##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2010
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 000-51166
 Community Shores Bank Corporation
  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
 
  þ o
  o o
  Large accelerated filer o
    

Accelerated filer o
    
    Non-accelerated filer o
    

Smaller
reporting company þ(Do not check if a smaller reporting company)
  o þ




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##### 



Page No.PART I. Financial InformationItem 1. Financial Statements
    
    
    1Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    22Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    35Item 4. Controls and Procedures
    
    
    35PART II. Other InformationItem 1. Legal Proceedings
    
    
    35Item 1A. Risk Factors
    
    
    35Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    35Item 3. Defaults upon Senior Securities
    
    
    36Item 4. Reserved
    
    
    36Item 5. Other Information
    
    
    36Item 6. Exhibits
    
    
    36Signatures
    
    
    37EX-31.1EX-31.2EX-32.1EX-32.2




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##### Table of Contents



ITEM 1.
    
    FINANCIAL STATEMENTS (UNAUDITED)
 
 June 30,
    
    
    December 31,2010
    
    
    2009(unaudited)ASSETSCash and due from financial institutions
    
    $
    4,351,462
    
    
    $
    2,161,388Interest-bearing deposits in other financial institutions
    
    
    27,124,150
    
    
    
    662,700Total cash and cash equivalents
    
    
    31,475,612
    
    
    
    2,824,088SecuritiesAvailable for sale (at fair value)
    
    
    32,235,060
    
    
    
    21,650,026Held to maturity (fair value of $0 at June 30, 2010 and
$5,945,437 at December 31, 2009)
    
    
    0
    
    
    
    5,841,421Total securities
    
    
    32,235,060
    
    
    
    27,491,447Loans held for sale
    
    
    1,324,966
    
    
    
    1,070,692Loans
    
    
    178,821,289
    
    
    
    183,247,827Less: Allowance for loan losses
    
    
    3,138,303
    
    
    
    3,782,132Net loans
    
    
    175,682,986
    
    
    
    179,465,695Federal Home Loan Bank stock
    
    
    513,600
    
    
    
    404,100Premises and equipment, net
    
    
    11,077,239
    
    
    
    11,293,169Accrued interest receivable
    
    
    864,542
    
    
    
    885,103Foreclosed assets
    
    
    6,837,191
    
    
    
    6,440,916Other assets
    
    
    1,400,276
    
    
    
    1,554,849Total assets
    
    $
    261,411,472
    
    
    $
    231,430,059LIABILITIES AND SHAREHOLDERS EQUITYDepositsNon-interest-bearing
    
    $
    25,813,264
    
    
    $
    24,884,625Interest-bearing
    
    
    203,340,097
    
    
    
    173,691,984Total deposits
    
    
    229,153,361
    
    
    
    198,576,609Federal funds purchased and repurchase agreements
    
    
    9,220,685
    
    
    
    7,000,327Federal Home Loan Bank advances
    
    
    4,500,000
    
    
    
    6,000,000Subordinated debentures
    
    
    4,500,000
    
    
    
    4,500,000Notes payable
    
    
    5,000,000
    
    
    
    5,000,000Accrued expenses and other liabilities
    
    
    650,093
    
    
    
    613,132Total liabilities
    
    
    253,024,139
    
    
    
    221,690,068Shareholders equityPreferred Stock, no par value: 1,000,000 shares
authorized and none issued
    
    
    0
    
    
    
    0Common Stock, no par value: 9,000,000 shares authorized;
1,468,800 June 30, 2010 and December 31, 2009
    
    
    13,296,691
    
    
    
    13,296,691Retained deficit
    
    
    (5,363,816
    )
    
    
    (3,734,295
    )Accumulated other comprehensive income
    
    
    454,458
    
    
    
    177,595Total shareholders equity
    
    
    8,387,333
    
    
    
    9,739,991Total liabilities and shareholders equity
    
    $
    261,411,472
    
    
    $
    231,430,059
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##### Table of Contents



Three
    
    
    Three
    
    
    Six
    
    
    SixMonths
    
    
    Months
    
    
    Months
    
    
    MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedJune 30, 2010
    
    
    June 30, 2009
    
    
    June 30, 2010
    
    
    June 30, 2009Interest and dividend incomeLoans, including fees
    
    $
    2,854,592
    
    
    $
    3,100,128
    
    
    $
    5,660,199
    
    
    $
    6,271,428Securities
    
    
    205,259
    
    
    
    239,475
    
    
    
    416,694
    
    
    
    500,544FHLB dividends and other income
    
    
    15,664
    
    
    
    17,817
    
    
    
    23,123
    
    
    
    23,512Total interest income
    
    
    3,075,515
    
    
    
    3,357,420
    
    
    
    6,100,016
    
    
    
    6,795,484Interest expenseDeposits
    
    
    1,126,529
    
    
    
    1,528,441
    
    
    
    2,234,506
    
    
    
    3,207,679Repurchase agreements, federal funds purchased,
and other debt
    
    
    20,757
    
    
    
    12,514
    
    
    
    41,328
    
    
    
    19,639Federal Home Loan Bank advances, subordinated
debentures and notes payable
    
    
    164,030
    
    
    
    173,938
    
    
    
    348,562
    
    
    
    343,393Total interest expense
    
    
    1,311,316
    
    
    
    1,714,893
    
    
    
    2,624,396
    
    
    
    3,570,711Net Interest Income
    
    
    1,764,199
    
    
    
    1,642,527
    
    
    
    3,475,620
    
    
    
    3,224,773Provision for loan losses
    
    
    832,723
    
    
    
    130,157
    
    
    
    1,361,804
    
    
    
    478,400Net Interest Income after Provision for Loan Losses
    
    
    931,476
    
    
    
    1,512,370
    
    
    
    2,113,816
    
    
    
    2,746,373Non-interest incomeService charges on deposit accounts
    
    
    199,290
    
    
    
    222,008
    
    
    
    373,823
    
    
    
    446,384Mortgage loan referral fees
    
    
    0
    
    
    
    15,420
    
    
    
    0
    
    
    
    15,420Gain on sale of loans
    
    
    60,931
    
    
    
    105,452
    
    
    
    106,837
    
    
    
    206,742Gain on sale of securities
    
    
    0
    
    
    
    143,903
    
    
    
    79,814
    
    
    
    273,010Gain (loss) on sale of foreclosed assets
    
    
    (12,622
    )
    
    
    (11,041
    )
    
    
    (21,311
    )
    
    
    (11,041
    )Other
    
    
    117,921
    
    
    
    163,905
    
    
    
    311,192
    
    
    
    285,837Total non-interest income
    
    
    365,520
    
    
    
    639,647
    
    
    
    850,355
    
    
    
    1,216,352Non-interest expenseSalaries and employee benefits
    
    
    1,007,047
    
    
    
    1,083,478
    
    
    
    2,039,203
    
    
    
    2,204,880Occupancy
    
    
    148,671
    
    
    
    156,179
    
    
    
    314,287
    
    
    
    330,464Furniture and equipment
    
    
    145,457
    
    
    
    169,285
    
    
    
    304,585
    
    
    
    337,857Advertising
    
    
    19,102
    
    
    
    13,486
    
    
    
    37,267
    
    
    
    32,217Data processing
    
    
    137,244
    
    
    
    130,273
    
    
    
    260,023
    
    
    
    252,455Professional services
    
    
    116,297
    
    
    
    118,567
    
    
    
    240,947
    
    
    
    228,847Foreclosed asset impairment
    
    
    359,966
    
    
    
    36,330
    
    
    
    384,621
    
    
    
    119,742Other
    
    
    552,328
    
    
    
    627,287
    
    
    
    1,012,759
    
    
    
    1,077,400Total non-interest expense
    
    
    2,486,112
    
    
    
    2,334,885
    
    
    
    4,593,692
    
    
    
    4,583,862Loss Before Federal Income Taxes
    
    
    (1,189,116
    )
    
