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, 2017 | 
|--------------------------------------------- | 



or



| |  ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
| | - | ----------------------------------------------------------------------------------------



For the transition period from
____________________________________to __________________________________



|Commission File Number: | 000-51166
|----------------------- | ---------



|Community Shores Bank Corporation                       
|--------------------------------------------------------
|(Exact name of registration as specified in its charter)



|Michigan                                                       | 38-3423227                          
|-------------------------------------------------------------- | ------------------------------------
|(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.)
|                                                               |                                     
|1030 W. Norton Avenue, Muskegon, MI                            | 49441                               
|(Address of principal executive offices)                       | (Zip Code)                          



|(231) 780-1800                                                                    
|----------------------------------------------------------------------------------
|(Registrant’s telephone number, including area code)                              
|                                                                                  
|                                                                                  
|(Former name, former address and former fiscal year, if changed since last report)



| |  | Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
| |  | --------------------------------------------------------------------------------------------------------------------------

Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.

x
Yes  ̈No



Indicate by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule
405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and
post such files).

 ̈
Yes x No



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



|Large accelerated filer  ̈  | Accelerated filer  ̈        
|-------------------------- | ---------------------------
|Non-accelerated filer  ̈    | Smaller reporting company x
|Emerging growth company   ̈ |                            



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

 ̈
Yes x No



At
May 15, 2017, 4,101,664 shares of common stock were outstanding.











Community Shores Bank Corporation Index



|         |                       | Page
    No.                                                                         
|-------- | --------------------- | -------------------------------------------------------------------------------------
|         |                       |                                                                                      
|PART I.  | Financial Information |                                                                                      
|         |                       |                                                                                      
|         | Item 1.               | Financial Statements                                                                 
|         |                       |                                                                                      
|         | Item 2.               | Management’s Discussion and Analysis of Financial Condition and Results of Operations
|         |                       |                                                                                      
|         | Item 3.               | Quantitative and Qualitative Disclosures about Market Risk                           
|         |                       |                                                                                      
|         | Item 4.               | Controls and Procedures                                                              
|         |                       |                                                                                      
|PART II. | Other Information     |                                                                                      
|         |                       |                                                                                      
|         | Item 1.               | Legal Proceedings                                                                    
|         |                       |                                                                                      
|         | Item 1A.              | Risk Factors                                                                         
|         |                       |                                                                                      
|         | Item 2.               | Unregistered Sales of Equity Securities and Use of Proceeds                          
|         |                       |                                                                                      
|         | Item 3.               | Defaults upon Senior Securities                                                      
|         |                       |                                                                                      
|         | Item 4.               | Mine Safety Disclosures                                                              
|         |                       |                                                                                      
|         | Item 5.               | Other Information                                                                    
|         |                       |                                                                                      
|         | Item 6.               | Exhibits                                                                             
|         |                       |                                                                                      
|         | Signatures            | 53                                                                                   











PART I – FINANCIAL INFORMATION



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



COMMUNITY
SHORES BANK CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS



|                                                                                                                                       |  | March 31, 2017 |             |   | December 31, 2016 |  
|-------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ----------- | - | ----------------- | -
|                                                                                                                                       |  | (unaudited)    |             |   | (audited)         |  
|ASSETS                                                                                                                                 |  |                |             |   |                   |  
|Cash and due from financial institutions                                                                                               |  | $              | 2,450,158   |   |                   | $
|Interest-bearing deposits in other financial institutions                                                                              |  |                | 29,064,606  |   |                   |  
|Cash and cash equivalents                                                                                                              |  |                | 31,514,764  |   |                   |  
|Term deposit                                                                                                                           |  |                | 100,000     |   |                   |  
|Securities available for sale (at fair value)                                                                                          |  |                | 18,182,447  |   |                   |  
|Loans held for sale                                                                                                                    |  |                | 0           |   |                   |  
|Loans                                                                                                                                  |  |                | 139,596,491 |   |                   |  
|Less: Allowance for loan losses                                                                                                        |  |                | 1,618,398   |   |                   |  
|Net loans                                                                                                                              |  |                | 137,978,093 |   |                   |  
|Federal Home Loan Bank stock (at cost)                                                                                                 |  |                | 300,500     |   |                   |  
|Premises and equipment, net                                                                                                            |  |                | 8,401,125   |   |                   |  
|Accrued interest receivable                                                                                                            |  |                | 397,639     |   |                   |  
|Foreclosed assets                                                                                                                      |  |                | 1,426,123   |   |                   |  
|Net deferred tax asset                                                                                                                 |  |                | 3,963,794   |   |                   |  
|Other assets                                                                                                                           |  |                | 623,936     |   |                   |  
|Total assets                                                                                                                           |  | $              | 202,888,421 |   |                   | $
|                                                                                                                                       |  |                |             |   |                   |  
|LIABILITIES AND SHAREHOLDERS’ EQUITY                                                                                                   |  |                |             |   |                   |  
|Deposits                                                                                                                               |  |                |             |   |                   |  
|Non-interest-bearing                                                                                                                   |  | $              | 40,742,613  |   |                   | $
|Interest-bearing                                                                                                                       |  |                | 138,201,411 |   |                   |  
|Total deposits                                                                                                                         |  |                | 178,944,024 |   |                   |  
|Repurchase agreements                                                                                                                  |  |                | 4,743,173   |   |                   |  
|Subordinated debentures                                                                                                                |  |                | 4,500,000   |   |                   |  
|Accrued expenses and other liabilities                                                                                                 |  |                | 502,185     |   |                   |  
|Total liabilities                                                                                                                      |  |                | 188,689,382 |   |                   |  
|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; 4,101,664 issued and outstanding at both March 31, 2017 and December 31, 2016 |  |                | 19,630,049  |   |                   |  
|Accumulated deficit                                                                                                                    |  |                | (5,406,146  | ) |                   |  
|Accumulated other comprehensive loss                                                                                                   |  |                | (24,864     | ) |                   |  
|Total shareholders’ equity                                                                                                             |  |                | 14,199,039  |   |                   |  
|Total liabilities and shareholders’ equity                                                                                             |  | $              | 202,888,421 |   |                   | $



See accompanying notes to consolidated financial
statements.



- 1 -







COMMUNITY SHORES BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)



|                                                    |  | Three Months Ended |           |  | Three Months Ended |  
|--------------------------------------------------- |  | ------------------ | --------- |  | ------------------ | -
|                                                    |  | March 31, 2017     |           |  | March 31, 2016     |  
|Interest and dividend income                        |  |                    |           |  |                    |  
|Loans, including fees                               |  | $                  | 1,663,094 |  |                    | $
|Securities (including FHLB dividends)               |  |                    | 63,197    |  |                    |  
|Federal funds sold and other income                 |  |                    | 47,185    |  |                    |  
|Total interest and dividend income                  |  |                    | 1,773,476 |  |                    |  
|Interest expense                                    |  |                    |           |  |                    |  
|Deposits                                            |  |                    | 166,547   |  |                    |  
|Repurchase agreements and other short-term debt     |  |                    | 4,263     |  |                    |  
|Federal Home Loan Bank advances and notes payable   |  |                    | 36,146    |  |                    |  
|Total interest expense                              |  |                    | 206,956   |  |                    |  
|Net Interest Income                                 |  |                    | 1,566,520 |  |                    |  
|Provision for loan losses                           |  |                    | 0         |  |                    |  
|Net Interest Income After Provision for Loan Losses |  |                    | 1,566,520 |  |                    |  
|Non-interest income                                 |  |                    |           |  |                    |  
|Service charges on deposit accounts                 |  |                    | 111,362   |  |                    |  
|Gain on sale of loans                               |  |                    | 88,340    |  |                    |  
|Gain on sale of foreclosed assets                   |  |                    | 26,029    |  |                    |  
|Other                                               |  |                    | 191,516   |  |                    |  
|Total non-interest income                           |  |                    | 417,247   |  |                    |  
|Non-interest expense                                |  |                    |           |  |                    |  
|Salaries and employee benefits                      |  |                    | 1,031,023 |  |                    |  
|Occupancy                                           |  |                    | 150,936   |  |                    |  
|Furniture and equipment                             |  |                    | 88,767    |  |                    |  
|Advertising                                         |  |                    | 4,543     |  |                    |  
|Data processing                                     |  |                    | 123,418   |  |                    |  
|Professional services                               |  |                    | 87,325    |  |                    |  
|Foreclosed asset impairment                         |  |                    | 29,421    |  |                    |  
|FDIC Insurance                                      |  |                    | 38,333    |  |                    |  
|Other                                               |  |                    | 223,645   |  |                    |  
|Total non-interest expense                          |  |                    | 1,777,411 |  |                    |  
|Income (Loss) Before Federal Income Tax             |  |                    | 206,356   |  |                    |  
|Federal income tax expense (benefit)                |  |                    | 70,161    |  |                    |  
|Net Income (Loss)                                   |  | $                  | 136,195   |  |                    | $
|Basic average shares outstanding                    |  |                    | 4,101,664 |  |                    |  
|Diluted average shares outstanding                  |  |                    | 4,104,608 |  |                    |  
|Basic earnings (loss) per share                     |  | $                  | 0.03      |  |                    | $
|Diluted earnings (loss) per share                   |  | $                  | 0.03      |  |                    | $



See accompanying notes to consolidated financial
statements.



- 2 -







COMMUNITY
SHORES BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME

(UNAUDITED)



|                                                                                  |  | Three Months Ended |         |   | Three Months Ended |  
|--------------------------------------------------------------------------------- |  | ------------------ | ------- | - | ------------------ | -
|                                                                                  |  | March 31, 2017     |         |   | March 31, 2016     |  
|                                                                                  |  |                    |         |   |                    |  
|Net income (loss)                                                                 |  | $                  | 136,195 |   |                    | $
|Other comprehensive income (loss):                                                |  |                    |         |   |                    |  
|Unrealized holding gains (losses) on available for sale securities                |  |                    | (3,764  | ) |                    |  
|Less reclassification adjustments for unrealized gains later recognized in income |  |                    | 0       |   |                    |  
|                                                                                  |  |                    | (3,764  | ) |                    |  
|Tax effect                                                                        |  |                    | 1,280   |   |                    |  
|Other comprehensive income (loss), net of tax                                     |  |                    | (2,484  | ) |                    |  
|Comprehensive income                                                              |  | $                  | 133,711 |   |                    | $



See accompanying notes to consolidated financial
statements.



- 3 -







COMMUNITY
SHORES BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS’ EQUITY

(UNAUDITED)



|                                                                                      |  |        |           |  |        |   |            |             |  |   | Accumulated   |   |  |               |        
|------------------------------------------------------------------------------------- |  | ------ | --------- |  | ------ | - | ---------- | ----------- |  | - | ------------- | - |  | ------------- | -------
|                                                                                      |  |        |           |  |        |   |            |             |  |   | Other         |   |  | Total         |        
|                                                                                      |  |        |           |  | Common |   |            | Accumulated |  |   | Comprehensive |   |  | Shareholders’ |        
|                                                                                      |  | Shares |           |  | Stock  |   |            | Deficit     |  |   | Income (Loss) |   |  | Equity        |        
|                                                                                      |  |        |           |  |        |   |            |             |  |   |               |   |  |               |        
|Balance at January 1, 2016                                                            |  |        | 1,468,800 |  |        | $ | 13,296,691 |             |  | $ | (5,705,469    | ) |  | $             | (28,795
|                                                                                      |  |        |           |  |        |   |            |             |  |   |               |   |  |               |        
|Proceeds from rights offering, net of issuance costs                                  |  |        | 1,383,299 |  |        |   | 3,292,183  |             |  |   |               |   |  |               |        
|Proceeds from private placement                                                       |  |        | 579,412   |  |        |   | 1,477,501  |             |  |   |               |   |  |               |        
|Note payable conversion to common stock, including derivative liability, net of taxes |  |        | 670,153   |  |        |   | 1,561,592  |             |  |   |               |   |  |               |        
|Net loss                                                                              |  |        |           |  |        |   |            |             |  |   | (24,086       | ) |  |               |        
|Other comprehensive income                                                            |  |        |           |  |        |   |            |             |  |   |               |   |  |               | 106,377
|                                                                                      |  |        |           |  |        |   |            |             |  |   |               |   |  |               |        
|Balance at March 31, 2016                                                             |  |        | 4,101,664 |  |        |   | 19,627,967 |             |  |   | (5,729,555    | ) |  |               | 77,582 
|                                                                                      |  |        |           |  |        |   |            |             |  |   |               |   |  |               |        
|Balance at January 1, 2017                                                            |  |        | 4,101,664 |  |        |   | 19,626,201 |             |  |   | (5,542,341    | ) |  |               | (22,380
|Expense related to share-based compensation                                           |  |        |           |  |        |   | 3,848      |             |  |   |               |   |  |               |        
|Net income                                                                            |  |        |           |  |        |   |            |             |  |   | 136,195       |   |  |               |        
|Other comprehensive loss                                                              |  |        |           |  |        |   |            |             |  |   |               |   |  |               | (2,484 
|                                                                                      |  |        |           |  |        |   |            |             |  |   |               |   |  |               |        
|Balance at March 31, 2017                                                             |  |        | 4,101,664 |  |        | $ | 19,630,049 |             |  | $ | (5,406,146    | ) |  | $             | (24,864



