UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q



(Mark One)



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



For the quarterly period ended June 30, 2014 _____________________________________________________________



or



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



For the transition period from __________________________________
to ____________________________________



Commission File Number: 000-51166



Community
Shores Bank Corporation

(Exact name of registration as specified
in its charter)



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



(231)
780-1800

(Registrant’s telephone number, including
area code)








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



Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

x
Yes  ̈No



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

 ̈
Yes x No



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



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



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

 ̈
Yes xNo



At August 11, 2014, 1,468,800
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            | 64                                                                                   











PART I – FINANCIAL INFORMATION



ITEM 1.	FINANCIAL STATEMENTS



COMMUNITY
SHORES BANK CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS



|                                                                                          |  | June 30,    |             |   | December 31, |  
|----------------------------------------------------------------------------------------- |  | ----------- | ----------- | - | ------------ | -
|                                                                                          |  | 2014        |             |   | 2013         |  
|                                                                                          |  | (unaudited) |             |   | (audited)    |  
|ASSETS                                                                                    |  |             |             |   |              |  
|Cash and due from financial institutions                                                  |  | $           | 4,695,017   |   |              | $
|Interest-bearing deposits in other financial institutions                                 |  |             | 18,381,632  |   |              |  
|Total cash and cash equivalents                                                           |  |             | 23,076,649  |   |              |  
|Securities available for sale (at fair value)                                             |  |             | 31,248,601  |   |              |  
|Loans held for sale                                                                       |  |             | 111,200     |   |              |  
|Loans                                                                                     |  |             | 132,703,239 |   |              |  
|Less: Allowance for loan losses                                                           |  |             | 2,741,560   |   |              |  
|Net loans                                                                                 |  |             | 129,961,679 |   |              |  
|Federal Home Loan Bank stock (at cost)                                                    |  |             | 450,800     |   |              |  
|Premises and equipment, net                                                               |  |             | 9,148,072   |   |              |  
|Accrued interest receivable                                                               |  |             | 433,971     |   |              |  
|Foreclosed assets                                                                         |  |             | 2,498,608   |   |              |  
|Other assets                                                                              |  |             | 1,003,714   |   |              |  
|Total assets                                                                              |  | $           | 197,933,294 |   |              | $
|LIABILITIES AND SHAREHOLDERS’ EQUITY                                                      |  |             |             |   |              |  
|Deposits                                                                                  |  |             |             |   |              |  
|Non-interest-bearing                                                                      |  | $           | 33,285,926  |   |              | $
|Interest-bearing                                                                          |  |             | 143,736,581 |   |              |  
|Total deposits                                                                            |  |             | 177,022,507 |   |              |  
|Federal funds purchased and repurchase agreements                                         |  |             | 10,020,151  |   |              |  
|Subordinated debentures                                                                   |  |             | 4,500,000   |   |              |  
|Notes payable                                                                             |  |             | 1,280,000   |   |              |  
|Accrued expenses and other liabilities                                                    |  |             | 1,056,616   |   |              |  
|Total liabilities                                                                         |  |             | 193,879,274 |   |              |  
|Shareholders’ equity                                                                      |  |             |             |   |              |  
|Preferred Stock, no par value: 1,000,000 shares authorized and none issued                |  |             | 0           |   |              |  
|Common Stock, no par value: 9,000,000 shares authorized; 1,468,800 issued and outstanding |  |             | 13,296,691  |   |              |  
|Retained deficit                                                                          |  |             | (9,063,675  | ) |              |  
|Accumulated other comprehensive loss                                                      |  |             | (178,996    | ) |              |  
|Total shareholders’ equity                                                                |  |             | 4,054,020   |   |              |  
|Total liabilities and shareholders’ equity                                                |  | $           | 197,933,294 |   |              | $



See accompanying notes to consolidated financial
statements.



- 1 -







COMMUNITY SHORES BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)



|                                                               |  | Three Months |           |  | Three Months |   |           | Six Months |  |   | Six Months | 
|-------------------------------------------------------------- |  | ------------ | --------- |  | ------------ | - | --------- | ---------- |  | - | ---------- | 
|                                                               |  | Ended        |           |  | Ended        |   |           | Ended      |  |   | Ended      | 
|                                                               |  | June 30,     |           |  | June 30,     |   |           | June 30,   |  |   | June 30,   | 
|                                                               |  | 2014         |           |  | 2013         |   |           | 2014       |  |   | 2013       | 
|Interest and dividend income                                   |  |              |           |  |              |   |           |            |  |   |            | 
|Loans, including fees                                          |  | $            | 1,721,753 |  |              | $ | 1,714,892 |            |  | $ | 3,435,813  | 
|Securities                                                     |  |              | 108,815   |  |              |   | 137,710   |            |  |   | 229,193    | 
|Federal funds sold, FHLB dividends and other income            |  |              | 12,742    |  |              |   | 7,984     |            |  |   | 23,342     | 
|Total interest and dividend income                             |  |              | 1,843,310 |  |              |   | 1,860,586 |            |  |   | 3,688,348  | 
|Interest expense                                               |  |              |           |  |              |   |           |            |  |   |            | 
|Deposits                                                       |  |              | 210,977   |  |              |   | 252,138   |            |  |   | 425,606    | 
|Repurchase agreements, federal funds purchased, and other debt |  |              | 12,281    |  |              |   | 14,512    |            |  |   | 23,967     | 
|Federal Home Loan Bank advances and notes payable              |  |              | 55,332    |  |              |   | 55,321    |            |  |   | 110,094    | 
|Total interest expense                                         |  |              | 278,590   |  |              |   | 321,971   |            |  |   | 559,667    | 
|Net Interest Income                                            |  |              | 1,564,720 |  |              |   | 1,538,615 |            |  |   | 3,128,681  | 
|Provision for loan losses                                      |  |              | 0         |  |              |   | 0         |            |  |   | 0          | 
|Net Interest Income After Provision for Loan Losses            |  |              | 1,564,720 |  |              |   | 1,538,615 |            |  |   | 3,128,681  | 
|Non-interest income                                            |  |              |           |  |              |   |           |            |  |   |            | 
|Service charges on deposit accounts                            |  |              | 158,253   |  |              |   | 161,852   |            |  |   | 296,721    | 
|Gain on sale of loans                                          |  |              | 38,482    |  |              |   | 59,921    |            |  |   | 64,710     | 
|Gain on sale of securities                                     |  |              | 0         |  |              |   | 0         |            |  |   | 7,409      | 
|Gain on sale of foreclosed assets                              |  |              | 43,534    |  |              |   | 44,377    |            |  |   | 90,532     | 
|Gain on sale of premises and equipment                         |  |              | 0         |  |              |   | 0         |            |  |   | 0          | 
|Gain on the extinguishment of debt                             |  |              | 0         |  |              |   | 0         |            |  |   | 0          | 
|Other                                                          |  |              | 206,330   |  |              |   | 160,449   |            |  |   | 396,456    | 
|Total non-interest income                                      |  |              | 446,599   |  |              |   | 426,599   |            |  |   | 855,828    | 
|Non-interest expense                                           |  |              |           |  |              |   |           |            |  |   |            | 
|Salaries and employee benefits                                 |  |              | 966,454   |  |              |   | 912,135   |            |  |   | 1,917,901  | 
|Occupancy                                                      |  |              | 151,933   |  |              |   | 149,239   |            |  |   | 325,407    | 
|Furniture and equipment                                        |  |              | 82,991    |  |              |   | 92,156    |            |  |   | 156,432    | 
|Advertising                                                    |  |              | 10,828    |  |              |   | 9,100     |            |  |   | 21,313     | 
|Data processing                                                |  |              | 166,237   |  |              |   | 154,055   |            |  |   | 321,704    | 
|Professional services                                          |  |              | 84,699    |  |              |   | 114,164   |            |  |   | 171,104    | 
|Foreclosed asset impairment                                    |  |              | 54,197    |  |              |   | 101,141   |            |  |   | 70,028     | 
|FDIC insurance                                                 |  |              | 108,151   |  |              |   | 51,227    |            |  |   | 213,601    | 
|Other                                                          |  |              | 283,628   |  |              |   | 306,732   |            |  |   | 574,095    | 
|Total non-interest expense                                     |  |              | 1,909,118 |  |              |   | 1,889,949 |            |  |   | 3,771,585  | 
|Income Before Federal Income Taxes                             |  |              | 102,201   |  |              |   | 75,265    |            |  |   | 212,924    | 
|Federal income tax expense                                     |  |              | 0         |  |              |   | 0         |            |  |   | 0          | 
|Net Income                                                     |  | $            | 102,201   |  |              | $ | 75,265    |            |  | $ | 212,924    | 
|Basic average shares outstanding                               |  |              | 1,468,800 |  |              |   | 1,468,800 |            |  |   | 1,468,800  | 
|Diluted average shares outstanding                             |  |              | 1,468,800 |  |              |   | 1,468,800 |            |  |   | 1,468,800  | 
|Basic earnings per share                                       |  | $            | 0.07      |  |              | $ | 0.05      |            |  | $ | 0.14       | 
|Diluted earnings per share                                     |  | $            | 0.07      |  |              | $ | 0.05      |            |  | $ | 0.14       | 



See accompanying notes to consolidated financial
statements.



- 2 -







COMMUNITY
SHORES BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME

(UNAUDITED)



|                                                                                  |  | Three Months  |         |  | Three Months  |   |          | Six Months   |  |   | Six Months    |   
|--------------------------------------------------------------------------------- |  | ------------- | ------- |  | ------------- | - | -------- | ------------ |  | - | ------------- | --
|                                                                                  |  | Ended         |         |  | Ended         |   |          | Ended        |  |   | Ended         |   
|                                                                                  |  | June 30, 2014 |         |  | June 30, 2013 |   |          | June 30,2014 |  |   | June 30, 2013 |   
|                                                                                  |  |               |         |  |               |   |          |              |  |   |               |   
|Net income                                                                        |  | $             | 102,201 |  |               | $ | 75,265   |              |  | $ | 212,924       |   
|                                                                                  |  |               |         |  |               |   |          |              |  |   |               |   
|Other comprehensive income (loss):                                                |  |               |         |  |               |   |          |              |  |   |               |   
|Unrealized holding gains (losses) on available for sale securities                |  |               | 131,939 |  |               |   | (468,823 | )            |  |   | 170,024       |   
|Less reclassification adjustments for unrealized gains later recognized in income |  |               | 0       |  |               |   | 0        |              |  |   | (7,409        | )1
|                                                                                  |  |               | 131,939 |  |               |   | (468,823 | )            |  |   | 162,615       |   
|Tax effect                                                                        |  |               | 15,612  |  |               |   | 0        |              |  |   | 15,612        |   
|Total other comprehensive income (loss)                                           |  |               | 147,551 |  |               |   | (468,823 | )            |  |   | 178,227       |   
|                                                                                  |  |               |         |  |               |   |          |              |  |   |               |   
|Comprehensive income (loss)                                                       |  | $             | 249,752 |  |               | $ | (393,558 | )            |  | $ | 391,151       |   












1 Appears
on condensed consolidated statement of income as a gain on sale of securities.



See accompanying notes to consolidated financial
statements.



- 3 -







COMMUNITY
SHORES BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS’ EQUITY

(UNAUDITED)



|                           |  |        |           |  |        |   |            |          |  |   | Accumulated   |   |  |               |         
|-------------------------- |  | ------ | --------- |  | ------ | - | ---------- | -------- |  | - | ------------- | - |  | ------------- | --------
|                           |  |        |           |  |        |   |            |          |  |   | Other         |   |  | Total         |         
|                           |  |        |           |  | Common |   |            | Retained |  |   | Comprehensive |   |  | Shareholders’ |         
|                           |  | Shares |           |  | Stock  |   |            | Deficit  |  |   | Income        |   |  | Equity        |         
|                           |  |        |           |  |        |   |            |          |  |   |               |   |  |               |         
|Balance at January 1, 2013 |  |        | 1,468,800 |  |        | $ | 13,296,691 |          |  | $ | (14,816,593   | ) |  | $             | 280,806 
|                           |  |        |           |  |        |   |            |          |  |   |               |   |  |               |         
|Net income                 |  |        |           |  |        |   |            |          |  |   | 5,379,798     |   |  |               |         
|Other comprehensive loss   |  |        |           |  |        |   |            |          |  |   |               |   |  |               | (545,061
|                           |  |        |           |  |        |   |            |          |  |   |               |   |  |               |         
|Balance at June 30, 2013   |  |        | 1,468,800 |  |        | $ | 13,296,691 |          |  | $ | (9,436,795    | ) |  | $             | (264,255
|                           |  |        |           |  |        |   |            |          |  |   |               |   |  |               |         
|Balance at January 1, 2014 |  |        | 1,468,800 |  |        | $ | 13,296,691 |          |  | $ | (9,276,599    | ) |  | $             | (357,223
|                           |  |        |           |  |        |   |            |          |  |   |               |   |  |               |         
|Net income                 |  |        |           |  |        |   |            |          |  |   | 212,924       |   |  |               |         
|Other comprehensive income |  |        |           |  |        |   |            |          |  |   |               |   |  |               | 178,227 
|                           |  |        |           |  |        |   |            |          |  |   |               |   |  |               |         
|Balance at June 30, 2014   |  |        | 1,468,800 |  |        | $ | 13,296,691 |          |  | $ | (9,063,675    | ) |  | $             | (178,996



See accompanying notes to consolidated financial
statements.



- 4 -







COMMUNITY
SHORES BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS

(UNAUDITED)



|                                                                           |  | Six Months Ended |            |   | Six Months Ended |  
|-------------------------------------------------------------------------- |  | ---------------- | ---------- | - | ---------------- | -
|                                                                           |  | June 30, 2014    |            |   | June 30, 2013    |  
|Cash flows from operating activities                                       |  |                  |            |   |                  |  
|Net income                                                                 |  | $                | 212,924    |   |                  | $
|Adjustments to reconcile net income to net cash from operating activities: |  |                  |            |   |                  |  
|Depreciation and amortization                                              |  |                  | 183,067    |   |                  |  
|Net amortization of securities                                             |  |                  | 143,647    |   |                  |  
|Net realized gain on sale of securities                                    |  |                  | (7,409     | ) |                  |  
|Net realized gain on sale of loans                                         |  |                  | (64,710    | ) |                  |  
|Net realized gain on sale of foreclosed assets                             |  |                  | (90,532    | ) |                  |  
|Net realized gain on sale of premises and equipment                        |  |                  | 0          |   |                  |  
|Net realized gain on the extinguishment of debt                            |  |                  | 0          |   |                  |  
|Foreclosed asset impairment                                                |  |                  | 70,028     |   |                  |  
|Originations of loans for sale                                             |  |                  | (2,315,860 | ) |                  |  
|Proceeds from loan sales                                                   |  |                  | 2,509,425  |   |                  |  
|Net change in:                                                             |  |                  |            |   |                  |  
|Accrued interest receivable and other assets                               |  |                  | (144,946   | ) |                  |  
|Accrued interest payable and other liabilities                             |  |                  | 88,058     |   |                  |  
|Net cash from operating activities                                         |  |                  | 583,692    |   |                  |  
|Cash flows from investing activities                                       |  |                  |            |   |                  |  
|Activity in available for sale securities:                                 |  |                  |            |   |                  |  
|Sales                                                                      |  |                  | 661,182    |   |                  |  
|Maturities, prepayments and calls                                          |  |                  | 4,051,814  |   |                  |  
|Purchases                                                                  |  |                  | (4,704,973 | ) |                  |  
|Loan originations and (payments), net                                      |  |                  | (1,397,414 | ) |                  |  
|Additions to premises and equipment, net                                   |  |                  | (185,672   | ) |                  |  
|Proceeds from the sale of foreclosed assets                                |  |                  | 260,532    |   |                  |  
|Net cash from (used in) investing activities                               |  |                  | (1,314,531 | ) |                  |  
|Cash flows from financing activities                                       |  |                  |            |   |                  |  
|Net change in deposits                                                     |  |                  | 5,082,642  |   |                  |  
|Net change in federal funds purchased and                                  |  |                  | 1,592,105  |   |                  |  
|Other borrowing activity:                                                  |  |                  |            |   |                  |  
|Repayment of note payable                                                  |  |                  | 0          |   |                  |  
|Issuance of senior debt                                                    |  |                  | 0          |   |                  |  
|Net cash from (used in) financing activities                               |  |                  | 6,674,747  |   |                  |  
|Net change in cash and cash equivalents                                    |  |                  | 5,943,908  |   |                  |  
|Beginning cash and cash equivalents                                        |  |                  | 17,132,741 |   |                  |  
|Ending cash and cash equivalents                                           |  | $                | 23,076,649 |   |                  | $
|Supplemental cash flows information:                                       |  |                  |            |   |                  |  
|Cash paid during the period for interest                                   |  | $                | 502,887    |   |                  | $
|Cash paid during the period for federal income tax                         |  |                  | 86,000     |   |                  |  
|Transfers from loans to foreclosed assets                                  |  |                  | 229,837    |   |                  |  
|Transfers from loans held for sale to portfolio                            |  |                  | 0          |   |                  |  
|Foreclosed asset sales financed by the Bank                                |  |                  | 49,500     |   |                  |  



See accompanying notes to consolidated financial
statements.



