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



or



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



|For the
transition period from |  | to | 
|------------------------------ |  | -- | 



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



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



|Michigan                                                           | 38-3423227                              
|------------------------------------------------------------------ | ----------------------------------------
|(State or other jurisdiction
    of incorporation or organization) | (I.R.S. Employer
    Identification No.)



|1030
    W. Norton Avenue, Muskegon, MI      | 49441     
|-------------------------------------------- | ----------
|(Address of principal
    executive offices) | (Zip Code)



|(231)
    780-1800                                      
|--------------------------------------------------------
|(Registrant’s
    telephone number, including area code)



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



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

x Yes  ̈
No



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

 ̈Yes x No



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



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



If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ̈



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

 ̈Yes x No



At
August 14, 2017, 4,101,664 shares of common stock were outstanding.


















Community
Shores Bank Corporation Index



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











PART
I – FINANCIAL INFORMATION



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



COMMUNITY
SHORES BANK CORPORATION

CONDENSED
CONSOLIDATED BALANCE SHEETS



|                                                                                                                                          |  | June
    30, |             |   | December
    31, |  
|----------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ----------- | - | ---------------- | -
|                                                                                                                                          |  | 2017         |             |   | 2016             |  
|                                                                                                                                          |  | (unaudited)  |             |   | (audited)        |  
|ASSETS                                                                                                                                    |  |              |             |   |                  |  
|Cash and due from financial
    institutions                                                                                              |  | $            | 3,726,821   |   |                  | $
|Interest-bearing
    deposits in other financial institutions                                                                             |  |              | 20,629,648  |   |                  |  
|Total cash and cash
    equivalents                                                                                                       |  |              | 24,356,469  |   |                  |  
|Term deposit                                                                                                                              |  |              | 100,000     |   |                  |  
|Securities available for sale (at fair
    value)                                                                                         |  |              | 17,104,789  |   |                  |  
|Loans held for sale                                                                                                                       |  |              | 44,000      |   |                  |  
|Loans                                                                                                                                     |  |              | 138,708,122 |   |                  |  
|Less: Allowance
    for loan losses                                                                                                       |  |              | 1,778,315   |   |                  |  
|Net loans                                                                                                                                 |  |              | 136,929,807 |   |                  |  
|Federal Home Loan Bank stock (at cost)                                                                                                    |  |              | 300,500     |   |                  |  
|Premises and equipment, net                                                                                                               |  |              | 8,337,437   |   |                  |  
|Accrued interest receivable                                                                                                               |  |              | 396,717     |   |                  |  
|Foreclosed assets                                                                                                                         |  |              | 1,355,560   |   |                  |  
|Net deferred tax assets                                                                                                                   |  |              | 3,951,891   |   |                  |  
|Other assets                                                                                                                              |  |              | 602,445     |   |                  |  
|Total
    assets                                                                                                                          |  | $            | 193,479,615 |   |                  | $
|LIABILITIES AND SHAREHOLDERS’
    EQUITY                                                                                                  |  |              |             |   |                  |  
|Deposits                                                                                                                                  |  |              |             |   |                  |  
|Non-interest-bearing                                                                                                                      |  | $            | 43,340,389  |   |                  | $
|Interest-bearing                                                                                                                          |  |              | 125,621,468 |   |                  |  
|Total deposits                                                                                                                            |  |              | 168,961,857 |   |                  |  
|Repurchase agreements                                                                                                                     |  |              | 5,255,475   |   |                  |  
|Subordinated debentures                                                                                                                   |  |              | 4,500,000   |   |                  |  
|Accrued expenses
    and other liabilities                                                                                                |  |              | 538,519     |   |                  |  
|Total liabilities                                                                                                                         |  |              | 179,255,851 |   |                  |  
|Shareholders’ equity                                                                                                                      |  |              |             |   |                  |  
|Preferred
    Stock, no par value: 1,000,000 shares authorized and none issued                                                            |  |              | 0           |   |                  |  
|Common Stock,
    no par value: 9,000,000 shares authorized; 4,101,664 issued and outstanding at both June 30, 2017 and December 31, 2016 |  |              | 19,631,670  |   |                  |  
|Accumulated deficit                                                                                                                       |  |              | (5,380,684  | ) |                  |  
|Accumulated
    other comprehensive loss                                                                                                  |  |              | (27,222     | ) |                  |  
|Total
    shareholders’ equity                                                                                                            |  |              | 14,223,764  |   |                  |  
|Total
    liabilities and shareholders’ equity                                                                                            |  | $            | 193,479,615 |   |                  | $



See
accompanying notes to consolidated financial statements.



-1-







COMMUNITY
SHORES BANK CORPORATION

CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)



|                                                        |  | Three
    Months |           |  | Three
    Months |   |           | Six
    Months |  |   | Six
    Months | 
|------------------------------------------------------- |  | ---------------- | --------- |  | ---------------- | - | --------- | -------------- |  | - | -------------- | 
|                                                        |  | Ended            |           |  | Ended            |   |           | Ended          |  |   | Ended          | 
|                                                        |  | June
    30,     |           |  | June
    30,     |   |           | June
    30,   |  |   | June
    30,   | 
|                                                        |  | 2017             |           |  | 2016             |   |           | 2017           |  |   | 2016           | 
|Interest and dividend income                            |  |                  |           |  |                  |   |           |                |  |   |                | 
|Loans,
    including fees                               |  | $                | 1,707,206 |  |                  | $ | 1,575,056 |                |  | $ | 3,370,300      | 
|Securities (including
    FHLB dividends)               |  |                  | 65,670    |  |                  |   | 74,625    |                |  |   | 128,867        | 
|Federal
    funds sold and other income                 |  |                  | 72,174    |  |                  |   | 22,256    |                |  |   | 119,359        | 
|Total interest
    and dividend income                  |  |                  | 1,845,050 |  |                  |   | 1,671,937 |                |  |   | 3,618,526      | 
|Interest expense                                        |  |                  |           |  |                  |   |           |                |  |   |                | 
|Deposits                                                |  |                  | 168,320   |  |                  |   | 157,311   |                |  |   | 334,867        | 
|Repurchase agreements
    and other short-term debt     |  |                  | 5,091     |  |                  |   | 3,900     |                |  |   | 9,354          | 
|Federal
    Home Loan Bank advances and notes payable   |  |                  | 38,675    |  |                  |   | 31,417    |                |  |   | 74,821         | 
|Total
    interest expense                              |  |                  | 212,086   |  |                  |   | 192,628   |                |  |   | 419,042        | 
|Net Interest Income                                     |  |                  | 1,632,964 |  |                  |   | 1,479,309 |                |  |   | 3,199,484      | 
|Provision for loan
    losses                           |  |                  | 173,719   |  |                  |   | 0         |                |  |   | 173,719        | 
|Net Interest Income
    After Provision for Loan Losses |  |                  | 1,459,245 |  |                  |   | 1,479,309 |                |  |   | 3,025,765      | 
|Non-interest income                                     |  |                  |           |  |                  |   |           |                |  |   |                | 
|Service charges on
    deposit accounts                 |  |                  | 102,877   |  |                  |   | 107,489   |                |  |   | 214,239        | 
|Gain on sale of loans                                   |  |                  | 65,729    |  |                  |   | 37,018    |                |  |   | 154,069        | 
|Gain on sale of foreclosed
    assets                   |  |                  | 25,022    |  |                  |   | 112,132   |                |  |   | 51,051         | 
|Other                                                   |  |                  | 203,547   |  |                  |   | 216,211   |                |  |   | 395,063        | 
|Total non-interest
    income                           |  |                  | 397,175   |  |                  |   | 472,850   |                |  |   | 814,422        | 
|Non-interest expense                                    |  |                  |           |  |                  |   |           |                |  |   |                | 
|Salaries and employee
    benefits                      |  |                  | 996,096   |  |                  |   | 982,170   |                |  |   | 2,027,119      | 
|Occupancy                                               |  |                  | 141,836   |  |                  |   | 146,893   |                |  |   | 292,772        | 
|Furniture and equipment                                 |  |                  | 85,612    |  |                  |   | 101,499   |                |  |   | 174,379        | 
|Advertising                                             |  |                  | 1,425     |  |                  |   | 2,400     |                |  |   | 5,968          | 
|Data processing                                         |  |                  | 127,926   |  |                  |   | 120,485   |                |  |   | 251,344        | 
|Professional services                                   |  |                  | 102,487   |  |                  |   | 123,188   |                |  |   | 189,812        | 
|Foreclosed asset
    impairment                         |  |                  | 68,062    |  |                  |   | 85,414    |                |  |   | 97,483         | 
|FDIC insurance                                          |  |                  | 35,513    |  |                  |   | 60,473    |                |  |   | 73,846         | 
|Other                                                   |  |                  | 258,885   |  |                  |   | 215,356   |                |  |   | 482,530        | 
|Total non-interest
    expense                          |  |                  | 1,817,842 |  |                  |   | 1,837,878 |                |  |   | 3,595,253      | 
|Income Before Federal
    Income Taxes                  |  |                  | 38,578    |  |                  |   | 114,281   |                |  |   | 244,934        | 
|Federal income
    tax expense                          |  |                  | 13,116    |  |                  |   | 35,610    |                |  |   | 83,277         | 
|Net
    Income                                          |  | $                | 25,462    |  |                  | $ | 78,671    |                |  | $ | 161,657        | 
|Basic average shares outstanding                        |  |                  | 4,101,664 |  |                  |   | 4,101,664 |                |  |   | 4,101,664      | 
|Diluted average shares outstanding                      |  |                  | 4,128,697 |  |                  |   | 4,101,664 |                |  |   | 4,130,172      | 
|Basic income earnings per share                         |  | $                | 0.01      |  |                  | $ | 0.02      |                |  | $ | 0.04           | 
|Diluted income earnings per share                       |  | $                | 0.01      |  |                  | $ | 0.02      |                |  | $ | 0.04           | 