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, 2017     |            |   | March 31, 2016     |  
|Cash flows from operating activities                                                        |  |                    |            |   |                    |  
|Net income (loss)                                                                           |  | $                  | 136,195    |   |                    | $
|Adjustments to reconcile net income (loss) to net cash from (used in) operating activities: |  |                    |            |   |                    |  
|Depreciation and amortization                                                               |  |                    | 88,851     |   |                    |  
|Net amortization of securities                                                              |  |                    | 35,247     |   |                    |  
|Net realized gain on sale of loans                                                          |  |                    | (88,340    | ) |                    |  
|Net realized gain on sale of foreclosed assets                                              |  |                    | (26,029    | ) |                    |  
|Foreclosed asset impairment                                                                 |  |                    | 29,421     |   |                    |  
|Originations of loans for sale                                                              |  |                    | (1,464,600 | ) |                    |  
|Proceeds from loan sales                                                                    |  |                    | 1,635,082  |   |                    |  
|Deferred income tax expense (benefit)                                                       |  |                    | 70,161     |   |                    |  
|Share based compensation                                                                    |  |                    | 3,848      |   |                    |  
|Net change in:                                                                              |  |                    |            |   |                    |  
|Accrued interest receivable and other assets                                                |  |                    | (80,492    | ) |                    |  
|Accrued expenses and other liabilities                                                      |  |                    | 17,032     |   |                    |  
|Net cash from (used in) operating activities                                                |  |                    | 356,376    |   |                    |  
|Cash flows from investing activities                                                        |  |                    |            |   |                    |  
|Activity in available for sale securities:                                                  |  |                    |            |   |                    |  
|Maturities, prepayments and calls                                                           |  |                    | 1,045,595  |   |                    |  
|Purchases                                                                                   |  |                    | (3,501,289 | ) |                    |  
|Loan activity:                                                                              |  |                    |            |   |                    |  
|Loan originations and payments, net                                                         |  |                    | 789,453    |   |                    |  
|Proceeds from the sale of the credit card portfolio                                         |  |                    | 491,075    |   |                    |  
|Additions to premises and equipment                                                         |  |                    | (3,621     | ) |                    |  
|Proceeds from the sale of foreclosed assets                                                 |  |                    | 30,879     |   |                    |  
|Net cash from (used in) investing activities                                                |  |                    | (1,147,908 | ) |                    |  
|Cash flows from financing activities                                                        |  |                    |            |   |                    |  
|Net change in deposits                                                                      |  |                    | 11,220,714 |   |                    |  
|Repayment of note payable                                                                   |  |                    | 0          |   |                    |  
|Net change in repurchase agreements                                                         |  |                    | 103,407    |   |                    |  
|Capital-raising activities                                                                  |  |                    |            |   |                    |  
|Proceeds from rights offering, net of issuance costs                                        |  |                    | 0          |   |                    |  
|Proceeds from private placement                                                             |  |                    | 0          |   |                    |  
|Net cash from financing activities                                                          |  |                    | 11,324,121 |   |                    |  
|Net change in cash and cash equivalents                                                     |  |                    | 10,532,589 |   |                    |  
|Beginning cash and cash equivalents                                                         |  |                    | 20,982,175 |   |                    |  
|Ending cash and cash equivalents                                                            |  | $                  | 31,514,764 |   |                    | $
|Supplemental cash flows information:                                                        |  |                    |            |   |                    |  
|Cash paid during the period for interest                                                    |  | $                  | 189,754    |   |                    | $
|including derivative liability and net of taxes                                             |  |                    | 0          |   |                    |  



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, 2017 include the consolidated results of operations of Community
Shores Bank Corporation (“Company”) and its wholly-owned subsidiaries, Community Shores Financial Services (“CS
Financial Services”), and Community Shores Bank (the “Bank”), and the Bank’s wholly-owned subsidiary, Community
Shores Mortgage Company (the “Mortgage Company”) and the Mortgage Company’s wholly-owned subsidiary, Berryfield
Development, LLC (“Berryfield”). Community Shores Capital Trust I (“the Trust”) is not consolidated and
exists solely to issue capital securities. These consolidated financial statements have been prepared in accordance with the instructions
for Form 10-Q and Article 8 of Regulation S-X and do not include all disclosures required by generally accepted accounting principles
for a complete presentation of the Company’s financial condition and results of operations. In the opinion of management,
the information reflects all adjustments (consisting only of normal recurring adjustments) which are necessary in order to make
the financial statements not misleading and for a fair representation of the results of operations for such periods. The results
for the period ended March 31, 2017 should not be considered as indicative of results for a full year. For further information,
refer to the consolidated financial statements and notes included in the Company’s annual report on Form 10-K for the period
ended December 31, 2016. Some items in the prior year financial statements may be reclassified to conform to the current presentation.



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



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



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



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



- 6 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



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



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



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



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



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



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



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



- 7 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



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



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



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



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



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



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



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



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



- 8 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



There was no material change in these operating doctrines as of
March 31, 2017.



ADOPTION OF NEW ACCOUNTING STANDARDS:



None



NEWLY ISSUED NOT YET EFFECTIVE ACCOUNTING STANDARDS:



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



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



- 9 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



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



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



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



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



- 10 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



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



RECENT DEVELOPMENTS



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



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



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



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



|                                                                         |  |           |            |  | Gross      |   |        | Gross      |  |   |         |  
|------------------------------------------------------------------------ |  | --------- | ---------- |  | ---------- | - | ------ | ---------- |  | - | ------- | -
|                                                                         |  | Amortized |            |  | Unrealized |   |        | Unrealized |  |   | Fair    |  
|March 31, 2017                                                           |  | Cost      |            |  | Gains      |   |        | Losses     |  |   | Value   |  
|                                                                         |  |           |            |  |            |   |        |            |  |   |         |  
|US Treasury                                                              |  | $         | 4,002,279  |  |            | $ | 806    |            |  | $ | (1,757  | )
|US Government and federal agency                                         |  |           | 5,960,823  |  |            |   | 3,985  |            |  |   | (616    | )
|Municipals                                                               |  |           | 0          |  |            |   | 0      |            |  |   | 0       |  
|Mortgage-backed and collateralized mortgage
    obligations– residential |  |           | 8,257,018  |  |            |   | 39,859 |            |  |   | (79,950 | )
|                                                                         |  | $         | 18,220,120 |  |            | $ | 44,650 |            |  | $ | (82,323 | )



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



- 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, 2017:



|                                                                       |  | Amortized |            |  | Fair  |  
|---------------------------------------------------------------------- |  | --------- | ---------- |  | ----- | -
|                                                                       |  | Cost      |            |  | Value |  
|Due in one year or less                                                |  | $         | 5,963,075  |  |       | $
|Due from one to five years                                             |  |           | 4,000,027  |  |       |  
|Due from five to ten years                                             |  |           | 0          |  |       |  
|Due in more than ten years                                             |  |           | 0          |  |       |  
|Mortgage-backed and collateralized  mortgage obligations – residential |  |           | 8,257,018  |  |       |  
|                                                                       |  | $         | 18,220,120 |  |       | $



- 12 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



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



|                                                                          |  | Less than 12 Months |           |  | 12 Months or Longer |   |         | Total | 
|------------------------------------------------------------------------- |  | ------------------- | --------- |  | ------------------- | - | ------- | ----- | 
|                                                                          |  | Fair                |           |  | Unrealized          |   |         | Fair  | 
|March 31, 2017                                                            |  | Value               |           |  | Losses              |   |         | Value | 
|US Treasuries                                                             |  | $                   | 3,004,297 |  |                     | $ | (1,757  | )     | 
|US Government and federal agency                                          |  |                     | 951,950   |  |                     |   | (616    | )     | 
|Mortgage-backed and collateralized mortgage obligations -
    residential |  |                     | 5,221,577 |  |                     |   | (58,747 | )     | 
|                                                                          |  | $                   | 9,177,824 |  |                     | $ | (61,120 | )     | 



|                                                                          |  | Less than 12 Months |           |  | 12 Months or Longer |   |         | Total | 
|------------------------------------------------------------------------- |  | ------------------- | --------- |  | ------------------- | - | ------- | ----- | 
|                                                                          |  | Fair                |           |  | Unrealized          |   |         | Fair  | 
|December 31, 2016                                                         |  | Value               |           |  | Losses              |   |         | Value | 
|US Government and federal agency                                          |  | $                   | 499,633   |  |                     | $ | (147    | )     | 
|Mortgage-backed and collateralized mortgage obligations -
    residential |  |                     | 5,406,053 |  |                     |   | (69,170 | )     | 
|                                                                          |  | $                   | 5,905,686 |  |                     | $ | (69,317 | )     | 



No securities were sold in the three months ended March 31, 2017
or March 31, 2016.



- 13 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



Other-Than-Temporary-Impairment



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



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



At March 31, 2017 and December 31, 2016, all of the mortgage-backed
securities and collateralized mortgage obligations held by the Company were issued by U.S. government-sponsored entities and agencies,
primarily Ginnie Mae, Fannie Mae and Freddie Mac. Ginnie Mae has the full faith and credit of the US government. Fannie Mae and
Freddie Mac are highly rated by the rating agencies and although their debt is not guaranteed by the US government, the US government
in 2008, acknowledged its commitment to support their financial health. At March 31, 2017, 25 debt securities had unrealized losses
with aggregate depreciation of 0.80% from the amortized cost basis; four of the 25 had unrealized losses greater than 12 months.



Six of the 25 securities, which had an unrealized loss at March
31, 2017, are issued by government agencies and 19 are issued by government-sponsored entities. It is likely that these debt securities
will be retained given the fact that they are pledged to various public funds. The reported decline in value is not material and
is deemed to be market driven. Because the decline in fair value is attributable to changes in interest rates and not credit quality
and, because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell
the securities before their anticipated recovery. The Company does not consider these securities to be other-than-temporarily impaired
at March 31, 2017.



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



- 14 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



Securities pledged at March 31, 2017 had a carrying amount of $14,686,955
and were pledged to secure public fund customers and customer repurchase agreements. Pledged securities at December 31, 2016 had
a carrying amount of $14,266,378.