- 5 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



BASIS OF PRESENTATION: The
unaudited, consolidated financial statements as of and for the three months and six months ended June 30, 2014 include the consolidated
results of operations of Community Shores Bank Corporation (“Company”) and its wholly-owned subsidiaries, Community
Shores Financial Services (“CS Financial Services”), and Community Shores Bank (the “Bank”), and the Bank’s
wholly-owned subsidiary, Community Shores Mortgage Company (the “Mortgage Company”) and the Mortgage Company’s
wholly-owned subsidiary, Berryfield Development, LLC (“Berryfield”). Community Shores Capital Trust I (“the Trust”)
is not consolidated and exists solely to issue capital securities. These consolidated financial statements have been prepared in
accordance with the instructions for Form 10-Q and Article 8 of Regulation S-X and do not include all disclosures required by generally
accepted accounting principles for a complete presentation of the Company’s financial condition and results of operations.
In the opinion of management, the information reflects all adjustments (consisting only of normal recurring adjustments) which
are necessary in order to make the financial statements not misleading and for a fair representation of the results of operations
for such periods. The results for the period ended June 30, 2014 should not be considered as indicative of results for a full year.
For further information, refer to the consolidated financial statements and footnotes included in the Company’s annual report
on Form 10-K for the period ended December 31, 2013. Some items in the prior year financial statements may be reclassified to conform
to the current presentation.



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



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



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



Consumer- Term loans or lines of credit for the purchase
of consumer goods, vehicles or home improvement. The risk characteristics of the loans in this segment vary depending on the type
of collateral, 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 revisited at the end of each quarter and
include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs
and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other
changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant
staff; quality of loan review system; degree of oversight by the Board of Directors; national and local economic trends and conditions;
industry conditions; competition and legal and regulatory requirements; and effects of changes in credit concentrations. There
were no significant changes to this methodology in the first half of 2014.



For the commercial and commercial real estate portfolio
segments, the historical loss is tracked by original loan grade. The Bank utilizes a numeric grading system for commercial and
commercial real estate loans. Grades are assigned to each commercial and commercial real estate loan by assessing information about
the specific borrower’s situation and the estimated collateral values. The description of the loan grade criteria is included
in Note 3. In recent periods, with charge-off activity lessening, the calculated historical loss factor assigned to general allocations
was considerably reduced. The reduction was large enough that management chose to define and implement a minimum loss percentage
for these segments. The minimum loss percentage is meant to ensure adequate coverage for incurred losses in loan pools.



- 7 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



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



For the consumer segment, historical loss experience
is based on the actual loss history of the following four classes; general consumer loans, personal lines of credit, home equity
lines of credit and credit cards. The level of delinquencies and charge-off experience directly impacts the general allocations
to the consumer classes.



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.



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



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



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



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



RECENT DEVELOPMENTS:



In January 2014, the Financial Accounting Standards
Board (“FASB”) issued ASU 2014-04, Receivables- Trouble Debt Restructurings by Creditors (Topic 205). ASU
2014-04 clarifies when a creditor should be considered to have received physical possession of residential real estate property
during a foreclosure. ASU 2014-04 establishes a loan receivable should be derecognized and the real estate property recognized
upon the creditor obtaining legal title to the residential real estate property upon completion of foreclosure or the borrower
conveying all interest in the residential real estate property to the creditor to satisfy the loan. The provisions of ASU 2014-04
are effective for annual periods beginning after December 15, 2014. The adoption of this guidance is not expected to have a material
effect on the Company’s financial position or results of operations.



In May 2014, FASB issued ASU 2014-09, Revenue
from Contracts with Customers (Topic 606). The amendments in this update create a new Topic 606 in the FASB Accounting
Standard Codification ® (“ASC” or “Codification”). In addition to superseding and replacing
nearly all existing U.S. GAAP revenue recognition guidance, including industry-specific guidance, ASC 606 establishes a new control-based
revenue recognition model, changes the basis for deciding when the revenue is recognized over time or at a point in time, provides
new and more detailed guidance on specific topics and expands and improves disclosures about revenue. In addition, ASU 2014-09
adds a new Subtopic to the Codification, ASC 340-40, Other Assets and Deferred Costs: Contracts with customers to provide
guidance on costs related to obtaining a contract with a customer and costs incurred in fulfilling contract with a customer that
are not in the scope of another ASC Topic. The new guidance does not apply to certain contracts within the scope of other ASC Topics,
such as lease contracts, insurance contracts, financing arrangements, financial instruments, guarantees other than product or service
warranties, and nonmonetary exchanges between entities in the same line of business to facilitate sales to customers. The amendments
are effective for annual periods and interim periods within those annual periods beginning after December 15, 2016. The adoption
of this guidance is not expected to have a material effect on the Company’s financial position of results of operations.



In June 2014, FASB issued ASU 2014-11, Repurchase-to-Maturity
Transactions, Repurchase Financings, and Disclosures. This ASU requires two accounting changes. First, repurchase-to-maturity
transactions will be accounted for as secured borrowing transactions on the balance sheet, rather than sales. Second, for repurchase
financing arrangements, the ASU requires separate accounting for a transfer of a financial asset executed contemporaneously with
(or in contemplation of) a repurchase agreement with the same counterparty, which also will generally result in secured borrowing
accounting for the repurchase agreement. The ASU also introduces new disclosures to increase transparency about the types of collateral
pledged for repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions that are accounted
for as secured borrowings. The ASU also requires a transferor to disclose information about transactions accounted for as a sale
in which the transferor retains substantially all of the exposure to the economic return on the transferred financial assets through
an agreement with the transferee. The accounting changes and disclosure for certain transactions accounted for as a sale are effective
for the first interim period beginning in 2015. The disclosure for transactions accounted for as secured borrowings is required
for interim periods beginning after March 15, 2015. The adoption of this guidance is not expected to have a 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)
| | -- | ----------------------------------------------------------------------



FASB also issued ASU 2013-11, Presentation of
an Unrecognized Tax Benefit when a Net Operating Loss Carryforward or Tax Credit Carryforward Exists.This update requires
an unrecognized tax benefit, or portion of an unrecognized tax benefit, to be presented in the statement of financial position
as a reduction to a deferred tax asset for a net operating loss carryforward or a tax credit carryforward. However, to the extent
that a net operating loss carryforward or a tax credit carryforward at the reporting date is not available under the tax law of
the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position, the
unrecognized tax benefit is to be presented in the statement of financial position as a liability. No new recurring disclosures
are required. The amendments are effective for public business entities for annual periods beginning after December 15, 2013, and
interim periods within those periods. The amendments are to be applied on a prospective basis to all unrecognized tax benefits
that exist at the effective date, although retrospective application is permitted. The adoption of this guidance did not have a
material effect on the Company’s financial position or results of operations.



The Company continued its trend
of profitability, reporting consolidated earnings of $213,000 or $0.14 per common share for the first six months of 2014 and $102,000
or $0.07 per common share for the second quarter of 2014. Additionally, total assets grew as a result of larger customer deposit
account balances which increased the Company’s cash on deposit at the Federal Reserve Bank and funded loan growth. Through
earnings in the first half of 2014, the total risk-based capital ratio of the Bank grew 4 basis points to 8.52%. The Bank continues
to be considered adequately capitalized according to regulatory capital standards.



In spite of the improved financial
outcome for the last several quarters, the Company remains subject to additional regulatory scrutiny, as described immediately
below, following significant consolidated losses from 2007 through 2011, which resulted primarily from deteriorating asset quality
during that recessionary period.



On September 2, 2010, the Bank
entered into a Consent Order with the Federal Deposit Insurance Corporation (“FDIC”) and the State of Michigan’s
Department of Insurance and Financial Services (“DIFS”), its primary regulators. The Bank agreed to the terms of the
Consent Order without admitting or denying any charge of unsafe or unsound banking practices relating to capital, asset quality,
or earnings. The Consent Order imposes no fines or penalties on the Bank. The Consent Order will remain in effect and enforceable
until it is modified, terminated, suspended, or set aside by the FDIC and DIFS. Under the Consent Order, the Bank was required,
within 90 days of September 2, 2010, to have and maintain its level of Tier 1 capital, as a percentage of its total assets, at
a minimum of 8.5%, and its level of qualifying total capital, as a percentage of risk-weighted assets, at a minimum of 11%. The
Bank was not able to meet these requirements within the required 90-day period and remained out of compliance with the Consent
Order as of June 30, 2014.



- 10 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



The lack of financial soundness of the Bank and the
Company’s inability to serve as a source of strength for the Bank resulted in the board of directors entering into a Written
Agreement with the Federal Reserve Bank of Chicago (the “FRB”), one of the Company’s primary regulators. The
Written Agreement became effective on December 16, 2010, when it was executed by the FRB. The Written Agreement provides that:
(i) the Company must take appropriate steps to fully utilize its financial and managerial resources to serve as a source of strength
to the Bank; (ii) the Company may not declare or pay any dividends or take dividends or any other payment representing a reduction
in capital from the Bank or make any distributions of interest, principal or other sums on subordinated debentures or trust preferred
securities without prior FRB approval; (iii) the Company may not incur, increase or guarantee any debt or purchase or redeem any
shares of its stock without prior FRB approval; (iv) the Company must submit a written statement of its planned sources and uses
of cash for debt service, operating expenses and other purposes to the FRB within 30 days of the Written Agreement; (v) the Company
shall take all necessary actions to ensure that the Bank, the Company and all nonbank subsidiaries of both the Bank and the Company
comply with sections 23A and 23B of the Federal Reserve Act and Regulation W of the Board of Governors (12 C.F.R. Part 223) in
all transactions between affiliates; (vi) the Company may not appoint any new director or senior executive officer, or change the
responsibilities of any senior executive officer so that the officer would assume a different senior executive officer position,
without prior regulatory approval; and finally (vii) within 30 days after the end of each calendar quarter following the date of
the Written Agreement, the board of directors shall submit to the FRB written progress reports detailing the form and manner of
all actions taken to secure compliance with the provisions of the Written Agreement as well as current copies of the parent company
only financial statements. The Company has not yet been able to meet the obligation detailed in part (i) above; as the Company
currently has limited resources with which to assist the Bank in achieving the capital level required by the Consent Order. At
present, the Company’s sole liquidity resource is its cash account balance which, as of June 30, 2014, was approximately
$435,000.



Failure to comply with the stipulated
capital levels of the Consent Order or the provisions of the Written Agreement may subject the Bank to further regulatory enforcement
action.



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



The following tables represent the securities held
in the Company’s portfolio at June 30, 2014 and at December 31, 2013:



|                                                                     |  |           |            |  | Gross      |   |         | Gross      |  |   |          |  
|-------------------------------------------------------------------- |  | --------- | ---------- |  | ---------- | - | ------- | ---------- |  | - | -------- | -
|                                                                     |  | Amortized |            |  | Unrealized |   |         | Unrealized |  |   | Fair     |  
|June 30, 2014                                                        |  | Cost      |            |  | Gains      |   |         | Losses     |  |   | Value    |  
|                                                                     |  |           |            |  |            |   |         |            |  |   |          |  
|US Treasury                                                          |  | $         | 2,518,124  |  |            | $ | 20,001  |            |  | $ | 0        |  
|US Government and federal agency                                     |  |           | 14,242,004 |  |            |   | 77,887  |            |  |   | (22,338  | )
|Municipals                                                           |  |           | 1,060,962  |  |            |   | 13,972  |            |  |   | 0        |  
|Mortgage-backed and collateralized mortgage obligations– residential |  |           | 13,301,221 |  |            |   | 138,085 |            |  |   | (101,317 | )
|                                                                     |  | $         | 31,122,311 |  |            | $ | 249,945 |            |  | $ | (123,655 | )



|                                                                     |  |           |            |  | Gross      |   |         | Gross      |  |   |          |  
|-------------------------------------------------------------------- |  | --------- | ---------- |  | ---------- | - | ------- | ---------- |  | - | -------- | -
|                                                                     |  | Amortized |            |  | Unrealized |   |         | Unrealized |  |   | Fair     |  
|December 31, 2013                                                    |  | Cost      |            |  | Gains      |   |         | Losses     |  |   | Value    |  
|                                                                     |  |           |            |  |            |   |         |            |  |   |          |  
|US Treasury                                                          |  | $         | 2,525,481  |  |            | $ | 16,551  |            |  | $ | 0        |  
|US Government and federal agency                                     |  |           | 15,823,511 |  |            |   | 90,497  |            |  |   | (46,602  | )
|Municipals                                                           |  |           | 1,563,394  |  |            |   | 27,747  |            |  |   | 0        |  
|Mortgage-backed and collateralized mortgage obligations– residential |  |           | 11,354,185 |  |            |   | 132,797 |            |  |   | (257,315 | )
|                                                                     |  | $         | 31,266,571 |  |            | $ | 267,592 |            |  | $ | (303,917 | )



- 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 June 30, 2014:



|                                                                      |  | Amortized |            |  | Fair  |  
|--------------------------------------------------------------------- |  | --------- | ---------- |  | ----- | -
|                                                                      |  | Cost      |            |  | Value |  
|Due in one year or less                                               |  | $         | 2,522,342  |  |       | $
|Due from one to five years                                            |  |           | 15,298,748 |  |       |  
|Due from five to ten years                                            |  |           | 0          |  |       |  
|Due in more than ten years                                            |  |           | 0          |  |       |  
|Mortgage-backed and collateralized mortgage obligations – residential |  |           | 13,301,221 |  |       |  
|                                                                      |  | $         | 31,122,311 |  |       | $



Below is the table of securities
with unrealized losses, aggregated by investment category and length of time such securities were in an unrealized loss position
at June 30, 2014 and December 31, 2013:



|                                                                      |  | Less than 12 Months |           |  | 12 Months or Longer |   |         | Total | 
|--------------------------------------------------------------------- |  | ------------------- | --------- |  | ------------------- | - | ------- | ----- | 
|                                                                      |  | Fair                |           |  | Unrealized          |   |         | Fair  | 
|June 30, 2014                                                         |  | Value               |           |  | Losses              |   |         | Value | 
|US Government and federal agency                                      |  | $                   | 1,512,150 |  |                     | $ | (4,036  | )     | 
|Mortgage-backed and collateralized mortgage obligations - residential |  |                     | 2,911,190 |  |                     |   | (8,375  | )     | 
|                                                                      |  | $                   | 4,423,340 |  |                     | $ | (12,411 | )     | 



|                                                                      |  | Less than 12 Months |           |  | 12 Months or Longer |   |          | Total | 
|--------------------------------------------------------------------- |  | ------------------- | --------- |  | ------------------- | - | -------- | ----- | 
|                                                                      |  | Fair                |           |  | Unrealized          |   |          | Fair  | 
|December 31, 2013                                                     |  | Value               |           |  | Losses              |   |          | Value | 
|US Government and federal agency                                      |  | $                   | 2,439,145 |  |                     | $ | (38,342  | )     | 
|Mortgage-backed and collateralized mortgage obligations - residential |  |                     | 5,604,925 |  |                     |   | (191,440 | )     | 
|                                                                      |  | $                   | 8,044,070 |  |                     | $ | (229,782 | )     | 



There was one security sold in
the six months ended June 30, 2014. Proceeds from the sale were $661,182 with a gain of $7,409 realized. No securities were sold
in the three months ended June 30, 2014. No securities were sold in the six or three months ended June 30, 2013.



- 12 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



Other-Than-Temporary-Impairment



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



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



At June 30, 2014, all of the mortgage-backed securities
and collateralized mortgage obligations held by the Company were issued by U.S. government-sponsored entities and agencies, primarily
Fannie Mae, Freddie Mac and Ginnie Mae, institutions which the government has affirmed its commitment to support. At June 30, 2014,
20 debt securities had unrealized losses with aggregate depreciation of 0.98% from the amortized cost basis. Six of the 20 securities
are issued by government agencies and 14 are issued by a government-sponsored entity. It is more likely than not that these debt
securities will be retained given the fact that they are pledged to various public funds. The reported decline in value is not
material and is deemed to be market driven. Because the decline in fair value is attributable to changes in interest rates and
not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not
be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily
impaired at June 30, 2014.