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, 2017 |        |   | June
    30, 2016 |   |         | June
    30, 2017 |  |   | June
    30, 2016 |  
|                                                                                      |  |                   |        |   |                   |   |         |                   |  |   |                   |  
|Net income                                                                            |  | $                 | 25,462 |   |                   | $ | 78,671  |                   |  | $ | 161,657           |  
|                                                                                      |  |                   |        |   |                   |   |         |                   |  |   |                   |  
|Other comprehensive income (loss):                                                    |  |                   |        |   |                   |   |         |                   |  |   |                   |  
|Unrealized
    holding gains (losses) on available for sale securities                |  |                   | (3,573 | ) |                   |   | 47,655  |                   |  |   | (7,337            | )
|Less
    reclassification adjustments for unrealized gains later recognized in income |  |                   | 0      |   |                   |   | 0       |                   |  |   | 0                 |  
|                                                                                      |  |                   | (3,573 | ) |                   |   | 47,655  |                   |  |   | (7,337            | )
|Tax
    effect                                                                        |  |                   | 1,215  |   |                   |   | (16,203 | )                 |  |   | 2,495             |  
|Other
    comprehensive income (loss), net of tax                                     |  |                   | (2,358 | ) |                   |   | 31,452  |                   |  |   | (4,842            | )
|                                                                                      |  |                   |        |   |                   |   |         |                   |  |   |                   |  
|Comprehensive
    income                                                              |  | $                 | 23,104 |   |                   | $ | 110,123 |                   |  | $ | 156,815           |  



See
accompanying notes to consolidated financial statements.



-3-







COMMUNITY
SHORES BANK CORPORATION

CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(UNAUDITED)



|                                                                          |  |        |           |  |        |   |            |             |  |   | Accumulated       |   |  |               |        
|------------------------------------------------------------------------- |  | ------ | --------- |  | ------ | - | ---------- | ----------- |  | - | ----------------- | - |  | ------------- | -------
|                                                                          |  |        |           |  |        |   |            |             |  |   | Other             |   |  | Total         |        
|                                                                          |  |        |           |  | Common |   |            | Accumulated |  |   | Comprehensive     |   |  | Shareholders’ |        
|                                                                          |  | Shares |           |  | Stock  |   |            | Deficit     |  |   | Income
    (Loss) |   |  | Equity        |        
|                                                                          |  |        |           |  |        |   |            |             |  |   |                   |   |  |               |        
|Balance at January 1, 2016                                                |  |        | 1,468,800 |  |        | $ | 13,296,691 |             |  | $ | (5,705,469        | ) |  | $             | (28,795
|                                                                          |  |        |           |  |        |   |            |             |  |   |                   |   |  |               |        
|Proceeds from rights
    offering, net of issuance costs                  |  |        | 1,383,299 |  |        |   | 3,290,183  |             |  |   |                   |   |  |               |        
|Proceeds from private
    placement                                       |  |        | 579,412   |  |        |   | 1,477,501  |             |  |   |                   |   |  |               |        
|Note payable conversion,
    including derivative liability, net of taxes |  |        | 670,153   |  |        |   | 1,561,592  |             |  |   |                   |   |  |               |        
|Net income                                                                |  |        |           |  |        |   |            |             |  |   | 54,585            |   |  |               |        
|Other
    comprehensive income                                            |  |        |           |  |        |   |            |             |  |   |                   |   |  |               | 137,829
|                                                                          |  |        |           |  |        |   |            |             |  |   |                   |   |  |               |        
|Balance at June
    30, 2016                                              |  |        | 4,101,664 |  |        | $ | 19,625,967 |             |  | $ | (5,650,884        | ) |  | $             | 109,034
|                                                                          |  |        |           |  |        |   |            |             |  |   |                   |   |  |               |        
|Balance at January 1, 2017                                                |  |        | 4,101,664 |  |        | $ | 19,626,201 |             |  | $ | (5,542,341        | ) |  | $             | (22,380
|                                                                          |  |        |           |  |        |   |            |             |  |   |                   |   |  |               |        
|Expense related to
    share-based compensation                           |  |        |           |  |        |   | 5,469      |             |  |   |                   |   |  |               |        
|Net income                                                                |  |        |           |  |        |   |            |             |  |   | 161,657           |   |  |               |        
|Other
    comprehensive loss                                              |  |        |           |  |        |   |            |             |  |   |                   |   |  |               | (4,842 
|                                                                          |  |        |           |  |        |   |            |             |  |   |                   |   |  |               |        
|Balance at June
    30, 2017                                              |  |        | 4,101,664 |  |        | $ | 19,631,670 |             |  | $ | (5,380,684        | ) |  | $             | (27,222