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



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



|                                 |  | March 31, 2017 |             |   | December 31, 2016 |  
|-------------------------------- |  | -------------- | ----------- | - | ----------------- | -
|                                 |  |                |             |   |                   |  
|Commercial                       |  | $              | 48,387,087  |   |                   | $
|Commercial Real Estate:          |  |                |             |   |                   |  
|General                          |  |                | 60,893,535  |   |                   |  
|Construction                     |  |                | 4,345,936   |   |                   |  
|Consumer:                        |  |                |             |   |                   |  
|Lines of credit                  |  |                | 6,267,246   |   |                   |  
|Other                            |  |                | 1,137,623   |   |                   |  
|Credit card                      |  |                | 0           |   |                   |  
|Residential                      |  |                | 18,635,164  |   |                   |  
|Net deferred loan fees           |  |                | (70,100     | ) |                   |  
|                                 |  |                | 139,596,491 |   |                   |  
|Less:  Allowance for loan losses |  |                | (1,618,398  | ) |                   |  
|Loans, net                       |  | $              | 137,978,093 |   |                   | $



- 15 -













COMMUNITY SHORES
BANK CORPORATION

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS



| | 4. | ALLOWANCE FOR LOAN
                                         LOSSES AND IMPAIRED LOANS
| | -- | -------------------------------------------------------------------------------------



The following tables present the activity in the
allowance for loan losses for the three-month periods ended March 31, 2017 and 2016 by portfolio segment:



|                                  |  |            |         |  | Commercial  |   |         |          |  |   |             |        |  |             |         |    |       |  
|--------------------------------- |  | ---------- | ------- |  | ----------- | - | ------- | -------- |  | - | ----------- | ------ |  | ----------- | ------- | -- | ----- | -
|Three Months Ended March 31, 2017 |  | Commercial |         |  | Real Estate |   |         | Consumer |  |   | Residential |        |  | Unallocated |         |    | Total |  
|Allowance for loan losses:        |  |            |         |  |             |   |         |          |  |   |             |        |  |             |         |    |       |  
|Beginning balance                 |  | $          | 617,002 |  |             | $ | 459,805 |          |  | $ | 259,194     |        |  | $           | 203,312 |    |       | $
|Charge-offs                       |  |            | 0       |  |             |   | 0       |          |  |   | (76         | )      |  |             | 0       |    |       |  
|Recoveries                        |  |            | 5,400   |  |             |   | 0       |          |  |   | 1,254       |        |  |             | 0       |    |       |  
|Provision for loan losses         |  |            | 5,067   |  |             |   | 65,672  |          |  |   | (41,364     | )1,2,3 |  |             | (16,794 | )4 |       |  
|Ending balance                    |  | $          | 627,469 |  |             | $ | 525,477 |          |  | $ | 219,008     |        |  | $           | 186,518 |    |       | $



|Three Months Ended March 31, 2016 |  | Commercial |         |  | Commercial Real Estate |   |         | Consumer |  |   | Residential |    |  | Unallocated |         |  | Total |  
|--------------------------------- |  | ---------- | ------- |  | ---------------------- | - | ------- | -------- |  | - | ----------- | -- |  | ----------- | ------- |  | ----- | -
|Allowance for loan losses:        |  |            |         |  |                        |   |         |          |  |   |             |    |  |             |         |  |       |  
|Beginning balance                 |  | $          | 522,558 |  |                        | $ | 432,145 |          |  | $ | 322,185     |    |  | $           | 210,653 |  |       | $
|Charge-offs                       |  |            | 0       |  |                        |   | 0       |          |  |   | (5,545      | )5 |  |             | 0       |  |       |  
|Recoveries                        |  |            | 10,403  |  |                        |   | 0       |          |  |   | 28,770      | 5  |  |             | 0       |  |       |  
|Provision for loan losses         |  |            | 23,313  |  |                        |   | 21,093  |          |  |   | (30,839     | )5 |  |             | 4,456   |  |       |  
|Ending balance                    |  | $          | 556,274 |  |                        | $ | 453,238 |          |  | $ | 314,571     |    |  | $           | 215,109 |  |       | $












| | 1 | The sale of the credit card portfolio
                                         released loan loss reserves of $11,363.
| | - | ----------------------------------------------------------------------------------------------------------------------

| | 2 | The Bank annually updates its
                                         balances on watch list home equity loans. Since year-end 2016, the balances of these
                                         credits decline significantly which reduced the specific allocations by $23,038.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3 | The loan loss reserves related
                                         to impaired consumer loans declined $9,727 since year-end 2016.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------

| | 4 | An updated appraisal was received
                                         on a specifically identified mortgage loan, which allowed the impaired loan to have zero
                                         allocation; releasing loan loss reserves of $18,289.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 5 | A negative loan loss provision
                                         was made in the first quarter due to net recoveries and a reduction in outstanding balances.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



- 16 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



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



|March 31, 2017                                  |  | Commercial |            |  | Commercial Real Estate |   |            | Consumer |  |   | Residential |  |  | Unallocated |            |  | Total |  
|----------------------------------------------- |  | ---------- | ---------- |  | ---------------------- | - | ---------- | -------- |  | - | ----------- |  |  | ----------- | ---------- |  | ----- | -
|Allowance for loan losses:                      |  |            |            |  |                        |   |            |          |  |   |             |  |  |             |            |  |       |  
|Ending allowance balance attributable to loans: |  |            |            |  |                        |   |            |          |  |   |             |  |  |             |            |  |       |  
|Individually evaluated for impairment1          |  | $          | 287,564    |  |                        | $ | 62,334     |          |  | $ | 70,776      |  |  | $           | 40,815     |  |       | $
|Collectively evaluated for impairment           |  |            | 339,905    |  |                        |   | 463,143    |          |  |   | 148,232     |  |  |             | 145,703    |  |       |  
|Unallocated                                     |  |            | 0          |  |                        |   | 0          |          |  |   | 0           |  |  |             | 0          |  |       |  
|Total ending allowance balance                  |  | $          | 627,469    |  |                        | $ | 525,477    |          |  | $ | 219,008     |  |  | $           | 186,518    |  |       | $
|                                                |  |            |            |  |                        |   |            |          |  |   |             |  |  |             |            |  |       |  
|Loans:                                          |  |            |            |  |                        |   |            |          |  |   |             |  |  |             |            |  |       |  
|Individually evaluated for impairment1          |  | $          | 1,367,131  |  |                        | $ | 7,215,291  |          |  | $ | 127,875     |  |  | $           | 522,315    |  |       | $
|Collectively evaluated for impairment           |  |            | 47,109,057 |  |                        |   | 58,124,755 |          |  |   | 7,300,829   |  |  |             | 18,162,488 |  |       |  
|Total ending loans balance                      |  | $          | 48,476,188 |  |                        | $ | 65,340,046 |          |  | $ | 7,428,704   |  |  | $           | 18,684,803 |  |       | $



|December 31, 2016                               |  | Commercial |            |  | Commercial Real Estate |   |            | Consumer |  |   | Residential |  |  | Unallocated |            |  | Total |  
|----------------------------------------------- |  | ---------- | ---------- |  | ---------------------- | - | ---------- | -------- |  | - | ----------- |  |  | ----------- | ---------- |  | ----- | -
|Allowance for loan losses:                      |  |            |            |  |                        |   |            |          |  |   |             |  |  |             |            |  |       |  
|Ending allowance balance attributable to loans: |  |            |            |  |                        |   |            |          |  |   |             |  |  |             |            |  |       |  
|Individually evaluated for impairment1          |  | $          | 268,274    |  |                        | $ | 20,595     |          |  | $ | 80,503      |  |  | $           | 62,962     |  |       | $
|Collectively evaluated for impairment           |  |            | 348,728    |  |                        |   | 439,210    |          |  |   | 178,691     |  |  |             | 140,350    |  |       |  
|Unallocated                                     |  |            | 0          |  |                        |   | 0          |          |  |   | 0           |  |  |             | 0          |  |       |  
|Total ending allowance balance                  |  | $          | 617,002    |  |                        | $ | 459,805    |          |  | $ | 259,194     |  |  | $           | 203,312    |  |       | $
|                                                |  |            |            |  |                        |   |            |          |  |   |             |  |  |             |            |  |       |  
|Loans:                                          |  |            |            |  |                        |   |            |          |  |   |             |  |  |             |            |  |       |  
|Individually evaluated for impairment1          |  | $          | 2,294,672  |  |                        | $ | 6,328,334  |          |  | $ | 165,174     |  |  | $           | 526,736    |  |       | $
|Collectively evaluated for impairment           |  |            | 48,666,710 |  |                        |   | 57,560,977 |          |  |   | 7,448,194   |  |  |             | 18,176,652 |  |       |  
|Total ending loans balance                      |  | $          | 50,961,382 |  |                        | $ | 63,889,311 |          |  | $ | 7,613,368   |  |  | $           | 18,703,388 |  |       | $












| | 1 | Loans that are specifically identified.
| | - | ---------------------------------------



- 17 -







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



|                                    |  |            |           |  | Unpaid    |   |            |           |  |   | Average    |  |  | Interest   |           |  | Cash Basis |  
|----------------------------------- |  | ---------- | --------- |  | --------- | - | ---------- | --------- |  | - | ---------- |  |  | ---------- | --------- |  | ---------- | -
|                                    |  | Recorded   |           |  | Principal |   |            | Related   |  |   | Recorded   |  |  | Income     |           |  | Interest   |  
|March 31, 2017                      |  | Investment |           |  | Balance   |   |            | Allowance |  |   | Investment |  |  | Recognized |           |  | Recognized |  
|With no related allowance recorded: |  |            |           |  |           |   |            |           |  |   |            |  |  |            |           |  |            |  
|Commercial                          |  | $          | 402,522   |  |           | $ | 401,250    |           |  | $ | 0          |  |  | $          | 735,835   |  |            | $
|Commercial Real Estate:             |  |            |           |  |           |   |            |           |  |   |            |  |  |            |           |  |            |  
|General                             |  |            | 5,766,667 |  |           |   | 6,912,511  |           |  |   | 0          |  |  |            | 6,380,593 |  |            |  
|Construction                        |  |            | 0         |  |           |   | 0          |           |  |   | 0          |  |  |            | 0         |  |            |  
|Consumer:                           |  |            |           |  |           |   |            |           |  |   |            |  |  |            |           |  |            |  
|Lines of credit                     |  |            | 9,349     |  |           |   | 9,336      |           |  |   | 0          |  |  |            | 27,072    |  |            |  
|Other                               |  |            | 0         |  |           |   | 0          |           |  |   | 0          |  |  |            | 0         |  |            |  
|Credit card                         |  |            | 0         |  |           |   | 0          |           |  |   | 0          |  |  |            | 0         |  |            |  
|Residential                         |  |            | 472,178   |  |           |   | 503,374    |           |  |   | 0          |  |  |            | 372,759   |  |            |  
|Subtotal                            |  | $          | 6,650,716 |  |           | $ | 7,826,471  |           |  | $ | 0          |  |  | $          | 7,516,259 |  |            | $
|With an allowance recorded:         |  |            |           |  |           |   |            |           |  |   |            |  |  |            |           |  |            |  
|Commercial                          |  | $          | 964,609   |  |           | $ | 969,924    |           |  | $ | 287,564    |  |  | $          | 963,409   |  |            | $
|Commercial Real Estate:             |  |            |           |  |           |   |            |           |  |   |            |  |  |            |           |  |            |  
|General                             |  |            | 1,448,624 |  |           |   | 1,447,891  |           |  |   | 62,334     |  |  |            | 521,116   |  |            |  
|Construction                        |  |            | 0         |  |           |   | 0          |           |  |   | 0          |  |  |            | 0         |  |            |  
|Consumer:                           |  |            |           |  |           |   |            |           |  |   |            |  |  |            |           |  |            |  
|Lines of credit                     |  |            | 98,714    |  |           |   | 98,219     |           |  |   | 51,076     |  |  |            | 105,179   |  |            |  
|Other                               |  |            | 19,812    |  |           |   | 19,700     |           |  |   | 19,700     |  |  |            | 19,966    |  |            |  
|Credit card                         |  |            | 0         |  |           |   | 0          |           |  |   | 0          |  |  |            | 0         |  |            |  
|Residential                         |  |            | 50,137    |  |           |   | 59,583     |           |  |   | 40,815     |  |  |            | 245,154   |  |            |  
|Subtotal                            |  | $          | 2,581,896 |  |           | $ | 2,595,317  |           |  | $ | 461,489    |  |  | $          | 1,854,824 |  |            | $
|Total                               |  | $          | 9,232,612 |  |           | $ | 10,421,788 |           |  | $ | 461,489    |  |  | $          | 9,371,083 |  |            | $



- 18 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



The following tables present the average recorded investment
of loans individually evaluated for impairment by class of loans as of March 31, 2017 and December 31, 2016 and the associated
interest income. For purposes of this disclosure, the unpaid principal balance is not reduced for partial charge-offs.