    
    (182,868
    )
    
    
    (1,629,521
    )
    
    
    (621,137
    )Federal income tax expense
    
    
    0
    
    
    
    1,153,316
    
    
    
    0
    
    
    
    985,961Net Loss
    
    $
    (1,189,116
    )
    
    $
    (1,336,184
    )
    
    $
    (1,629,521
    )
    
    $
    (1,607,098
    )Comprehensive Loss
    
    $
    (921,846
    )
    
    $
    (1,627,910
    )
    
    $
    (1,352,658
    )
    
    $
    (1,970,916
    )Weighted average shares outstanding
    
    
    1,468,800
    
    
    
    1,468,800
    
    
    
    1,468,800
    
    
    
    1,468,800Diluted average shares outstanding
    
    
    1,468,800
    
    
    
    1,468,800
    
    
    
    1,468,800
    
    
    
    1,468,800Basic loss per share
    
    $
    (0.81
    )
    
    $
    (0.91
    )
    
    $
    (1.11
    )
    
    $
    (1.09
    )Diluted loss per share
    
    $
    (0.81
    )
    
    $
    (0.91
    )
    
    $
    (1.11
    )
    
    $
    (1.09
    )
  - 2 -




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##### Table of Contents



AccumulatedRetained
    
    
    Other
    
    
    TotalCommon
    
    
    (Deficit)
    
    
    Comprehensive
    
    
    ShareholdersShares
    
    
    Stock
    
    
    Earnings
    
    
    Income
    
    
    EquityBalance at January 1, 2009
    
    
    1,468,800
    
    
    $
    13,296,691
    
    
    $
    1,228,084
    
    
    $
    421,679
    
    
    $
    14,946,454Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    (1,607,098
    )
    
    
    
    
    
    
    (1,607,098
    )Unrealized loss on securities
available-for-sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (363,818
    )
    
    
    (363,818
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,970,916
    )Balance at June 30, 2009
    
    
    1,468,800
    
    
    $
    13,296,691
    
    
    $
    (379,014
    )
    
    $
    57,861
    
    
    $
    12,975,538Balance at January 1, 2010
    
    
    1,468,800
    
    
    $
    13,296,691
    
    
    $
    (3,734,295
    )
    
    $
    177,595
    
    
    $
    9,739,991Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    (1,629,521
    )
    
    
    
    
    
    
    (1,629,521
    )Unrealized gain on securities
available-for-sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    276,863
    
    
    
    276,863Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,352,658
    )Balance at June 30, 2010
    
    
    1,468,800
    
    
    $
    13,296,691
    
    
    $
    (5,363,816
    )
    
    $
    454,458
    
    
    $
    8,387,333
  - 3 -




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##### Table of Contents



Six Months
    
    
    Six MonthsEnded
    
    
    EndedJune 30, 2010
    
    
    June 30, 2009Cash flows from operating activitiesNet loss
    
    $
    (1,629,521
    )
    
    $
    (1,607,098
    )Adjustments to reconcile net loss to net cash
from operating activities:Provision for loan losses
    
    
    1,361,804
    
    
    
    478,400Depreciation and amortization
    
    
    307,408
    
    
    
    345,108Net amortization of securities
    
    
    78,094
    
    
    
    43,822Net realized gain on sale of securities
    
    
    (79,814
    )
    
    
    (273,010
    )Net realized gain on sale of loans
    
    
    (106,837
    )
    
    
    (206,742
    )Net realized loss on sale of foreclosed assets
    
    
    21,311
    
    
    
    11,041Foreclosed asset impairment
    
    
    384,621
    
    
    
    119,742Originations of loans for sale
    
    
    (6,807,963
    )
    
    
    (18,160,858
    )Proceeds from loan sales
    
    
    6,660,526
    
    
    
    17,387,795Establish deferred tax asset valuation
    
    
    0
    
    
    
    1,203,189Net change in:Accrued interest receivable and other assets
    
    
    175,133
    
    
    
    (189,416
    )Accrued interest payable and other liabilities
    
    
    36,961
    
    
    
    74,289Net cash from (used in) operating activities
    
    
    401,723
    
    
    
    (773,738
    )Cash flows from investing activitiesActivity in available for sale securities:Sales
    
    
    3,751,027
    
    
    
    5,184,686Maturities, prepayments and calls
    
    
    6,584,667
    
    
    
    2,574,466Purchases
    
    
    (14,800,724
    )
    
    
    (10,825,558
    )Activity in held to maturity securities:Maturities
    
    
    0
    
    
    
    505,000Loan originations and payments, net
    
    
    848,206
    
    
    
    9,527,978Purchase of Federal Home Loan Bank stock
    
    
    (109,500
    )
    
    
    0Additions to premises and equipment, net
    
    
    (91,478
    )
    
    
    (23,224
    )Proceeds from the sale of foreclosed assets
    
    
    770,493
    
    
    
    93,106Net cash from (used in) investing activities
    
    
    (3,047,309
    )
    
    
    7,036,454Cash flows from financing activitiesNet change in deposits
    
    
    30,576,752
    
    
    
    (7,908,976
    )Net change in federal funds purchased and
repurchase agreements
    
    
    2,220,358
    
    
    
    1,762,762Draws on note payable and line of credit
    
    
    0
    
    
    
    800,000Repayment of FHLB advance
    
    
    (1,500,000
    )
    
    
    0Net cash from (used in) financing activities
    
    
    31,297,110
    
    
    
    (5,346,214
    )Net change in cash and cash equivalents
    
    
    28,651,524
    
    
    
    916,502Beginning cash and cash equivalents
    
    
    2,824,088
    
    
    
    5,671,801Ending cash and cash equivalents
    
    $
    31,475,612
    
    
    $
    6,588,303Supplemental cash flow information:Cash paid during the period for interest
    
    $
    2,585,188
    
    
    $
    3,642,647Transfers from loans to foreclosed assets during the period
    
    
    1,572,700
    
    
    
    1,080,469Transfers from securities held to maturity to available for sale
    
    
    5,839,614
    
    
    
    0
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##### Table of Contents



COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1.
    
    BASIS OF PRESENTATION AND RECENT ACCOUNTING DEVELOPMENTS:
 The unaudited, consolidated financial statements as of and for the three months and six months
ended June 30, 2010 include the consolidated results of operations of Community Shores Bank
Corporation (Company) and its wholly-owned subsidiaries, Community Shores Bank (Bank) and
Community Shores Financial Services, and a wholly-owned subsidiary of the Bank, Community Shores
Mortgage Company (Mortgage Company). Community Shores Capital Trust I (the Trust) is not
consolidated and exists solely to issue capital securities. These consolidated financial statements
have been prepared in accordance with the instructions for Form 10-Q and Article 8 of Regulation
S-X and do not include all disclosures required by generally accepted accounting principles for a
complete presentation of the Companys financial condition and results of operations. In the
opinion of management, the information reflects all adjustments (consisting only of normal
recurring adjustments) which are necessary in order to make the financial statements not misleading
and for a fair representation of the results of operations for such periods. The results for the
period ended June 30, 2010 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, 2009. Some items in the
prior year financial statements may be reclassified to conform to the current presentation.In June 2009, the FASB amended previous guidance relating to transfers of financial assets,
and for consolidation of variable interest entity by replacing the quantitative-based risks
and rewards calculation for determining which enterprise, if any, has a controlling
financial interest in a variable interest entity with an approach focused on identifying
which enterprise has the power to direct the activities of a variable interest entity that
most significantly impact the entitys economic performance and (1) the obligation to
absorb losses of the entity or (2) the right to receive benefits from the entity.
Additional disclosures about an enterprises involvement in variable interest entities are also
required. This guidance is effective as of the beginning of each reporting entitys first
annual reporting period that begins after November 15, 2009, for interim periods within that
first annual reporting period, and for interim and annual reporting periods thereafter. This
guidance must be applied to transfers occurring on or after the effective date. The disclosure
provisions were also amended and apply to transfers that occurred both before and after the
effective date of this guidance. Early adoption is prohibited. Adoption of this new guidance by
the Company on January 1, 2010 did not have a material impact on our results of operations or
financial condition.
  - 5 -




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##### Table of Contents



COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 2.
    