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, 2017    |            |   | June
    30, 2016    |  
|Cash flows from operating
    activities                                                 |  |                      |            |   |                      |  
|Net income                                                                               |  | $                    | 161,657    |   |                      | $
|Adjustments
    to reconcile net income to net cash from (used in) operating activities: |  |                      |            |   |                      |  
|Provision for loan
    losses                                                            |  |                      | 173,719    |   |                      |  
|Depreciation and
    amortization                                                        |  |                      | 173,466    |   |                      |  
|Net amortization
    of securities                                                       |  |                      | 67,340     |   |                      |  
|Net realized gain
    on sale of loans                                                   |  |                      | (154,069   | ) |                      |  
|Net realized gain
    on sale of foreclosed assets                                       |  |                      | (51,051    | ) |                      |  
|Foreclosed asset
    impairment                                                          |  |                      | 97,483     |   |                      |  
|Originations of loans
    for sale                                                       |  |                      | (4,449,580 | ) |                      |  
|Proceeds from loan
    sales                                                             |  |                      | 4,641,791  |   |                      |  
|Deferred federal
    income tax expense                                                  |  |                      | 83,277     |   |                      |  
|Share based compensation                                                                 |  |                      | 5,469      |   |                      |  
|Net change in:                                                                           |  |                      |            |   |                      |  
|Accrued interest
    receivable and other assets                                         |  |                      | (58,076    | ) |                      |  
|Accrued
    interest payable and other liabilities                                       |  |                      | 53,366     |   |                      |  
|Net cash from (used
    in) operating activities                                         |  |                      | 744,792    |   |                      |  
|Cash flows from investing
    activities                                                 |  |                      |            |   |                      |  
|Activity in available
    for sale securities:                                           |  |                      |            |   |                      |  
|Maturities, prepayments
    and calls                                                    |  |                      | 3,091,138  |   |                      |  
|Purchases                                                                                |  |                      | (4,504,841 | ) |                      |  
|Loan originations
    and payments, net                                                  |  |                      | 1,664,020  |   |                      |  
|Proceeds from the
    sale of the credit card portfolio                                  |  |                      | 491,075    |   |                      |  
|Additions to premises
    and equipment, net                                             |  |                      | (24,548    | ) |                      |  
|Proceeds
    from the sale of foreclosed assets                                          |  |                      | 58,402     |   |                      |  
|Net cash from investing
    activities                                                   |  |                      | 775,246    |   |                      |  
|Cash flows from financing
    activities                                                 |  |                      |            |   |                      |  
|Net change in deposits                                                                   |  |                      | 1,238,547  |   |                      |  
|Repayment of note
    payable                                                            |  |                      | 0          |   |                      |  
|Net change in repurchase
    agreements                                                  |  |                      | 615,709    |   |                      |  
|Capital-raising activities                                                               |  |                      |            |   |                      |  
|Proceeds from rights
    offering, net of issuance costs                                 |  |                      | 0          |   |                      |  
|Proceeds
    from private placement, net of issuance cost                                |  |                      | 0          |   |                      |  
|Net
    cash from (used in) financing activities                                         |  |                      | 1,854,256  |   |                      |  
|Net change in cash and cash equivalents                                                  |  |                      | 3,374,294  |   |                      |  
|Beginning cash
    and cash equivalents                                                  |  |                      | 20,982,175 |   |                      |  
|Ending
    cash and cash equivalents                                                     |  | $                    | 24,356,469 |   |                      | $
|Supplemental cash flows information:                                                     |  |                      |            |   |                      |  
|Cash paid during
    the period for interest                                             |  | $                    | 152,087    |   |                      | $
|Cash paid during
    the period for federal income tax                                   |  |                      | 0          |   |                      |  
|Non-cash financing activities:                                                           |  |                      |            |   |                      |  
|Transfers from loans
    to foreclosed assets                                            |  |                      | 0          |   |                      |  
|Note
    payable conversion to common stock, including derivative and net of taxes       |  |                      | 0          |   |                      |  



See
accompanying notes to consolidated financial statements.



-5-







COMMUNITY
SHORES BANK CORPORATION

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



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



BASIS
OF PRESENTATION: The unaudited, consolidated financial statements as of and for the three months and six months ended June
30, 2017 include the consolidated results of operations of Community Shores Bank Corporation (“Company”) and its wholly-owned
subsidiaries, Community Shores Financial Services (“CS Financial Services”), and Community Shores Bank (the “Bank”),
and the Bank’s wholly-owned subsidiary, Community Shores Mortgage Company (the “Mortgage Company”) and the Mortgage
Company’s wholly-owned subsidiary, Berryfield Development, LLC (“Berryfield”). Community Shores Capital Trust
I (“the Trust”) is not consolidated and exists solely to issue capital securities. These consolidated financial statements
have been prepared in accordance with the instructions for Form 10-Q and Article 8 of Regulation S-X and do not include all disclosures
required by generally accepted accounting principles for a complete presentation of the Company’s financial condition and
results of operations. In the opinion of management, the information reflects all adjustments (consisting only of normal recurring
adjustments) which are necessary in order to make the financial statements not misleading and for a fair representation of the
results of operations for such periods. The results for the period ended June 30, 2017 should not be considered as indicative
of results for a full year. For further information, refer to the consolidated financial statements and notes included in the
Company’s annual report on Form 10-K for the period ended December 31, 2016. Some items in the prior year financial statements
may be reclassified to conform to the current presentation.



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



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



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



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



-6-







COMMUNITY
SHORES BANK CORPORATION

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



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



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



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



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



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



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



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



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



-7-







COMMUNITY
SHORES BANK CORPORATION

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



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



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



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



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



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



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



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



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



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



-8-







COMMUNITY
SHORES BANK CORPORATION

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



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



There
was no material change in these operating doctrines during the six months ended June 30, 2017.



ADOPTION
OF NEW ACCOUNTING STANDARDS:



None



NEWLY
ISSUED NOT YET EFFECTIVE ACCOUNTING STANDARDS:



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



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



-9-







COMMUNITY
SHORES BANK CORPORATION

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



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



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



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



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



-10-







COMMUNITY
SHORES BANK CORPORATION

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



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



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



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



RECENT
DEVELOPMENTS



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



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



-11-







COMMUNITY
SHORES BANK CORPORATION

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



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



The
following tables represent the securities held in the Company’s portfolio at June 30, 2017 and at December 31, 2016:



|                                                                         |  |           |            |  | Gross      |   |        | Gross      |  |   |         |  
|------------------------------------------------------------------------ |  | --------- | ---------- |  | ---------- | - | ------ | ---------- |  | - | ------- | -
|                                                                         |  | Amortized |            |  | Unrealized |   |        | Unrealized |  |   | Fair    |  
|June
    30, 2017                                                        |  | Cost      |            |  | Gains      |   |        | Losses     |  |   | Value   |  
|                                                                         |  |           |            |  |            |   |        |            |  |   |         |  
|US Treasury                                                              |  | $         | 4,000,294  |  |            | $ | 36     |            |  | $ | (6,502  | )
|US Government and
    federal agency                                     |  |           | 4,453,835  |  |            |   | 1,151  |            |  |   | (1,642  | )
|Mortgage-backed
    and collateralized mortgage obligations– residential |  |           | 8,691,905  |  |            |   | 34,125 |            |  |   | (68,413 | )
|                                                                         |  | $         | 17,146,034 |  |            | $ | 35,312 |            |  | $ | (76,557 | )



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



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, 2017:



|                                                                          |  | Amortized |            |  | Fair  |   |            |  |  |  |  |  |  | 
|------------------------------------------------------------------------- |  | --------- | ---------- |  | ----- | - | ---------- |  |  |  |  |  |  | 
|                                                                          |  | Cost      |            |  | Value |   |            |  |  |  |  |  |  | 
|Due in one year or less                                                   |  | $         | 4,954,268  |  |       | $ | 4,953,812  |  |  |  |  |  |  | 
|Due from one to five years                                                |  |           | 3,499,861  |  |       |   | 3,493,360  |  |  |  |  |  |  | 
|Due from five to ten years                                                |  |           | 0          |  |       |   | 0          |  |  |  |  |  |  | 
|Due in more than ten years                                                |  |           | 0          |  |       |   | 0          |  |  |  |  |  |  | 
|Mortgage-backed
    and collateralized mortgage obligations – residential |  |           | 8,691,905  |  |       |   | 8,657,617  |  |  |  |  |  |  | 
|                                                                          |  | $         | 17,146,034 |  |       | $ | 17,104,789 |  |  |  |  |  |  | 