|                                    |  |            |           |  | Unpaid    |   |            |           |  |   | Average    |  |  | Interest   |           |  | Cash Basis |  
|----------------------------------- |  | ---------- | --------- |  | --------- | - | ---------- | --------- |  | - | ---------- |  |  | ---------- | --------- |  | ---------- | -
|                                    |  | Recorded   |           |  | Principal |   |            | Related   |  |   | Recorded   |  |  | Income     |           |  | Interest   |  
|December 31, 2016                   |  | Investment |           |  | Balance   |   |            | Allowance |  |   | Investment |  |  | Recognized |           |  | Recognized |  
|With no related allowance recorded: |  |            |           |  |           |   |            |           |  |   |            |  |  |            |           |  |            |  
|Commercial                          |  | $          | 1,334,036 |  |           | $ | 1,394,625  |           |  | $ | 0          |  |  | $          | 1,355,309 |  |            | $
|Commercial Real Estate:             |  |            |           |  |           |   |            |           |  |   |            |  |  |            |           |  |            |  
|General                             |  |            | 6,270,915 |  |           |   | 7,349,245  |           |  |   | 0          |  |  |            | 5,148,859 |  |            |  
|Construction                        |  |            | 0         |  |           |   | 0          |           |  |   | 0          |  |  |            | 0         |  |            |  
|Consumer:                           |  |            |           |  |           |   |            |           |  |   |            |  |  |            |           |  |            |  
|Lines of credit                     |  |            | 35,868    |  |           |   | 35,791     |           |  |   | 0          |  |  |            | 71,397    |  |            |  
|Other                               |  |            | 0         |  |           |   | 0          |           |  |   | 0          |  |  |            | 0         |  |            |  
|Credit card                         |  |            | 0         |  |           |   | 0          |           |  |   | 0          |  |  |            | 0         |  |            |  
|Residential                         |  |            | 181,557   |  |           |   | 214,031    |           |  |   | 0          |  |  |            | 297,361   |  |            |  
|Subtotal                            |  | $          | 7,822,376 |  |           | $ | 8,993,692  |           |  | $ | 0          |  |  | $          | 6,872,926 |  |            | $
|With an allowance recorded:         |  |            |           |  |           |   |            |           |  |   |            |  |  |            |           |  |            |  
|Commercial                          |  | $          | 960,636   |  |           | $ | 970,799    |           |  | $ | 268,274    |  |  | $          | 996,153   |  |            | $
|Commercial Real Estate:             |  |            |           |  |           |   |            |           |  |   |            |  |  |            |           |  |            |  
|General                             |  |            | 57,419    |  |           |   | 57,323     |           |  |   | 20,595     |  |  |            | 51,826    |  |            |  
|Construction                        |  |            | 0         |  |           |   | 0          |           |  |   | 0          |  |  |            | 0         |  |            |  
|Consumer:                           |  |            |           |  |           |   |            |           |  |   |            |  |  |            |           |  |            |  
|Lines of credit                     |  |            | 108,825   |  |           |   | 108,217    |           |  |   | 60,132     |  |  |            | 153,010   |  |            |  
|Other                               |  |            | 20,481    |  |           |   | 20,372     |           |  |   | 20,371     |  |  |            | 17,827    |  |            |  
|Credit card                         |  |            | 0         |  |           |   | 0          |           |  |   | 0          |  |  |            | 0         |  |            |  
|Residential                         |  |            | 345,179   |  |           |   | 353,232    |           |  |   | 62,962     |  |  |            | 314,968   |  |            |  
|Subtotal                            |  | $          | 1,492,540 |  |           | $ | 1,509,943  |           |  | $ | 432,334    |  |  | $          | 1,533,784 |  |            | $
|Total                               |  | $          | 9,314,916 |  |           | $ | 10,503,635 |           |  | $ | 432,334    |  |  | $          | 8,406,710 |  |            | $



- 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 March 31, 2017:



|                        |  |                 |         |  |                 |   |         | 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              |  | $               | 118,947 |  |                 | $ | 71,403  |                 |  | $ | 0              |  |  | $              | 190,350 |  |                | $
|Commercial Real Estate: |  |                 |         |  |                 |   |         |                 |  |   |                |  |  |                |         |  |                |  
|General                 |  |                 | 130,188 |  |                 |   | 42,181  |                 |  |   | 0              |  |  |                | 172,369 |  |                |  
|Construction            |  |                 | 0       |  |                 |   | 43,872  |                 |  |   | 0              |  |  |                | 43,872  |  |                |  
|Consumer:               |  |                 |         |  |                 |   |         |                 |  |   |                |  |  |                |         |  |                |  
|Lines of credit         |  |                 | 0       |  |                 |   | 0       |                 |  |   | 0              |  |  |                | 0       |  |                |  
|Other                   |  |                 | 1,692   |  |                 |   | 998     |                 |  |   | 0              |  |  |                | 2,690   |  |                |  
|Credit card             |  |                 | 0       |  |                 |   | 0       |                 |  |   | 0              |  |  |                | 0       |  |                |  
|Residential             |  |                 | 0       |  |                 |   | 0       |                 |  |   | 0              |  |  |                | 0       |  |                |  
|Total                   |  | $               | 250,827 |  |                 | $ | 158,454 |                 |  | $ | 0              |  |  | $              | 409,281 |  |                | $



|                        |  |                 |   |  |                 |   |   | 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 |                 |  | $ | 0              |  |  | $           | 0      |  |                   | $
|Commercial Real Estate: |  |                 |   |  |                 |   |   |                 |  |   |                |  |  |             |        |  |                   |  
|General                 |  |                 | 0 |  |                 |   | 0 |                 |  |   | 0              |  |  |             | 0      |  |                   |  
|Construction            |  |                 | 0 |  |                 |   | 0 |                 |  |   | 0              |  |  |             | 0      |  |                   |  
|Consumer:               |  |                 |   |  |                 |   |   |                 |  |   |                |  |  |             |        |  |                   |  
|Lines of credit         |  |                 | 0 |  |                 |   | 0 |                 |  |   | 0              |  |  |             | 0      |  |                   |  
|Other                   |  |                 | 0 |  |                 |   | 0 |                 |  |   | 0              |  |  |             | 0      |  |                   |  
|Credit card             |  |                 | 0 |  |                 |   | 0 |                 |  |   | 0              |  |  |             | 0      |  |                   |  
|Residential             |  |                 | 0 |  |                 |   | 0 |                 |  |   | 62,050         |  |  |             | 62,050 |  |                   |  
|Total                   |  | $               | 0 |  |                 | $ | 0 |                 |  | $ | 62,050         |  |  | $           | 62,050 |  |                   | $



- 20 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



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



|                        |  |                 |         |  |                 |   |         | 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              |  | $               | 298,912 |  |                 | $ | 592,498 |                 |  | $ | 0              |  |  | $              | 891,410   |  |                | $
|Commercial Real Estate: |  |                 |         |  |                 |   |         |                 |  |   |                |  |  |                |           |  |                |  
|General                 |  |                 | 100,058 |  |                 |   | 0       |                 |  |   | 0              |  |  |                | 100,058   |  |                |  
|Construction            |  |                 | 0       |  |                 |   | 0       |                 |  |   | 0              |  |  |                | 0         |  |                |  
|Consumer:               |  |                 |         |  |                 |   |         |                 |  |   |                |  |  |                |           |  |                |  
|Lines of credit         |  |                 | 36,652  |  |                 |   | 0       |                 |  |   | 0              |  |  |                | 36,652    |  |                |  
|Other                   |  |                 | 0       |  |                 |   | 0       |                 |  |   | 0              |  |  |                | 0         |  |                |  
|Credit card             |  |                 | 0       |  |                 |   | 0       |                 |  |   | 0              |  |  |                | 0         |  |                |  
|Residential             |  |                 | 36,621  |  |                 |   | 144,039 |                 |  |   | 0              |  |  |                | 180,660   |  |                |  
|Total                   |  | $               | 472,243 |  |                 | $ | 736,537 |                 |  | $ | 0              |  |  | $              | 1,208,780 |  |                | $



|                        |  |                 |        |  |                 |   |   | 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 |                 |  | $ | 0              |  |  | $           | 0       |  |                   | $
|Commercial Real Estate: |  |                 |        |  |                 |   |   |                 |  |   |                |  |  |             |         |  |                   |  
|General                 |  |                 | 0      |  |                 |   | 0 |                 |  |   | 0              |  |  |             | 0       |  |                   |  
|Construction            |  |                 | 0      |  |                 |   | 0 |                 |  |   | 0              |  |  |             | 0       |  |                   |  
|Consumer:               |  |                 |        |  |                 |   |   |                 |  |   |                |  |  |             |         |  |                   |  
|Lines of credit         |  |                 | 0      |  |                 |   | 0 |                 |  |   | 0              |  |  |             | 0       |  |                   |  
|Other                   |  |                 | 0      |  |                 |   | 0 |                 |  |   | 0              |  |  |             | 0       |  |                   |  
|Credit card             |  |                 | 0      |  |                 |   | 0 |                 |  |   | 0              |  |  |             | 0       |  |                   |  
|Residential             |  |                 | 63,049 |  |                 |   | 0 |                 |  |   | 48,858         |  |  |             | 111,907 |  |                   |  
|Total                   |  | $               | 63,049 |  |                 | $ | 0 |                 |  | $ | 48,858         |  |  | $           | 111,907 |  |                   | $



- 21 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



Troubled Debt Restructurings:



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



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



The Company has allocated $452,235 of specific reserves on
$9,082,181 of unpaid principal balance of loans to customers whose loan terms have been modified in troubled debt restructurings
as of March 31, 2017. As of March 31, 2017, there were no troubled debt restructurings that experienced a payment default within
12 months following the modification and there were no charge-offs related to troubled debt restructurings occurring during the
first three months of 2017.



At December 31, 2016, the Company had $413,252
in specific reserves on $9,102,558 of unpaid principal balance of loans whose loan terms had been modified in troubled debt
restructurings.



During the three-month period ended March 31,
2017, there was one commercial loan modified as a troubled debt restructuring. The recorded investment was $125,604 before
the modification and remained the same after the modification. It is also the current balance at March 31, 2017.
The modification consisted of the borrower receiving a modified payment structure for 15 years. As of March 31, 2017, no
additional specific reserves were established on this troubled debt restructuring.



There were no troubled debt restructurings that occurred during
the three-month period ended March 31, 2016; however, there was one commercial troubled debt restructuring that experienced a payment
default within 12 months following the modification. The recorded investment at the time of default was $18,301.



- 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 analyzed once a quarter. 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, 2017 and December 31, 2016, 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,              | 
|      |  | 2017       |            |  | 2016                   |   |            | 2017                   | 
|1     |  | $          | 1,274,730  |  |                        | $ | 1,288,969  |                        | 
|2     |  |            | 0          |  |                        |   | 0          |                        | 
|3     |  |            | 9,735,201  |  |                        |   | 10,420,192 |                        | 
|4     |  |            | 16,810,286 |  |                        |   | 16,356,758 |                        | 
|5     |  |            | 16,372,352 |  |                        |   | 17,186,851 |                        | 
|5M    |  |            | 2,423,490  |  |                        |   | 2,606,184  |                        | 
|6     |  |            | 885,685    |  |                        |   | 1,200,346  |                        | 
|7     |  |            | 963,692    |  |                        |   | 1,890,779  |                        | 
|8     |  |            | 10,752     |  |                        |   | 11,303     |                        | 
|Total |  | $          | 48,476,188 |  |                        | $ | 50,961,382 |                        | 



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, 2017 and December 31, 2016:



|           |  | Residential |           
|---------- |  | ----------- | ----------
|           |  | March 31,   |           
|           |  | 2017        |           
|Performing |  | $           | 18,162,488
|Impaired   |  |             | 522,315   
|Total      |  | $           | 18,684,803



|           |  | Consumer – Lines of credit |           |  | Consumer – Other |   |           | Consumer – Credit card | 
|---------- |  | -------------------------- | --------- |  | ---------------- | - | --------- | ---------------------- | 
|           |  | March 31,                  |           |  | December 31,     |   |           | March 31,              | 
|           |  | 2017                       |           |  | 2016             |   |           | 2017                   | 
|Performing |  | $                          | 6,178,494 |  |                  | $ | 5,843,821 |                        | 
|Impaired   |  |                            | 108,063   |  |                  |   | 144,693   |                        | 
|Total      |  | $                          | 6,286,557 |  |                  | $ | 5,988,514 |                        | 



- 24 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



Foreclosed asset activity for the period ended:



|                                               |  | March 31, |           |   | December 31, |  
|---------------------------------------------- |  | --------- | --------- | - | ------------ | -
|                                               |  | 2017      |           |   | 2016         |  
|Beginning of year                              |  | $         | 1,460,394 |   |              | $
|Additions                                      |  |           | 0         |   |              |  
|Reductions from sales                          |  |           | (4,850    | ) |              |  
|Direct write-downs                             |  |           | (29,421   | ) |              |  
|End of period                                  |  | $         | 1,426,123 |   |              | $
|                                               |  |           |           |   |              |  
|Expenses related to foreclosed assets include: |  |           |           |   |              |  
|Operating expenses, net of rental income       |  | $         | 40,473    |   |              | $



A significant
portion of the operating expenses is related to property taxes paid on the foreclosed assets. These amounts can vary from year-to-year
depending on the number and types of foreclosed properties as well as the timing of the payments.



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



Period end premises and equipment were as follows at March
31, 2017 and December 31, 2016:



|                                  |  | March 31, |            |  | December 31, |  
|--------------------------------- |  | --------- | ---------- |  | ------------ | -
|                                  |  | 2017      |            |  | 2016         |  
|Land & land improvements          |  | $         | 4,704,624  |  |              | $
|Buildings & building improvements |  |           | 6,334,781  |  |              |  
|Furniture, fixtures and equipment |  |           | 3,234,174  |  |              |  
|                                  |  |           | 14,273,579 |  |              |  
|Less:  accumulated depreciation   |  |           | 5,872,454  |  |              |  
|                                  |  | $         | 8,401,125  |  |              | $



Depreciation expenses were $88,851 and $92,981 for the three
months ended March 31, 2017 and 2016, respectively.