    SECURITIES
 The following tables represent the securities held in the Companys portfolio at June 30, 2010
and at December 31, 2009:
 Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairJune 30, 2010
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    ValueAvailable for sale:US Treasury
    
    $
    1,005,929
    
    
    $
    6,728
    
    
    $
    0
    
    
    $
    1,012,657US Government and federal agency
    
    
    16,369,083
    
    
    
    269,404
    
    
    
    0
    
    
    
    16,638,487Municipals
    
    
    3,183,859
    
    
    
    80,089
    
    
    
    0
    
    
    
    3,263,948Mortgage-backed and
collateralized mortgage
obligations residential
    
    
    11,004,502
    
    
    
    324,416
    
    
    
    (8,950
    )
    
    
    11,319,968$
    31,563,373
    
    
    $
    680,637
    
    
    $
    (8,950
    )
    
    $
    32,235,060Held to maturity:Municipals
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
 Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairDecember 31, 2009
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    ValueAvailable for sale:US Government and federal agency
    
    $
    14,357,370
    
    
    $
    138,037
    
    
    $
    0
    
    
    $
    14,495,407Municipals
    
    
    1,144,121
    
    
    
    33,165
    
    
    
    0
    
    
    
    1,177,286Mortgage-backed  residential
    
    
    5,753,711
    
    
    
    226,766
    
    
    
    (3,144
    )
    
    
    5,977,333$
    21,255,202
    
    
    $
    397,968
    
    
    $
    (3,144
    )
    
    $
    21,650,026Held to maturity:Municipals
    
    $
    5,841,421
    
    
    $
    104,016
    
    
    $
    0
    
    
    $
    5,945,437
  Available for SaleAmortized
    
    
    FairCost
    
    
    ValueDue in one year or less
    
    $
    500,336
    
    
    $
    500,586Due from one to five years
    
    
    18,301,625
    
    
    
    18,618,515Due from five to ten years
    
    
    1,756,910
    
    
    
    1,795,991Due in more than ten years
    
    
    0
    
    
    
    0Mortgage-backed and
collateralized mortgage
obligations  residential
    
    
    11,004,502
    
    
    
    11,319,968$
    31,563,373
    
    
    $
    32,235,060
  - 6 -




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##### Table of Contents



COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   Less than 12 Months
    
    
    12 Months or Longer
    
    
    TotalJune 30, 2010
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedAvailable for Sale
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesMortgage-backed and
collateralized
mortgage
obligations -
residential
    
    $
    3,115,442
    
    
    $
    (8,950
    )
    
    $
    0
    
    
    $
    0
    
    
    $
    3,115,442
    
    
    $
    (8,950
    )$
    3,115,442
    
    
    $
    (8,950
    )
    
    $
    0
    
    
    $
    0
    
    
    $
    3,115,442
    
    
    $
    (8,950
    )
 Less than 12 Months
    
    
    12 Months or Longer
    
    
    TotalDecember 31, 2009
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedAvailable for Sale
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesMortgage-backed  residential
    
    $
    237,655
    
    
    $
    (3,144
    )
    
    $
    0
    
    
    $
    0
    
    
    $
    237,655
    
    
    $
    (3,144
    )$
    237,655
    
    
    $
    (3,144
    )
    
    $
    0
    
    
    $
    0
    
    
    $
    237,655
    
    
    $
    (3,144
    )
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##### Table of Contents



COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 2.
    
    SECURITIES (Continued)
 Other-Than-Temporary-ImpairmentManagement evaluates securities for other-than-temporary impairment (OTTI) at least on a
quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.
The investment securities portfolio is evaluated for OTTI following guidance issued by FASB.In determining OTTI under the FASB model, 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 entity has the intent to sell the debt security or
more likely than not will be required to sell the debt security before its anticipated recovery.
The assessment of whether an other-than-temporary decline exists involves a high degree of
subjectivity and judgment and is based on the information available to management at a point in
time.When OTTI occurs, the amount of the OTTI recognized in earnings depends on whether an entity
intends to sell the security or it is more likely than not it will be required to sell the security
before recovery of its amortized cost basis, less any current-period credit loss. If an entity
intends to sell or it is more likely than not it will be required to sell the security before
recovery of its amortized cost basis, less any current-period credit loss, the OTTI will be
recognized in earnings equal to the entire difference between the investments amortized cost basis
and its fair value at the balance sheet date. If an entity does not intend to sell the security and
it is not more likely than not that the entity will be required to sell the security before
recovery of its amortized cost basis less any current-period loss, the OTTI will be separated into
the amount representing the credit loss and the amount related to all other factors. The amount of
the total OTTI related to the credit loss is determined based on the present value of cash flows
expected to be collected and is recognized in earnings. The amount of the total OTTI related to
other factors is recognized in other comprehensive income, net of applicable taxes. The previous
amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of
the investment.At June 30, 2010, four debt securities had unrealized losses with aggregate depreciation of 0.29%
from the Companys amortized cost basis, all of which had been in a continuous loss for less than
twelve months. All of the securities are issued by government or government sponsored agencies.Mortgage-backed and Collateralized Mortgage Obligation SecuritiesAt June 30, 2010, 100% of the mortgage-backed and collateralized mortgage obligation securities
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. The unrealized loss associated with these securities was 0.29% at June 30,
2010. Because the decline in fair value is attributable to changes in interest rates and
illiquidity, and not credit quality, and because the Company does not have the intent to sell these
securities and it is likely that it will not be required to sell the securities before their
anticipated recovery, the Company does not consider these securities to be other-than-temporarily
impaired at June 30, 2010.
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##### Table of Contents



COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 3.
    
    LOANS
  June 30,
    
    
    December 31,2010
    
    
    2009Commercial
    
    $
    65,389,440
    
    
    $
    69,926,958Real Estate:Commercial
    
    
    71,546,075
    
    
    
    70,504,399Residential
    
    
    19,288,732
    
    
    
    18,625,574Construction
    
    
    1,715,489
    
    
    
    1,518,378Consumer
    
    
    20,393,339
    
    
    
    22,140,462Credit Cards
    
    
    548,173
    
    
    
    596,584Subtotal
    
    
    178,881,248
    
    
    
    183,312,355Allowance for loan losses
    
    
    (3,138,303
    )
    
    
    (3,782,132
    )Net deferred loan fees
    
    
    (59,959
    )
    
    
    (64,528
    )Loans, Net
    
    $
    175,682,986
    
    
    $
    179,465,695
 Loans held for sale totaled $1,324,966 at June 30, 2010 and $1,070,692 at December 31, 2009.
 4.
    