-12-







COMMUNITY
SHORES BANK CORPORATION

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



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



Below
is the table of securities with unrealized losses, aggregated by investment category and length of time such securities were in
an unrealized loss position at June 30, 2017 and December 31, 2016:



|                                                                          |  | Less
    than 12 Months |            |  | 12
    Months or Longer |   |         | Total | 
|------------------------------------------------------------------------- |  | ----------------------- | ---------- |  | ----------------------- | - | ------- | ----- | 
|                                                                          |  | Fair                    |            |  | Unrealized              |   |         | Fair  | 
|June
    30, 2017                                                         |  | Value                   |            |  | Losses                  |   |         | Value | 
|US Treasuries                                                             |  | $                       | 3,493,360  |  |                         | $ | (6,502  | )     | 
|US Government and federal agency                                          |  |                         | 2,948,349  |  |                         |   | (1,642  | )     | 
|Mortgage-backed
    and collateralized mortgage obligations – residential |  |                         | 5,892,612  |  |                         |   | (48,618 | )     | 
|                                                                          |  | $                       | 12,334,321 |  |                         | $ | (56,762 | )     | 



|                                                                          |  | Less
    than 12 Months |           |  | 12
    Months or Longer |   |         | Total | 
|------------------------------------------------------------------------- |  | ----------------------- | --------- |  | ----------------------- | - | ------- | ----- | 
|                                                                          |  | Fair                    |           |  | Unrealized              |   |         | Fair  | 
|December
    31, 2016                                                     |  | Value                   |           |  | Losses                  |   |         | Value | 
|US Treasuries                                                             |  | $                       | 0         |  |                         | $ | 0       |       | 
|US Government and federal agency                                          |  |                         | 499,633   |  |                         |   | (147    | )     | 
|Mortgage-backed
    and collateralized mortgage obligations – residential |  |                         | 5,406,053 |  |                         |   | (69,170 | )     | 
|                                                                          |  | $                       | 5,905,686 |  |                         | $ | (69,317 | )     | 



No
securities were sold in the three or six months ended June 30, 2017 or June 30, 2016.



-13-









COMMUNITY
SHORES BANK CORPORATION

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



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

Other-Than-Temporary-Impairment

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

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



At
June 30, 2017 and December 31, 2016, all of the mortgage-backed securities and collateralized mortgage obligations held by the
Company were issued by U.S. government-sponsored entities and agencies, primarily Ginnie Mae, Fannie Mae and Freddie Mac. Ginnie
Mae has the full faith and credit of the US government. Fannie Mae and Freddie Mac are highly rated by the rating agencies and
although their debt is not guaranteed by the US government, the US government in 2008, acknowledged its commitment to support
their financial health. At June 30, 2017, 32 debt securities had unrealized losses with aggregate depreciation of 0.57% from the
amortized cost basis; four of the 32 had unrealized losses greater than 12 months.



Nine
of the 32 securities, which had an unrealized loss at June 30, 2017, are issued by government agencies and 23 are issued by government-sponsored
entities. It is likely that these debt securities will be retained given the fact that they are pledged to various public funds.
The reported decline in value is not material and is deemed to be market driven. Because the decline in fair value is attributable
to changes in interest rates and not credit quality and, because the Company does not have the intent to sell these securities
and it is likely that it will not be required to sell the securities before their anticipated recovery. The Company does not consider
these securities to be other-than-temporarily impaired at June 30, 2017.



At
June 30, 2017 and December 31, 2016, there were no holdings of securities of any one issuer, other than U.S. Government and federal
agencies, in an amount greater than 10% of common stock and surplus.



-14-







COMMUNITY
SHORES BANK CORPORATION

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



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



Securities
pledged at June 30, 2017 had a carrying amount of $15,569,658 and were pledged to secure public fund customers and customer repurchase
agreements. Pledged securities at December 31, 2016 had a carrying amount of $14,266,378.



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



Outstanding
loan balances by portfolio segment and class at June 30, 2017 and December 31, 2016 were as follows:



|                                     |  | June
    30, 2017 |             |   | December
    31, 2016 |  
|------------------------------------ |  | ----------------- | ----------- | - | --------------------- | -
|Commercial                           |  | $                 | 46,071,803  |   |                       | $
|Commercial Real Estate:              |  |                   |             |   |                       |  
|General                              |  |                   | 62,075,432  |   |                       |  
|Construction                         |  |                   | 5,498,002   |   |                       |  
|Consumer:                            |  |                   |             |   |                       |  
|Lines of credit                      |  |                   | 6,390,778   |   |                       |  
|Other                                |  |                   | 1,126,005   |   |                       |  
|Credit card                          |  |                   | 0           |   |                       |  
|Residential                          |  |                   | 17,611,873  |   |                       |  
|Net deferred loan
    fees           |  |                   | (65,771     | ) |                       |  
|                                     |  |                   | 138,708,122 |   |                       |  
|Less:  Allowance
    for loan losses |  |                   | (1,778,315  | ) |                       |  
|Loans, net                           |  | $                 | 136,929,807 |   |                       | $



-15-









COMMUNITY
SHORES BANK CORPORATION

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



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



The
following tables present the activity in the allowance for loan losses for the three and six month periods ended June 30, 2017
and 2016 by portfolio segment:



|Three
    Months Ended June 30, 2017 |  | Commercial |         |   | Commercial Real
                                         Estate |   |         | Consumer |  |   | Residential |   |  | Unallocated |         |   | Total |  
|------------------------------------ |  | ---------- | ------- | - | --------------------------------------------------------------- | - | ------- | -------- |  | - | ----------- | - |  | ----------- | ------- | - | ----- | -
|Allowance for loan losses:           |  |            |         |   |                                                                 |   |         |          |  |   |             |   |  |             |         |   |       |  
|Beginning
    balance                |  | $          | 627,469 |   |                                                                 | $ | 525,477 |          |  | $ | 219,008     |   |  | $           | 186,518 |   |       | $
|Charge-offs                          |  |            | (21,870 | ) |                                                                 |   | 0       |          |  |   | (719        | ) |  |             | 0       |   |       |  
|Recoveries                           |  |            | 5,690   |   |                                                                 |   | 1,305   |          |  |   | 1,792       |   |  |             | 0       |   |       |  
|Provision
    for loan losses        |  |            | (50,449 | ) |                                                                 |   | 291,268 |          |  |   | (747        | ) |  |             | (6,427  | ) |       |  
|Ending balance                       |  | $          | 560,840 |   |                                                                 | $ | 818,050 |          |  | $ | 219,334     |   |  | $           | 180,091 |   |       | $



|Three
    Months Ended June 30, 2016 |  | Commercial |         |   | Commercial Real
                                         Estate |   |         | Consumer |  |   | Residential |   |  | Unallocated |         |   | Total |  
|------------------------------------ |  | ---------- | ------- | - | --------------------------------------------------------------- | - | ------- | -------- |  | - | ----------- | - |  | ----------- | ------- | - | ----- | -
|Allowance for loan losses:           |  |            |         |   |                                                                 |   |         |          |  |   |             |   |  |             |         |   |       |  
|Beginning
    balance                |  | $          | 556,274 |   |                                                                 | $ | 453,238 |          |  | $ | 314,571     |   |  | $           | 215,109 |   |       | $
|Charge-offs                          |  |            | (69,664 | ) |                                                                 |   | (21,871 | )        |  |   | (33,748     | ) |  |             | 0       |   |       |  
|Recoveries                           |  |            | 29,150  |   |                                                                 |   | 25,710  |          |  |   | 3,960       |   |  |             | 0       |   |       |  
|Provision
    for loan losses        |  |            | 66,651  |   |                                                                 |   | 3,525   |          |  |   | (20,893     | ) |  |             | (3,195  | ) |       |  
|Ending balance                       |  | $          | 582,411 |   |                                                                 | $ | 460,602 |          |  | $ | 263,890     |   |  | $           | 211,914 |   |       | $