- 13 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



Outstanding loan balances by
portfolio segment and class at June 30, 2014 and December 31, 2013 were as follows:



|                                 |  | June 30, 2014 |             |   | December 31, 2013 |  
|-------------------------------- |  | ------------- | ----------- | - | ----------------- | -
|Commercial                       |  | $             | 51,276,448  |   |                   | $
|Commercial Real Estate:          |  |               |             |   |                   |  
|General                          |  |               | 56,258,764  |   |                   |  
|Construction                     |  |               | 2,103,444   |   |                   |  
|Consumer:                        |  |               |             |   |                   |  
|Lines of credit                  |  |               | 7,059,544   |   |                   |  
|Other                            |  |               | 1,365,622   |   |                   |  
|Credit card                      |  |               | 472,318     |   |                   |  
|Residential                      |  |               | 14,225,498  |   |                   |  
|Net deferred loan fees           |  |               | (58,399     | ) |                   |  
|                                 |  |               | 132,703,239 |   |                   |  
|Less:  Allowance for loan losses |  |               | (2,741,560  | ) |                   |  
|Loans, net                       |  | $             | 129,961,679 |   |                   | $



- 14 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



The following tables present the activity in the
allowance for loan losses for the three and six month periods ended June 30, 2014 and 2013 by portfolio segment:



|Three Months Ended June 30, 2014 |  | Commercial |         |   | Commercial Real Estate |   |           | Consumer |  |   | Residential |   |  | Unallocated |         |   | Total |  
|-------------------------------- |  | ---------- | ------- | - | ---------------------- | - | --------- | -------- |  | - | ----------- | - |  | ----------- | ------- | - | ----- | -
|Allowance for loan losses:       |  |            |         |   |                        |   |           |          |  |   |             |   |  |             |         |   |       |  
|Beginning balance                |  | $          | 426,072 |   |                        | $ | 1,686,614 |          |  | $ | 396,967     |   |  | $           | 198,683 |   |       | $
|Charge-offs                      |  |            | (20,890 | ) |                        |   | (163,692  | )        |  |   | (48,450     | ) |  |             | (83,384 | ) |       |  
|Recoveries                       |  |            | 5,150   |   |                        |   | 2,557     |          |  |   | 8,060       |   |  |             | 0       |   |       |  
|Provision for loan losses        |  |            | 17,915  |   |                        |   | (57,097   | )        |  |   | 33,423      |   |  |             | 114,480 |   |       |  
|Ending balance                   |  | $          | 428,247 |   |                        | $ | 1,468,382 |          |  | $ | 390,000     |   |  | $           | 229,779 |   |       | $



|Three Months Ended June 30, 2013 |  | Commercial |          |   | Commercial Real Estate |   |           | Consumer |  |   | Residential |   |  | Unallocated |         |   | Total |  
|-------------------------------- |  | ---------- | -------- | - | ---------------------- | - | --------- | -------- |  | - | ----------- | - |  | ----------- | ------- | - | ----- | -
|Allowance for loan losses:       |  |            |          |   |                        |   |           |          |  |   |             |   |  |             |         |   |       |  
|Beginning balance                |  | $          | 524,383  |   |                        | $ | 2,072,756 |          |  | $ | 330,028     |   |  | $           | 169,549 |   |       | $
|Charge-offs                      |  |            | 0        |   |                        |   | (15,314   | )        |  |   | (20,306     | ) |  |             | 0       |   |       |  
|Recoveries                       |  |            | 16,616   |   |                        |   | 0         |          |  |   | 3,981       |   |  |             | 0       |   |       |  
|Provision for loan losses        |  |            | (101,006 | ) |                        |   | (136,855  | )        |  |   | 105,808     |   |  |             | (12,143 | ) |       |  
|Ending balance                   |  | $          | 439,993  |   |                        | $ | 1,920,587 |          |  | $ | 419,511     |   |  | $           | 157,406 |   |       | $



- 15 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



|Six Months Ended June 30, 2014 |  | Commercial |          |   | Commercial Real Estate |   |           | Consumer |  |   | Residential |   |  | Unallocated |          |   | Total |  
|------------------------------ |  | ---------- | -------- | - | ---------------------- | - | --------- | -------- |  | - | ----------- | - |  | ----------- | -------- | - | ----- | -
|Allowance for loan losses:     |  |            |          |   |                        |   |           |          |  |   |             |   |  |             |          |   |       |  
|Beginning balance              |  | $          | 339,048  |   |                        | $ | 1,713,193 |          |  | $ | 424,824     |   |  | $           | 227,767  |   |       | $
|Charge-offs                    |  |            | (20,890  | ) |                        |   | (163,692  | )        |  |   | (48,724     | ) |  |             | (115,585 | ) |       |  
|Recoveries                     |  |            | 258,950  |   |                        |   | 2,557     |          |  |   | 19,302      |   |  |             | 0        |   |       |  
|Provision for loan losses      |  |            | (148,861 | ) |                        |   | (83,676   | )        |  |   | (5,402      | ) |  |             | 117,597  |   |       |  
|Ending balance                 |  | $          | 428,247  |   |                        | $ | 1,468,382 |          |  | $ | 390,000     |   |  | $           | 229,779  |   |       | $



|Six Months Ended June 30, 2013 |  | Commercial |          |   | Commercial Real Estate |   |           | Consumer |  |   | Residential |   |  | Unallocated |         |   | Total |  
|------------------------------ |  | ---------- | -------- | - | ---------------------- | - | --------- | -------- |  | - | ----------- | - |  | ----------- | ------- | - | ----- | -
|Allowance for loan losses:     |  |            |          |   |                        |   |           |          |  |   |             |   |  |             |         |   |       |  
|Beginning balance              |  | $          | 582,198  |   |                        | $ | 2,266,302 |          |  | $ | 331,459     |   |  | $           | 203,018 |   |       | $
|Charge-offs                    |  |            | (40,253  | ) |                        |   | (25,025   | )        |  |   | (38,597     | ) |  |             | (54,599 | ) |       |  
|Recoveries                     |  |            | 56,200   |   |                        |   | 0         |          |  |   | 6,571       |   |  |             | 0       |   |       |  
|Provision for loan losses      |  |            | (158,152 | ) |                        |   | (320,690  | )        |  |   | 120,078     |   |  |             | 8,987   |   |       |  
|Ending balance                 |  | $          | 439,993  |   |                        | $ | 1,920,587 |          |  | $ | 419,511     |   |  | $           | 157,406 |   |       | $



- 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 June 30, 2014 and December
31, 2013:



|June 30, 2014                                   |  | Commercial |            |  | Commercial Real Estate |   |            | Consumer |  |   | Residential |  |  | Unallocated |            |  | Total |  
|----------------------------------------------- |  | ---------- | ---------- |  | ---------------------- | - | ---------- | -------- |  | - | ----------- |  |  | ----------- | ---------- |  | ----- | -
|Allowance for loan losses:                      |  |            |            |  |                        |   |            |          |  |   |             |  |  |             |            |  |       |  
|Ending allowance balance attributable to loans: |  |            |            |  |                        |   |            |          |  |   |             |  |  |             |            |  |       |  
|Individually evaluated for impairment           |  | $          | 116,404    |  |                        | $ | 1,121,089  |          |  | $ | 198,072     |  |  | $           | 98,405     |  |       | $
|Collectively evaluated for impairment           |  |            | 311,843    |  |                        |   | 347,293    |          |  |   | 191,928     |  |  |             | 131,374    |  |       |  
|Unallocated                                     |  |            | 0          |  |                        |   | 0          |          |  |   | 0           |  |  |             | 0          |  |       |  
|Total ending allowance balance                  |  | $          | 428,247    |  |                        | $ | 1,468,382  |          |  | $ | 390,000     |  |  | $           | 229,779    |  |       | $
|                                                |  |            |            |  |                        |   |            |          |  |   |             |  |  |             |            |  |       |  
|Loans:                                          |  |            |            |  |                        |   |            |          |  |   |             |  |  |             |            |  |       |  
|Individually evaluated for impairment           |  | $          | 1,463,749  |  |                        | $ | 8,975,347  |          |  | $ | 420,847     |  |  | $           | 861,525    |  |       | $
|Collectively evaluated for impairment           |  |            | 49,905,856 |  |                        |   | 49,481,674 |          |  |   | 8,508,443   |  |  |             | 13,406,130 |  |       |  
|Total ending loans balance                      |  | $          | 51,369,605 |  |                        | $ | 58,457,021 |          |  | $ | 8,929,290   |  |  | $           | 14,267,655 |  |       | $



|December 31, 2013                               |  | Commercial |            |  | Commercial Real Estate |   |            | Consumer |  |   | Residential |  |  | Unallocated |            |  | Total |  
|----------------------------------------------- |  | ---------- | ---------- |  | ---------------------- | - | ---------- | -------- |  | - | ----------- |  |  | ----------- | ---------- |  | ----- | -
|Allowance for loan losses:                      |  |            |            |  |                        |   |            |          |  |   |             |  |  |             |            |  |       |  
|Ending allowance balance attributable to loans: |  |            |            |  |                        |   |            |          |  |   |             |  |  |             |            |  |       |  
|Individually evaluated for impairment           |  | $          | 28,705     |  |                        | $ | 1,302,677  |          |  | $ | 191,887     |  |  | $           | 87,635     |  |       | $
|Collectively evaluated for impairment           |  |            | 310,343    |  |                        |   | 410,516    |          |  |   | 232,937     |  |  |             | 140,132    |  |       |  
|Unallocated                                     |  |            | 0          |  |                        |   | 0          |          |  |   | 0           |  |  |             | 0          |  |       |  
|Total ending allowance balance                  |  | $          | 339,048    |  |                        | $ | 1,713,193  |          |  | $ | 424,824     |  |  | $           | 227,767    |  |       | $
|                                                |  |            |            |  |                        |   |            |          |  |   |             |  |  |             |            |  |       |  
|Loans:                                          |  |            |            |  |                        |   |            |          |  |   |             |  |  |             |            |  |       |  
|Individually evaluated for impairment           |  | $          | 1,165,730  |  |                        | $ | 6,784,821  |          |  | $ | 518,428     |  |  | $           | 1,127,955  |  |       | $
|Collectively evaluated for impairment           |  |            | 46,016,674 |  |                        |   | 52,490,365 |          |  |   | 9,267,130   |  |  |             | 14,524,492 |  |       |  
|Total ending loans balance                      |  | $          | 47,182,404 |  |                        | $ | 59,275,186 |          |  | $ | 9,785,558   |  |  | $           | 15,652,447 |  |       | $



- 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 June 30, 2014 and December 31, 2013. For purposes of this disclosure, the unpaid principal
balance is not reduced for partial charge-offs.



|                                    |  | Recorded   |            |  | Unpaid Principal |   |            | Related   | 
|----------------------------------- |  | ---------- | ---------- |  | ---------------- | - | ---------- | --------- | 
|June 30, 2014                       |  | Investment |            |  | Balance          |   |            | Allowance | 
|With no related allowance recorded: |  |            |            |  |                  |   |            |           | 
|Commercial                          |  | $          | 1,046,475  |  |                  | $ | 1,166,765  |           | 
|Commercial Real Estate:             |  |            |            |  |                  |   |            |           | 
|General                             |  |            | 6,959,900  |  |                  |   | 7,138,075  |           | 
|Consumer:                           |  |            |            |  |                  |   |            |           | 
|Lines of credit                     |  |            | 97,188     |  |                  |   | 97,188     |           | 
|Other                               |  |            | 750        |  |                  |   | 750        |           | 
|Residential                         |  |            | 251,049    |  |                  |   | 315,913    |           | 
|Subtotal                            |  | $          | 8,355,362  |  |                  | $ | 8,718,691  |           | 
|                                    |  |            |            |  |                  |   |            |           | 
|With a related allowance recorded:  |  |            |            |  |                  |   |            |           | 
|Commercial                          |  | $          | 417,274    |  |                  | $ | 430,416    |           | 
|Commercial Real Estate:             |  |            |            |  |                  |   |            |           | 
|General                             |  |            | 2,015,447  |  |                  |   | 2,015,447  |           | 
|Consumer:                           |  |            |            |  |                  |   |            |           | 
|Lines of credit                     |  |            | 291,861    |  |                  |   | 290,774    |           | 
|Other                               |  |            | 31,048     |  |                  |   | 31,048     |           | 
|Residential                         |  |            | 610,476    |  |                  |   | 617,726    |           | 
|Subtotal                            |  | $          | 3,366,106  |  |                  | $ | 3,385,411  |           | 
|Total                               |  | $          | 11,721,468 |  |                  | $ | 12,104,102 |           | 



- 18 -











COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



|                                    |  | Recorded   |           |  | Unpaid Principal |   |            | Related   | 
|----------------------------------- |  | ---------- | --------- |  | ---------------- | - | ---------- | --------- | 
|December 31, 2013                   |  | Investment |           |  | Balance          |   |            | Allowance | 
|With no related allowance recorded: |  |            |           |  |                  |   |            |           | 
|Commercial                          |  | $          | 1,049,046 |  |                  | $ | 1,059,514  |           | 
|Commercial Real Estate:             |  |            |           |  |                  |   |            |           | 
|General                             |  |            | 714,377   |  |                  |   | 744,958    |           | 
|Consumer:                           |  |            |           |  |                  |   |            |           | 
|Lines of credit                     |  |            | 107,750   |  |                  |   | 255,128    |           | 
|Other                               |  |            | 47,106    |  |                  |   | 109,603    |           | 
|Residential                         |  |            | 343,859   |  |                  |   | 554,300    |           | 
|Subtotal                            |  | $          | 2,262,138 |  |                  | $ | 2,723,503  |           | 
|With a related allowance recorded:  |  |            |           |  |                  |   |            |           | 
|Commercial                          |  | $          | 116,684   |  |                  | $ | 116,194    |           | 
|Commercial Real Estate:             |  |            |           |  |                  |   |            |           | 
|General                             |  |            | 6,070,444 |  |                  |   | 6,069,393  |           | 
|Consumer:                           |  |            |           |  |                  |   |            |           | 
|Lines of credit                     |  |            | 296,004   |  |                  |   | 294,323    |           | 
|Other                               |  |            | 67,568    |  |                  |   | 67,406     |           | 
|Residential                         |  |            | 784,096   |  |                  |   | 791,471    |           | 
|Subtotal                            |  | $          | 7,334,796 |  |                  | $ | 7,338,787  |           | 
|Total                               |  | $          | 9,596,934 |  |                  | $ | 10,062,290 |           | 



- 19 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



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



|                                    |  | Three Months     |            |  | Three Months    |   |        | Three Months        | 
|----------------------------------- |  | ---------------- | ---------- |  | --------------- | - | ------ | ------------------- | 
|                                    |  | Average Recorded |            |  | Interest Income |   |        | Cash Basis          | 
|June 30, 2014                       |  | Investment       |            |  | Recognized      |   |        | Interest Recognized | 
|With no related allowance recorded: |  |                  |            |  |                 |   |        |                     | 
|Commercial                          |  | $                | 1,034,795  |  |                 | $ | 7,560  |                     | 
|Commercial Real Estate:             |  |                  |            |  |                 |   |        |                     | 
|General                             |  |                  | 5,485,590  |  |                 |   | 63,156 |                     | 
|Consumer:                           |  |                  |            |  |                 |   |        |                     | 
|Lines of credit                     |  |                  | 97,346     |  |                 |   | 0      |                     | 
|Other                               |  |                  | 940        |  |                 |   | 0      |                     | 
|Residential                         |  |                  | 418,229    |  |                 |   | 0      |                     | 
|Subtotal                            |  | $                | 7,036,900  |  |                 | $ | 70,716 |                     | 
|                                    |  |                  |            |  |                 |   |        |                     | 
|With a related allowance recorded:  |  |                  |            |  |                 |   |        |                     | 
|Commercial                          |  | $                | 417,958    |  |                 | $ | 5,411  |                     | 
|Commercial Real Estate:             |  |                  |            |  |                 |   |        |                     | 
|General                             |  |                  | 3,607,810  |  |                 |   | 0      |                     | 
|Consumer:                           |  |                  |            |  |                 |   |        |                     | 
|Lines of credit                     |  |                  | 300,699    |  |                 |   | 4,724  |                     | 
|Other                               |  |                  | 31,931     |  |                 |   | 38     |                     | 
|Residential                         |  |                  | 594,390    |  |                 |   | 6,587  |                     | 
|Subtotal                            |  | $                | 4,952,788  |  |                 | $ | 16,760 |                     | 
|Total                               |  | $                | 11,989,688 |  |                 | $ | 87,476 |                     | 