    ALLOWANCE FOR LOAN LOSSES AND IMPAIRED LOANSThe following is a summary of activity in the allowance for loan losses account for the three and
six month periods ended June 30, 2010 and 2009:
 Three Months
    
    
    Three Months
    
    
    Six Months
    
    
    Six MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended06/30/10
    
    
    06/30/09
    
    
    06/30/10
    
    
    06/30/09Beginning Balance
    
    $
    3,317,566
    
    
    $
    2,739,408
    
    
    $
    3,782,132
    
    
    $
    4,350,903Charge-offsCommercial
    
    
    (341,711
    )
    
    
    (223,919
    )
    
    
    (680,714
    )
    
    
    (2,133,813
    )Real Estate-Commercial
    
    
    (485,622
    )
    
    
    0
    
    
    
    (960,758
    )
    
    
    (38,602
    )Real Estate-Residential
    
    
    (41,505
    )
    
    
    0
    
    
    
    (76,070
    )
    
    
    0Consumer
    
    
    (153,718
    )
    
    
    (93,582
    )
    
    
    (319,646
    )
    
    
    (125,085
    )Total Charge-offs
    
    
    (1,022,556
    )
    
    
    (317,501
    )
    
    
    (2,037,188
    )
    
    
    (2,297,500
    )RecoveriesCommercial
    
    
    3,866
    
    
    
    1,010
    
    
    
    6,169
    
    
    
    10,828Real Estate-Commercial
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    150Consumer
    
    
    6,704
    
    
    
    5,467
    
    
    
    25,386
    
    
    
    15,760Total Recoveries
    
    
    10,570
    
    
    
    6,477
    
    
    
    31,555
    
    
    
    26,738Net Charge-offs
    
    
    (1,011,986
    )
    
    
    (311,024
    )
    
    
    (2,005,633
    )
    
    
    (2,270,762
    )Provision for loan losses
    
    
    832,723
    
    
    
    130,157
    
    
    
    1,361,804
    
    
    
    478,400Ending Balance
    
    $
    3,138,303
    
    
    $
    2,558,541
    
    
    $
    3,138,303
    
    
    $
    2,558,541
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##### Table of Contents



COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 4.
    
    ALLOWANCE FOR LOAN LOSSES AND IMPAIRED LOANS (Continued)Impaired loans were as follows:
 6/30/10
    
    
    12/31/09End of period loans with no allocated allowance for loan losses
    
    $
    9,494,646
    
    
    $
    5,025,520End of period loans with allocated allowance for loan losses
    
    
    3,446,177
    
    
    
    9,148,730Total
    
    $
    12,940,823
    
    
    $
    14,174,250Amount of the allowance for loan losses allocated
    
    $
    867,923
    
    
    $
    1,726,570
 Three Months
    
    
    Three Months
    
    
    Six Months
    
    
    Six MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended6/30/10
    
    
    6/30/09
    
    
    6/30/10
    
    
    6/30/09Average of impaired loans during the period:
    
    $
    13,471,548
    
    
    $
    11,008,273
    
    
    $
    13,835,112
    
    
    $
    10,930,467Interest income recognized during
impairment:
    
    
    69,507
    
    
    
    60,499
    
    
    
    135,782
    
    
    
    154,270Cash-basis interest income recognized:
    
    
    60,024
    
    
    
    74,758
    
    
    
    124,473
    
    
    
    143,323
 Non-performing loans were as follows:
 6/30/10
    
    
    12/31/09Loans past due over 90 days still on accrual:
    
    $
    199,845
    
    
    $
    981,704Non-accrual loans:
    
    
    7,735,524
    
    
    
    8,117,994
 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. Non-accrual loans and
loans past due 90 days still on accrual include both smaller balance homogeneous loans that are
collectively evaluated for impairment and individually classified impaired loans. The Company has
allocated $201,484 of specific reserves on $4,044,933 of loans to customers whose loan terms have
been modified in troubled debt restructurings as of June 30, 2010. The Company has also committed
$1,160,798 to customers whose loans are classified as a troubled debt restructuring.
 5.
    
    FORECLOSED ASSETSForeclosed asset activity:
 June 30,
    
    
    June 30,2010
    
    
    2009Beginning of year
    
    $
    6,440,916
    
    
    $
    5,884,093Additions
    
    
    1,572,700
    
    
    
    1,080,469Proceeds from sales
    
    
    (770,493
    )
    
    
    (93,106
    )Losses from sales
    
    
    (21,311
    )
    
    
    (11,041
    )Direct write-downs
    
    
    (384,621
    )
    
    
    (119,742
    )End of period
    
    $
    6,837,191
    
    
    $
    6,740,673Expenses related to foreclosed assets include:Operating expenses, net of rental income
    
    $
    105,663
    
    
    $
    115,112
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##### Table of Contents



COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 6.
    
    PREMISES AND EQUIPMENTPeriod end premises and equipment were as follows:
 June 30,
    
    
    December 31,2010
    
    
    2009Land & land improvements
    
    $
    5,447,328
    
    
    $
    5,447,328Buildings & building improvements
    
    
    6,070,954
    
    
    
    5,959,371Furniture, fixtures and equipment
    
    
    3,644,517
    
    
    
    3,648,675Construction in process
    
    
    17,618
    
    
    
    61,43215,180,417
    
    
    
    15,116,806Less: accumulated depreciation
    
    
    4,103,178
    
    
    
    3,823,637$
    11,077,239
    
    
    $
    11,293,169
 7.
    
    DEPOSITSThe components of the outstanding deposit balances at June 30, 2010 and December 31, 2009 were as
follows:
 June 30,
    
    
    December 31,2010
    
    
    2009Non-interest-bearing DDA
    
    $
    25,813,264
    
    
    $
    24,884,625Interest-bearing DDA
    
    
    36,694,772
    
    
    
    27,677,774Money market
    
    
    20,141,964
    
    
    
    19,330,781Savings
    
    
    9,345,519
    
    
    
    8,611,038Time, under $100,000
    
    
    53,782,537
    
    
    
    35,095,482Time, over $100,000
    
    
    83,375,305
    
    
    
    82,976,909Total Deposits
    
    $
    229,153,361
    
    
    $
    198,576,609
 Brokered deposits totaled $56,054,447 at June 30, 2010 and $52,683,579 at December 31, 2009. Since
the Bank was not categorized as well capitalized at June 30, 2010, a regulatory waiver is
required to accept, renew or rollover brokered deposits. The Bank has not issued brokered deposits
since January of this year. At June 30, 2010, maturities of brokered deposits were as follows:
 Due in 3 months or less
    
    $
    3,022,000Due in 3-12 months
    
    $
    27,066,772Due in one or more years
    
    $
    25,965,675
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##### Table of Contents



COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 8.
    
    SHORT-TERM BORROWINGSThe Companys short-term borrowings typically consist of repurchase agreements and borrowings from
the Federal Reserve Bank. The June 30, 2010 and December 31, 2009 information was as follows:
 Repurchase
    
    
    BorrowingsAgreements
    
    
    From FRBOutstanding at June 30, 2010
    
    $
    9,220,685
    
    
    $
    0Average interest rate at period end
    
    
    0.80
    %
    
    
    0.00
    %Average balance during period
    
    
    8,020,567
    
    
    
    636,077Average interest rate during period
    
    
    0.99
    
    
    
    0.50Maximum month end balance during period
    
    
    9,220,685
    
    
    
    0Outstanding at December 31, 2009
    
    $
    7,000,327
    
    
    $
    0Average interest rate at year end
    
    
    0.66
    %
    
    
    0.00
    %Average balance during year
    
    
    7,489,802
    
    
    
    150,959Average interest rate during year
    
    
    0.78
    
    
    
    0.50Maximum month end balance during year
    
    
    10,393,960
    
    
    
    2,120,000
 9.
    
    FEDERAL HOME LOAN BANK BORROWINGSThe Bank is a member of the Federal Home Loan Bank of Indianapolis. Based on its current Federal
Home Loan Bank Stock holdings and collateral, the Bank has the capacity to borrow an additional
$5,000,900. Each borrowing requires a direct pledge of securities and or loans. At June 30, 2010,
the Bank had both loans and securities with a market value of $7,909,836 pledged to the Federal
Home Loan Bank to support the outstanding borrowings listed below. The advances are at fixed
interest rates with the Federal Home Loan Bank having the option to convert to a floating rate
index. Details of the Banks outstanding borrowings at both period ends are:
 Current
    
    
    June 30,
    
    
    December 31,Maturity Date
    
    Interest Rate
    
    
    2010
    
    
    2009March 24, 2010
    
    
    5.99
    
    
    
    0
    
    
    
    1,500,000November 3, 2010
    
    
    5.95
    
    
    
    2,000,000
    
    
    
    2,000,000December 13, 2010
    
    
    5.10
    
    
    
    2,500,000
    
    
    
    2,500,000$
    4,500,000
    
    
    $
    6,000,000
 In June, the Bank secured a $5 million overdraft line of credit with the Federal Home Loan Bank.
This required a stock purchase totaling $109,500 and a pledge of $5,143,125 of securities. There
was no balance outstanding on the line of credit at June 30, 2010.On July 6, 2010, the Bank chose to pay off both of the outstanding advances. The computed
prepayment penalty, which will be reflected in next quarters earnings, was $93,791; a savings of
nearly $4,000 when compared to the interest that would have been owed allowing the advances to go
to maturity and the return that would have been received had the funds remained on deposit at the
Federal Reserve Bank.
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COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 10.
    