-16-







COMMUNITY
SHORES BANK CORPORATION

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



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



|Six
    Months Ended June 30, 2017 |  | Commercial |         |   | Commercial Real
                                         Estate |   |         | Consumer |  |   | Residential |   |  | Unallocated |         |   | Total |  
|---------------------------------- |  | ---------- | ------- | - | --------------------------------------------------------------- | - | ------- | -------- |  | - | ----------- | - |  | ----------- | ------- | - | ----- | -
|Allowance for loan losses:         |  |            |         |   |                                                                 |   |         |          |  |   |             |   |  |             |         |   |       |  
|Beginning
    balance              |  | $          | 617,002 |   |                                                                 | $ | 459,805 |          |  | $ | 259,194     |   |  | $           | 203,312 |   |       | $
|Charge-offs                        |  |            | (21,870 | ) |                                                                 |   | 0       |          |  |   | (795        | ) |  |             | 0       |   |       |  
|Recoveries                         |  |            | 11,090  |   |                                                                 |   | 1,305   |          |  |   | 3,046       |   |  |             | 0       |   |       |  
|Provision
    for loan losses      |  |            | (45,382 | ) |                                                                 |   | 356,940 |          |  |   | (42,111     | ) |  |             | (23,221 | ) |       |  
|Ending balance                     |  | $          | 560,840 |   |                                                                 | $ | 818,050 |          |  | $ | 219,334     |   |  | $           | 180,091 |   |       | $



|Six
    Months Ended June 30, 2016 |  | Commercial |         |   | Commercial Real
                                         Estate |   |         | Consumer |  |   | Residential |   |  | Unallocated |         |  | Total |  
|---------------------------------- |  | ---------- | ------- | - | --------------------------------------------------------------- | - | ------- | -------- |  | - | ----------- | - |  | ----------- | ------- |  | ----- | -
|Allowance for loan losses:         |  |            |         |   |                                                                 |   |         |          |  |   |             |   |  |             |         |  |       |  
|Beginning
    balance              |  | $          | 522,558 |   |                                                                 | $ | 432,145 |          |  | $ | 322,185     |   |  | $           | 210,653 |  |       | $
|Charge-offs                        |  |            | (69,664 | ) |                                                                 |   | (21,871 | )        |  |   | (39,293     | ) |  |             | 0       |  |       |  
|Recoveries                         |  |            | 39,553  |   |                                                                 |   | 25,710  |          |  |   | 32,730      |   |  |             | 0       |  |       |  
|Provision
    for loan losses      |  |            | 89,964  |   |                                                                 |   | 24,618  |          |  |   | (51,732     | ) |  |             | 1,261   |  |       |  
|Ending balance                     |  | $          | 582,411 |   |                                                                 | $ | 460,602 |          |  | $ | 263,890     |   |  | $           | 211,914 |  |       | $



-17-







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, 2017 and December 31, 2016:



|June
    30, 2017                                   |  | Commercial |            |  | Commercial Real
                                         Estate |   |            | Consumer |  |   | Residential |  |  | Unallocated |            |  | Total |  
|--------------------------------------------------- |  | ---------- | ---------- |  | --------------------------------------------------------------- | - | ---------- | -------- |  | - | ----------- |  |  | ----------- | ---------- |  | ----- | -
|Allowance for loan losses:                          |  |            |            |  |                                                                 |   |            |          |  |   |             |  |  |             |            |  |       |  
|Ending allowance
    balance attributable to loans: |  |            |            |  |                                                                 |   |            |          |  |   |             |  |  |             |            |  |       |  
|Individually
    evaluated for impairment           |  | $          | 240,290    |  |                                                                 | $ | 349,209    |          |  | $ | 70,767      |  |  | $           | 42,415     |  |       | $
|Collectively evaluated
    for impairment           |  |            | 320,550    |  |                                                                 |   | 468,841    |          |  |   | 148,567     |  |  |             | 137,676    |  |       |  
|Unallocated                                         |  |            | 0          |  |                                                                 |   | 0          |          |  |   | 0           |  |  |             | 0          |  |       |  
|Total
    ending allowance balance                  |  | $          | 560,840    |  |                                                                 | $ | 818,050    |          |  | $ | 219,334     |  |  | $           | 180,091    |  |       | $
|                                                    |  |            |            |  |                                                                 |   |            |          |  |   |             |  |  |             |            |  |       |  
|Loans:                                              |  |            |            |  |                                                                 |   |            |          |  |   |             |  |  |             |            |  |       |  
|Individually evaluated
    for impairment           |  | $          | 1,401,269  |  |                                                                 | $ | 7,840,947  |          |  | $ | 126,435     |  |  | $           | 517,404    |  |       | $
|Collectively
    evaluated for impairment           |  |            | 44,766,083 |  |                                                                 |   | 59,839,522 |          |  |   | 7,415,262   |  |  |             | 17,140,547 |  |       |  
|Total
    ending loans balance                      |  | $          | 46,167,352 |  |                                                                 | $ | 67,680,469 |          |  | $ | 7,541,697   |  |  | $           | 17,657,951 |  |       | $



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



-18-









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



|                                        |  | Recorded   |           |  | Unpaid
    Principal |   |            | Related   | 
|--------------------------------------- |  | ---------- | --------- |  | -------------------- | - | ---------- | --------- | 
|June
    30, 2017                       |  | Investment |           |  | Balance              |   |            | Allowance | 
|With no related allowance
    recorded: |  |            |           |  |                      |   |            |           | 
|Commercial                              |  | $          | 515,288   |  |                      | $ | 597,124    |           | 
|Commercial Real Estate:                 |  |            |           |  |                      |   |            |           | 
|General                                 |  |            | 5,778,273 |  |                      |   | 6,855,992  |           | 
|Consumer:                               |  |            |           |  |                      |   |            |           | 
|Lines of credit                         |  |            | 9,150     |  |                      |   | 9,139      |           | 
|Other                                   |  |            | 0         |  |                      |   | 0          |           | 
|Residential                             |  |            | 467,387   |  |                      |   | 498,858    |           | 
|Subtotal                                |  | $          | 6,770,098 |  |                      | $ | 7,961,113  |           | 
|                                        |  |            |           |  |                      |   |            |           | 
|With a related allowance
    recorded:  |  |            |           |  |                      |   |            |           | 
|Commercial                              |  | $          | 885,981   |  |                      | $ | 884,614    |           | 
|Commercial Real Estate:                 |  |            |           |  |                      |   |            |           | 
|General                                 |  |            | 2,062,674 |  |                      |   | 2,048,270  |           | 
|Consumer:                               |  |            |           |  |                      |   |            |           | 
|Lines of credit                         |  |            | 98,150    |  |                      |   | 97,670     |           | 
|Other                                   |  |            | 19,135    |  |                      |   | 19,033     |           | 
|Residential                             |  |            | 50,017    |  |                      |   | 59,465     |           | 
|Subtotal                                |  | $          | 3,115,957 |  |                      | $ | 3,109,052  |           | 
|Total                                   |  | $          | 9,886,055 |  |                      | $ | 11,070,165 |           | 



-19-







COMMUNITY
SHORES BANK CORPORATION

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



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



|                                        |  | Recorded   |           |  | Unpaid
    Principal |   |            | Related   | 
|--------------------------------------- |  | ---------- | --------- |  | -------------------- | - | ---------- | --------- | 
|December
    31, 2016                   |  | Investment |           |  | Balance              |   |            | Allowance | 
|With no related allowance
    recorded: |  |            |           |  |                      |   |            |           | 
|Commercial                              |  | $          | 1,334,036 |  |                      | $ | 1,394,625  |           | 
|Commercial Real Estate:                 |  |            |           |  |                      |   |            |           | 
|General                                 |  |            | 6,270,915 |  |                      |   | 7,349,245  |           | 
|Consumer:                               |  |            |           |  |                      |   |            |           | 
|Lines of credit                         |  |            | 35,868    |  |                      |   | 35,791     |           | 
|Other                                   |  |            | 0         |  |                      |   | 0          |           | 
|Residential                             |  |            | 181,557   |  |                      |   | 214,031    |           | 
|Subtotal                                |  | $          | 7,822,376 |  |                      | $ | 8,993,692  |           | 
|With a related allowance
    recorded:  |  |            |           |  |                      |   |            |           | 
|Commercial                              |  | $          | 960,636   |  |                      | $ | 970,799    |           | 
|Commercial Real Estate:                 |  |            |           |  |                      |   |            |           | 
|General                                 |  |            | 57,419    |  |                      |   | 57,323     |           | 
|Consumer:                               |  |            |           |  |                      |   |            |           | 
|Lines of credit                         |  |            | 108,825   |  |                      |   | 108,217    |           | 
|Other                                   |  |            | 20,481    |  |                      |   | 20,372     |           | 
|Residential                             |  |            | 345,179   |  |                      |   | 353,232    |           | 
|Subtotal                                |  | $          | 1,492,540 |  |                      | $ | 1,509,943  |           | 
|Total                                   |  | $          | 9,314,916 |  |                      | $ | 10,503,635 |           | 