- 20 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



|                                    |  | Three Months     |           |  | Three Months    |   |        | Three Months        | 
|----------------------------------- |  | ---------------- | --------- |  | --------------- | - | ------ | ------------------- | 
|                                    |  | Average Recorded |           |  | Interest Income |   |        | Cash Basis          | 
|June 30, 2013                       |  | Investment       |           |  | Recognized      |   |        | Interest Recognized | 
|With no related allowance recorded: |  |                  |           |  |                 |   |        |                     | 
|Commercial                          |  | $                | 1,204,824 |  |                 | $ | 7,924  |                     | 
|Commercial Real Estate:             |  |                  |           |  |                 |   |        |                     | 
|General                             |  |                  | 2,297,799 |  |                 |   | 26,299 |                     | 
|Construction                        |  |                  | 0         |  |                 |   | 0      |                     | 
|Consumer:                           |  |                  |           |  |                 |   |        |                     | 
|Lines of credit                     |  |                  | 63,529    |  |                 |   | 0      |                     | 
|Other                               |  |                  | 13,415    |  |                 |   | 0      |                     | 
|Credit card                         |  |                  | 0         |  |                 |   | 0      |                     | 
|Residential                         |  |                  | 123,759   |  |                 |   | 0      |                     | 
|Subtotal                            |  | $                | 3,703,326 |  |                 | $ | 34,223 |                     | 
|                                    |  |                  |           |  |                 |   |        |                     | 
|With a related allowance recorded:  |  |                  |           |  |                 |   |        |                     | 
|Commercial                          |  | $                | 112,394   |  |                 | $ | 139    |                     | 
|Commercial Real Estate:             |  |                  |           |  |                 |   |        |                     | 
|General                             |  |                  | 4,526,238 |  |                 |   | 30,789 |                     | 
|Construction                        |  |                  | 0         |  |                 |   | 0      |                     | 
|Consumer:                           |  |                  |           |  |                 |   |        |                     | 
|Lines of credit                     |  |                  | 144,335   |  |                 |   | 1,752  |                     | 
|Other                               |  |                  | 107,610   |  |                 |   | 473    |                     | 
|Credit card                         |  |                  | 0         |  |                 |   | 0      |                     | 
|Residential                         |  |                  | 509,502   |  |                 |   | 4,237  |                     | 
|Subtotal                            |  | $                | 5,400,079 |  |                 | $ | 37,390 |                     | 
|Total                               |  | $                | 9,103,405 |  |                 | $ | 71,613 |                     | 



- 21 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



|                                    |  | Six Months       |            |  | Six Months      |   |         | Six Months          | 
|----------------------------------- |  | ---------------- | ---------- |  | --------------- | - | ------- | ------------------- | 
|                                    |  | Average Recorded |            |  | Interest Income |   |         | Cash Basis          | 
|June 30, 2014                       |  | Investment       |            |  | Recognized      |   |         | Interest Recognized | 
|With no related allowance recorded: |  |                  |            |  |                 |   |         |                     | 
|Commercial                          |  | $                | 1,032,476  |  |                 | $ | 15,036  |                     | 
|Commercial Real Estate:             |  |                  |            |  |                 |   |         |                     | 
|General                             |  |                  | 4,176,059  |  |                 |   | 114,817 |                     | 
|Consumer:                           |  |                  |            |  |                 |   |         |                     | 
|Lines of credit                     |  |                  | 102,345    |  |                 |   | 0       |                     | 
|Other                               |  |                  | 12,371     |  |                 |   | 268     |                     | 
|Residential                         |  |                  | 411,666    |  |                 |   | 0       |                     | 
|Subtotal                            |  | $                | 5,734,917  |  |                 | $ | 130,121 |                     | 
|                                    |  |                  |            |  |                 |   |         |                     | 
|With a related allowance recorded:  |  |                  |            |  |                 |   |         |                     | 
|Commercial                          |  | $                | 320,792    |  |                 | $ | 8,182   |                     | 
|Commercial Real Estate:             |  |                  |            |  |                 |   |         |                     | 
|General                             |  |                  | 4,562,707  |  |                 |   | 0       |                     | 
|Consumer:                           |  |                  |            |  |                 |   |         |                     | 
|Lines of credit                     |  |                  | 297,435    |  |                 |   | 9,131   |                     | 
|Other                               |  |                  | 49,284     |  |                 |   | 38      |                     | 
|Residential                         |  |                  | 651,645    |  |                 |   | 13,100  |                     | 
|Subtotal                            |  | $                | 5,881,863  |  |                 | $ | 30,451  |                     | 
|Total                               |  | $                | 11,616,780 |  |                 | $ | 160,572 |                     | 



- 22 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



|                                    |  | Six Months       |           |  | Six Months      |   |         | Six Months          | 
|----------------------------------- |  | ---------------- | --------- |  | --------------- | - | ------- | ------------------- | 
|                                    |  | Average Recorded |           |  | Interest Income |   |         | Cash Basis          | 
|June 30, 2013                       |  | Investment       |           |  | Recognized      |   |         | Interest Recognized | 
|With no related allowance recorded: |  |                  |           |  |                 |   |         |                     | 
|Commercial                          |  | $                | 1,558,469 |  |                 | $ | 21,221  |                     | 
|Commercial Real Estate:             |  |                  |           |  |                 |   |         |                     | 
|General                             |  |                  | 2,383,298 |  |                 |   | 52,308  |                     | 
|Construction                        |  |                  | 0         |  |                 |   | 0       |                     | 
|Consumer:                           |  |                  |           |  |                 |   |         |                     | 
|Lines of credit                     |  |                  | 86,625    |  |                 |   | 0       |                     | 
|Other                               |  |                  | 18,510    |  |                 |   | 0       |                     | 
|Credit card                         |  |                  | 0         |  |                 |   | 0       |                     | 
|Residential                         |  |                  | 140,888   |  |                 |   | 0       |                     | 
|Subtotal                            |  | $                | 4,187,790 |  |                 | $ | 73,529  |                     | 
|                                    |  |                  |           |  |                 |   |         |                     | 
|With a related allowance recorded:  |  |                  |           |  |                 |   |         |                     | 
|Commercial                          |  | $                | 422,999   |  |                 | $ | 9,742   |                     | 
|Commercial Real Estate:             |  |                  |           |  |                 |   |         |                     | 
|General                             |  |                  | 4,518,976 |  |                 |   | 61,739  |                     | 
|Construction                        |  |                  | 0         |  |                 |   | 0       |                     | 
|Consumer:                           |  |                  |           |  |                 |   |         |                     | 
|Lines of credit                     |  |                  | 131,339   |  |                 |   | 3,769   |                     | 
|Other                               |  |                  | 107,659   |  |                 |   | 941     |                     | 
|Credit card                         |  |                  | 448       |  |                 |   | 0       |                     | 
|Residential                         |  |                  | 489,844   |  |                 |   | 8,428   |                     | 
|Subtotal                            |  | $                | 5,671,265 |  |                 | $ | 84,619  |                     | 
|Total                               |  | $                | 9,859,055 |  |                 | $ | 158,148 |                     | 



- 23 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



The following tables present the aging of the recorded
investment in past due and non-accrual loans by class of loans as of June 30, 2014:



|                        |  |                 |         |  |                 |   |   | 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              |  | $               | 106,478 |  |                 | $ | 0 |                 |  | $ | 0              |  |  | $              | 106,478 |  |                | $
|Commercial Real Estate: |  |                 |         |  |                 |   |   |                 |  |   |                |  |  |                |         |  |                |  
|General                 |  |                 | 318,055 |  |                 |   | 0 |                 |  |   | 0              |  |  |                | 318,055 |  |                |  
|Construction            |  |                 | 0       |  |                 |   | 0 |                 |  |   | 0              |  |  |                | 0       |  |                |  
|Consumer:               |  |                 |         |  |                 |   |   |                 |  |   |                |  |  |                |         |  |                |  
|Lines of credit         |  |                 | 46,198  |  |                 |   | 0 |                 |  |   | 0              |  |  |                | 46,198  |  |                |  
|Other                   |  |                 | 0       |  |                 |   | 0 |                 |  |   | 0              |  |  |                | 0       |  |                |  
|Credit card             |  |                 | 0       |  |                 |   | 0 |                 |  |   | 0              |  |  |                | 0       |  |                |  
|Residential             |  |                 | 0       |  |                 |   | 0 |                 |  |   | 0              |  |  |                | 0       |  |                |  
|Total                   |  | $               | 470,731 |  |                 | $ | 0 |                 |  | $ | 0              |  |  | $              | 470,731 |  |                | $



|                        |  |                 |        |  |                 |   |        | 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              |  | $               | 17,574 |  |                 | $ | 41,339 |                 |  | $ | 0              |  |  | $           | 58,913  |  |                   | $
|Commercial Real Estate: |  |                 |        |  |                 |   |        |                 |  |   |                |  |  |             |         |  |                   |  
|General                 |  |                 | 0      |  |                 |   | 0      |                 |  |   | 184,720        |  |  |             | 184,720 |  |                   |  
|Construction            |  |                 | 0      |  |                 |   | 0      |                 |  |   | 0              |  |  |             | 0       |  |                   |  
|Consumer:               |  |                 |        |  |                 |   |        |                 |  |   |                |  |  |             |         |  |                   |  
|Lines of credit         |  |                 | 0      |  |                 |   | 0      |                 |  |   | 93,803         |  |  |             | 93,803  |  |                   |  
|Other                   |  |                 | 3,615  |  |                 |   | 0      |                 |  |   | 0              |  |  |             | 3,615   |  |                   |  
|Credit card             |  |                 | 0      |  |                 |   | 0      |                 |  |   | 0              |  |  |             | 0       |  |                   |  
|Residential             |  |                 | 0      |  |                 |   | 0      |                 |  |   | 93,482         |  |  |             | 93,482  |  |                   |  
|Total                   |  | $               | 21,189 |  |                 | $ | 41,339 |                 |  | $ | 372,005        |  |  | $           | 434,533 |  |                   | $



- 24 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



The following tables present the aging of the recorded
investment in past due and non-accrual loans by class of loans as of December 31, 2013:



|                        |  |                 |        |  |                 |   |         | Greater Than 90 |  |   | Total Accruing |  |  |                |         |  | Total Recorded |  
|----------------------- |  | --------------- | ------ |  | --------------- | - | ------- | --------------- |  | - | -------------- |  |  | -------------- | ------- |  | -------------- | -
|                        |  | 30-59 Days Past |        |  | 60-89 Days Past |   |         | Days Past       |  |   | Past Due       |  |  | Current        |         |  | Investment of  |  
|Accruing Loans          |  | Due             |        |  | Due             |   |         | Due             |  |   | Loans          |  |  | Accruing Loans |         |  | Accruing Loans |  
|Commercial              |  | $               | 0      |  |                 | $ | 0       |                 |  | $ | 0              |  |  | $              | 0       |  |                | $
|Commercial Real Estate: |  |                 |        |  |                 |   |         |                 |  |   |                |  |  |                |         |  |                |  
|General                 |  |                 | 0      |  |                 |   | 0       |                 |  |   | 0              |  |  |                | 0       |  |                |  
|Construction            |  |                 | 0      |  |                 |   | 0       |                 |  |   | 0              |  |  |                | 0       |  |                |  
|Consumer:               |  |                 |        |  |                 |   |         |                 |  |   |                |  |  |                |         |  |                |  
|Lines of credit         |  |                 | 0      |  |                 |   | 101,022 |                 |  |   | 0              |  |  |                | 101,022 |  |                |  
|Other                   |  |                 | 1,583  |  |                 |   | 10,824  |                 |  |   | 0              |  |  |                | 12,407  |  |                |  
|Credit card             |  |                 | 0      |  |                 |   | 0       |                 |  |   | 0              |  |  |                | 0       |  |                |  
|Residential             |  |                 | 62,333 |  |                 |   | 2,241   |                 |  |   | 0              |  |  |                | 64,574  |  |                |  
|Total                   |  | $               | 63,916 |  |                 | $ | 114,087 |                 |  | $ | 0              |  |  | $              | 178,003 |  |                | $



|                        |  |                 |        |  |                 |   |        | 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      |                 |  |   | 25,568         |  |  |             | 25,568  |  |                   |  
|Other                   |  |                 | 0      |  |                 |   | 25,360 |                 |  |   | 0              |  |  |             | 25,360  |  |                   |  
|Credit card             |  |                 | 0      |  |                 |   | 0      |                 |  |   | 0              |  |  |             | 0       |  |                   |  
|Residential             |  |                 | 97,482 |  |                 |   | 0      |                 |  |   | 224,185        |  |  |             | 321,667 |  |                   |  
|Total                   |  | $               | 97,482 |  |                 | $ | 25,360 |                 |  | $ | 249,753        |  |  | $           | 372,595 |  |                   | $





- 25 -







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 $1,478,765 of specific
reserves on $10,871,307 of unpaid principal balance of loans to customers whose loan terms have been modified in troubled debt
restructurings as of June 30, 2014 and $1,539,865 on $8,452,163 of unpaid principal balance of loans as of December 31, 2013. At
June 30, 2014, the Company had an additional $177,010 in performing loans outstanding to one of those customers. As of December
31, 2013, there was $180,557 committed to one customer.



The following tables present loans by class modified
as troubled debt restructurings that occurred during the three and six month periods ended June 30, 2014:



|                                 |  |                 |   |  | Pre-Modification     |   |           | Post-Modification    | 
|-------------------------------- |  | --------------- | - |  | -------------------- | - | --------- | -------------------- | 
|                                 |  |                 |   |  | Outstanding Recorded |   |           | Outstanding Recorded | 
|Three Months Ended June 30, 2014 |  | Number of Loans |   |  | Investment           |   |           | Investment           | 
|Troubled Debt Restructurings:    |  |                 |   |  |                      |   |           |                      | 
|Commercial                       |  |                 | 1 |  |                      | $ | 249,249   |                      | 
|Commercial Real Estate:          |  |                 |   |  |                      |   |           |                      | 
|General                          |  |                 | 1 |  |                      |   | 2,413,000 |                      | 
|Total                            |  |                 | 2 |  |                      | $ | 2,662,249 |                      | 



|                               |  |                 |   |  | Pre-Modification     |   |           | Post-Modification    | 
|------------------------------ |  | --------------- | - |  | -------------------- | - | --------- | -------------------- | 
|                               |  |                 |   |  | Outstanding Recorded |   |           | Outstanding Recorded | 
|Six Months Ended June 30, 2014 |  | Number of Loans |   |  | Investment           |   |           | Investment           | 
|Troubled Debt Restructurings:  |  |                 |   |  |                      |   |           |                      | 
|Commercial                     |  |                 | 1 |  |                      | $ | 249,249   |                      | 
|Commercial Real Estate:        |  |                 |   |  |                      |   |           |                      | 
|General                        |  |                 | 1 |  |                      |   | 2,413,000 |                      | 
|Total                          |  |                 | 2 |  |                      | $ | 2,662,249 |                      | 



In both the three and six month periods ending June
30, 2014 the modifications involved a financing concession on an amortizing note ranging from 4.5 months to 12 months.



- 26 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



In the three and six month periods ending June 30,
2014, there were no charge-offs related to the troubled debt restructurings however an additional $48,000 of specific reserves
were established on existing troubled debt restructurings.



The following table presents loans by class modified
as troubled debt restructurings that occurred during the three and six month periods ended June 30, 2013:



|                                 |  |                 |   |  | Pre-Modification     |   |         | Post-Modification    | 
|-------------------------------- |  | --------------- | - |  | -------------------- | - | ------- | -------------------- | 
|                                 |  |                 |   |  | Outstanding Recorded |   |         | Outstanding Recorded | 
|Three Months Ended June 30, 2013 |  | Number of Loans |   |  | Investment           |   |         | Investment           | 
|Troubled Debt Restructurings:    |  |                 |   |  |                      |   |         |                      | 
|Consumer:                        |  |                 |   |  |                      |   |         |                      | 
|Lines of credit                  |  |                 | 2 |  |                      | $ | 137,893 |                      | 
|Total                            |  |                 | 2 |  |                      | $ | 137,893 |                      | 



In the three month period ended June 30, 2013, there were no
charge-offs as part of a troubled debt restructuring arrangement however, an additional $39,519 of specific reserves were established
on one of the troubled debt restructurings.



|                               |  |                 |   |  | Pre-Modification     |   |         | Post-Modification    | 
|------------------------------ |  | --------------- | - |  | -------------------- | - | ------- | -------------------- | 
|                               |  |                 |   |  | Outstanding Recorded |   |         | Outstanding Recorded | 
|Six Months Ended June 30, 2013 |  | Number of Loans |   |  | Investment           |   |         | Investment           | 
|Troubled Debt Restructurings:  |  |                 |   |  |                      |   |         |                      | 
|Commercial                     |  |                 | 1 |  |                      | $ | 143,136 |                      | 
|Consumer:                      |  |                 |   |  |                      |   |         |                      | 
|Lines of credit                |  |                 | 2 |  |                      |   | 137,893 |                      | 
|Total                          |  |                 | 3 |  |                      | $ | 281,029 |                      | 



In the six month period ended June 30, 2013, one
modification involved a stated interest rate below the current market rate for a period of 7 years, while another modification
involved interest only payments for 2.5 yearson an amortizing note. One A-B note modification involved a permanent reduction of
the recorded investment in the loan.



In the six month period ended June 30, 2013 there
were $9,711 of charge-offs as part of a troubled debt restructuring arrangement and an additional $39,519 of specific reserves
established.