    SUBORDINATED DEBENTURESThe Trust, a business trust formed by the Company, 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 2.58% at June 30, 2010.
The stated maturity is December 30, 2034. The trust preferred securities are redeemable at par on
any interest payment date and are, in effect, guaranteed by the Company. Interest on the
subordinated debentures are payable quarterly on March 30th, June 30th,
September 30th and December 30th. The Company is not considered the primary
beneficiary of the Trust (variable interest entity), 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, 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 be due and payable and a corresponding amount of distributions will be
payable on the trust preferred securities.The indenture under which the subordinated debentures were issued prohibits certain actions by the
Company during the deferral period. Among other things, and subject to certain exceptions, during
the deferral period, 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. The Company has not determined the duration of the
deferral period, which may continue for up to 20 consecutive quarterly periods.
 11.
    
    NOTES PAYABLEThe Company has a $5.0 million term loan with Fifth Third Bank (Fifth Third) secured by the
common stock of the Bank. The total balance outstanding at June 30, 2010 and December 31, 2009 was
$5,000,000. The outstanding principal bears interest at a rate of 275 basis points above Fifth
Thirds prime rate. The current interest rate on the outstanding principal balance is 6.00%. The
maturity date of the term loan is January 3, 2011. The loan is not amortizing. Interest is payable
quarterly in arrears on the last business day of March, June, September, and December. The term
loan may be prepaid in whole or in part without any prepayment fee.
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COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 11.
    
    NOTES PAYABLE (Continued)The term loan includes covenants such as: the Company may not use the loan proceeds to pay
dividends in excess of $500,000 annually; the Company must have cash available to service quarterly
interest; the Bank must be well capitalized and the Company must be adequately capitalized; capped
ratios of non-performing loans to total loans and non-performing assets to total assets became
applicable on March 31, 2010; and a Bank return on average assets ratio became applicable for the
month of June 2010. While the Company was in compliance with all applicable financial covenants at
December 31, 2009 and March 31, 2010, the Company was not in compliance with the capital ratios or
the return on average assets ratio at June 30, 2010.The breach of the above mentioned covenants are considered events of default which allows Fifth
Third the option to demand immediately all or any part of the unpaid principal and interest
balance. Although the Company made the required interest payment on June 30, 2010, it does not have
the resources to pay the outstanding principal and does not expect to have it in the near future.
Since the Company presently does not have sufficient funds to pay off the note should Fifth Third
demand payment, the Company is at risk of Fifth Third assuming the Banks stock which
collateralizes the loan. Management is currently discussing alternatives with Fifth Third including
loan modifications and waivers of debt covenants. Management continues to work on restoring the
Banks earnings and capital ratios which will ultimately assist in complying with the debt
covenants of the note. Failure to successfully find a resolution with Fifth Third or become in
compliance with the debt covenants creates an uncertainty as to the
Company's ability to continue to operate as a going concern.
 12.
    
    COMMITMENTS AND OFF-BALANCE SHEET RISKSome 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 June 30, 2010 and December 31, 2009 follows:
 June 30,
    
    
    December 31,2010
    
    
    2009Unused lines of credit and letters of credit
    
    $
    28,211,382
    
    
    $
    28,256,337Commitments to make loans
    
    
    225,732
    
    
    
    866,340
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COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 12.
    
    COMMITMENTS AND OFF-BALANCE SHEET RISK (Continued)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 credits
expire without being used, the above amounts related to those categories do not necessarily
represent future cash disbursements.
 13.
    
    FAIR VALUE MEASUREMENTSFair 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. Their valuation methodology utilized for the servicing rights begins with
generating 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 the vendors market-based discount rate assumption.
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COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 13.
    
    FAIR VALUE MEASUREMENTS (Continued)Impaired Loans: The fair value of impaired loans with specific allocations of the allowance for
loan losses is generally based on recent real estate appraisals, broker market opinions or internal
evaluations. These appraisals may utilize a single valuation approach or a combination of
approaches including comparable sales and the income approach. Adjustments are routinely made in
the appraisal process by the appraisers to adjust for differences between the comparable sales and
income data available. Such adjustments are typically significant and result in a level 3
classification of the inputs for determining fair value.Foreclosed Assets: Nonrecurring adjustments to certain commercial and residential real estate
properties classified as foreclosed assets are measured at the lower of carrying amount or fair
value, less costs to sell. Fair values are generally based on recent real estate appraisals, broker
market opinions or internal evaluations. These appraisals may utilize a single valuation approach
or a combination of approaches including comparable sales and the income approach. Adjustments are
routinely made in the appraisal process by the appraisers to adjust for differences between the
comparable sales and income data available. Adjustments of the carrying amount utilizing this
process result in a Level 3 classification. In cases where the carrying amount exceeds the fair
value, less costs to sell, an impairment loss is recognized.Assets measured at fair value on a recurring basis are summarized below for the periods ended June
30, 2010 and December 31, 2009:
 Fair Value Measurements UsingQuoted Prices
    
    
    Significantin Active
    
    
    Other
    
    
    SignificantMarkets for
    
    
    Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    InputsTotal
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)June 30, 2010Available for sale securities:US Treasury
    
    $
    1,012,657
    
    
    $
    1,012,657
    
    
    $
    0
    
    
    $
    0US Government and
federal agency
    
    
    16,638,487
    
    
    
    1,000,000
    
    
    
    15,638,487
    
    
    
    0Municipal securities
    
    
    3,263,948
    
    
    
    0
    
    
    
    3,263,948
    
    
    
    0Mortgage-backed and
collateralized mortgage
obligations residential
    
    
    11,319,968
    
    
    
    2,008,699
    
    
    
    9,311,269
    
    
    
    0Servicing assets
    
    
    37,299
    
    
    
    0
    
    
    
    37,299
    
    
    
    0December 31, 2009Available for sale securities:US Government and
federal agency
    
    $
    14,495,407
    
    
    $
    500,000
    
    
    $
    13,995,407
    
    
    $
    0Municipal securities
    
    
    1,177,286
    
    
    
    0
    
    
    
    1,177,286
    
    
    
    0Mortgage-backed -
residential
    
    
    5,977,333
    
    
    
    0
    
    
    
    5,977,333
    
    
    
    0Servicing assets
    
    
    45,602
    
    
    
    0
    
    
    
    45,602
    
    
    
    0
  - 16 -




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##### Table of Contents



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 for the periods ended
June 30, 2010 and December 31, 2009:
 Fair Value Measurements UsingQuoted Prices
    
    
    Significantin Active
    
    
    Other
    
    
    SignificantMarkets for
    
    
    Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    InputsTotal
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)June 30, 2010Impaired loans
    
    $
    2,578,254
    
    
    $
    0
    
    
    $
    0
    
    
    $
    2,578,254Foreclosed assets
    
    
    6,590,981
    
    
    
    0
    
    
    
    0
    
    
    
    6,590,981December 31, 2009Impaired loans
    
    $
    7,422,160
    
    
    $
    0
    
    
    $
    0
    
    
    $
    7,422,160Foreclosed assets
    
    
    6,210,650
    
    
    
    0
    
    
    
    0
    
    
    
    6,210,650
 The following represents impairment charges recognized during the period:Collateral dependent impaired loans are measured using the fair value of the collateral. At June
30, 2010, such impaired loans had a principal amount of $3,446,177, with a valuation allowance of
$867,923 compared to impaired loans with a principal amount of $9,148,730 and a valuation allowance
of $1,726,570 at December 31, 2009. The fair values of the collateral on these loans were
determined generally using independent appraisals, broker market opinions or internal evaluations
which were adjusted for anticipated disposition costs. The impairment charges on collateral
dependent loans were $11,000 for the second quarter and $16,000 for the first half of 2010.At June 30, 2010 and December 31, 2009, foreclosed assets carried a fair value of $6,590,981 and
$6,210,650 respectively. During the six month period ended June 30, 2010, seventeen properties
included in this total were written down by $384,621. During the twelve month period ended December
31, 2009, thirty properties were written down by $1,905,622. There were also thirteen properties
totaling $1,572,700 (at fair value) added to other real estate owned during the first six months of
2010, while during the twelve month period ended December 31, 2009 there were nineteen properties
totaling $2,928,689 added. The fair value of other real estate owned was determined primarily using
independent appraisals and broker market opinions which were adjusted for anticipated disposition
costs.
  - 17 -




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##### Table of Contents



COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 13.
    