- 25 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



The components of the outstanding
deposit balances at March 31, 2017 and December 31, 2016 were as follows:



|                         |  | March 31, |             |  | December 31, |  
|------------------------ |  | --------- | ----------- |  | ------------ | -
|                         |  | 2017      |             |  | 2016         |  
|Non-interest-bearing DDA |  | $         | 40,742,613  |  |              | $
|Interest-bearing DDA     |  |           | 44,314,394  |  |              |  
|Money market             |  |           | 31,114,870  |  |              |  
|Savings                  |  |           | 38,026,536  |  |              |  
|Time, under $100,000     |  |           | 15,033,862  |  |              |  
|Time, over $100,000      |  |           | 9,711,749   |  |              |  
|Total Deposits           |  | $         | 178,944,024 |  |              | $



Time deposits of $250,000 or more were $1,390,232 at March
31, 2017 and $1,387,575 at December 31, 2016. There were no brokered deposits at either March 31, 2017 or December 31, 2016.



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



The Company’s short-term borrowings outstanding consisted
entirely of repurchase agreements at March 31, 2017 and December 31, 2016. The Company utilized its line of credit with the FHLB
for overnight liquidity support only during 2016. Information regarding repurchase agreements and borrowings from the FHLB is
summarized below:



|                                        |  | Repurchase |           |   | Borrowings |  
|--------------------------------------- |  | ---------- | --------- | - | ---------- | -
|                                        |  | Agreements |           |   | from FHLB  |  
|Outstanding at March 31, 2017           |  | $          | 4,743,173 |   |            | $
|Average interest rate at period end     |  |            | 0.42      | % |            |  
|Average balance during period           |  |            | 4,300,928 |   |            |  
|Average interest rate during period     |  |            | 0.40      | % |            |  
|Maximum month end balance during period |  |            | 4,743,173 |   |            |  
|                                        |  |            |           |   |            |  
|Outstanding at December 31, 2016        |  | $          | 4,639,766 |   |            | $
|Average interest rate at year-end       |  |            | 0.40      | % |            |  
|Average balance during year             |  |            | 4,283,900 |   |            |  
|Average interest rate during year       |  |            | 0.41      | % |            |  
|Maximum month end balance during year   |  |            | 5,382,709 |   |            |  



The Bank had securities of $4,429,063 pledged to repurchase
agreements at March 31, 2017 and $4,000,396 pledged at December 31, 2016. The Company had approximately $2.6 million of residential
mortgage loans pledged to support its line of credit with the FHLB at March 31, 2017.



- 26 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



| | 8. | SHORT-TERM BORROWINGS (Continued)
| | -- | ---------------------------------



The potential risk associated with the Repurchase Agreements
and related pledge collateral, including obligations arising from a decline in fair value of the pledged collateral, are minimal
due to the fact that the Repurchase Agreements pertain to overnight borrowings and therefore not subject to fluctuations in fair
market value. The following table represents the type of securities pledged to the Repurchase Agreements:



|Fair Market Value of Securities Pledged to Repurchase Agreements |  | March 31, 2017 |           |  | December 31, 2016 |  
|---------------------------------------------------------------- |  | -------------- | --------- |  | ----------------- | -
|U.S. Treasury and agency securities                              |  | $              | 1,449,961 |  |                   | $
|Mortgage-backed securities                                       |  |                | 2,374,920 |  |                   |  
|Collateralized mortgage obligations                              |  |                | 604,182   |  |                   |  
|Total                                                            |  | $              | 4,429,063 |  |                   | $



Another source of short-term borrowings is available through
the Federal Reserve Discount Window (“Discount Window”). At March 31, 2017, collateral pledged for Discount Window
borrowings consisted of $1,700,716 in home equity loans while at December 31, 2016 the collateral pledged consisted of $1,781,289
in home equity loans.



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



The Bank
is a member of the FHLB of Indianapolis. Based on its current FHLB stock holdings and collateral, the Bank has the capacity to
borrow $3,922,078 at March 31, 2017. Each borrowing requires a direct pledge of securities and/or loans. To support potential
borrowings with the FHLB, the Bank had loans with a carrying value of $7,641,427 pledged at March 31, 2017 and $7,216,020 pledged
at year-end 2016. The Bank uses a portion of the loans pledged to the FHLB as collateral for the Bank’s $2,000,000 overdraft
line of credit. The remaining pledged loans are available to collateralize longer term FHLB borrowings. The Bank had no balance
outstanding on the line of credit and the Bank had no other borrowings with the FHLB at either March 31, 2017 or December 31,
2016.



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



The Trust,
as discussed 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 3.20% at March 31, 2017 and 3.05% at December 31, 2016. 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.



- 27 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



| | 10. | SUBORDINATED DEBENTURES
(Continued)
| | --- | -----------------------------------



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.



On April
27, 2016, the Company’s Board of Directors voted to again defer interest payments in order to preserve its cash for general
operations and potential capital support for the Bank as it grows. The deferral of interest does not constitute an event of default.
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, 2016. As of March 31, 2017, the accrued and unpaid interest owed on the subordinated
debentures was $135,039. Accrued and unpaid interest owed on the subordinated debentures at December 31, 2016 was $98,892.



| | 11. | SHAREHOLDER’S EQUITY
| | --- | --------------------



Sale of Common Stock



The Company initiated a Rights Offering in October 2015 with
the intention of increasing the Company’s liquidity, repaying deferred and overdue interest on its subordinated debentures
and contributing capital to the Bank.



The Rights Offering consisted of a distribution of nontransferable
subscription rights to its shareholders of record as of October 12, 2015. Each shareholder of record received 1.7488 rights for
each share of the Company’s common stock they owned as of the record date. Each right enabled its holder to purchase one
share of the Company’s common stock at a price of $2.55 per share. Additionally, rights holders were given an oversubscription
privilege to subscribe for a portion of the Rights Offering shares that were not purchased by other rights holders. The shares
of the Company’s Common Stock sold in the Rights Offering totaled 1,383,299. The Rights Offering was closed on March 28,
2016 and garnered proceeds of approximately $3,300,000 (gross proceeds of $3,527,000 net of offering costs of $237,000).



Concurrent with the closing of the Rights Offering, the Company
finalized the sale of 579,412 shares of Common Stock through a private placement, also at $2.55 per share. Total proceeds received
from this transaction were approximately $1,500,000. There was no issuance cost associated with the private placements.



| | 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.



- 28 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



| | 12. | COMMITMENTS AND OFF-BALANCE SHEET RISK (Continued)
| | --- | --------------------------------------------------



A summary of the notional and contractual amounts of outstanding
financing instruments with off-balance-sheet risk as of March 31, 2017 and December 31, 2016 follows:



|                                 |  | March 31, 2017 |            |  | December 31, 2016 |  
|-------------------------------- |  | -------------- | ---------- |  | ----------------- | -
|                                 |  |                |            |  |                   |  
|Unused lines of credit           |  | $              | 22,575,518 |  |                   | $
|Unused standby letters of credit |  |                | 365,000    |  |                   |  
|Commitments to make loans        |  |                | 381,186    |  |                   |  



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.



| | 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. An asset’s or liability’s
placement in the hierarchy is based on the lowest level of input that is significant to the fair value estimate. 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.



- 29 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



| | 15. | FAIR VALUE MEASUREMENTS (Continued)
| | --- | -----------------------------------



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.



Non-real estate collateral may be valued using appraisals,
independent valuation tools, 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



| | 15. | FAIR VALUE MEASUREMENTS (Continued)
| | --- | -----------------------------------



Assets measured at fair value on a recurring basis are summarized
below as of March 31, 2017 and December 31, 2016:



|                                                                     |  |       |            |  | Fair Value Measurements Using |  
|-------------------------------------------------------------------- |  | ----- | ---------- |  | ----------------------------- | -
|                                                                     |  |       |            |  | Quoted Prices                 |  
|                                                                     |  |       |            |  | in Active                     |  
|                                                                     |  |       |            |  | Markets for                   |  
|                                                                     |  |       |            |  | Identical Assets              |  
|March 31, 2017                                                       |  | Total |            |  | (Level 1)                     |  
|Available for sale securities:                                       |  |       |            |  |                               |  
|US Treasury                                                          |  | $     | 4,001,328  |  |                               | $
|US Government and federal agency                                     |  |       | 5,964,192  |  |                               |  
|Mortgage-backed and collateralized mortgage obligations– residential |  |       | 8,216,927  |  |                               |  
|Total                                                                |  | $     | 18,182,447 |  |                               | $



|                                                                     |  |       |            |  | Fair Value Measurements Using |  
|-------------------------------------------------------------------- |  | ----- | ---------- |  | ----------------------------- | -
|                                                                     |  |       |            |  | Quoted Prices                 |  
|                                                                     |  |       |            |  | in Active                     |  
|                                                                     |  |       |            |  | Markets for                   |  
|                                                                     |  |       |            |  | Identical Assets              |  
|December 31, 2016                                                    |  | Total |            |  | (Level 1)                     |  
|Available for sale securities:                                       |  |       |            |  |                               |  
|US Treasury                                                          |  | $     | 504,766    |  |                               | $
|US Government and federal agency                                     |  |       | 6,479,977  |  |                               |  
|Mortgage-backed and collateralized mortgage obligations– residential |  |       | 8,781,021  |  |                               |  
|Total                                                                |  | $     | 15,765,764 |  |                               | $



There were no transfers between levels during the first quarter
of 2017 or 2016.



- 31 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



| | 15. | FAIR VALUE MEASUREMENTS (Continued)
| | --- | -----------------------------------



Assets measured at fair value on a non-recurring basis are
summarized below for the periods ended March 31, 2017 and December 31, 2016:



|                   |  |       |           |  | Quoted Prices in   |   |   | Significant      |  |   |                     | 
|------------------ |  | ----- | --------- |  | ------------------ | - | - | ---------------- |  | - | ------------------- | 
|                   |  |       |           |  | Active Markets for |   |   | Other Observable |  |   | Significant         | 
|                   |  |       |           |  | Identical Assets   |   |   | Inputs           |  |   | Unobservable Inputs | 
|                   |  | Total |           |  | (Level 1)          |   |   | (Level 2)        |  |   | (Level 3)           | 
|March 31, 2017     |  |       |           |  |                    |   |   |                  |  |   |                     | 
|Impaired loans1:   |  | $     | 3,138,907 |  |                    | $ | 0 |                  |  | $ | 0                   | 
|Foreclosed assets: |  |       | 1,426,123 |  |                    |   | 0 |                  |  |   | 0                   | 
|Total              |  | $     | 4,565,030 |  |                    | $ | 0 |                  |  | $ | 0                   | 



|                   |  | Total |           |  | (Level 1) |   |   | (Level 2) |  |   | (Level 3) | 
|------------------ |  | ----- | --------- |  | --------- | - | - | --------- |  | - | --------- | 
|December 31, 2016  |  |       |           |  |           |   |   |           |  |   |           | 
|Impaired loans1:   |  | $     | 3,210,340 |  |           | $ | 0 |           |  | $ | 0         | 
|Foreclosed assets: |  |       | 1,460,394 |  |           |   | 0 |           |  |   | 0         | 
|Total              |  | $     | 4,670,734 |  |           | $ | 0 |           |  | $ | 0         | 










1 Collateral dependent



- 32 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



| | 15. | FAIR VALUE MEASUREMENTS (Continued)
| | --- | -----------------------------------



The following tables present information as of March 31, 2017
and December 31, 2016 about significant unobservable inputs related to the Bank’s individually material Level 3 financial
assets, by class, measured on a non-recurring basis:



|                  |  | Valuation                 |  | Significant Unobservable                             |  | Range     |            
|----------------- |  | ------------------------- |  | ---------------------------------------------------- |  | --------- | -----------
|                  |  | Technique                 |  | Inputs                                               |  | of Inputs |            
|March 31, 2017    |  |                           |  |                                                      |  |           |            
|Impaired loans    |  | Sales comparison approach |  | Adjustments for differences between comparable sales |  |           | (23)-16    
|                  |  | Income approach           |  | Capitalization rate                                  |  |           | 9-12.5 %   
|                  |  |                           |  |                                                      |  |           |            
|Foreclosed assets |  | Sales comparison approach |  | Adjustments for differences between comparable sales |  |           | (48.5)-(33)



|                  |  | Valuation                 |  | Significant Unobservable                             |  | Range     |         
|----------------- |  | ------------------------- |  | ---------------------------------------------------- |  | --------- | --------
|                  |  | Technique                 |  | Inputs                                               |  | of Inputs |         
|December 31, 2016 |  |                           |  |                                                      |  |           |         
|Impaired loans    |  | Sales comparison approach |  | Adjustments for differences between comparable sales |  |           | (25)-19 
|                  |  | Income approach           |  | Capitalization rate                                  |  |           | 9-12.5 %
|                  |  |                           |  |                                                      |  |           |         
|Foreclosed assets |  | Sales comparison approach |  | Adjustments for differences between comparable sales |  |           | (22)-14 