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



For the three and six month periods ending June
30, 2013 there were no troubled debt restructurings that experienced a payment default within 12 months following the modification.
For the three and six month periods ended June 30, 2014 there was one troubled debt restructuring that experienced a payment default
within 12 months following the modification. The payment default occurred in the second quarter. Below is a table which presents
that loan by class:



- 27 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



|                             |  |                 |   |  | Recorded Investment |  
|---------------------------- |  | --------------- | - |  | ------------------- | -
|                             |  | Number of Loans |   |  | at time of default  |  
|Troubled Debt Restructurings |  |                 |   |  |                     |  
|That Subsequently Defaulted: |  |                 |   |  |                     |  
|Commercial                   |  |                 | 1 |  |                     | $
|Total                        |  |                 | 1 |  |                     | $



The troubled debt restructuring that subsequently
defaulted described above did not result in any additional charge-offs and there were no specific reserves on the remaining balance
as of June 30, 2014.



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 to assess the borrower’s compliance with the Bank’s documented action
plan. In addition to these methods for assigning loan grades, changes may occur through the external loan review or regulatory
exam process. The loan grades are as follows:





| | 1.  |  | Exceptional. Loans with an exceptional credit rating.                                                                                                                                                             
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2.  |  | Quality. Loans with excellent sources of repayment that conform, in all respects, to Bank policy and regulatory requirements. These are loans for which little repayment risk has been identified.                
| | 3.  |  | Above Average. Loans with above average sources of repayment and minimal identified credit or collateral exceptions and minimal repayment risk.                                                                   
| | 4.  |  | Average. Loans with average sources of repayment that materially conform to Bank policy and regulatory requirements. Repayment risk is considered average.                                                        
| | 5.  |  | Acceptable. Loans with acceptable sources of repayment and risk.                                                                                                                                                  
| | 5M. |  | Monitor. Loans considered to be below average quality. The loans are often fundamentally sound but require more frequent management review because of an adverse financial event. Risk of non payment is elevated.
| | 6.  |  | Special Mention. Loans that have potential weaknesses and deserve close attention. If uncorrected, further deterioration is likely. Risk of non payment is above average.                                         
| | 7.  |  | Substandard. Loans that are inadequately protected by the borrower’s capacity to pay or the collateral pledged. Risk of non payment is high.                                                                      
| | 8.  |  | Doubtful. Loans in this grade have identified weaknesses that make full repayment highly questionable and improbable.                                                                                             





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



- 28 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



As of June 30, 2014 and December 31, 2013, 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           | 
|      |  | June 30,   |            |  | December 31,           |   |            | June 30,               | 
|      |  | 2014       |            |  | 2013                   |   |            | 2014                   | 
|1     |  | $          | 33,194     |  |                        | $ | 0          |                        | 
|2     |  |            | 0          |  |                        |   | 94,676     |                        | 
|3     |  |            | 10,115,950 |  |                        |   | 8,623,409  |                        | 
|4     |  |            | 13,844,919 |  |                        |   | 13,898,810 |                        | 
|5     |  |            | 20,828,862 |  |                        |   | 17,539,364 |                        | 
|5M    |  |            | 3,301,810  |  |                        |   | 4,255,639  |                        | 
|6     |  |            | 2,175,604  |  |                        |   | 1,699,009  |                        | 
|7     |  |            | 1,051,617  |  |                        |   | 1,052,903  |                        | 
|8     |  |            | 17,649     |  |                        |   | 18,594     |                        | 
|Total |  | $          | 51,369,605 |  |                        | $ | 47,182,404 |                        | 



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 June 30, 2014 and December 31, 2013:



|           |  | Residential |           
|---------- |  | ----------- | ----------
|           |  | June 30,    |           
|           |  | 2014        |           
|Performing |  | $           | 13,406,130
|Impaired   |  |             | 861,525   
|Total      |  | $           | 14,267,655



|           |  | Consumer – Lines of credit |           |  | Consumer – Other |   |           | Consumer – Credit card | 
|---------- |  | -------------------------- | --------- |  | ---------------- | - | --------- | ---------------------- | 
|           |  | June 30,                   |           |  | December 31,     |   |           | June 30,               | 
|           |  | 2014                       |           |  | 2013             |   |           | 2014                   | 
|Performing |  | $                          | 6,696,552 |  |                  | $ | 7,363,137 |                        | 
|Impaired   |  |                            | 389,049   |  |                  |   | 403,754   |                        | 
|Total      |  | $                          | 7,085,601 |  |                  | $ | 7,766,891 |                        | 



- 29 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



Foreclosed asset activity at June 30:



|                                               |  | June 30, |           |   | June 30, |  
|---------------------------------------------- |  | -------- | --------- | - | -------- | -
|                                               |  | 2014     |           |   | 2013     |  
|Beginning of year                              |  | $        | 2,558,299 |   |          | $
|Additions                                      |  |          | 229,837   |   |          |  
|Reductions from sales                          |  |          | (219,500  | ) |          |  
|Direct write-downs                             |  |          | (70,028   | ) |          |  
|End of period                                  |  | $        | 2,498,608 |   |          | $
|                                               |  |          |           |   |          |  
|Expenses related to foreclosed assets include: |  |          |           |   |          |  
|Operating expenses, net of rental income       |  | $        | 101,201   |   |          | $



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



Period end premises and equipment were as follows
at June 30, 2014 and December 31, 2013:



|                                  |  | June 30, |            |  | December 31, |  
|--------------------------------- |  | -------- | ---------- |  | ------------ | -
|                                  |  | 2014     |            |  | 2013         |  
|Land & land improvements          |  | $        | 4,700,464  |  |              | $
|Buildings & building improvements |  |          | 6,201,507  |  |              |  
|Furniture, fixtures and equipment |  |          | 3,872,254  |  |              |  
|                                  |  |          | 14,774,225 |  |              |  
|Less:  accumulated depreciation   |  |          | 5,626,153  |  |              |  
|                                  |  | $        | 9,148,072  |  |              | $



- 30 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



The components
of the outstanding deposit balances at June 30, 2014 and December 31, 2013 were as follows:



|                         |  | June 30, |             |  | December 31, |  
|------------------------ |  | -------- | ----------- |  | ------------ | -
|                         |  | 2014     |             |  | 2013         |  
|Non-interest-bearing DDA |  | $        | 33,285,926  |  |              | $
|Interest-bearing DDA     |  |          | 31,336,888  |  |              |  
|Money market             |  |          | 21,378,508  |  |              |  
|Savings                  |  |          | 10,572,371  |  |              |  
|Time, under $100,000     |  |          | 70,448,424  |  |              |  
|Time, over $100,000      |  |          | 10,000,390  |  |              |  
|Total Deposits           |  | $        | 177,022,507 |  |              | $



There were no brokered deposits at either June 30,
2014 or December 31, 2013. Since the Bank was not categorized as “well capitalized” at June 30, 2014 and is under a
Consent Order, a regulatory waiver is required to accept, renew or rollover brokered deposits. The Bank has not issued brokered
deposits since January of 2010.



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



The Company’s short-term borrowings consisted
entirely of repurchase agreements in 2014 and 2013. Information regarding repurchase agreements at June 30, 2014 and December 31,
2013 is summarized below:



|                                        |  | Repurchase |           
|--------------------------------------- |  | ---------- | ----------
|                                        |  | Agreements |           
|                                        |  |            |           
|Outstanding at June 30, 2014            |  | $          | 10,020,151
|Average interest rate at period end     |  |            | 0.52      
|Average balance during period           |  |            | 8,809,976 
|Average interest rate during period     |  |            | 0.54      
|Maximum month end balance during period |  |            | 10,046,290
|                                        |  |            |           
|Outstanding at December 31, 2013        |  | $          | 8,428,046 
|Average interest rate at year-end       |  |            | 0.56      
|Average balance during year             |  |            | 9,706,847 
|Average interest rate during year       |  |            | 0.58      
|Maximum month end balance during year   |  |            | 10,878,256



- 31 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



The
Bank is a member of the Federal Home Loan Bank (“FHLB”) of Indianapolis. Based on its current FHLB stock holdings and
collateral, the Bank has the capacity to borrow $3,125,808. Each borrowing requires a direct pledge of securities and or loans.
To support potential borrowings with the FHLB, the Bank had residential loans with a carrying value of $7,627,312 pledged at June
30, 2014 and $3,709,600 pledged at year-end 2013. The Bank had no outstanding borrowings with the FHLB at either June 30, 2014
or December 31, 2013.



At
June 30, 2014, the Bank used a portion of the residential loans pledged to the Federal Home Loan Bank to collateralize a $2,000,000
overdraft line of credit. At June 30, 2014, there was no balance outstanding on the line of credit.



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



The
Trust, as defined in Note 1, sold 4,500 Cumulative Preferred Securities (“trust preferred securities”) at $1,000 per
security in a December 2004 offering. The proceeds from the sale of the trust preferred securities were used by the Trust to purchase
an equivalent amount of subordinated debentures from the Company. The trust preferred securities and subordinated debentures carry
a floating rate of 2.05% over the 3-month LIBOR and was 2.28% at June 30, 2014 and 2.30% at December 31, 2013. The stated maturity
is December 30, 2034. The trust preferred securities are redeemable at par value on any interest payment date and are, in effect,
guaranteed by the Company. Interest on the subordinated debentures is payable quarterly on March 30th, June 30th,
September 30th and December 30th. The Company is not considered the primary beneficiary of the Trust (under
the variable interest entity rules), therefore the Trust is not consolidated in the Company’s financial statements, but rather
the subordinated debentures are shown as a liability, and the interest expense is recorded on the Company’s consolidated
statement of income.



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



During the deferral period, interest will continue
to accrue on the subordinated debentures. Also, the deferred interest will accrue interest. At the expiration of the deferral period,
all accrued and unpaid interest will become immediately due and payable. The end of the allowable deferral period will be March
31, 2015. The accrued interest payable on the subordinated debentures was $502,651 at June 30, 2014, and $444,042 at December 31,
2013 and is included in accrued expenses and other liabilities on the consolidated balance sheets at June 30, 2014 and December
31, 2013.



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



- 32 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



On March 20, 2013, the Company, with approval from
the FRB, borrowed $1,280,000 from 1030 Norton LLC, a Michigan limited liability company owned by nine individuals; three directors
of the Company, Gary F. Bogner, Robert L. Chandonnet and Bruce J. Essex, one former director and five local businessmen. On the
same day, $500,000 of the proceeds were used to settle, in full, a defaulted debt with a financial institution[1].
The remaining proceeds of the senior debt are being used for interest carry, general operations and potential capital support for
the Bank. The note bears interest at a fixed rate of 8.00% per annum until paid in full. Interest is payable quarterly, in arrears.
The note matures on March 31, 2015. The note is secured by a pledge of all of the issued and outstanding shares of the Bank as
evidenced by a pledge agreement between the Company and 1030 Norton LLC. The accrued interest at June 30, 2014 was approximately
$26,000. The entire interest balance due was paid on July 1, 2014.



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



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



A summary of the notional and contractual amounts
of outstanding financing instruments with off-balance-sheet risk as of June 30, 2014 and December 31, 2013 follows:



|                                             |  | June 30, 2014 |            |  | December 31, 2013 |  
|-------------------------------------------- |  | ------------- | ---------- |  | ----------------- | -
|                                             |  |               |            |  |                   |  
|Unused lines of credit and letters of credit |  | $             | 22,530,937 |  |                   | $
|Commitments to make loans                    |  |               | 0          |  |                   |  



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.








1
The book value of the liability was $5,763,000 resulting in a gain of $5,263,000 which appears in the condensed consolidated statement
of income as a gain on extinguishment of debt.



- 33 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



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



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



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



- 34 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



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



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



- 35 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



Assets measured at fair value on a recurring basis
are summarized below as of June 30, 2014 and December 31, 2013:



|                                                                     |  |       |            |  | Fair Value Measurements Using |  
|-------------------------------------------------------------------- |  | ----- | ---------- |  | ----------------------------- | -
|                                                                     |  |       |            |  | Quoted Prices                 |  
|                                                                     |  |       |            |  | in Active                     |  
|                                                                     |  |       |            |  | Markets for                   |  
|                                                                     |  |       |            |  | Identical Assets              |  
|                                                                     |  | Total |            |  | (Level 1)                     |  
|June 30, 2014                                                        |  |       |            |  |                               |  
|Available for sale securities:                                       |  |       |            |  |                               |  
|US Treasury                                                          |  | $     | 2,538,125  |  |                               | $
|US Government and federal agency                                     |  |       | 14,297,553 |  |                               |  
|Municipals                                                           |  |       | 1,074,934  |  |                               |  
|Mortgage-backed and collateralized mortgage obligations– residential |  |       | 13,337,989 |  |                               |  
|Total                                                                |  | $     | 31,248,601 |  |                               | $
|                                                                     |  |       |            |  |                               |  
|Servicing assets                                                     |  | $     | 34,699     |  |                               | $
|                                                                     |  |       |            |  |                               |  
|December 31, 2013                                                    |  |       |            |  |                               |  
|Available for sale securities:                                       |  |       |            |  |                               |  
|US Treasury                                                          |  | $     | 2,542,032  |  |                               | $
|US Government and federal agency                                     |  |       | 15,867,406 |  |                               |  
|Municipals                                                           |  |       | 1,591,141  |  |                               |  
|Mortgage-backed and collateralized mortgage obligations– residential |  |       | 11,229,667 |  |                               |  
|Total                                                                |  | $     | 31,230,246 |  |                               | $
|                                                                     |  |       |            |  |                               |  
|Servicing assets                                                     |  | $     | 37,217     |  |                               | $



There were no transfers between levels during the
second quarter of 2014 or 2013.



- 36 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



Assets measured at fair value on a non-recurring
basis are summarized below for the periods ended June 30, 2014 and December 31, 2013:



|                   |  |       |           |  | Quoted Prices in
Active Markets for
Identical Assets |   |   | Significant
Other Observable
Inputs |  |   | Significant
Unobservable Inputs | 
|------------------ |  | ----- | --------- |  | ---------------------------------------------------- | - | - | ----------------------------------- |  | - | ------------------------------- | 
|                   |  | Total |           |  | (Level 1)                                            |   |   | (Level 2)                           |  |   | (Level 3)                       | 
|June 30, 2014      |  |       |           |  |                                                      |   |   |                                     |  |   |                                 | 
|Impaired loans1:   |  | $     | 6,746,860 |  |                                                      | $ | 0 |                                     |  | $ | 0                               | 
|Foreclosed assets: |  |       | 2,498,608 |  |                                                      |   | 0 |                                     |  |   | 0                               | 
|Total              |  | $     | 9,245,468 |  |                                                      | $ | 0 |                                     |  | $ | 0                               | 



|                   |  |       |           |  | Quoted Prices in
Active Markets for
Identical Assets |   |   | Significant
Other Observable
Inputs |  |   | Significant
Unobservable Inputs | 
|------------------ |  | ----- | --------- |  | ---------------------------------------------------- | - | - | ----------------------------------- |  | - | ------------------------------- | 
|                   |  | Total |           |  | (Level 1)                                            |   |   | (Level 2)                           |  |   | (Level 3)                       | 
|December 31, 2013  |  |       |           |  |                                                      |   |   |                                     |  |   |                                 | 
|Impaired loans1:   |  | $     | 6,645,389 |  |                                                      | $ | 0 |                                     |  | $ | 0                               | 
|Foreclosed assets: |  |       | 2,558,299 |  |                                                      |   | 0 |                                     |  |   | 0                               | 
|Total              |  | $     | 9,203,688 |  |                                                      | $ | 0 |                                     |  | $ | 0                               | 








1 Collateral
dependent



- 37 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



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



|                                |  |                |         |  | Fair Value Measurements |  
|------------------------------- |  | -------------- | ------- |  | ----------------------- | -
|                                |  |                |         |  | at June 30, 2014        |  
|                                |  | Carrying       |         |  |                         |  
|                                |  | Amount         |         |  | Level 1                 |  
|                                |  | (in thousands) |        
|Financial assets                |  |                |         |  |                         |  
|Cash and cash equivalents       |  | $              | 23,077  |  |                         | $
|Loans held for sale             |  |                | 111     |  |                         |  
|Loans, net (including impaired) |  |                | 129,962 |  |                         |  
|FHLB stock                      |  |                | 451     |  |                         |  
|Accrued interest receivable     |  |                | 434     |  |                         |  
|                                |  |                |         |  |                         |  
|Financial liabilities           |  |                |         |  |                         |  
|Deposits                        |  |                | 177,023 |  |                         |  
|Federal funds purchased and     |  |                |         |  |                         |  
|repurchase agreements           |  |                | 10,020  |  |                         |  
|Subordinated debentures         |  |                | 4,500   |  |                         |  
|Notes payable                   |  |                | 1,280   |  |                         |  
|Accrued interest payable        |  |                | 563     |  |                         |  



|                                |  |                |         |  | Fair Value Measurements |  
|------------------------------- |  | -------------- | ------- |  | ----------------------- | -
|                                |  |                |         |  | at December 31, 2013    |  
|                                |  | Carrying       |         |  |                         |  
|                                |  | Amount         |         |  | Level 1                 |  
|                                |  | (in thousands) |        
|Financial assets                |  |                |         |  |                         |  
|Cash and cash equivalents       |  | $              | 17,133  |  |                         | $
|Loans held for sale             |  |                | 240     |  |                         |  
|Loans, net (including impaired) |  |                | 128,745 |  |                         |  
|FHLB stock                      |  |                | 451     |  |                         |  
|Accrued interest receivable     |  |                | 467     |  |                         |  
|                                |  |                |         |  |                         |  
|Financial liabilities           |  |                |         |  |                         |  
|Deposits                        |  |                | 171,940 |  |                         |  
|Federal funds purchased and     |  |                |         |  |                         |  
|repurchase agreements           |  |                | 8,428   |  |                         |  
|Subordinated debentures         |  |                | 4,500   |  |                         |  
|Notes payable                   |  |                | 1,280   |  |                         |  
|Accrued interest payable        |  |                | 506     |  |                         |  



- 38 -









COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



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



(a) Cash and cash equivalents



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



(b) 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 1 classification. Fair values for fixed
rate certificates of deposit are estimated using a discounted cash flows calculation that applies interest rates currently being
offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.