    FAIR VALUE MEASUREMENTS (Continued)Carrying amount and estimated fair values of financial instruments not previously presented were as
follows:
 June 30,
    
    
    December 31,2010
    
    
    2009Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    Value(in thousands)Financial assetsCash and cash equivalents
    
    $
    31,476
    
    
    $
    31,476
    
    
    $
    2,824
    
    
    $
    2,824Securities held to maturity
    
    
    0
    
    
    
    0
    
    
    
    5,841
    
    
    
    5,945Loans held for sale
    
    
    1,325
    
    
    
    1,337
    
    
    
    1,071
    
    
    
    1,078Loans, net
    
    
    175,683
    
    
    
    172,819
    
    
    
    179,466
    
    
    
    176,157FHLB stock
    
    
    514
    
    
    
    N/A
    
    
    
    404
    
    
    
    N/AAccrued interest receivable
    
    
    865
    
    
    
    865
    
    
    
    885
    
    
    
    885Financial liabilitiesDeposits
    
    
    229,153
    
    
    
    231,635
    
    
    
    198,577
    
    
    
    202,151Federal funds purchased and
repurchase agreements
    
    
    9,221
    
    
    
    9,221
    
    
    
    7,000
    
    
    
    7,000FHLB advances
    
    
    4,500
    
    
    
    4,503
    
    
    
    6,000
    
    
    
    6,020Subordinated debentures
    
    
    4,500
    
    
    
    3,169
    
    
    
    4,500
    
    
    
    3,758Notes payable
    
    
    5,000
    
    
    
    5,000
    
    
    
    5,000
    
    
    
    5,000Accrued interest payable
    
    
    203
    
    
    
    203
    
    
    
    164
    
    
    
    164
 The methods and assumptions used to estimate fair value are described as follows:Carrying amount is the estimated fair value for cash and cash equivalents, short-term borrowings,
accrued interest receivable and payable, demand deposits, short-term debt, and variable rate loans
or deposits that reprice frequently and fully. For fixed rate loans or deposits and for variable
rate loans or deposits with infrequent repricing or repricing limits, fair value is based on
discounted cash flows using current market rates applied to the estimated life and credit risk
including consideration for widening credit spreads. Fair values for impaired loans are estimated
using discounted cash flow analysis or underlying collateral values. Fair value of loans held for
sale is based on market quotes. Fair value of debt is based on current rates for similar
financing. It was not practical to determine the fair value of Federal Home Loan Bank stock due to
restrictions placed on its transferability. Estimated fair value for other financial instruments
and off-balance sheet loan commitments are considered to approximate carrying value.
  - 18 -




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##### Table of Contents



COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 14.
    
    INCOME TAXESAccounting 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 continuing recent losses resulting from the distressed
operating environment in Michigan have 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 establish a valuation allowance against our
entire net deferred tax asset. 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.
 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.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, 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 well-capitalized category under the regulatory framework for prompt
corrective action at December 31, 2009 however the Bank was in the adequately capitalized category
at June 30, 2010. Since the Bank was not categorized as well capitalized at June 30, 2010, a
regulatory waiver is required to accept, renew or rollover brokered deposits. See Note 7 for
details about the brokered deposit concentration levels and upcoming
maturities. Further capital deterioration may result in formal
regulatory action
  - 19 -




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##### Table of Contents



COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 15.
    
    REGULATORY MATTERS (Continued)Actual capital amounts and ratios for the Bank and required capital amounts and ratios for the Bank
to be adequately capitalized and well capitalized at June 30, 2010 and December 31, 2009 were:
 Minimum Required toBe AdequatelyMinimum Required
    
    
    Capitalized UnderFor Capital
    
    
    Prompt CorrectiveActual
    
    
    Adequacy Purposes
    
    
    Action ProvisionsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioJune 30, 2010Total Capital (Tier 1
and Tier 2) to
risk-weighted
assets of the Bank
    
    $
    19,716,901
    
    
    
    9.97
    %
    
    $
    15,820,101
    
    
    
    8.00
    %
    
    $
    15,820,101
    
    
    
    8.00
    %Tier 1 (Core) Capital
to risk-weighted
assets of the Bank
    
    
    17,236,783
    
    
    
    8.72
    
    
    
    7,910,051
    
    
    
    4.00
    
    
    
    7,910,051
    
    
    
    4.00Tier 1 (Core) Capital
to average assets
of the Bank
    
    
    17,236,783
    
    
    
    6.77
    
    
    
    10,183,363
    
    
    
    4.00
    
    
    
    10,183,363
    
    
    
    4.00
 Minimum Required toBe Well CapitalizedMinimum Required
    
    
    Under PromptFor Capital
    
    
    Corrective ActionActual
    
    
    Adequacy Purposes
    
    
    ProvisionsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioDecember 31, 2009Total Capital (Tier 1
and Tier 2) to
risk-weighted
assets of the Bank
    
    $
    21,035,207
    
    
    
    10.41
    %
    
    $
    16,167,491
    
    
    
    8.00
    %
    
    $
    20,209,363
    
    
    
    10.00
    %Tier 1 (Core) Capital
to risk-weighted
assets of the Bank
    
    
    18,493,531
    
    
    
    9.15
    
    
    
    8,083,745
    
    
    
    4.00
    
    
    
    12,125,618
    
    
    
    6.00Tier 1 (Core) Capital
to average assets
of the Bank
    
    
    18,493,531
    
    
    
    7.79
    
    
    
    9,500,313
    
    
    
    4.00
    
    
    
    11,875,391
    
    
    
    5.00
   - 20 -




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COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 15.
    
    REGULATORY MATTERS (Continued)The Bank is presently unable to accept brokered deposits. The $56,054,447 of brokered deposits
outstanding as of June 30, 2010, mature as follows:
 Due in 3 months or less
    
    $
    3,022,000Due in 3-12 months
    
    $
    27,066,772Due in one or more years
    
    $
    25,965,675
 Management does not believe that the restriction on issuing brokered deposits imposes a significant
liquidity problem for the Bank. Since the beginning of the year the Bank has been able to replace
maturing brokered deposits with local deposits, including internet based time deposits and core
deposits.The Bank is also not meeting its capital objectives, which in addition to being well capitalized is
to have an 8% leverage ratio. Since raising capital is difficult given the widely known challenges
in the financial sector, management will continue its efforts to reduce risk weighted assets in
order to improve its capital ratios. As of July 31, 2010, the Bank had reduced its risk weighted
assets and attained a total risk based capital ratio of 10.02%.
 16.
    
