similarly, these expenses
totaled $167,000 in the first quarter of 2012. Fewer expenses related to administering impaired assets supports management’s
assessment of improved credit quality over the past several quarters.



-56-







COMMUNITY SHORES BANK CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS



As a result of the large gain on the extinguishment of debt,
the Company recorded income tax expense from operations in the amount of $105,000. This amount represents projected taxable earnings
subject to alternative minimum taxation which may fluctuate throughout the year with changes in operating results. Additionally,
the gain on the extinguishment of debt may result in a reduction of net operating loss carry forward tax attributes by an estimated
$5.3 million.  Even so, the Company’s estimated net operating loss carry forward remaining would be over $6 million.



| | ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
| | ------- | ----------------------------------------------------------



Not applicable for smaller reporting companies.



| | ITEM 4. | CONTROLS AND PROCEDURES
| | ------- | -----------------------



An evaluation was carried out under the supervision and with
the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the
effectiveness of our disclosure controls and procedures as of March 31, 2013. Based on the evaluation, our Chief Executive Officer
and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were, to the best of their
knowledge, effective as of March 31, 2013.



There have been no changes in the internal control over financial
reporting during the quarter ended March 31, 2013, that have materially affected, or are reasonably likely to materially affect,
the Company's internal control over financial reporting.



-57-







COMMUNITY SHORES BANK CORPORATION



PART II – OTHER INFORMATION



| | ITEM 1. | LEGAL PROCEEDINGS
| | ------- | -----------------



In the opinion of management, the Company
and its subsidiaries are not a party to any current legal proceedings that are expected to have a material adverse effect on their
financial condition, either individually or in the aggregate.



| | ITEM 1A. | RISK FACTORS
| | -------- | ------------



Not applicable for smaller reporting companies.



| | ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
| | ------- | -----------------------------------------------------------



The Company made no unregistered sale of equity securities,
and did not purchase any of its equity securities, during the quarter ended March 31, 2013.



Holders of Company common stock are entitled to receive cash
dividends to the extent that they are declared from time to time by the Company's Board of Directors. To date, the Company's Board
of Directors has never declared a cash dividend. The Company may only pay cash dividends out of funds that are legally available
for that purpose. The Company is a holding company and substantially all of its assets are held by its subsidiaries. The Company's
ability to pay cash dividends to its shareholders depends primarily on the Bank's ability to pay cash dividends to the Company.
Cash dividend payments and extensions of credit to the Company from the Bank are subject to legal and regulatory limitations, generally
based on capital levels and current and retained earnings, imposed by law and regulatory agencies with authority over the Bank.
The ability of the Bank to pay cash dividends is also subject to its profitability, financial condition, capital expenditures and
other cash flow requirements. Under the Consent and Written Agreement, the Bank is precluded from paying dividends to the Company
and the Company may not receive dividends from the Bank.



Under the terms of the subordinated debentures that the Company
issued to the Trust, the Company is precluded from paying cash dividends on the Company's common stock if an event of default has
occurred and is continuing under the subordinated debentures, or if the Company has exercised its right to defer payments of interest
on the subordinated debentures, until the deferral ends. In May of 2010, the Company gave notice that it was deferring the regularly
scheduled quarterly interest payments on the subordinated debentures beginning with the quarterly interest payment that was scheduled
to be paid on June 30, 2010. So until the deferral ends, the terms of the subordinated debentures preclude the Company from paying
any dividends on the common stock. If the Company had any preferred stock outstanding, it would similarly be precluded from paying
any dividend on the preferred stock.



-58-







COMMUNITY SHORES BANK CORPORATION



| | ITEM 3. | DEFAULTS UPON SENIOR SECURITIES
| | ------- | -------------------------------



Not applicable.



| | ITEM 4. | MINE SAFETY DISCLOSURES
| | ------- | -----------------------



Not applicable.



| | ITEM 5. | OTHER INFORMATION
| | ------- | -----------------



None.



| | ITEM 6. | EXHIBITS
| | ------- | --------



|Exhibit No. |  | EXHIBIT DESCRIPTION                                                                                                                                                                                                            
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            |  |                                                                                                                                                                                                                                
|3.1         |  | Articles of Incorporation are incorporated by reference to exhibit 3.1 of the Company’s June 30, 2004 Form 10-QSB (SEC file number 333-63769).                                                                                 
|3.2         |  | Bylaws of the Company are incorporated by reference to exhibit 3(ii) of the Company’s Form 8-K filed July 5, 2006 (SEC file number 000-51166).                                                                                 
|10.1        |  | Settlement Agreement and Release between the Company and Fifth Third dated March 20, 2013 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed March 25, 2013.                                           
|10.2        |  | Convertible Secured Note Purchase Agreement, Note and Pledge Agreement between the Company and 1030 Norton LLC dated March 20, 2013 (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed March 25, 2013).
|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 Chief Executive Officer Certification.                                                                                                                                                                            
|32.2        |  | Section 1350 Chief Financial Officer Certification.                                                                                                                                                                            



-59-







SIGNATURES



Pursuant to the requirements 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.



|             | COMMUNITY SHORES BANK CORPORATION                           
|------------ | ------------------------------------------------------------
|             |                                                             
|May 15, 2013 | By:                                                         
|Date         | Heather D. Brolick                                          
|             | President and Chief Executive Officer                       
|             | (principal executive officer)                               
|             |                                                             
|May 15, 2013 | By:                                                         
|Date         | Tracey A. Welsh                                             
|             | Senior Vice President, Chief Financial Officer and Treasurer
|             | (principal financial and accounting officer)                



-60-







EXHIBIT INDEX



|Exhibit No. |  | EXHIBIT DESCRIPTION                                                                                                                                                                                                            
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            |  |                                                                                                                                                                                                                                
|3.1         |  | Articles of Incorporation are incorporated by reference to exhibit 3.1 of the Company’s June 30, 2004 Form 10-QSB (SEC file number 333-63769).                                                                                 
|3.2         |  | Bylaws of the Company are incorporated by reference to exhibit 3(ii) of the Company’s Form 8-K filed July 5, 2006 (SEC file number 000-51166).                                                                                 
|10.1        |  | Settlement Agreement and Release between the Company and Fifth Third dated March 20, 2013 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed March 25, 2013.                                           
|10.2        |  | Convertible Secured Note Purchase Agreement, Note and Pledge Agreement between the Company and 1030 Norton LLC dated March 20, 2013 (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed March 25, 2013).
|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 Chief Executive Officer Certification.                                                                                                                                                                            
|32.2        |  | Section 1350 Chief Financial Officer Certification.                                                                                                                                                                            



-61-