(e) Federal funds purchased and repurchase agreements



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



(f) Subordinated debentures and Notes payable



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



(g) Accrued interest receivable/payable



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



- 39 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



(h) Off-balance sheet instruments



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



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



Accounting guidance related to income taxes requires
that companies assess whether a valuation allowance should be established against their deferred tax assets based on the consideration
of all available evidence using a “more likely than not” standard.  In making such judgments, the Company considers
both positive and negative evidence and analyze changes in near-term market conditions as well as other factors which may impact
future operating results. Significant weight is given to evidence that can be objectively verified. Consequently, the Company
determined it is necessary to carry a valuation allowance against our entire net deferred tax asset each reporting period since
2009.



The realization of the Company’s deferred
tax assets is largely dependent upon the ability to generate future income. Although the Company recognized a profit in 2012,
2013 and the first half of 2014, there must be a consistent trend of operational profitability in order to support the realization
of deferred tax assets. The full valuation allowance against deferred tax assets may be reversed to income in future periods to
the extent that the related deferred income tax assets are realized or the valuation allowance is otherwise no longer required.
The Company will continue to monitor our deferred tax assets quarterly for changes affecting their realizability.



As a result of the large gain on the extinguishment
of debt in 2013, the Company recorded income tax expense from operations in the amount of $105,000. This amount represented projected
taxable earnings subject to alternative minimum taxation which may fluctuate in future periods with changes in operating results.



There were no unrecognized tax benefits at June
30, 2014 and December 31, 2013, and the Company does not expect the total amount of unrecognized tax benefits to significantly
increase or decrease in the next 12 months.



As of December 31, 2013, the Company has a net operating
loss carry-forward of $7,466,000 to be utilized to offset future taxable income that will begin expiring in 2029.



The Company was subject to a State of Michigan,
Department of Treasury, Michigan Business Tax Audit for the fiscal years of 2008 through 2011. On April 3, 2014, the Company was
officially notified that there was no discrepancy found in its reported tax liability.



- 40 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



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



Prompt corrective action regulations provide five
classifications, including well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically
undercapitalized, although these terms are not used to represent overall financial condition. If a bank is not well capitalized,
regulatory approval is required to accept brokered deposits. Subject to limited exceptions, a bank may not make a capital distribution
if, after making the distribution, it would be undercapitalized. If a bank is undercapitalized, it is subject to being closely
monitored by its principal federal regulator, its asset growth and expansion are restricted, acquisitions, new activities, new
branches, payment of dividends or management fees are prohibited and plans for capital restoration are required. In addition,
further specific types of restrictions may be imposed on the Bank at the discretion of the federal regulator.



The Bank was in the adequately capitalized category
at both June 30, 2014 and December 31, 2013.



Actual capital amounts and ratios for the Bank and
required capital amounts and ratios for the Bank to be adequately capitalized and to be at the level mandated by the Consent Order
at June 30, 2014 and December 31, 2013 were:



|                                                                          |  |        |            |  |                   |  |      | Minimum Required |  |   | Minimum Required | 
|------------------------------------------------------------------------- |  | ------ | ---------- |  | ----------------- |  | ---- | ---------------- |  | - | ---------------- | 
|                                                                          |  |        |            |  |                   |  |      | For Capital      |  |   | Under            | 
|                                                                          |  | Actual |            |  | Adequacy Purposes |  |      | Consent Order    | 
|                                                                          |  | Amount |            |  | Ratio             |  |      | Amount           |  |   | Ratio            | 
|                                                                          |  |        |            |  |                   |  |      |                  |  |   |                  | 
|June 30, 2014                                                             |  |        |            |  |                   |  |      |                  |  |   |                  | 
|Total Capital (Tier 1 and Tier 2) to risk-weighted
    assets of the Bank |  | $      | 11,828,664 |  |                   |  | 8.52 | %                |  | $ | 11,106,456       | 
|Tier 1 (Core) Capital to risk-weighted assets of the
    Bank             |  |        | 10,080,858 |  |                   |  | 7.26 |                  |  |   | 5,553,228        | 
|Tier 1 (Core) Capital to average assets of the Bank                       |  |        | 10,080,858 |  |                   |  | 5.09 |                  |  |   | 7,924,648        | 



- 41 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



|                                                                          |  |        |            |  |                   |  |      | Minimum Required |  |   | Minimum Required | 
|------------------------------------------------------------------------- |  | ------ | ---------- |  | ----------------- |  | ---- | ---------------- |  | - | ---------------- | 
|                                                                          |  |        |            |  |                   |  |      | For Capital      |  |   | Under            | 
|                                                                          |  | Actual |            |  | Adequacy Purposes |  |      | Consent Order    | 
|                                                                          |  | Amount |            |  | Ratio             |  |      | Amount           |  |   | Ratio            | 
|                                                                          |  |        |            |  |                   |  |      |                  |  |   |                  | 
|December 31, 2013                                                         |  |        |            |  |                   |  |      |                  |  |   |                  | 
|Total Capital (Tier 1 and Tier 2) to risk-weighted
    assets of the Bank |  | $      | 11,420,073 |  |                   |  | 8.48 | %                |  | $ | 10,769,246       | 
|Tier 1 (Core) Capital to risk-weighted assets of the
    Bank             |  |        | 9,723,466  |  |                   |  | 7.22 |                  |  |   | 5,384,623        | 
|Tier 1 (Core) Capital to average assets of the Bank                       |  |        | 9,723,466  |  |                   |  | 5.24 |                  |  |   | 7,423,426        | 



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 June 30, 2014, only $1,747,806 was counted as Tier 2 capital and $993,754 was disallowed. At December
31, 2013, $1,696,607 was counted as Tier 2 capital and $1,113,035 was disallowed.



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



The Consent Order required the Bank to implement
a written profit plan, a written contingency funding plan, a written plan to reduce the Bank's reliance on brokered deposits,
a comprehensive strategic plan; to develop an analysis and assessment of the Bank's management needs and action plans for classified
loans. All of these required items were completed. The only outstanding directive under the Consent Order is attaining the requested
capital levels.



Under the Consent Order, the Bank was required,
within 90 days of September 2, 2010, to have and maintain its level of tier one capital, as a percentage of its total assets,
at a minimum of 8.5%, and its level of qualifying total capital, as a percentage of risk-weighted assets, at a minimum of 11%.
The Bank was not in compliance with this requirement at June 30, 2014 or December 31, 2010, 2011, 2012 or 2013. Management continues
to explore options to raise the capital required for full compliance. At June 30, 2014, a capital contribution of $6,759,000 would
have been needed to meet the capital ratios specified in the Consent Order.



- 42 -







COMMUNITY SHORES BANK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



The Bank continues to work in cooperation with its
regulators; however the ability to fully comply with the specified capital levels, is not entirely within the Company’s
control, and is not assured due to the availability of capital or other funds and actions taken by regulators. Failure to comply
with provisions of the Consent Order may result in further regulatory action that could have a material adverse effect on the
Company and its shareholders, as well as the Bank. As long as the Consent Order remains, the Bank is restricted from declaring
or paying dividends without prior written authorization of the FDIC. The Bank is in full compliance with this restriction.



- 43 -







COMMUNITY SHORES BANK CORPORATION

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



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



The discussion below details the financial
results of the Company and its wholly owned subsidiaries, the Bank and Community Shores Financial Services, and the Bank’s
subsidiary, the Mortgage Company, and Berryfield, the Mortgage Company’s subsidiary, through June 30, 2014 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 June 30, 2014 to that at December 31, 2013. The part labeled Results of Operations discusses the three
month and six month periods ending June 30, 2014 as compared to the same periods of 2013. Both parts should be read in conjunction
with the interim consolidated financial statements and footnotes included in Item 1 of Part I of this Form 10-Q.



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



Future factors include, among others, changes
in interest rates and interest rate relationships; demand for products and services; the degree of competition by traditional
and non-traditional competitors; changes in banking regulation or actions by bank regulators; changes in tax laws; changes in
prices, levies, and assessments; the impact of technological advances; governmental and regulatory policy changes; the outcomes
of contingencies; trends in customer behavior as well as their ability to repay loans; changes in local real estate values; changes
in the national and local economy; the ability of the Company to borrow money or raise additional capital to maintain or increase
its or the Bank’s capital position or when desired to support future growth; failure to comply with provisions of the Consent
Order or Written Agreement may result in further regulatory action that could have a material adverse effect on us and our shareholders,
as well as the Bank; and other factors, including risk factors, referred to from time to time in filings made by the Company with
the Securities and Exchange Commission. These are representative of the Future factors that could cause a difference between an
ultimate actual outcome and a preceding forward-looking statement. These risks and uncertainties should be considered when evaluating
forward-looking statements. Undue reliance should not be placed on such statements.



The Company has returned to profitability
but the overall banking environment remains challenging particularly from an interest rate standpoint. Economic indicators appear
to be getting better. Locally, unemployment rates are declining but definitely remain at elevated levels. At June 30, 2014, unemployment
was 7.4% for Muskegon County and 5.8% for Ottawa County which is better than unemployment rates of 9.2% for Muskegon County and
7.2% for Ottawa County at June 30, 2013. Additionally, local property values are generally holding and in some areas increasing.



- 44 -







COMMUNITY SHORES BANK CORPORATION

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



Although these signs of progress in the economic
climate are encouraging, the effects of the extended downturn from 2007 through 2011 had an adverse effect on the financial health
of the Bank. Poor earnings stemming primarily from deteriorating asset quality eroded the Bank’s capital and corresponding
regulatory capital ratios subjecting it to additional regulatory scrutiny, as detailed below under the caption “Regulatory
Matters.”.



In management’s view the most pressing
issue confronting the Company is the need for additional capital or modification of the terms of existing senior debt. As of June
30, 2014, the Company’s has a cash balance of approximately $435,000, which at present is the Company’s only assured
source of liquidity due to the regulatory constraints on the Bank’s ability to declared dividends, as described below under
the caption “Regulatory Matters.” Despite the improved health of the Bank, in order to remain solvent beyond the first
quarter of 2015, The Company will require an infusion of capital prior to the maturity of its senior debt on March 31, 2015 (See
Note 11 to the Company’s Consolidated Financial Statements for additional details) e end of the allowable deferral period
on its subordinated debentures and associated trust preferred securities on June 30, 2015 (see Note 10 to the Company’s
Consolidated Financial Statements for additional details). Management and the Board of Directors are actively seeking financing
alternatives, including an infusion of capital or a modification, expansion and extension of the senior debt. Nonetheless, we
cannot be certain that we will be successful in these efforts, or we will be able to obtain the required capital or extension
of credit.



REGULATORY MATTERS



On September 2, 2010, the Bank entered into
a Consent Order with the FDIC and the State of Michigan’s DIFS, its primary regulators. The Bank agreed to the terms of
the Consent Order without admitting or denying any charge of unsafe or unsound banking practices relating to capital, asset quality,
or earnings. The Consent Order imposes no fines or penalties on the Bank. The Consent Order will remain in effect and enforceable
until it is modified, terminated, suspended, or set aside by the FDIC and DIFS. Under the Consent Order, the Bank was required,
within 90 days of September 2, 2010, to have and maintain its level of Tier 1 capital, as a percentage of its total assets, at
a minimum of 8.5%, and its level of qualifying total capital, as a percentage of risk-weighted assets, at a minimum of 11%. The
Bank was not able to meet these requirements within the required 90-day period and remained out of compliance with the Consent
Order as of June 30, 2014.



The lack of financial soundness of the Bank and the Company’s
inability to serve as a source of strength for the Bank resulted in the board of directors entering into a Written Agreement with
the FRB, the Company’s primary regulator. The Written Agreement became effective on December 16, 2010, when it was executed
by the FRB. The Written Agreement provides that: (i) the Company must take appropriate steps to fully utilize its financial and
managerial resources to serve as a source of strength to the Bank; (ii) the Company may not declare or pay any dividends or take
dividends or any other payment representing a reduction in capital from the Bank or make any distributions of interest, principal
or other sums on subordinated debentures or trust preferred securities without prior FRB approval; (iii) the Company may not incur,
increase or guarantee any debt or purchase or redeem any shares of its stock without prior FRB approval; (iv) the Company must
submit a written statement of its planned sources and uses of cash for debt service, operating expenses and other purposes to
the FRB within 30 days of the Written Agreement; (v) the Company shall take all necessary actions to ensure that the Bank, the
Company and all nonbank subsidiaries of both the Bank and the Company comply with sections 23A and 23B of the Federal Reserve
Act and Regulation W of the Board of Governors (12 C.F.R. Part 223) in all transactions between affiliates; (vi) the Company may
not appoint any new director or senior executive officer, or change the responsibilities of any senior executive officer so that
the officer would assume a different senior executive officer position, without prior regulatory approval; and finally (vii) within
30 days after the end of each calendar quarter following the date of the Written Agreement, the board of directors shall submit
to the FRB written progress reports detailing the form and manner of all actions taken to secure compliance with the provisions
of the Written Agreement as well as current copies of the parent company only financial statements. The Company has not yet been
able to meet the obligation detailed in part (i) above; as the Company currently has limited resources with which to assist the
Bank in achieving the capital level required by the Consent Order. At present, the Company’s sole liquidity resource is
its cash account balance which, as of June 30, 2014, was approximately $435,000.



- 45 -







COMMUNITY SHORES BANK CORPORATION

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



Failure to comply with the provisions of the Consent Order
or the Written Agreement may subject the Bank to further regulatory enforcement action.



CRITICAL ACCOUNTING POLICIES AND ESTIMATES: The “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” as well as disclosures found elsewhere in this
Form 10-Q are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America. The preparation of these financial statements requires the Company
to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. The allowance
for loan losses, income taxes and foreclosed assets are deemed critical due to the required level of management judgment and the
use of estimates that are particularly susceptible to significant change in the near term.



Allowance for loan losses.The allowance for loan losses
is maintained at a level believed adequate by management to absorb probable incurred losses inherent in the consolidated loan
portfolio. Management’s evaluation of the adequacy of the allowance is an estimate based on reviews of individual loans
and loan groupings, assessments of the impact of current and anticipated economic conditions on the portfolio and historical loss
experience. See the Financial Condition section of Management’s Discussion and Analysis and Notes 1 and 4 to the Company’s
consolidated financial statements for additional information.



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



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



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



- 46 -







COMMUNITY SHORES BANK CORPORATION

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



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



A tax position is recognized
as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with
a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50%
likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit
is recorded. The Company had no unrecognized tax positions at either June 30, 2014 or December 31, 2013.



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



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



FINANCIAL CONDITION



Total assets were $197.9 million at June 30, 2014 compared
to $190.8 million at December 31, 2013. Asset growth occurring in the first six months of 2014 stemmed from increases to customer
deposit accounts, which in turn drove up the Company’s balance on deposit at the FRB and to a lesser extent provided funding
for loan growth.



Cash and cash equivalents increased by $6.0 million to $23.1
million at June 30, 2014 from $17.1 million at December 31, 2013. The Bank’s FRB balance increased by $5.0 million from
year-end 2013 and was $18.3 million on June 30, 2014. The increase in balance was driven largely by an increase in customer deposit
balances. 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. The excess funds are expected to be used to fund loans and to repay upcoming time deposit maturities.



The Bank’s security portfolio was $31.2
million at both June 30, 2014 and December 31, 2013. Investment activity in the first six months of the year consisted of maturities,
prepayments and calls totaling $4.1 million, purchases totaling $4.7 million and one security sale for $661,000. The sale resulted
in a gain of roughly $7,400. The security was sold because it no longer met the criteria of the Bank’s Investment Policy.