    OTHER COMPREHENSIVE INCOMEOther comprehensive income (loss) components and related tax effects were as follows:
 Three Months
    
    
    Three Months
    
    
    Six Months
    
    
    Six MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedJune 30, 2010
    
    
    June 30, 2009
    
    
    June 30, 2010
    
    
    June 30, 2009Unrealized holding gains (losses) on held to maturity securities
transferred to available for sale
    
    $
    0
    
    
    $
    0
    
    
    $
    28,192
    
    
    $
    0Unrealized holding gains (losses) on available for sale
securities
    
    
    267,270
    
    
    
    (110,685
    )
    
    
    328,485
    
    
    
    (90,808
    )Less reclassification adjustments for (gains) and losses later
recognized in income
    
    
    0
    
    
    
    (143,903
    )
    
    
    (79,814
    )
    
    
    (273,010
    )Net unrealized gain (loss)
    
    
    267,270
    
    
    
    (254,588
    )
    
    
    276,863
    
    
    
    (363,818
    )Tax effect
    
    
    0
    
    
    
    37,138
    
    
    
    0
    
    
    
    0Other comprehensive income (loss)
    
    $
    267,270
    
    
    $
    (291,726
    )
    
    $
    276,863
    
    
    $
    (363,818
    )
  - 21 -




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##### Table of Contents



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
      - 22 -




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COMMUNITY SHORES BANK CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
  FINANCIAL CONDITION
      - 23 -




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COMMUNITY SHORES BANK CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
   1
  Within
    
    
    Three to
    
    
    One to
    
    
    AfterThree
    
    
    Twelve
    
    
    Five
    
    
    FiveMonths
    
    
    Months
    
    
    Years
    
    
    Years
    
    
    TotalCommercial, financial
and other
    
    $
    14,741,627
    
    
    $
    21,873,686
    
    
    $
    24,468,876
    
    
    $
    4,245,292
    
    
    $
    65,329,481Real Estate:Commercial
    
    
    12,703,820
    
    
    
    13,927,830
    
    
    
    42,526,456
    
    
    
    2,387,969
    
    
    
    71,546,075Construction
    
    
    0
    
    
    
    1,413,624
    
    
    
    0
    
    
    
    301,865
    
    
    
    1,715,489Mortgages
    
    
    0
    
    
    
    0
    
    
    
    13,427
    
    
    
    19,275,305
    
    
    
    19,288,732Consumer
    
    
    389,386
    
    
    
    2,257,435
    
    
    
    11,340,891
    
    
    
    6,405,627
    
    
    
    20,393,339Credit Cards
    
    
    60,896
    
    
    
    190,441
    
    
    
    296,836
    
    
    
    0
    
    
    
    548,173$
    27,895,729
    
    
    $
    39,663,016
    
    
    $
    78,646,486
    
    
    $
    32,616,058
    
    
    $
    178,821,289Loans at fixed rates
    
    
    13,455,307
    
    
    
    25,562,780
    
    
    
    69,486,127
    
    
    
    24,681,444
    
    
    
    133,185,658Loans at variable rates
    
    
    14,440,422
    
    
    
    14,100,236
    
    
    
    9,160,359
    
    
    
    7,934,614
    
    
    
    45,635,631$
    27,895,729
    
    
    $
    39,663,016
    
    
    $
    78,646,486
    
    
    $
    32,616,058
    
    
    $
    178,821,289
  
 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.  - 24 -




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COMMUNITY SHORES BANK CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
       - 25 -




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COMMUNITY SHORES BANK CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
  June 30, 2010
    
    
    December 31, 2009Percent of
    
    
    
    
    
    
    Percent ofAllowance
    
    
    
    
    
    
    AllowanceRelated to
    
    
    
    
    
    
    Related toBalance at End of Period Applicable
    
    Amount
    
    
    Loan Category
    
    
    Amount
    
    
    Loan CategoryCommercial
    
    $
    1,294,866
    
    
    
    2.0
    %
    
    $
    1,529,470
    
    
    
    2.2
    %Real Estate:Commercial
    
    
    1,312,396
    
    
    
    1.8
    
    
    
    1,828,022
    
    
    
    2.6Residential
    
    
    67,336
    
    
    
    0.3
    
    
    
    91,532
    
    
    
    0.5Construction
    
    
    6,176
    
    
    
    0.4
    
    
    
    17,461
    
    
    
    1.1Consumer
    
    
    457,529
    
    
    
    2.2
    
    
    
    315,647
    
    
    
    1.4Total
    
    $
    3,138,303
    
    
    
    1.8
    %
    
    $
    3,782,132
    
    
    
    2.1
    %
  IncreaseLoans Past Due:
    
    June 30, 2010
    
    
    December 31, 2009
    
    
    (Decrease)30-59 days
    
    $
    854,551
    
    
    $
    1,317,396
    
    
    $
    (462,845
    )60-89 days
    
    
    3,115,189
    
    
    
    881,712
    
    
    
    2,233,47790 days and greater
    
    
    199,845
    
    
    
    981,704
    
    
    
    (781,859
    )Non-accrual loans
    
    
    7,735,524
    
    
    
    8,117,994
    
    
    
    (382,470
    )
      - 26 -




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COMMUNITY SHORES BANK CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
        - 27 -




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COMMUNITY SHORES BANK CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
    RESULTS OF OPERATIONS
     - 28 -




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COMMUNITY SHORES BANK CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
  Six months ended June 30,2010
    
    
    2009Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateAssetsFederal funds sold and interest-
bearing deposits with banks
    
    $
    15,684,402
    
    
    $
    19,093
    
    
    
    0.24
    %
    
    $
    9,425,983
    
    
    $
    23,512
    
    
    
    0.50
    %Securities
    
    
    29,316,331
    
    
    
    462,445
    
    
    
    3.15
    
    
    
    27,352,763
    
    
    
    574,848
    
    
    
    4.20Loans (including held for sale and non accrual)
    
    
    182,277,698
    
    
    
    5,660,199
    
    
    
    6.21
    
    
    
    198,346,087
    
    
    
    6,271,428
    
    
    
    6.32227,278,431
    
    
    
    6,141,737
    
    
    
    5.40
    
    
    
    235,124,833
    
    
    
    6,869,788
    
    
    
    5.84Other assets
    
    
    20,307,085
    
    
    
    
    
    
    
    
    
    
    
    23,502,650$
    247,585,516
    
    
    
    
    
    
    
    
    
    
    $
    258,627,483Liabilities and Shareholders Equity
Interest-bearing deposits
    
    $
    190,605,661
    
    
    $
    2,234,506
    
    
    
    2.34
    
    
    $
    201,976,379
    
    
    $
    3,207,679
    
    
    
    3.18Federal funds purchased, repur-
chase agreements and Federal
Reserve Bank borrowings
    
    
    8.020.567
    
    
    
    41.328
    
    
    
    1.03
    
    
    
    6.119.831
    
    
    
    19.639
    
    
    
    0.64Subordinated Debentures, notes
payable and FHLB advances
    
    
    15,315,635
    
    
    
    348,562
    
    
    
    4.55
    
    
    
    14,951,934
    
    
    
    343,393
    
    
    
    4.59213,941,863
    
    
    
    2,624,396
    
    
    
    2.45
    
    
    
    223,048,144
    
    
    
    3,570,711
    
    
    
    3.20Non-interest-bearing deposits
    
    
    22,926,100
    
    
    
    
    
    
    
    
    
    
    
    20,414,688Other liabilities
    
    
    711,212
    
    
    
    
    
    
    
    
    
    
    
    659,101Shareholders Equity
    
    
    10,006,341
    
    
    
    
    
    
    
    
    
    
    
    14,505,550$
    247,585,516
    
    
    
    
    
    
    
    
    
    
    $
    258,627,483Net interest income (tax equivalent basis)
    
    
    
    
    
    
    3,517,341
    
    
    
    
    
    
    
    
    
    
    
    3,299,077Net interest spread on earning assets (tax
equivalent basis)
    
    
    
    
    
    
    
    
    
    
    2.95
    %
    
    
    
    
    
    
    
    
    