-20-







COMMUNITY
SHORES BANK CORPORATION

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



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



The
following tables present the average recorded investment of loans individually evaluated for impairment by class of loans as of
June 30, 2017 and 2016 and the associated interest income. For purposes of this disclosure, the unpaid principal balance is not
reduced for partial charge-offs.



|                                        |  | Three
    Months     |           |  | Three
    Months    |   |         | Three
    Months        | 
|--------------------------------------- |  | -------------------- | --------- |  | ------------------- | - | ------- | ----------------------- | 
|                                        |  | Average
    Recorded |           |  | Interest
    Income |   |         | Cash
    Basis          | 
|June
    30, 2017                       |  | Investment           |           |  | Recognized          |   |         | Interest
    Recognized | 
|With no related allowance
    recorded: |  |                      |           |  |                     |   |         |                         | 
|Commercial                              |  | $                    | 505,866   |  |                     | $ | 6,553   |                         | 
|Commercial Real Estate:                 |  |                      |           |  |                     |   |         |                         | 
|General                                 |  |                      | 5,708,252 |  |                     |   | 64,428  |                         | 
|Consumer:                               |  |                      |           |  |                     |   |         |                         | 
|Lines of credit                         |  |                      | 9,214     |  |                     |   | 162     |                         | 
|Other                                   |  |                      | 0         |  |                     |   | 0       |                         | 
|Residential                             |  |                      | 469,083   |  |                     |   | 3,400   |                         | 
|Subtotal                                |  | $                    | 6,692,415 |  |                     | $ | 74,543  |                         | 
|                                        |  |                      |           |  |                     |   |         |                         | 
|With a related allowance
    recorded:  |  |                      |           |  |                     |   |         |                         | 
|Commercial                              |  | $                    | 934,887   |  |                     | $ | 9,845   |                         | 
|Commercial Real Estate:                 |  |                      |           |  |                     |   |         |                         | 
|General                                 |  |                      | 1,704,785 |  |                     |   | 27,031  |                         | 
|Consumer:                               |  |                      |           |  |                     |   |         |                         | 
|Lines of credit                         |  |                      | 98,159    |  |                     |   | 1,526   |                         | 
|Other                                   |  |                      | 19,343    |  |                     |   | 345     |                         | 
|Residential                             |  |                      | 50,057    |  |                     |   | 0       |                         | 
|Subtotal                                |  | $                    | 2,807,231 |  |                     | $ | 38,747  |                         | 
|Total                                   |  | $                    | 9,499,646 |  |                     | $ | 113,290 |                         | 



-21-







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, 2016                       |  | Investment           |           |  | Recognized          |   |        | Interest
    Recognized | 
|With no related allowance
    recorded: |  |                      |           |  |                     |   |        |                         | 
|Commercial                              |  | $                    | 1,364,290 |  |                     | $ | 11,865 |                         | 
|Commercial Real Estate:                 |  |                      |           |  |                     |   |        |                         | 
|General                                 |  |                      | 4,981,629 |  |                     |   | 46,671 |                         | 
|Consumer:                               |  |                      |           |  |                     |   |        |                         | 
|Lines of credit                         |  |                      | 109,978   |  |                     |   | 2,232  |                         | 
|Other                                   |  |                      | 0         |  |                     |   | 0      |                         | 
|Residential                             |  |                      | 404,421   |  |                     |   | 379    |                         | 
|Subtotal                                |  | $                    | 6,860,318 |  |                     | $ | 61,147 |                         | 
|                                        |  |                      |           |  |                     |   |        |                         | 
|With a related allowance
    recorded:  |  |                      |           |  |                     |   |        |                         | 
|Commercial                              |  | $                    | 1,003,161 |  |                     | $ | 9,900  |                         | 
|Commercial Real Estate:                 |  |                      |           |  |                     |   |        |                         | 
|General                                 |  |                      | 56,756    |  |                     |   | 363    |                         | 
|Consumer:                               |  |                      |           |  |                     |   |        |                         | 
|Lines of credit                         |  |                      | 154,895   |  |                     |   | 1,711  |                         | 
|Other                                   |  |                      | 14,010    |  |                     |   | 353    |                         | 
|Residential                             |  |                      | 313,648   |  |                     |   | 3,210  |                         | 
|Subtotal                                |  | $                    | 1,542,470 |  |                     | $ | 15,537 |                         | 
|Total                                   |  | $                    | 8,402,788 |  |                     | $ | 76,684 |                         | 



-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, 2017                       |  | Investment           |           |  | Recognized          |   |         | Interest
    Recognized | 
|With no related allowance
    recorded: |  |                      |           |  |                     |   |         |                         | 
|Commercial                              |  | $                    | 620,851   |  |                     | $ | 10,362  |                         | 
|Commercial Real Estate:                 |  |                      |           |  |                     |   |         |                         | 
|General                                 |  |                      | 6,044,422 |  |                     |   | 131,748 |                         | 
|Consumer:                               |  |                      |           |  |                     |   |         |                         | 
|Lines of credit                         |  |                      | 18,143    |  |                     |   | 329     |                         | 
|Other                                   |  |                      | 0         |  |                     |   | 0       |                         | 
|Residential                             |  |                      | 420,921   |  |                     |   | 8,414   |                         | 
|Subtotal                                |  | $                    | 7,104,337 |  |                     | $ | 150,853 |                         | 
|                                        |  |                      |           |  |                     |   |         |                         | 
|With a related allowance
    recorded:  |  |                      |           |  |                     |   |         |                         | 
|Commercial                              |  | $                    | 949,148   |  |                     | $ | 21,070  |                         | 
|Commercial Real Estate:                 |  |                      |           |  |                     |   |         |                         | 
|General                                 |  |                      | 1,194,435 |  |                     |   | 47,236  |                         | 
|Consumer:                               |  |                      |           |  |                     |   |         |                         | 
|Lines of credit                         |  |                      | 101,669   |  |                     |   | 3,047   |                         | 
|Other                                   |  |                      | 19,655    |  |                     |   | 712     |                         | 
|Residential                             |  |                      | 147,605   |  |                     |   | 0       |                         | 
|Subtotal                                |  | $                    | 2,412,512 |  |                     | $ | 72,065  |                         | 
|Total                                   |  | $                    | 9,516,849 |  |                     | $ | 222,918 |                         | 