- 47 -







COMMUNITY SHORES BANK CORPORATION

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



The securities portfolio is a key source of liquidity for the
Bank. Given the Bank’s regulatory standing, off-balance-sheet borrowing facilities are significantly limited, forcing the
Bank to resort to on-balance-sheet sources. Accordingly, it remains critical to maintain the unencumbered portion of the Bank’s
security portfolio at a level equal to or perhaps above its general internal policy depending on assessed liquidity needs. The
level of unpledged securities is regularly monitored and needs are formally assessed monthly. Maintaining an adequate level of
pledgeable or saleable securities is one of the driving forces behind investment activity. Typically the Bank aims to leave between
10% and 20% of its investment portfolio unpledged. At June 30, 2014, 16% of the investment portfolio was unencumbered. This outcome
is close to the 15% unpledged position that existed on December 31, 2013.



At June 30, 2014, securities with an amortized cost of $26.1
million were pledged to public fund customers, the FRB discount window and customer repurchase agreements.



Investment portfolio quality has received
much scrutiny over the past several years. The value of the portfolio is impacted by national and global economic news. During
the first six months of 2014, the investment portfolio went from a net unrealized loss to a net unrealized gain position. The
$194,000 change in value was made up of a $201,000 unrealized gain offset by $7,000 of realized gain. Although the portfolio had
a net unrealized gain position of $126,000 at June 30, 2014, there were 20 securities with an amortized cost of $12.6 million
having an unrealized loss of $124,000; 12 of the 20 had an unrealized loss longer than 12 months.



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 June 30, 2014.



Loans held for sale activity during the first
six months of 2014 included $2.3 million of loan originations and $2.5 million of loan sales. The associated gain on the loan
sales was $65,000. There were $111,000 of loans held for sale at June 30, 2014 and $240,000 held for sale at December 31, 2013.
Mortgage loan activity was believed to be negatively affected by the harsh weather in the first three months of 2014. Activity
picked up in the second quarter of 2014 but continues to be less than that of the previous year.



Total loans (held for investment) increased
$1.1 million and were $132.7 million at June 30, 2014 up from $131.6 million at December 31, 2013. Increases in the commercial
and commercial real estate portfolios were largely offset by decreases in nearly every other loan category. At June 30, 2014,
the concentration of commercial and commercial real estate loans was 83%; up from a level of 81% at year-end 2013. The outcome
is in line with the Bank’s wholesale focus which has been maintained since opening in 1999. Improvement in wholesale lending
activity supports management’s belief that the local economy has stabilized substantially and is in fact growing.



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



- 48 -







COMMUNITY SHORES BANK CORPORATION

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



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



The analysis of the allowance for loan losses is comprised
of three portions: general credit allocations, specific credit allocations and unallocated. General credit allocations are made
to various categories of loans based on loan ratings, delinquency trends, historical loss experience as well as current economic
conditions. The specific credit allocation includes a detailed review of a borrower and its entire relationship resulting in an
allocation being made to the allowance for that particular borrower. A loan becomes specifically identified when, based on current
information and events related to that particular borrower, it is probable that the Company will be unable to collect the scheduled
payments of principal and interest according to the contractual terms of the loan agreement. 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 June 30, 2014, the allowance for loan losses totaled $2.7
million. At year-end 2013, the allowance for loan losses was $2.8 million. The ratio of allowance to gross loans outstanding decreased
to a level of 2.07% at June 30, 2014 compared to 2.14% at year-end 2013.



The allocation of the allowance at June 30, 2014 and December
31, 2013 was as follows:



|                         |  | June 30, 2014 |           |  | December 31, 2013 | 
|------------------------ |  | ------------- | --------- |  | ----------------- | 
|                         |  |               |           |  | Percent of        | 
|                         |  |               |           |  | Loans in Each     | 
|Balance at End of Period |  |               |           |  | Category to       | 
|Applicable to:           |  | Amount        |           |  | Total Loans       | 
|Commercial               |  | $             | 428,247   |  |                   | 
|Commercial Real Estate   |  |               | 1,468,382 |  |                   | 
|Consumer                 |  |               | 390,000   |  |                   | 
|Residential              |  |               | 229,779   |  |                   | 
|Unallocated              |  |               | 225,152   |  |                   | 
|Total                    |  | $             | 2,741,560 |  |                   | 



- 49 -







COMMUNITY SHORES BANK CORPORATION

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



The general component of the allowance for loan losses as a
percentage of non-specifically identified loans was 0.81% at June 30, 2014, a decrease of 8 basis points from year-end 2013. At
year-end 2013, the general component of the allowance for loan losses was 0.89% of total non-specifically identified loans. Management
feels that the trend of the general component of the allowance for loan losses is in line with improvement in the local economy,
local unemployment and the overall improvement in the credit quality of the loan portfolio.



At June 30, 2014, there was $225,000 of unallocated reserves
in the allowance for loan losses. Unallocated reserves were $105,000 at December 31, 2013. The increase of $120,000 stemmed primarily
from a large recovery of a previously charged off loan. The recovery occurred in the first quarter of 2014.



At June 30, 2014, the allowance contained $1.5 million in specific
allocations for impaired loans whereas at December 31, 2013 there was $1.6 million specifically allocated. There was $11.7 million
of recorded investment on impaired loans at June 30, 2014 compared to $9.6 million at year-end 2013. The increase stemmed from
a large relationship that was impaired during the first quarter of 2014 in a troubled debt restructure transaction. The relationship
totaled $2.7 million.



Not all specifically identified loans require an allocation
of reserves. In many cases, specifically identified loans have charge-offs since the time of their initial impairment, which reduces
principal to the current value of assigned collateral or expected repayment, therefore no further reserve is required. Specifically
identified loans requiring no reserves rose to 71% of the recorded investment of total specifically identified loans at June 30,
2014; up from 24% at year-end 2013. At June 30, 2014, the recorded investment on impaired loans requiring no reserves was $8.4
million, an increase of $6.1 million since year-end 2013. Three relationships were responsible for the change. One impaired relationship
for $1.6 million required a specific allocation at year-end 2013 but none at March 31, 2014. During the first three months of
2014, the borrower payments reduced principal enough to remove the allocation. The specific allocation associated with the loan
was $7,000 at year-end 2013. The second relationship increasing this category was the $2.7 million TDR transaction mentioned above.
The third impaired relationship’s recorded investment was $2.2 million and had a specific allocation of $193,000 at year-end
2013. In 2014’s second quarter, the Bank charged off the specific allocation associated with this credit which had been
reduced to $164,000. On July 10, 2014, the remaining balance of the loan was paid in full.



Recorded investment on specifically identified loans requiring
reserves was $3.4 million at June 30, 2014 compared to $7.3 million at year-end 2013. The $3.9 million decrease in recorded investment
stemmed from two of the impaired relationships noted above that no longer required reserves; one due to principal repayment in
the first months of the year and the other because of the charge-off taken in the second quarter of the year.



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 2013 to June 30,
2014, the recorded investment in accruing past due and non-accrual loans increased by $23,000. This was evidenced by a $293,000
increase in the recorded investment in past due loans and a $270,000 decrease in the recorded investment in non-accrual loans
since year-end 2013.



The recorded investment of accruing loans
past due 30-59 days was $470,000 at June 30, 2014; an increase of $407,000 since December 31, 2013. There were three loans past
due 30-59 days at June 30, 2014. One of the loans was paid current in July. The biggest loan, totaling $315,000, was placed on
non-accrual in July. The guarantor has filed bankruptcy and the Bank is working with the Bankruptcy Court Trustee to evaluate
the real estate collateral associated with the loan.



- 50 -







COMMUNITY SHORES BANK CORPORATION

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



There were no accruing loans past due 60-89 days at June 30,
2014. At December 31, 2013 the recorded investment of accruing loans past due 60-89 days was $114,000. One loan past due 60-89
days at year-end is now in the 30-59 day past due category; one loan resulted in a $32,000 charge-off and two small loans were
paid in full in the first six months of the year.



There were no accruing loans with a recorded investment past
due 90 days and greater at either June 30, 2014 or year-end 2013.



Although the amount of past due loans has increased compared
to prior periods, the increase is essentially related to two credits one of which is now current. The credit review process will
continue to be stringent; however, it is possible that past dues could fluctuate further in future periods.



Non-accrual loans totaled $2.7 million at June 30, 2014 and
$3.0 million at year-end 2013. No non-accrual notes are secured by undeveloped real estate. At June 30, 2014, there were specific
allocations of $1.1 million in the allowance for any estimated collateral deficiency on non-accrual loans.



The Bank had net charge-offs of $301,000 in the second quarter
of 2014 and net charge offs of $68,000 for the first six months of the year. More than 50% of the second quarter charge-offs were
related to the $163,000 specific allocation on the impaired loan mentioned earlier. Year-to-date net charge-offs are lower than
the total for the second quarter alone due to a $250,000 recovery recorded in the first quarter when the Bank prevailed in a lawsuit
related to a previously charged off credit. The ratio of annualized net charge-offs to average loans was 0.90% for the second
quarter of 2014 while the ratio of net charge-offs to average loans was 0.10% for the first six months of 2014.



The net charge-offs for the second quarter of 2013 were $15,000
and $96,000 for the first half of 2013. The resulting ratio of net charge-offs to average loans for the second quarter of 2013
was 0.05% and 0.15% for the first six months of the same year.



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 risk[1].








| | 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.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



- 51 -







COMMUNITY SHORES
BANK CORPORATION

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



The loan maturities and rate sensitivity of the loan portfolio
at June 30, 2014 are set forth below:



|                        |  | Within       |            |  | Three to      |   |            | One to     |  |   | After      |  |  |       |           
|----------------------- |  | ------------ | ---------- |  | ------------- | - | ---------- | ---------- |  | - | ---------- |  |  | ----- | ----------
|                        |  | Three Months |            |  | Twelve Months |   |            | Five Years |  |   | Five Years |  |  | Total |           
|Commercial              |  | $            | 7,052,392  |  |               | $ | 15,783,466 |            |  | $ | 20,625,431 |  |  | $     | 7,756,760 
|Commercial Real Estate: |  |              |            |  |               |   |            |            |  |   |            |  |  |       |           
|General                 |  |              | 4,170,351  |  |               |   | 7,931,878  |            |  |   | 38,140,422 |  |  |       | 6,016,113 
|Construction            |  |              | 0          |  |               |   | 1,487,536  |            |  |   | 615,908    |  |  |       | 0         
|Consumer:               |  |              |            |  |               |   |            |            |  |   |            |  |  |       |           
|Lines of credit         |  |              | 412,141    |  |               |   | 203,836    |            |  |   | 2,464,313  |  |  |       | 3,979,254 
|Other                   |  |              | 56,038     |  |               |   | 59,374     |            |  |   | 745,421    |  |  |       | 504,789   
|Credit card             |  |              | 53,379     |  |               |   | 165,407    |            |  |   | 253,532    |  |  |       | 0         
|Residential             |  |              | 0          |  |               |   | 258,725    |            |  |   | 0          |  |  |       | 13,966,773
|                        |  | $            | 11,744,301 |  |               | $ | 25,890,222 |            |  | $ | 62,845,027 |  |  | $     | 32,223,689
|Loans at fixed rates    |  | $            | 7,087,147  |  |               | $ | 13,587,883 |            |  | $ | 48,445,530 |  |  | $     | 25,271,077
|Loans at variable rates |  |              | 4,657,154  |  |               |   | 12,302,339 |            |  |   | 14,399,497 |  |  |       | 6,952,612 
|                        |  | $            | 11,744,301 |  |               | $ | 25,890,222 |            |  | $ | 62,845,027 |  |  | $     | 32,223,689



At June 30, 2014, there were 71% of the loan balances carrying
a fixed rate and 29% a floating rate. Since 2008, the Bank’s concentration of fixed rate loans has been increasing. Some
of the shift is a factor of the types of loans that have 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. It is likely that future rate movements will be rising given the extended
period of low rates that has existed over the past few years. As a result of the current mix of the loan portfolio, management
will be challenged to improve loan income in a rising rate environment.



The maturity distribution of the loan portfolio has lengthened
over the last several years but still remains at a level which is within the parameters determined to be acceptable by management.
At June 30, 2014, approximately 24% of the entire loan portfolio had a contractual maturity longer than five years; down from
26% at year-end 2013. To control extension risk, management tries to ensure that loans with a longer contractual maturity are
either floating rate or have a repricing or balloon date that is much shorter than the amortization period. A majority of the
loans in the greater than five year contractual maturity are residential mortgage loans. Statistically, it has been shown that
loans of this type do not generally remain on the books until maturity as a result of customer repricing opportunities or changes
in circumstance. Additionally, the mortgage staff remains focused on originating loans saleable into the secondary market, thus
minimizing the number of loans that are booked into the held for investment portfolio.



Foreclosed assets were $2.5 million at June 30, 2014, which
was a decrease of $60,000 since December 31, 2013. These assets consist of relinquished properties through the collection process
which were previously customer collateral supporting various borrowings. There were four lot and four property sales during the
first six months of 2014 and four properties were added. There were net gains on the sales of $91,000. At June 30, 2014, foreclosed
assets consisted of 23 real estate holdings, the same as at December 31, 2013.



- 52 -







COMMUNITY SHORES BANK CORPORATION

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



Deposit balances were $177.0 million at June 30, 2014 up from
$171.9 million at December 31, 2013. The increase stemmed from interest-bearing demand deposits increasing by $6.5 million, money
market balances increasing by $2.2 million; the sum of which was partially offset by a $3.9 million decrease in the time deposit
portfolio since year-end 2013. Over 70% of the increase in interest-bearing checking balances is from additional funds on deposit
by the Bank’s leading public fund customers. Over 40% of the increase in money market balances is from a customer relationship
transferring from a demand deposit account to a money market account and the rest is from an increase in the balances of a few
public fund customers. Management made a deliberate effort to contract the time deposit during the first half of the year in an
effort to reduce excess liquidity at the FRB.



Repurchase agreement balances were $10.0
million at June 30, 2014 and $8.4 million at December 31, 2013; an increase of $1.6 million. The increase between the two period
ends was primarily the result of several existing customers increasing their balance since year-end 2013.



Shareholders’ equity was approximately
$4.1 million on June 30, 2014. On December 31, 2013, the balance was $3.7 million. The net increase of $391,000 was made up of
net income recorded in the first six months of 2014 and an increase in accumulated other comprehensive income (security market
value adjustments). The book value per share was $2.76 at June 30, 2014.



The Bank’s total risk-based capital
ratio rose since year-end 2013. At June 30, 2014, the Bank’s total risk-based capital ratio was 8.52%. The Bank’s
total risk-based capital ratio at December 31, 2013 was 8.48%. Its tier one to average assets ratio declined 15 basis points and
was 5.09% at June 30, 2014 compared to 5.24% at year-end 2013. The total risk-based capital ratio improved because of the Bank’s
earnings recorded in the first half of 2014. The tier one to average assets ratio declined since year-end 2013 due to the liquidity
fluctuation increasing the Bank’s FRB account. The Bank was considered adequately capitalized according to prompt corrective
action regulation at both June 30, 2014 and December 31, 2013.



Under the Consent Order, the Bank is required
to have and maintain its level of tier one capital, as a percentage of its total assets, at a minimum of 8.5%, and its level of
qualifying total capital, as a percentage of risk-weighted assets, at a minimum of 11%. The Consent Order capital requirements
were effective beginning with the December 31, 2010 capital reporting period. The Bank was not in compliance with required capital
ratios at the December 2010 capital reporting period and remains out of compliance at June 30, 2014. In order to attain the level
of capital required by the Consent Order, the Bank would have needed additional capital of $6,759,000 on June 30, 2014 based on
its asset mix and size. This is $708,000 more than the $6,051,000 that would have been needed on December 31, 2013. The increase
in average assets since year-end 2013 increased the capital need.



RESULTS OF OPERATIONS



Net income recorded for the first half of 2014 was $213,000;
$5.2 million less than net income recorded for the similar period in 2013. The income recorded in the first six months of 2013
stemmed mainly from a $5.3 million gain on debt extinguishment. The corresponding basic and diluted earnings per share for the
first six months of 2014 was $0.14. The basic and diluted earnings per share for the first six months of 2013 was $3.66; $3.58
per share of which was attributable to the aforementioned gain on the debt extinguishment.



- 53 -







COMMUNITY SHORES BANK CORPORATION

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



Net income for the second quarter of 2014 was $102,000, which
was $27,000 more than net income of $75,000 recorded for the second quarter of 2013. The corresponding basic and diluted earnings
per share for the second quarter of 2014 was $0.07. The basic and diluted earnings per share for the second quarter of 2013 was
$0.05.



For the first six months
of 2014, the annualized return on the Company’s average total assets was 0.22% compared to 5.41% for the first six months
of 2013. The annualized return on the Company’s average total assets was greatly impacted by the aforementioned gain on
the debt extinguishment occurring in 2013’s first quarter. For the second quarter of 2014, the annualized return on the
Company’s average total assets was 0.21%. For the second quarter of 2013, the annualized return on the Company’s average
assets was 0.15%.