    
    2.64
    %Net interest margin on earning assets (tax
equivalent basis)
    
    
    
    
    
    
    
    
    
    
    3.10
    %
    
    
    
    
    
    
    
    
    
    
    2.81
    %Average interest-earning assets to average
interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    106.23
    %
    
    
    
    
    
    
    
    
    
    
    105.41
    %Tax equivalent adjustment
    
    
    
    
    
    
    41,721
    
    
    
    
    
    
    
    
    
    
    
    74,304Net interest income
    
    
    
    
    
    $
    3,475,620
    
    
    
    
    
    
    
    
    
    
    $
    3,224,773
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COMMUNITY SHORES BANK CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
     - 30 -




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COMMUNITY SHORES BANK CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
  Three months ended June 30,2010
    
    
    2009Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Yield/Rate
    
    
    Balance
    
    
    Interest
    
    
    Yield/RateAssetsFederal funds sold and interest-
bearing
deposits with banks
    
    $
    22,200,286
    
    
    $
    13,671
    
    
    
    0.25
    %
    
    $
    11,911,328
    
    
    $
    17,817
    
    
    
    0.60
    %Securities
    
    
    29,982,403
    
    
    
    221,225
    
    
    
    2.95
    
    
    
    28,559,536
    
    
    
    275,486
    
    
    
    3.86Loans (including held for
sale and non accrual)
    
    
    182,002,676
    
    
    
    2,854,592
    
    
    
    6.27
    
    
    
    195,487,447
    
    
    
    3,100,128
    
    
    
    6.34234,185,365
    
    
    
    3,089,488
    
    
    
    5.28
    
    
    
    235,958,311
    
    
    
    3,393,431
    
    
    
    5.75Other assets
    
    
    19,988,151
    
    
    
    
    
    
    
    
    
    
    
    22,922,576$
    254,173,516
    
    
    
    
    
    
    
    
    
    
    $
    258,880,887Liabilities and Shareholders
EquityInterest-bearing deposits
    
    $
    197,283,505
    
    
    $
    1,126,529
    
    
    
    2.28
    
    
    $
    199,888,525
    
    
    $
    1,528,441
    
    
    
    3.06Federal funds purchased,
repur-
chase agreements and
Federal
Reserve Bank borrowings
    
    
    8,858,465
    
    
    
    20,757
    
    
    
    0.94
    
    
    
    6,940,470
    
    
    
    12,514
    
    
    
    0.72Subordinated Debentures, Note
Payable and Federal Home
Loan Bank Advances
    
    
    14,000,000
    
    
    
    164,030
    
    
    
    4.69
    
    
    
    15,201,099
    
    
    
    173,938
    
    
    
    4.58220,141,970
    
    
    
    1,311,316
    
    
    
    2.38
    
    
    
    222,030,094
    
    
    
    1,714,893
    
    
    
    3.09Non-interest bearing deposits
    
    
    24,110,782
    
    
    
    
    
    
    
    
    
    
    
    21,687,792Other liabilities
    
    
    722,942
    
    
    
    
    
    
    
    
    
    
    
    736,288Shareholders Equity
    
    
    9,197,822
    
    
    
    
    
    
    
    
    
    
    
    14,426,713$
    254,173,516
    
    
    
    
    
    
    
    
    
    
    $
    258,880,887Net interest income (tax
equivalent basis)
    
    
    
    
    
    
    1,778,172
    
    
    
    
    
    
    
    
    
    
    
    1,678,538Net interest spread on earning
assets (tax equivalent basis)
    
    
    
    
    
    
    
    
    
    
    2.90
    %
    
    
    
    
    
    
    
    
    
    
    2.66
    %Net interest margin on
earning assets (tax equivalent
basis)
    
    
    
    
    
    
    
    
    
    
    3.04
    %
    
    
    
    
    
    
    
    
    
    
    2.85
    %Average interest-earning assets to
average interest-bearing
liabilities
    
    
    
    
    
    
    
    
    
    
    106.38
    %
    
    
    
    
    
    
    
    
    
    
    106.27
    %Tax equivalent adjustment
    
    
    
    
    
    
    13,973
    
    
    
    
    
    
    
    
    
    
    
    36,011Net interest income
    
    
    
    
    
    $
    1,764,199
    
    
    
    
    
    
    
    
    
    
    $
    1,642,527
   - 31 -




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##### Table of Contents



COMMUNITY SHORES BANK CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
     Interest Rate Sensitivity PeriodWithin
    
    
    Three to
    
    
    One to
    
    
    AfterThree
    
    
    Twelve
    
    
    Five
    
    
    FiveMonths
    
    
    Months
    
    
    Years
    
    
    Years
    
    
    TotalEarning assetsInterest-bearing deposits
in other financial institutions
    
    $
    27,124,150
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    27,124,150Securities (including FHLB stock)
    
    
    3,226,375
    
    
    
    7,320,991
    
    
    
    14,663,948
    
    
    
    7.537.346
    
    
    
    32,748,660Loans held for sale
    
    
    11,222
    
    
    
    38,553
    
    
    
    223,355
    
    
    
    1,051,836
    
    
    
    1,324,966Loans1
    
    
    71,867,114
    
    
    
    24,393,997
    
    
    
    64,081,506
    
    
    
    18,478,672
    
    
    
    178,821,289102,228,861
    
    
    
    31,753,541
    
    
    
    78,968,809
    
    
    
    27,067,854
    
    
    
    240,019,065Interest-bearing liabilities
Savings and checking
    
    
    41,340,559
    
    
    
    24,841,696
    
    
    
    0
    
    
    
    0
    
    
    
    66,182,255Time deposits <$100,000
    
    
    6,688,353
    
    
    
    15,481,920
    
    
    
    31,612,264
    
    
    
    0
    
    
    
    53,782,537Time deposits >$100,000
    
    
    6,896,838
    
    
    
    42,139,861
    
    
    
    34,338,606
    
    
    
    0
    
    
    
    83,375,305Repurchase agreements and
Federal funds purchased
    
    
    9,220,685
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    9,220,685Subordinated debt and Federal
Home Loan Bank advances
    
    
    9,500,000
    
    
    
    4,500,000
    
    
    
    0
    
    
    
    0
    
    
    
    14,000,00073,646,435
    
    
    
    86,963,477
    
    
    
    65,950,870
    
    
    
    0
    
    
    
    226,560,782Net asset (liability) repricing gap
    
    $
    28,582,426
    
    
    $
    (55,209,936
    )
    
    $
    13,017,939
    
    
    $
    27,067,854
    
    
    $
    13,458,283Cumulative net asset (liability)
repricing gap
    
    $
    28,582,426
    
    
    $
    (26,627,510
    )
    
    $
    (13,609,571
    )
    
    $
    13,458,283
 
 1
    
    Includes non accrual loans.  - 32 -




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##### Table of Contents



COMMUNITY SHORES BANK CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
        - 33 -




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##### Table of Contents



COMMUNITY SHORES BANK CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
      
  - 34 -




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##### Table of Contents



COMMUNITY SHORES BANK CORPORATION
 
   
   
  
   
   
      - 35 -




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##### Table of Contents



COMMUNITY SHORES BANK CORPORATION
  
   
  
   
  EXHIBIT NO.
    
    EXHIBIT DESCRIPTION3.1
    
    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).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.
  - 36 -




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##### Table of Contents



COMMUNITY SHORES BANK CORPORATIONDate August 13, 2010
    By:
    /s/ Heather D. BrolickHeather D. BrolickPresident and Chief Executive Officer

(principal executive officer)Date August 13, 2010
    By:
    /s/ Tracey A. WelshTracey A. WelshSenior Vice President, Chief Financial Officer and
Treasurer  
(principal financial and accounting officer)  - 37 -




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##### Table of Contents



EXHIBIT INDEX
 EXHIBIT NO.
    
    EXHIBIT DESCRIPTION3.1
    
    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).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.
  - 38 -