-23-







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, 2016                       |  | Investment           |           |  | Recognized          |   |         | Interest
    Recognized | 
|With no related allowance
    recorded: |  |                      |           |  |                     |   |         |                         | 
|Commercial                              |  | $                    | 1,365,016 |  |                     | $ | 23,796  |                         | 
|Commercial Real Estate:                 |  |                      |           |  |                     |   |         |                         | 
|General                                 |  |                      | 5,053,723 |  |                     |   | 95,489  |                         | 
|Consumer:                               |  |                      |           |  |                     |   |         |                         | 
|Lines of credit                         |  |                      | 92,006    |  |                     |   | 3,947   |                         | 
|Other                                   |  |                      | 0         |  |                     |   | 0       |                         | 
|Residential                             |  |                      | 408,334   |  |                     |   | 790     |                         | 
|Subtotal                                |  | $                    | 6,919,079 |  |                     | $ | 124,022 |                         | 
|                                        |  |                      |           |  |                     |   |         |                         | 
|With a related allowance
    recorded:  |  |                      |           |  |                     |   |         |                         | 
|Commercial                              |  | $                    | 1,016,545 |  |                     | $ | 20,386  |                         | 
|Commercial Real Estate:                 |  |                      |           |  |                     |   |         |                         | 
|General                                 |  |                      | 84,415    |  |                     |   | 363     |                         | 
|Consumer:                               |  |                      |           |  |                     |   |         |                         | 
|Lines of credit                         |  |                      | 185,403   |  |                     |   | 4,006   |                         | 
|Other                                   |  |                      | 14,217    |  |                     |   | 674     |                         | 
|Residential                             |  |                      | 314,413   |  |                     |   | 6,445   |                         | 
|Subtotal                                |  | $                    | 1,614,993 |  |                     | $ | 31,874  |                         | 
|Total                                   |  | $                    | 8,534,072 |  |                     | $ | 155,896 |                         | 



-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 June 30,
2017:



|Accruing Loans          |  | 30-59
    Days Past Due |           |  | 60-89
    Days Past Due |   |         | Greater
    Than 90 Days     Past Due |  |   | Total
    Accruing Past     Due Loans |  |  | Current
    Accruing     Loans |           |  | Total
    Recorded Investment
    of Accruing
    Loans |  
|----------------------- |  | ----------------------- | --------- |  | ----------------------- | - | ------- | ------------------------------------- |  | - | ------------------------------------- |  |  | ------------------------------ | --------- |  | ------------------------------------------------------- | -
|Commercial              |  | $                       | 15,185    |  |                         | $ | 566,752 |                                       |  | $ | 0                                     |  |  | $                              | 581,937   |  |                                                         | $
|Commercial Real Estate: |  |                         |           |  |                         |   |         |                                       |  |   |                                       |  |  |                                |           |  |                                                         |  
|General                 |  |                         | 1,397,931 |  |                         |   | 0       |                                       |  |   | 0                                     |  |  |                                | 1,397,931 |  |                                                         |  
|Construction            |  |                         | 0         |  |                         |   | 0       |                                       |  |   | 0                                     |  |  |                                | 0         |  |                                                         |  
|Consumer:               |  |                         |           |  |                         |   |         |                                       |  |   |                                       |  |  |                                |           |  |                                                         |  
|Lines of credit         |  |                         | 0         |  |                         |   | 0       |                                       |  |   | 0                                     |  |  |                                | 0         |  |                                                         |  
|Other                   |  |                         | 0         |  |                         |   | 0       |                                       |  |   | 0                                     |  |  |                                | 0         |  |                                                         |  
|Credit card             |  |                         | 0         |  |                         |   | 0       |                                       |  |   | 0                                     |  |  |                                | 0         |  |                                                         |  
|Residential             |  |                         | 0         |  |                         |   | 0       |                                       |  |   | 0                                     |  |  |                                | 0         |  |                                                         |  
|Total                   |  | $                       | 1,413,116 |  |                         | $ | 566,752 |                                       |  | $ | 0                                     |  |  | $                              | 1,979,868 |  |                                                         | $



|Non-Accrual
    Loans   |  | 30-59
    Days Past Due |   |  | 60-89
    Days Past Due |   |   | Greater
    Than 90 Days
    Past Due |  |   | Total
    Non-Accrual     Past     Due Loans |  |  | Current Non-Accrual     Loans |         |  | Total
    Non-Accrual Recorded Investment |  
|----------------------- |  | ----------------------- | - |  | ----------------------- | - | - | ------------------------------------- |  | - | -------------------------------------------- |  |  | ----------------------------- | ------- |  | ----------------------------------------- | -
|Commercial              |  | $                       | 0 |  |                         | $ | 0 |                                       |  | $ | 48,400                                       |  |  | $                             | 48,400  |  |                                           | $
|Commercial Real Estate: |  |                         |   |  |                         |   |   |                                       |  |   |                                              |  |  |                               |         |  |                                           |  
|General                 |  |                         | 0 |  |                         |   | 0 |                                       |  |   | 41,713                                       |  |  |                               | 41,713  |  |                                           |  
|Construction            |  |                         | 0 |  |                         |   | 0 |                                       |  |   | 0                                            |  |  |                               | 0       |  |                                           |  
|Consumer:               |  |                         |   |  |                         |   |   |                                       |  |   |                                              |  |  |                               |         |  |                                           |  
|Lines of credit         |  |                         | 0 |  |                         |   | 0 |                                       |  |   | 0                                            |  |  |                               | 0       |  |                                           |  
|Other                   |  |                         | 0 |  |                         |   | 0 |                                       |  |   | 0                                            |  |  |                               | 0       |  |                                           |  
|Credit card             |  |                         | 0 |  |                         |   | 0 |                                       |  |   | 0                                            |  |  |                               | 0       |  |                                           |  
|Residential             |  |                         | 0 |  |                         |   | 0 |                                       |  |   | 59,050                                       |  |  |                               | 59,050  |  |                                           |  
|Total                   |  | $                       | 0 |  |                         | $ | 0 |                                       |  | $ | 149,163                                      |  |  | $                             | 149,163 |  |                                           | $



-25-







COMMUNITY
SHORES BANK CORPORATION

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



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



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



|Accruing Loans          |  | 30-59
    Days Past Due |         |  | 60-89
    Days Past Due |   |         | Greater
    Than 90 Days     Past Due |  |   | Total
    Accruing Past     Due Loans |  |  | Current
    Accruing     Loans |           |  | Total
    Recorded Investment
    of Accruing
    Loans |  
|----------------------- |  | ----------------------- | ------- |  | ----------------------- | - | ------- | ------------------------------------- |  | - | ------------------------------------- |  |  | ------------------------------ | --------- |  | ------------------------------------------------------- | -
|Commercial              |  | $                       | 298,912 |  |                         | $ | 592,498 |                                       |  | $ | 0                                     |  |  | $                              | 891,410   |  |                                                         | $
|Commercial Real Estate: |  |                         |         |  |                         |   |         |                                       |  |   |                                       |  |  |                                |           |  |                                                         |  
|General                 |  |                         | 100,058 |  |                         |   | 0       |                                       |  |   | 0                                     |  |  |                                | 100,058   |  |                                                         |  
|Construction            |  |                         | 0       |  |                         |   | 0       |                                       |  |   | 0                                     |  |  |                                | 0         |  |                                                         |  
|Consumer:               |  |                         |         |  |                         |   |         |                                       |  |   |                                       |  |  |                                |           |  |                                                         |  
|Lines of credit         |  |                         | 36,652  |  |                         |   | 0       |                                       |  |   | 0                                     |  |  |                                | 36,652    |  |                                                         |  
|Other                   |  |                         | 0       |  |                         |   | 0       |                                       |  |   | 0                                     |  |  |                                | 0         |  |                                                         |  
|Credit card             |  |                         | 0       |  |                         |   | 0       |                                       |  |   | 0                                     |  |  |                                | 0         |  |                                                         |  
|Residential             |  |                         | 36,621  |  |                         |   | 144,039 |                                       |  |   | 0                                     |  |  |                                | 180,660   |  |                                                         |  
|Total                   |  | $                       | 472,243 |  |                         | $ | 736,537 |                                       |  | $ | 0                                     |  |  | $                              | 1,208,780 |  |                                                         | $