For the first half of 2014, the annualized return on the Company’s
average equity was 10.88%. For the second quarter of 2014, the annualized return on the Company’s average equity was 10.27%.
The Company’s average shareholders’ equity became positive in the first quarter of 2013 after recording the $5.3 million
debt extinguishment gain on March 20, 2013. The low equity average and the high net income greatly inflated the annualized return
on equity results for 2013. For the first six months of 2013, the annualized return on shareholders’ equity was 624.49%.
Since the average equity was positive for the entire second quarter of 2013, the annualized return on shareholders’ equity
results were normalized at a level of 7.74%.



- 54 -







COMMUNITY SHORES BANK CORPORATION

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



A primary component of
the Company’s revenue is its net interest income. The Company’s net interest income was less for the first half of
2014 compared to the similar period in 2013 and the net interest margin was lower. 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.



|                                                                        |  | Six Months ended June 30, |            
|----------------------------------------------------------------------- |  | ------------------------- | -----------
|                                                                        |  | 2014                      |            
|                                                                        |  | Average                   |            
|                                                                        |  | Balance                   |            
|Assets                                                                  |  |                           |            
|Federal funds sold and interest- bearing
    deposits with banks        |  | $                         | 19,168,887 
|Securities                                                              |  |                           | 30,786,777 
|Loans (including held for sale
    and non accrual)                     |  |                           | 132,934,642
|Total interest earning assets                                           |  |                           | 182,890,306
|Other assets                                                            |  |                           | 12,849,633 
|                                                                        |  | $                         | 195,739,939
|Liabilities and Shareholders’ Equity                                    |  |                           |            
|Interest-bearing deposits                                               |  | $                         | 142,257,143
|Repurchase agreements                                                   |  |                           | 8,809,976  
|Subordinated debentures and notes
    payable                           |  |                           | 5,780,000  
|Total interest bearing liabilities                                      |  |                           | 156,847,119
|Non-interest-bearing deposits                                           |  |                           | 34,206,280 
|Other liabilities                                                       |  |                           | 771,958    
|Shareholders’ Equity                                                    |  |                           | 3,914,582  
|                                                                        |  | $                         | 195,739,939
|Net interest income                                                     |  |                           |            
|Net interest spread on earning
    assets                               |  |                           |            
|Net interest margin on earning
    assets                               |  |                           |            
|Average interest-earning assets to average interest-bearing liabilities |  |                           |            



The net interest spread on average earning assets decreased
6 basis points to 3.32% in the past twelve months. The net interest margin decreased by 8 basis points from 3.50% for the first
six months of 2013 to 3.42% for the first six months of 2014. The net interest income for the first six months of 2014 was $3.1
million compared to a figure of $3.3 million for the same six months in 2013. Additionally, there was a decrease in average earning
assets of $3.1 million when comparing the first half of 2014 to the first half of 2013. As a result of having less net interest
income and fewer average earning assets, the net interest margin declined. The erosion stemmed primarily from a 17 basis point
reduction in the average rate earned on the Company’s earning assets. The decrease was partially offset by an 11 basis point
reduction in the yield paid on interest bearing liabilities.



- 55 -







COMMUNITY SHORES BANK CORPORATION

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



The average rate earned on interest earning assets was 4.03%
for the six month period ending June 30, 2014 compared to 4.20% for the same period in 2013. The decline was caused by both rate
and earning asset composition differences. The average rate earned on deposits at other financial institutions and the securities
portfolio remained similar for both periods however, the concentration of these earning assets was different. In 2013’s
first half there were more securities and a lower balance on deposit at other financial institutions. In addition to these differences,
there was a reduction in the yield on the loan portfolio, the Company’s largest earning asset category. The average rate
earned on the loan portfolio was 5.17% in the first half of 2014, a reduction of 29 basis points compared to the first half of
2013. As the credit markets recover, financial institutions are more actively soliciting new business making the rate environment
more competitive. In order to attract new customers and retain current ones, sometimes the Bank has to offer rates that are lower
than the average portfolio rate. Each rate decision takes into consideration the quality of the loan from an underwriting standpoint.
Lower rates are not being automatically offered on renewals or new business. Lower rates are used selectively based on the risk
characteristics of the credit.



Decreases to the overall yield on interest earning assets were
partially offset by rate reductions on the funding side. Over the past twelve months, the cost of funds improved 11 basis points.
The main contributing factor was a 14 basis point improvement in the rate paid on interest bearing deposits when comparing the
first six months of 2014 to that of the similar period of 2013; a majority of the improvement was the result of a 16 basis point
reduction in the average rate paid on the time deposit portfolio over the last twelve months. As time deposits are maturing, the
Bank has been successful at securing lower rates and longer maturities if the deposits need to be replaced.



Additionally, there were
improvements in the average rate paid on repurchase agreements between the first half of 2014 and the first half of 2013. The
average rate paid on repurchase agreements was 5 basis points less. Conversely, there were increases to the average rate on subordinated
debentures and notes payable. The average rate paid on subordinated debentures and notes payable increased by 44 basis points
due to the difference in the rate on notes payable between the two six month periods.



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COMMUNITY SHORES BANK CORPORATION

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



The quarter-to-quarter comparison of consolidated average interest
earning assets and interest bearing liabilities and average yield on assets and average cost of liabilities for the second quarter
ended June 30, 2014 and 2013 is in the table below.



|                                                                        |  | Three Months ended June 30, |            
|----------------------------------------------------------------------- |  | --------------------------- | -----------
|                                                                        |  | 2014                        |            
|                                                                        |  | Average                     |            
|                                                                        |  | Balance                     |            
|Assets                                                                  |  |                             |            
|Federal funds sold and interest- bearing deposits with banks            |  | $                           | 20,810,449 
|Securities                                                              |  |                             | 30,401,472 
|Loans (including held for sale and non accrual)                         |  |                             | 133,840,733
|Total interest earning assets                                           |  |                             | 185,052,654
|Other assets                                                            |  |                             | 13,067,009 
|                                                                        |  | $                           | 198,119,663
|Liabilities and Shareholders’ Equity                                    |  |                             |            
|Interest-bearing deposits                                               |  | $                           | 143,997,385
|Repurchase agreements                                                   |  |                             | 9,123,899  
|Subordinated debentures and notes payable                               |  |                             | 5,780,000  
|Total interest bearing liabilities                                      |  |                             | 158,901,284
|Non-interest-bearing deposits                                           |  |                             | 34,345,083 
|Other liabilities                                                       |  |                             | 915,001    
|Shareholders’ Equity                                                    |  |                             | 3,979,399  
|                                                                        |  | $                           | 198,140,767
|Net interest income                                                     |  |                             |            
|Net interest spread on earning assets                                   |  |                             |            
|Net interest margin on earning assets                                   |  |                             |            
|Average interest-earning assets to average interest-bearing liabilities |  |                             |            



Net interest income increased $26,000 in the second quarter
of 2014 over the similar period in 2013. Accordingly, the net interest spread on average earning assets improved by 1 basis point
and was 3.28% compared to a spread of 3.27% for the second quarter of 2013. Conversely, the net interest margin for the second
quarter of 2014 decreased 1 basis point against the comparable period in 2013. The net interest margin for the second quarter of
2014 was 3.38% compared to 3.39% for the second quarter of 2013. Although there was an 11 basis point decline in the yield on earning
assets between the second quarter of 2014 and the same quarter in 2013, there was also a reduction in yield paid on interest-bearing
liabilities of 12 basis points between the same two periods.



The average rate earned on interest earning assets was 3.98%
for the three month period ending June 30, 2014, compared to 4.09% for the same period in 2013. The two biggest earning asset categories,
securities and loans, each had a decline in yield when comparing the second quarter of 2014 to the similar period of 2013. The
10 basis point reduction to the average rate earned on the loan portfolio was the largest factor in the overall decrease.



- 57 -







COMMUNITY SHORES BANK CORPORATION

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



Similar to the decrease to the overall yield on interest earning
assets, there was a 12 basis point decline in the Company’s cost of funds. The main contributing factor was a 13 basis point
improvement in the rate paid on interest bearing deposits when comparing the second quarter of 2014 to that of the similar period
in 2013; the entire improvement was linked to a 17 basis point reduction in the average rate paid on the time deposit portfolio
between the two periods.



Management will continue to seek ways to improve the cost of
funds but it is unlikely that decreases will be enough to offset potential reductions in the average rate earned on earning assets.
As such, management expects that the net interest margin may continue to decrease throughout the remaining quarters of 2014.



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



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.



- 58 -







COMMUNITY SHORES BANK CORPORATION

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



Details of the repricing gap at June 30, 2014 were:



|                                                          |  | Interest Rate Sensitivity Period |            
|--------------------------------------------------------- |  | -------------------------------- | -----------
|                                                          |  | Within                           |            
|                                                          |  | Three                            |            
|                                                          |  | Months                           |            
|Earning assets                                            |  |                                  |            
|Interest-bearing deposits in other financial institutions |  | $                                | 18,381,632 
|Securities (including FHLB stock)                         |  |                                  | 2,710,989  
|Loans held for sale                                       |  |                                  |            
|Loans                                                     |  |                                  | 49,957,079 
|                                                          |  |                                  | 71,049,700 
|Interest-bearing liabilities                              |  |                                  |            
|Savings and checking                                      |  |                                  | 63,287,767 
|Time deposits <$100,000                                   |  |                                  | 11,303,724 
|Time deposits >$100,000                                   |  |                                  | 2,271,203  
|Repurchase agreements and Federal funds purchased         |  |                                  | 10,020,151 
|Notes payable and other borrowings                        |  |                                  | 4,500,000  
|                                                          |  |                                  | 91,382,845 
|Net asset (liability) repricing gap                       |  | $                                | (20,333,145
|Cumulative net asset (liability) repricing gap            |  | $                                | (20,333,145



Currently, the Company has a negative twelve month repricing
gap which indicates that the Company is liability sensitive in the next twelve month period. This position implies that more rate
bearing products have an opportunity to reprice during this period. If the rate environment remains flat like the Federal Open
Market Committee of the Federal Reserve System has forecasted, a negative repricing gap should be helpful for further reduction
to the Company’s overall interest expense, however it is unknown whether the reduction will offset the repricing opportunities
for loans scheduled to renew. Nonetheless, if the Company’s gap position remains negative when interest rates begin to rise,
there will likely be a negative effect on net interest income. The interest rate sensitivity table above simply illustrates what
the Company is contractually able to change in certain time frames.



There was no provision for loan losses for the first two quarters
of 2013 or the first two quarters of 2014. The provision expense is associated with changes in historical loss calculations, economic
condition (local and national) as well as delinquency, charge offs and changes to credit quality grades; up and down. A methodical
assessment of these factors generates the reserves required for the risk in the Bank’s loan portfolio and the required provision
expense. Management will continue to review the allowance with the intent of maintaining it at an appropriate level for the portfolio’s
credit quality and perceived risk factors. The provision for loan losses is an estimate and may be increased or decreased in the
future.



- 59 -







COMMUNITY SHORES BANK CORPORATION

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



Non-interest income recorded in the first six months of 2014
was $856,000 compared to $6.1 million recorded for the similar period in 2013. The difference stemmed mainly from a $5.3 million
gain on the debt extinguishment. On March 20, 2013, the Company, with approval from the FRB, borrowed $1,280,000 from 1030 Norton
LLC, a Michigan limited liability company owned by nine individuals including three directors of the Company; Gary F. Bogner, Robert
L. Chandonnet, and Bruce J. Essex. On the same day, $500,000 of the proceeds were used to settle, in full, a defaulted debt with
a financial institution. At closing, the balance owed was approximately $5.8 million. The extinguishment of debt resulted in a
gain of $5.3 million.



Other differences in non-interest income stemmed from gains
on the sale of foreclosed assets and residential real estate loans. In the first six months of 2014, foreclosed asset sales netted
the Company $91,000 in gains while the foreclosed asset sales for the same period in 2013 resulted in net gains of $44,000. The
$47,000 in additional gains on foreclosed asset sales helped to absorb lower than expected gains on the sale of residential real
estate loans for the first half of 2014. During the first two quarters of 2014, gains on residential real estate sales were $65,000
and were $62,000 less than the same period in 2013. Although the rate environment continues to be very conducive to mortgage lending
activity, the harsh weather in the first quarter and first few months of the second quarter of 2014 is believed to have negatively
affected home sales.



Non-interest income for the second quarter of 2014 was $447,000
compared to $427,000 of non-interest income in the second quarter of 2013. Gains on residential real estate loan sales were $38,000
for the second quarter of 2014. For the similar period in 2013, gains on residential loan sales were $60,000. This $22,000 differential
was fully negated by increases in other non-interest income, specifically rental income. Rental income received in the second quarter
of 2014 was $30,000 more than the second quarter of 2013. In the fourth quarter of 2013, the Bank leased unused space at its Harvey
Street location.



Non-interest expenses for the first half of 2014 were $3.8 million;
$62,000 less than the total for the first half of 2013. Increases to salary, benefits and data processing expenses were more than
offset by decreases to foreclosed asset impairments, equipment depreciation and collection expenses.



Non-interest expenses rounded to $1.9 million for the second
quarter of 2014, the same total as the second quarter of 2013. As a result of further improvement in property values, foreclosed
assets impairment charges were $47,000 less in the second quarter 2014 compared to the same quarter in 2013. This benefit helped
to offset a difference in FDIC insurance premiums between the two quarters. FDIC Insurance expense netted to $51,000 in the second
quarter of 2013. The expense for the year ago quarter included a $58,000 accrual adjustment for reduced premiums as a result of
an improvement in the Bank’s regulatory capital ratio beginning in the first quarter of 2013.



As a result of the large gain on the extinguishment
of debt, the Company recorded income tax expense from operations in the amount of $105,000. This amount represents projected taxable
earnings subject to alternative minimum taxation which may fluctuate throughout the year with changes in operating results. Additionally,
the gain on the extinguishment of debt may result in a reduction of net operating loss carry forward tax attributes by an estimated
$5.3 million.  Even so, the Company’s net operating loss carry forward remaining was over $7 million at year-end 2013.



There was no income tax expense recorded for either the first
or second quarter of 2014, however, as a result of the large gain on the extinguishment of debt noted above, the Company recorded
income tax expense from operations in the amount of $105,000 in 2013’s first quarter. This amount represented projected taxable
earnings subject to alternative minimum taxation.



- 60 -







COMMUNITY SHORES BANK CORPORATION

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



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 June 30, 2014. 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 June
30, 2014.



There have been no changes in the internal control over financial
reporting during the quarter ended June 30, 2014, that have materially affected, or are reasonably likely to materially affect,
the Company's internal control over financial reporting.



- 61 -







COMMUNITY SHORES BANK CORPORATION

PART II – OTHER INFORMATION



ITEM 1.               LEGAL PROCEEDINGS



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



ITEM 1A.           RISK FACTORS



Not applicable for smaller reporting companies.



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



The Company made no unregistered sale of equity securities,
and did not purchase any of its equity securities, during the quarter ended June 30, 2014.



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



Under the terms of the subordinated debentures that the Company
issued to the Trust, the Company is precluded from paying cash dividends on the Company's common stock if an event of default has
occurred and is continuing under the subordinated debentures, or if the Company has exercised its right to defer payments of interest
on the subordinated debentures, until the deferral ends. Commencing in May of 2010, the Company gave notice that it was deferring
the regularly scheduled quarterly interest payments on the subordinated debentures beginning with the quarterly interest payment
that was scheduled to be paid on June 30, 2010. So until the deferral ends, the terms of the subordinated debentures preclude the
Company from paying any dividends on the common stock (see Note 10 to the Company’s Consolidated Financial Statements for
additional details). If the Company had any preferred stock outstanding, it would similarly be precluded from paying any dividend
on the preferred stock.



- 62 -







COMMUNITY SHORES BANK CORPORATION



ITEM 3.               DEFAULTS UPON SENIOR SECURITIES



Not applicable.



ITEM 4.               MINE SAFETY DISCLOSURES



Not applicable.



ITEM 5.               OTHER INFORMATION



None.



ITEM 6.               EXHIBITS



|Exhibit
    No. |  | EXHIBIT
    DESCRIPTION                                                                                                                       
|--------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------
|                |  |                                                                                                                                               
|3.1             |  | Articles of Incorporation are incorporated by reference to exhibit 3.1 of the Company’s June 30, 2004 Form 10-QSB (SEC file number 333-63769).
|3.2             |  | Bylaws of the Company are incorporated by reference to exhibit 3(ii) of the Company’s Form 8-K filed July 5, 2006 (SEC file number 000-51166).
|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.                                                                                           



- 63 -







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    
|--------------- |  | -------------------------------------
|                |  |                                      
|August 14, 2014 |  | By:                                  
|Date            |  | Heather D. Brolick                   
|                |  | President and Chief Executive Officer
|                |  | (principal executive officer)        



|August 14, 2014 |  | By:                                                          | /s/ Tracey A. Welsh
|--------------- |  | ------------------------------------------------------------ | -------------------
|Date            |  | Tracey A. Welsh                                             
|                |  | Senior Vice President, Chief Financial Officer and Treasurer
|                |  | (principal financial and accounting officer)                



- 64 -







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.                                                                                           



- 65 -