- 33 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



| | 15. | 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, 2017 Using |  
|                                |  | Carrying       |         |  |                         |  
|                                |  | Amount         |         |  | Level 1                 |  
|                                |  | (in thousands) |        
|Financial assets                |  |                |         |  |                         |  
|Cash and cash equivalents       |  | $              | 31,615  |  |                         | $
|Loans, net (including impaired) |  |                | 137,978 |  |                         |  
|FHLB stock                      |  |                | 301     |  |                         |  
|Accrued interest receivable     |  |                | 398     |  |                         |  
|                                |  |                |         |  |                         |  
|Financial liabilities           |  |                |         |  |                         |  
|Deposits                        |  |                | 178,944 |  |                         |  
|Repurchase agreements           |  |                | 4,743   |  |                         |  
|Subordinated debentures         |  |                | 4,500   |  |                         |  
|Accrued interest payable        |  |                | 156     |  |                         |  
|                                |  |                |         |  |                         |  



|                                |  |                |         |  | Fair Value Measurements    |  
|------------------------------- |  | -------------- | ------- |  | -------------------------- | -
|                                |  |                |         |  | at December 31, 2016 Using |  
|                                |  | Carrying       |         |  |                            |  
|                                |  | Amount         |         |  | Level 1                    |  
|                                |  | (in thousands) |        
|Financial assets                |  |                |         |  |                            |  
|Cash and cash equivalents       |  | $              | 21,082  |  |                            | $
|Loans held for sale             |  |                | 128     |  |                            |  
|Loans, net (including impaired) |  |                | 139,213 |  |                            |  
|FHLB stock                      |  |                | 301     |  |                            |  
|Accrued interest receivable     |  |                | 393     |  |                            |  
|                                |  |                |         |  |                            |  
|Financial liabilities           |  |                |         |  |                            |  
|Deposits                        |  |                | 167,723 |  |                            |  
|Repurchase agreements           |  |                | 4,640   |  |                            |  
|Subordinated debentures         |  |                | 4,500   |  |                            |  
|Accrued interest payable        |  |                | 119     |  |                            |  
|                                |  |                |         |  |                            |  



- 34 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



| | 15. | 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) 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.



(c) FHLB stock



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



(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 2 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) Repurchase agreements and other
short-term borrowings



The carrying amounts of 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



The fair values of the Company’s subordinated
debentures 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.



- 35 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



| | 15. | 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.



| | 16. | INCOME TAXES
| | --- | ------------



The realization of deferred tax assets is largely dependent
upon future taxable income, future reversals of existing taxable temporary differences, and the ability to carryback losses to
available tax years. In assessing the need for a valuation allowance, all available positive and negative evidence is considered,
including taxable income in carry-back years, scheduled reversals of deferred tax liabilities, expected future taxable income
and tax planning strategies.



There were no unrecognized tax benefits at March 31, 2017 or
December 31, 2016, and the Company does not expect the total amount of unrecognized tax benefits to significantly increase or
decrease in the next 12 months. The Company is only subject to examination by the Internal Revenue Service for years after 2012.



| | 17. | SHARE-BASED COMPENSATION
| | --- | ------------------------



The Company has one share-based compensation plan as described
below. Total compensation cost that has been charged against income for that plan was $3,848 for the first three months of 2017.
There was no compensation cost charged against income for the first three months of 2016.



Stock Incentive Plan of 2016



Under the Stock Incentive Plan of 2016,
incentive awards may include, but are not limited to stock options, restricted stock, restricted stock unit, stock appreciation
rights and other stock-related awards. Incentive awards that are stock options or stock appreciation rights are granted with an
exercise price not less than the closing price of our common stock on the date of grant. Price, vesting and expiration date parameters
are determined by the Board or a committee of the Board on a grant by grant basis. There were 500,000 shares available for incentive
awards upon adoption of the plan. Shares may be granted to Company or Bank Directors and any employee of the Bank.



On December 20, 2016, the Board granted
30,000 shares of restricted stock. The restricted stock will vest over five years. At both March 31, 2017 and year-end 2016, there
were 470,000 shares available for future rewards.



- 36 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



| | 17. | SHARE-BASED COMPENSATION
(Continued)
| | --- | ------------------------------------



A summary
of the restricted stock activity in the plan for the first quarter of 2017 is as follows:



|                                  |  |           |        |  | Weighted Average |  
|--------------------------------- |  | --------- | ------ |  | ---------------- | -
|                                  |  | Number of |        |  | Grant Date       |  
|                                  |  | Shares    |        |  | Fair Value       |  
|Non-vested at beginning of period |  |           | 30,000 |  |                  | $
|Granted                           |  |           | 0      |  |                  |  
|Exercised                         |  |           | 0      |  |                  |  
|Forfeited                         |  |           | 0      |  |                  |  
|Non-vested at end of period       |  |           | 30,000 |  |                  | $



| | 18. | 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.



The five prompt corrective action classifications are well
capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although
these terms are not used to represent overall financial condition. For instance, if a bank is not well capitalized, regulatory
approval is required to accept brokered deposits. And generally, 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.



Under
final capital rules that became effective on January 1, 2015, there was a requirement for a capital buffer to be phased in over
three years beginning in 2016. Banks that do not maintain this required capital buffer will become subject to progressively more
stringent limitations on the percentage of earnings that can be paid out in dividends or used for stock repurchases and on the
payment of discretionary bonuses to senior executive management.



Since March 31, 2016, the Bank’s capital ratios were
above the level of well-capitalized according to prompt corrective action regulations. On March 31, 2017, the Company contributed
$385,000 of additional capital to the Bank so that it would continue to be above the well-capitalized level. The Bank’s
total risk-based capital ratio was 11.90% and its Tier 1 to average assets ratio was 8.01% at March 31, 2017.



- 37 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



| | 18. | REGULATORY MATTERS (Continued)
| | --- | ------------------------------



At December 31, 2016, the Bank’s total risk-based capital
ratio was 11.12% and its Tier 1 to average assets ratio was 8.30%; both above the minimum required for a well-capitalized regulatory
status.



Actual capital amounts and ratios for the Bank and, required
capital amounts and ratios for the Bank to be well capitalized at March 31, 2017 and December 31, 2016 were:





|                                                                      |  |        |            |  |                   |  |       | Minimum Required  | 
|--------------------------------------------------------------------- |  | ------ | ---------- |  | ----------------- |  | ----- | ----------------- | 
|                                                                      |  |        |            |  |                   |  |       | to Be Well        | 
|                                                                      |  |        |            |  | Minimum Required  |  |       | Capitalized Under | 
|                                                                      |  |        |            |  | For Capital       |  |       | Prompt Corrective | 
|                                                                      |  | Actual |            |  | Adequacy Purposes |  |       | Action Provisions | 
|                                                                      |  | Amount |            |  | Ratio             |  |       | Amount            | 
|March 31, 2017                                                        |  |        |            |  |                   |  |       |                   | 
|Common Equity Tier 1 (CET1) to risk-weighted assets of the Bank       |  | $      | 15,565,332 |  |                   |  | 10.78 | %                 | 
|Total Capital (Tier 1 and Tier 2) to risk-weighted assets of the Bank |  |        | 17,183,730 |  |                   |  | 11.90 |                   | 
|Tier 1 (Core) Capital to risk-weighted assets of the Bank             |  |        | 15,565,332 |  |                   |  | 10.78 |                   | 
|Tier 1 (Core) Capital to average assets of the Bank                   |  |        | 15,565,332 |  |                   |  | 8.01  |                   | 





- 38 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



| | 18. | REGULATORY MATTERS (Continued)
| | --- | ------------------------------



|                                                                      |  |        |            |  |                   |  |       |                   |  |   |                   |  |  | Minimum Required |     
|--------------------------------------------------------------------- |  | ------ | ---------- |  | ----------------- |  | ----- | ----------------- |  | - | ----------------- |  |  | ---------------- | ----
|                                                                      |  |        |            |  |                   |  |       |                   |  |   |                   |  |  | to Be Well       |     
|                                                                      |  |        |            |  |                   |  |       | Minimum Required  |  |   | Capitalized Under | 
|                                                                      |  |        |            |  |                   |  |       | For Capital       |  |   | Prompt Corrective | 
|                                                                      |  | Actual |            |  | Adequacy Purposes |  |       | Action Provisions | 
|                                                                      |  | Amount |            |  | Ratio             |  |       | Amount            |  |   | Ratio             |  |  | Amount           |     
|December 31, 2016                                                     |  |        |            |  |                   |  |       |                   |  |   |                   |  |  |                  |     
|Common Equity Tier 1 (CET1) to risk-weighted assets of the Bank       |  | $      | 14,917,302 |  |                   |  | 10.03 | %                 |  | $ | 6,689,791         |  |  |                  | 4.50
|Total Capital (Tier 1 and Tier 2) to risk-weighted assets of the Bank |  |        | 16,529,122 |  |                   |  | 11.12 |                   |  |   | 11,892,961        |  |  |                  | 8.00
|Tier 1 (Core) Capital to risk-weighted assets of the Bank             |  |        | 14,917,302 |  |                   |  | 10.03 |                   |  |   | 8,919,721         |  |  |                  | 6.00
|Tier 1 (Core) Capital to average assets of the Bank                   |  |        | 14,917,302 |  |                   |  | 8.30  |                   |  |   | 7,184,813         |  |  |                  | 4.00



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, 2017, $1,618,398 was counted as Tier 2 capital and none was disallowed. At December 31, 2016, the full allowance
for loan loss balance of $1,611,820 was counted as Tier 2 capital and nothing was disallowed.



- 39 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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, 2017 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, 2017 to that at December 31, 2016. The part labeled Results of Operations discusses the three-month
period ending March 31, 2017 as compared to the same period of 2016. 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 Form 10-Q 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 Company’s ability to generate future taxable income; 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; 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.



CRITICAL ACCOUNTING POLICIES AND ESTIMATES



There have been no material changes to the application of critical
accounting estimates and policies that were discussed in the Company’s Annual Report on Form 10-K for the year ended December
31, 2016. For a complete summary of our significant accounting policies, see the notes to the consolidated financial statements
and our Annual Report on 10-K for the fiscal year ended December 31, 2016.



- 40 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



REGULATORY UPDATE



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



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



FINANCIAL CONDITION



Total assets were $202.9 million at March 31, 2017 compared
to $191.4 million at December 31, 2016. Asset growth occurring in the first three months of 2017 stemmed primarily from increases
to customer deposit accounts which drove up the Company’s balance on deposit at the FRB.



Cash and cash equivalents increased by $10.5 million to $31.5
million at March 31, 2017 from $21.0 million at December 31, 2016. The Bank’s FRB balance increased $12.4 million since
year-end 2016 and was $29.0 million on March 31, 2017. The increase in balance was driven largely by an increase in customer deposit
balances but also included proceeds from loan repayments and the Company’s capital contribution to the Bank. 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
events. Approximately half of the excess liquidity noted above was used to in April when the Company’s public fund customers
reduced their balances. The withdrawals were in line with the expected seasonality of these customers. Management intends to use
the remaining excess funds for loan originations.



The Bank’s security portfolio was $18.2
million at March 31, 2017 and $15.8 million at December 31, 2016. Investment activity in the first three months of the year consisted
of purchases of $3.5 million and maturities, prepayments, calls and net market value changes of $1.1 million.



Maintaining an adequate level of pledgeable assets is one of
the driving forces behind most of the Bank’s investment activity. The security purchases in the first quarter of 2017 were
specifically intended to increase the Bank’s level of unencumbered securities. Unencumbered securities are those that are
not pledged to any other entity. The Bank diligently seeks to manage unencumbered securities to ensure there are enough available
to meet parameters required by several of the Bank’s operating policies. Regardless of whether securities are encumbered,
they serve as a key source of collateral or potential liquidity for the Bank. The level of unpledged securities is formally assessed
monthly. Typically the Bank aims to leave between 10% and 20% of its investment portfolio unpledged. At March 31, 2017, 19% of
the investment portfolio was unencumbered. This outcome nearly doubled that at December 31, 2016 when the Bank had a 10% unpledged
position.



At March 31, 2017, securities with an amortized cost of $14.7
million were pledged to public fund customers and customer repurchase agreements, up from $14.3 million at year-end 2016.



- 41 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



The market value of the investment portfolio
is impacted by national and global economic news. During the first three months of 2017, the investment portfolio had net unrealized
losses of $4,000. Including the decrease in value during the first quarter, net unrealized losses on the investment portfolio
climbed to $38,000. At March 31, 2017, there were 25 securities with an amortized cost of $10.3 million having an unrealized loss
of $82,000. See Note 2 for information regarding the Company’s assessment of other than temporary impairment on these investments.



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, 2017.



Loans held for sale activity during the first
three months of 2017 included $1.5 million of loan originations and $1.6 million of sales. The associated gain on the loan sales
was $42,000. There were no loans held for sale at March 31, 2017 and $128,000 at December 31, 2016.



Total loans (held for investment) decreased
$1.2 million and were $139.6 million at March 31, 2017 down from $140.8 million at December 31, 2016. There were net decreases
in a variety of loan segments and there were reclassifications that occurred between the commercial and commercial real estate
segments in the first quarter of 2017. The most significant transactions in the first quarter of 2017 occurred in January and
February. In January, one commercial real estate customer sold his business and repaid loans totaling $1.7 million. Additionally,
the Bank sold its credit card portfolio in February to TCM Bank. The credit card balance at the time of sale was $445,000. The
gain on the sale of these balances was $46,000. Prior to the transaction, management evaluated the risks associated with this
type lending as well its potential for future interest and interchange income as well as its regulatory capital allocation. Going
forward, the Bank will get a small portion of the interchange income on the transactions of the customers sold as well as a referral
fee for new customers. The reclassifications mentioned above consisted of $1.7 million of loans in the commercial segment at year-end
2016 that were reclassified to the commercial real estate segment due to an internal collateral analysis that occurred in the
first quarter of 2017. In spite of the net decline in the loan portfolio total since year-end 2016, management believes the Bank’s
lending area is positioned to grow the portfolio in 2017 in a manner that assesses multiple risk factors in conjunction with expected
rate of return and related capital allocation.



Diligent attention to the credit quality
of the current portfolio and future new customers will continue. The lending staff regularly monitors the loan portfolio and adheres
to a well-designed credit risk assessment process. In spite of these efforts, the Bank is still exposed to credit risk.



Credit risk is typically the risk of borrower nonpayment 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.



- 42 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



The analysis of the allowance for loan losses is comprised
of 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’s situation. 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. Specifically identified
loans are individually evaluated for impairment.



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 either a collateral analysis or a present value of cash flow analysis that supports a loan
loss reserve allocation of zero.



At March 31, 2017, the allowance for loan losses totaled $1.6
million; approximately, the same as at year-end 2016. The allowance for loan loss increased by $7,000 and is largely the result
of recoveries for the first three months of 2017. At March 31, 2017, the ratio of allowance to gross loans outstanding was 1.16%,
compared to 1.14% at year-end 2016.



The allocation of the allowance at March 31, 2017 and December
31, 2016 was as follows:



|                         |  | March 31, 2017 |           |  | December 31, 2016 | 
|------------------------ |  | -------------- | --------- |  | ----------------- | 
|                         |  |                |           |  | Percent of        | 
|                         |  |                |           |  | Loans in Each     | 
|Balance at End of Period |  |                |           |  | Category to       | 
|Applicable to:           |  | Amount         |           |  | Total Loans       | 
|Commercial               |  | $              | 627,469   |  |                   | 
|Commercial Real Estate   |  |                | 525,477   |  |                   | 
|Consumer                 |  |                | 219,008   |  |                   | 
|Residential              |  |                | 186,518   |  |                   | 
|Unallocated              |  |                | 59,926    |  |                   | 
|Total                    |  | $              | 1,618,398 |  |                   | 



The general component of the allowance for loan losses as a
percentage of non-specifically identified loans was 0.84% at both year-end 2016 and March 31, 2017. At March 31, 2017, there was
$60,000 of unallocated reserves in the allowance for loan losses while unallocated reserves were $73,000 at December 31, 2016.



At March 31, 2017, the allowance contained $461,000 in specific
allocations for impaired loans whereas at December 31, 2016 there was $432,000 specifically allocated for that purpose. The $29,000
increase during the first three months of the year was due to one impaired loan that had no reserve allocation at year-end 2016
but required a $40,000 allocation at March 31, 2017 due to unpaid property tax liabilities. A portion of this new allocation was
offset by small changes to the reserve allocations of several other specifically identified loans. In total, there was $9.2 million
of recorded investment on impaired loans at March 31, 2017 compared to $9.3 million at year-end 2016.



- 43 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Not all specifically identified loans require an allocation
of reserves. After a loan is specifically identified and an evaluation of the collateral or expected repayment is completed, typically
a charge-off is made so that the remaining principal is the current value of the assigned collateral or expected repayment, therefore
no further reserve is required. There were 15 impaired loans requiring no reserve at March 31, 2017. The recorded investment of
these loans on that date was $6.7 million. The recorded investment of loans requiring no reserve comprised 72% of total specifically
identified loans at March 31, 2017. This outcome is down from $7.8 million requiring no reserves at year-end 2016; 84% of the
recorded investment of specifically identified loans. The decrease is due to the impaired loan mentioned above requiring a specific
allocation in the first quarter of 2017 due to unpaid property tax liabilities.



Specifically identified loans requiring reserves had a recorded
investment of $2.6 million at March 31, 2017 and $1.5 million at year-end 2016. The increase is due to the specifically identified
loan noted above.



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 2016 to March
31, 2017, the recorded investment in accruing past due and non-accrual loans decreased by $804,000. This was evidenced by a $800,000
decrease in the recorded investment in past due loans and a $4,000 decrease in the recorded investment in non-accrual loans in
the first three months of 2017.



The recorded investment of accruing loans
past due 30-59 days was $251,000 at March 31, 2017; a $221,000 decrease since December 31, 2016. There were five loans past due
30-59 days at March 31, 2017. Only one of the five loans was also past due 30-59 days at December 31, 2016. By April 30, 2017,
all but one of these were paid current and were no longer past due.



The recorded investment of accruing loans past due 60-89 days
at March 31, 2017 was $158,000 compared to a recorded investment of $737,000 at December 31, 2016. There were four loans past
due at March 31, 2017. None of the four were past due at year-end 2016.



There were no loans still accruing interest with a recorded
investment past due 90 days and greater at either March 31, 2017 or December 31, 2016.



The oversight of payment delinquency continues to be stringent
as the Bank recognizes that this behavior is often the first indication of deterioration in credit quality.



The recorded investment of non-accrual loans totaled $119,000
at March 31, 2017; down $4,000 from year-end 2016. There were three non-accrual notes at March 31, 2017 and none were secured
by undeveloped real estate. At March 31, 2017, there were specific allocations of $52,000 in the allowance for any estimated collateral
deficiency on these notes.



There were net recoveries of $7,000 for the first quarter of
2017 and the ratio of annualized net recoveries to average loans was (0.02)%. Similarly, there were net recoveries of $34,000
for the first quarter of 2016. The ratio of annualized net recoveries to average loans was (0.11)% for the first three months
of 2016.



- 44 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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 risk1.



The loan maturities and rate sensitivity
of the loan portfolio at March 31, 2017 are set forth below:



|                        |  | Within |            |  | Three to |   |            | One to |  |   | After      |  |  |       |           
|----------------------- |  | ------ | ---------- |  | -------- | - | ---------- | ------ |  | - | ---------- |  |  | ----- | ----------
|                        |  | Three  |            |  | Twelve   |   |            | Five   |  |   | Five       |  |  |       |           
|                        |  | Months |            |  | Months   |   |            | Years  |  |   | Years      |  |  | Total |           
|                        |  |        |            |  |          |   |            |        |  |   |            |  |  |       |           
|Commercial              |  | $      | 9,208,580  |  |          | $ | 10,503,299 |        |  | $ | 20,096,224 |  |  | $     | 8,508,884 
|Commercial Real Estate: |  |        |            |  |          |   |            |        |  |   |            |  |  |       |           
|General                 |  |        | 7,483,359  |  |          |   | 9,827,302  |        |  |   | 34,160,095 |  |  |       | 9,422,779 
|Construction            |  |        | 2,160,231  |  |          |   | 1,700,419  |        |  |   | 485,286    |  |  |       | 0         
|Consumer:               |  |        |            |  |          |   |            |        |  |   |            |  |  |       |           
|Lines of credit         |  |        | 30,529     |  |          |   | 677,227    |        |  |   | 2,101,892  |  |  |       | 3,457,598 
|Other                   |  |        | 71,440     |  |          |   | 100,849    |        |  |   | 683,587    |  |  |       | 281,747   
|Credit card             |  |        | 0          |  |          |   | 0          |        |  |   | 0          |  |  |       | 0         
|Residential             |  |        | 456,305    |  |          |   | 1,326,831  |        |  |   | 34,309     |  |  |       | 16,817,719
|                        |  | $      | 19,410,444 |  |          | $ | 24,135,927 |        |  | $ | 57,561,393 |  |  | $     | 38,488,727
|Loans at fixed rates    |  | $      | 6,477,769  |  |          | $ | 10,742,502 |        |  | $ | 45,658,311 |  |  | $     | 27,498,748
|Loans at variable rates |  |        | 12,932,675 |  |          |   | 13,393,425 |        |  |   | 11,903,082 |  |  |       | 10,989,979
|                        |  | $      | 19,410,444 |  |          | $ | 24,135,927 |        |  | $ | 57,561,393 |  |  | $     | 38,488,727



At March 31, 2017, 65% of the Bank’s loan balances carried
a fixed rate and 35% carried a floating rate. Since 2015, there has been a 7% reduction in the concentration of loans carrying
a fixed rate, which includes a 1% reduction since year-end 2016. Some of the shift is a factor of the types of loans that have
been paid off or have been added to the portfolio and some of the change is related to customer preference at the time of renewal.
Since the rate environment is leaning toward further rate increases, management believes it is beneficial for the Bank to continue
increasing its concentration of floating rate loans.



Avoidance of extension risk is another important means to mitigate
interest rate risk. The maturity distribution of the Bank’s loan portfolio remained relatively balanced between short-term
(less than one year) and long-term (greater than five years) maturities at both March 31, 2017 and December 31, 2016. At March
31, 2017, short-term maturities comprised 31% of the loan portfolio and long term maturities comprised approximately 28%. These
results are similar to year-end 2016. At December 31, 2016, short term maturities were the same at 31% however, 27% of the portfolio
carried a maturity greater than five years.



Foreclosed assets were $1.4 million at March 31,
2017, down slightly since December 31, 2016. Foreclosed assets consist of relinquished properties through the collection
process which were previously customer collateral supporting various borrowings. There was one property sold during the first
three months of 2017 and one lot sold from a development. The development will remain in the number of foreclosed properties
until the last lot is sold. The net gains realized on these sales were $26,000. No properties were added in the first quarter
of 2017. At March 31, 2017, foreclosed assets consisted of 13 real estate holdings, one less than at December 31, 2016.








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.



- 45 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Deposit balances were $178.9 million at March 31, 2017, up
from $167.7 million at December 31, 2016. The $11.2 million increase in deposits since year-end is mostly driven by the seasonal
fluctuation in the deposit accounts of the Bank’s largest public fund customers. The seasonal fluctuation typically occurs
in the first quarter of each year. Public fund deposit accounts rose $10.9 million since year-end 2016. In addition to this increase,
there was also growth occurring from individual and business customers. The public fund customers typically reduce their deposits
significantly in April of each year. In April of 2017, public fund balances were reduced by approximately $7.8 million. The withdrawals
are in line with the expected seasonality of these customers.



Repurchase agreement balances were $4.7 million at March 31,
2017 and $4.6 million at December 31, 2016, an increase of $103,000. The growth between the two period ends was primarily the
result of existing customers increasing their balances.



Shareholders’ equity was approximately
$14.2 million on March 31, 2017. On December 31, 2016, the balance was $14.1 million. The net increase of $138,000 was made up
of net income of $136,000, share based compensation of $4,000 net of a comprehensive loss from security market value change of
$2,000.



Total shares outstanding at both March 31,
2017 and December 31, 2016 were 4,101,664. The book value per share was $3.46 at March 31, 2017 compared to $3.43 at December
31, 2016.



In March 2017, the Company contributed $385,000
of capital to the Bank to supplement its regulatory capital ratios. The Bank has had regulatory capital ratios which are at a
level considered to be well capitalized according to prompt corrective action guidance since March 2016. The Bank continues to
be well capitalized. At March 31, 2017, the Bank’s total risk-based capital ratio was 11.90% and its Tier 1 to average assets
ratio was 8.01% compared to 11.12% and 8.30%, respectively, at December 31, 2016.



RESULTS OF OPERATIONS



For the first three months of 2017, the Company earned net
income of $136,000 which was $160,000 more than the net loss of $24,000 recorded for the first three months of 2016. Earnings
are up due to more net interest income principally from loan growth over the past twelve months. Non-interest expenses are also
lower. The basic and diluted earnings per share for the first three months of 2017 were $0.03 compared to a basic and diluted
loss per share for the first three months of 2016 of $(0.02).



For the first three months
of 2017, the annualized return on the Company’s average total assets was 0.28%, compared to (0.05)% for the first three
months of 2016. The annualized return on average equity was 3.83% for the first quarter of 2017, up from an annualized return
on average equity of (1.21%) for the same period in 2016.



Earnings growth stemmed
largely from a rise in net interest income driven by loan growth over the last twelve months. For the first three months of 2017
compared to the similar period in 2016, average earning assets grew $16.3 million; 96% of which was due to loan growth.



- 46 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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: |            
|----------------------------------------------------------------------- |  | ---------------------------- | -----------
|                                                                        |  | 2017                         |            
|                                                                        |  | Average                      |            
|                                                                        |  | Balance                      |            
|Assets                                                                  |  |                              |            
|Federal funds sold and interest- bearing deposits with banks            |  | $                            | 23,328,643 
|Securities                                                              |  |                              | 17,885,466 
|Loans 1                                                                 |  |                              | 139,626,551
|Total  interest earning assets                                          |  |                              | 180,840,660
|Other assets                                                            |  |                              | 16,479,112 
|                                                                        |  | $                            | 197,319,772
|Liabilities and Shareholders’ Equity                                    |  |                              |            
|Interest-bearing deposits                                               |  | $                            | 131,433,360
|Repurchase agreements                                                   |  |                              | 4,300,928  
|Subordinated debentures, notes payable and FHLB advances                |  |                              | 4,500,000  
|Total  interest bearing liabilities                                     |  |                              | 140,234,288
|Noninterest-bearing deposits                                            |  |                              | 42,453,985 
|Other liabilities                                                       |  |                              | 410,184    
|Shareholders’ Equity                                                    |  |                              | 14,221,315 
|                                                                        |  | $                            | 197,319,772
|Net interest income (tax equivalent basis)                              |  |                              |            
|Net interest spread on earning assets (tax equivalent basis)            |  |                              |            
|Net interest margin on earning assets (tax equivalent basis)            |  |                              |            
|Average interest-earning assets to average interest-bearing liabilities |  |                              |            
|Tax equivalent adjustment                                               |  |                              |            
|Net interest income                                                     |  |                              |            



For the first quarter of 2017, the net interest spread on average
earning assets was 3.33%, increasing four basis points in the past 12 months. The net interest margin on a fully tax equivalent
basis increased by six basis points over the same period. For the first three months of 2017, the Company’s net interest
margin was 3.46% compared to 3.40% for the first three months of 2016. Net interest income for the first three months of 2017
was $1.6 million, compared to a figure of $1.4 million for the same three months in 2016.








1 Includes loans held for sale and non-accrual loans.



- 47 -







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 3.92%
for the three-month period ending March 31, 2017 compared to 3.95% for the same period in 2016. Essentially, there was more interest
income generated from earning assets, but the rate earned fell slightly. The interest-earning balances held at other banks were
$7.3 million more in the first quarter of 2017 compared to the same period in 2016. A majority of the increase was due to a higher
balance at the FRB due to an increase in customer deposits; a large portion being additional public funds. In addition to more
deposits at the FRB, the rate earned on those deposits increased 31 basis points.



Conversely, investments averaged $6.7 million less in the first
quarter of 2017 compared to the same period in 2016. For most of 2016, the Bank focused on reducing its pledging obligations and
allowing the proceeds from maturities to be used to repay internet deposits as well as to fund loan originations. Although the
portfolio was smaller, the rate earned was two basis points higher. The average rate earned on investments was 1.41% for the first
quarter of 2017.



The largest variation since the first quarter of 2016 is the
increase in average loans. Average loans are $15.6 million higher in the first quarter of 2017 compared to the first quarter of
2016. In the second half of 2016, the Bank achieved significant loan growth. The larger volume produced $142,000 more interest
income for the first quarter of 2017. The volume stemmed from both current and new customers. The additional interest income stemmed
from increased volume, since the average rate earned on the loan portfolio actually decreased 15 basis points. The decline in
the average rate earned is due to competition as well as lower rates merited at the time of renewal. Improvement in credit worthiness
typically drives the decision to offer a lower rate. In addition to lower renewal rates, another difficulty facing further improvement
in interest income is the fact that over 60% of the loan portfolio carries a fixed rate. Fixed rate loans in a rising rate environment
limit future interest income benefit as increases to prime lending rates occur. In the short term, management will continue to
focus on further growth to the loan portfolio to help boost loan interest income and earnings.



The Company’s cost of funds on interest-bearing liabilities
was 0.59% in the first quarter of 2017; seven basis points less than the first quarter of 2016. The improvement occurred mainly
because of the reduction in the Company’s debt as the rate paid on interest-bearing deposits remained unchanged at 0.51%
when comparing the first quarter of 2017 to that of 2016. Although national prime lending rates have risen over the past twelve
months, the Bank has not made many changes to the rates paid on deposits.



There was a 102 basis point
decrease to the average rate on subordinated debentures and notes payable since March 31, 2016. Driving the reduction, was the
elimination of the Company’s note payable in the first quarter of 2016. The note payable carried an interest rate of 8%.
The Company’s debt now consists only of its subordinated debentures. The subordinated debentures bear a floating rate, which
has increased over the past twelve months. Increasing rates are likely to continue given the current economic climate.



Throughout the next three quarters of 2017, management will
focus on reducing the Bank’s interest earning balance at the FRB by funding loans.



To plan for net interest margin improvement and to understand
potential outcomes when rates increase or decrease in future periods, asset liability management continues to be an important
tool for assessing opportunities for improvement and 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.



- 48 -







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, 2017 were:



|                                                          |  | Interest Rate Sensitivity Period |            
|--------------------------------------------------------- |  | -------------------------------- | -----------
|                                                          |  | Within                           |            
|                                                          |  | Three                            |            
|                                                          |  | Months                           |            
|Earning assets                                            |  |                                  |            
|Interest-bearing deposits in other financial institutions |  | $                                | 29,164,606 
|Securities (includes FHLB stock)                          |  |                                  | 2,909,144  
|Loans (includes held for sale)                            |  |                                  | 52,983,795 
|                                                          |  |                                  | 85,057,545 
|Interest-bearing liabilities                              |  |                                  |            
|Savings and checking                                      |  |                                  | 113,455,800
|Time deposits <$100,000                                   |  |                                  | 1,695,362  
|Time deposits >$100,000                                   |  |                                  | 1,487,794  
|Repurchase agreements and Federal funds purchased         |  |                                  | 4,743,173  
|Notes payable and other borrowings                        |  |                                  | 4,500,000  
|                                                          |  |                                  | 125,882,129
|Net asset (liability) repricing gap                       |  | $                                | (40,824,584
|Cumulative net asset (liability) repricing gap            |  | $                                | (40,824,584



Currently, the Company has a negative 12 month repricing gap
which indicates that the Company is liability sensitive in the next 12 month period. This position implies that more rate bearing
liability products have an opportunity to reprice during this period. The local market rates often play a large part in the movement
of rates on liabilities. Given current trends, management anticipates that competitive factors may eventually require the Bank
to consider increasing the rates paid on its deposit and repurchase agreement products. This could negatively impact the Bank’s
cost of funds and overall interest expense; however it is unknown whether the reduction will be successfully offset by loan growth.
The interest rate sensitivity table above simply illustrates what the Company is contractually able to change in certain time
frames and not a concrete depiction of what will change. Management believes that deposit rates are likely to increase but at
a slow pace.



- 49 -







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 2017 or 2016. The provision expense is associated with changes in historical loss calculations, economic conditions
(local and national) as well as delinquency, net charge offs or recoveries and changes to credit quality grades. 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. Since the provision for loan losses is an estimate, it may be increased in the future
should any of the assessed factors trend negatively.



Non-interest income recorded in the first
three months of 2017 was $417,000, compared to $382,000 recorded for the similar period in 2016. Gains recorded on loan sales
provided the largest difference when comparing the two quarters. In the first quarter of 2017, the Bank finalized the sale of
its credit card portfolio. On February 17, 2017, the Bank sold credit card receivables of $445,000. The gain on the transaction
was $46,000. Gains from selling mortgage loans were $42,000 for the first quarter of 2017. This outcome was $8,000 more than gains
recorded on the sale of mortgage loans in the first quarter of 2016. The Bank added a mortgage lender in 2016 and continues to
see increases to this revenue. Partially offsetting the revenue from loan sales, was a decrease in service charges on deposit
accounts. The decrease stemmed from lower overdraft fee income. Overdraft income was $12,000 less between the first quarter of
2017 and that of 2016. The Bank attributes a portion of the difference to the improving economy. Management is analyzing other
fee opportunities on deposits to boost service fee revenue going forward. Lastly, net gains on foreclosed asset sales were $26,000
in the first quarter of 2017; $9,000 less than 2016’s first quarter. The Bank’s inventory of foreclosed assets had
been reduced to 13 properties; as a result, the number of transactions has slowed. The remaining properties are unlikely to generate
significant gains.



Non-interest expenses for the first three-month
period of 2017 were $1.8 million; $40,000 less than the first three months of 2016; decreases to FDIC Insurance premiums and loan
administration expenses more than offset increases to staffing costs as well as foreclosed asset impairment costs.



Salaries and benefit expenses were $1.0 million for the first
quarter of 2017; $20,000 more than the first quarter of 2016. The improving economy has translated into increased wages to ensure
low turnover and the retention of seasoned professionals. The Bank does not anticipate staff additions in the near term but instead
and intends to manage further balance sheet growth with existing staff.



Foreclosed asset impairments were $29,000 for the first quarter
of 2017. There were no foreclosed asset impairments recorded in the first quarter of 2016. Any adjustments to the value of foreclosed
assets are arrived at through a professional appraisal, an internal evaluation or based on a sales agreement. The Bank is motivated
to continue reducing its inventory of foreclosed assets and may continue to have recorded impairments in 2017.



- 50 -







COMMUNITY SHORES BANK CORPORATION

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



FDIC insurance expenses were $38,000 for the first quarter
of 2017 and $67,000 for the first quarter of 2016. The $29,000 reduction in the Bank’s FDIC premium accruals were due to
a strengthened regulatory capital position and improved risk profile.



Other non-interest expenses were $224,000 for the first quarter
of 2017; $51,000 less than the first quarter of 2016 when other non-interest expenses were $275,000. Approximately 65% of the
reduction in this category was associated with a decline in expenses incurred to administrate non-performing loans. These expenses
decreased $33,000 when comparing the two quarters. This outcome is due to an improvement in the Bank’s credit quality as
well as a reduction in the number of foreclosed properties.



The Company recorded a federal income tax expense of $70,000
for the first three months of 2017. Conversely, as a result of the Company’s net loss for the first three months of 2016,
there was a tax benefit of $12,000 recorded.



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



Not applicable for smaller reporting companies.



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



We are required to maintain disclosure controls and procedures
designed to ensure that material information related to us, including our consolidated subsidiaries, is recorded, processed, summarized,
and reported within the time periods specified in the SEC rules and forms. Management does not expect that our disclosure controls
and procedures or our internal control over financial reporting will prevent or detect all error and fraud. Any control system,
no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance
that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error
or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.



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, 2017. Based on the evaluation, our Chief Executive Officer
and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of March
31, 2017.



Changes in Internal Control



There were no changes to our internal control over financial
reporting during the first fiscal quarter ended March 31, 2017 what materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.



- 51 -









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
| | ------- | -----------------------------------------------------------



None.



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



Not applicable.



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



Not applicable.



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



None.



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



The Exhibit Index following
the signature page hereto is incorporated by reference under this item.



- 52 -







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, 2017 | By:                                                                    
|Date         | Heather D. Brolick                                                     
|             | President and Chief Executive Officer                                  
|             | (principal executive officer)                                          
|             |                                                                        
|May 15, 2017 | By:                                                                    
|Date         | Tracey A. Welsh                                                        
|             | Senior Vice President, Chief Financial Officer, Secretary and Treasurer
|             | (principal financial and accounting officer)                           



- 53 -







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).
|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.                                                                                           





- 54 -