|Non-Accrual
    Loans   |  | 30-59     Days Past Due |        |  | 60-89
    Days Past Due |   |   | Greater     Than 90 Days
    Past Due |  |   | Total
    Non-Accrual     Past     Due Loans |  |  | Current
    Non-Accrual     Loans |         |  | Total
    Non-Accrual Recorded
    Investment |  
|----------------------- |  | ----------------------- | ------ |  | ----------------------- | - | - | ------------------------------------- |  | - | -------------------------------------------- |  |  | --------------------------------- | ------- |  | --------------------------------------------- | -
|Commercial              |  | $                       | 0      |  |                         | $ | 0 |                                       |  | $ | 0                                            |  |  | $                                 | 0       |  |                                               | $
|Commercial Real Estate: |  |                         |        |  |                         |   |   |                                       |  |   |                                              |  |  |                                   |         |  |                                               |  
|General                 |  |                         | 0      |  |                         |   | 0 |                                       |  |   | 0                                            |  |  |                                   | 0       |  |                                               |  
|Construction            |  |                         | 0      |  |                         |   | 0 |                                       |  |   | 0                                            |  |  |                                   | 0       |  |                                               |  
|Consumer:               |  |                         |        |  |                         |   |   |                                       |  |   |                                              |  |  |                                   |         |  |                                               |  
|Lines of credit         |  |                         | 0      |  |                         |   | 0 |                                       |  |   | 0                                            |  |  |                                   | 0       |  |                                               |  
|Other                   |  |                         | 0      |  |                         |   | 0 |                                       |  |   | 0                                            |  |  |                                   | 0       |  |                                               |  
|Credit card             |  |                         | 0      |  |                         |   | 0 |                                       |  |   | 0                                            |  |  |                                   | 0       |  |                                               |  
|Residential             |  |                         | 63,049 |  |                         |   | 0 |                                       |  |   | 48,858                                       |  |  |                                   | 111,907 |  |                                               |  
|Total                   |  | $                       | 63,049 |  |                         | $ | 0 |                                       |  | $ | 48,858                                       |  |  | $                                 | 111,907 |  |                                               | $



-26-









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 $693,716 of specific reserves on $9,620,258 of unpaid principal balance of loans to customers whose loan
terms have been modified in troubled debt restructurings as of June 30, 2017 and $413,252 on $9,102,558 of unpaid principal balance
of loans as of December 31, 2016. As of June 30, 2017, there were no loan commitments to any customer whose loan terms were modified
in a troubled debt restructuring.



The
following tables present loans by class modified as troubled debt restructurings that occurred during the three and six month
periods ended June 30, 2017:



|                                     |  |                     |   |  | Pre-Modification         |   |         | Post-Modification        |  |   |         | 
|------------------------------------ |  | ------------------- | - |  | ------------------------ | - | ------- | ------------------------ |  | - | ------- | 
|                                     |  |                     |   |  | Outstanding
    Recorded |   |         | Outstanding
    Recorded |  |   | Current | 
|Three
    Months Ended June 30, 2017 |  | Number
    of Loans |   |  | Investment               |   |         | Investment               |  |   | Balance | 
|Troubled Debt Restructurings:        |  |                     |   |  |                          |   |         |                          |  |   |         | 
|Commercial Real Estate:              |  |                     |   |  |                          |   |         |                          |  |   |         | 
|General                              |  |                     | 2 |  |                          | $ | 549,725 |                          |  | $ | 550,068 | 
|Total                                |  |                     | 2 |  |                          | $ | 549,725 |                          |  | $ | 550,068 | 



|                                   |  |                     |   |  | Pre-Modification         |   |         | Post-Modification        |  |   |         | 
|---------------------------------- |  | ------------------- | - |  | ------------------------ | - | ------- | ------------------------ |  | - | ------- | 
|                                   |  |                     |   |  | Outstanding
    Recorded |   |         | Outstanding
    Recorded |  |   | Current | 
|Six
    Months Ended June 30, 2017 |  | Number
    of Loans |   |  | Investment               |   |         | Investment               |  |   | Balance | 
|Troubled Debt Restructurings:      |  |                     |   |  |                          |   |         |                          |  |   |         | 
|Commercial                         |  |                     | 1 |  |                          | $ | 125,604 |                          |  | $ | 125,604 | 
|Commercial Real Estate:            |  |                     |   |  |                          |   |         |                          |  |   |         | 
|General                            |  |                     | 2 |  |                          |   | 549,725 |                          |  |   | 550,068 | 
|Total                              |  |                     | 3 |  |                          | $ | 675,329 |                          |  | $ | 675,672 | 



For
the three and six month periods ending June 30, 2017, all three modifications consisted of the borrowers receiving a modified
payment structure for a range of 5 to 15 years.



-27-







COMMUNITY
SHORES BANK CORPORATION

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



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



For
the six month period ended June 30, 2017, there were no charge-offs related to troubled debt restructurings. As of June 30, 2017,
an additional $66,371 of specific reserves were established on these troubled debt restructurings.



The
following tables present loans by class modified as troubled debt restructurings that occurred during the three and six month
periods ended June 30, 2016:



|                                     |  |                     |   |  | Pre-Modification         |   |        | Post-Modification        |  |   |         | 
|------------------------------------ |  | ------------------- | - |  | ------------------------ | - | ------ | ------------------------ |  | - | ------- | 
|                                     |  |                     |   |  | Outstanding
    Recorded |   |        | Outstanding
    Recorded |  |   | Current | 
|Three
    Months Ended June 30, 2016 |  | Number
    of Loans |   |  | Investment               |   |        | Investment               |  |   | Balance | 
|Troubled Debt Restructurings:        |  |                     |   |  |                          |   |        |                          |  |   |         | 
|Commercial                           |  |                     | 1 |  |                          | $ | 15,107 |                          |  | $ | 15,107  | 
|Commercial Real Estate:              |  |                     |   |  |                          |   |        |                          |  |   |         | 
|General                              |  |                     | 1 |  |                          |   | 58,194 |                          |  |   | 58,194  | 
|Consumer:                            |  |                     |   |  |                          |   |        |                          |  |   |         | 
|Other                                |  |                     | 1 |  |                          |   | 11,566 |                          |  |   | 11,566  | 
|Total                                |  |                     | 3 |  |                          | $ | 84,867 |                          |  | $ | 84,867  | 



|                                   |  |                     |   |  | Pre-Modification         |   |        | Post-Modification        |  |   |         | 
|---------------------------------- |  | ------------------- | - |  | ------------------------ | - | ------ | ------------------------ |  | - | ------- | 
|                                   |  |                     |   |  | Outstanding
    Recorded |   |        | Outstanding
    Recorded |  |   | Current | 
|Six
    Months Ended June 30, 2016 |  | Number
    of Loans |   |  | Investment               |   |        | Investment               |  |   | Balance | 
|Troubled Debt Restructurings:      |  |                     |   |  |                          |   |        |                          |  |   |         | 
|Commercial                         |  |                     | 1 |  |                          | $ | 15,107 |                          |  | $ | 15,107  | 
|Commercial Real Estate:            |  |                     |   |  |                          |   |        |                          |  |   |         | 
|General                            |  |                     | 1 |  |                          |   | 58,194 |                          |  |   | 58,194  | 
|Consumer:                          |  |                     |   |  |                          |   |        |                          |  |   |         | 
|Other                              |  |                     | 1 |  |                          |   | 11,566 |                          |  |   | 11,566  | 
|Total                              |  |                     | 3 |  |                          | $ | 84,867 |                          |  | $ | 84,867  | 



For
the three and six month periods ending June 30, 2016, one modification involved a stated interest rate below the current market
rate for a period of 7 years. Two modifications involved a reduced payment amount for a period ranging from 4 months to 9 months.



For
the six month period ended June 30, 2016, there were no charge-offs related to troubled debt restructurings. As of June 30, 2016,
an additional $50,937 of specific reserves were established on these troubled debt restructurings.



For
the three and six month periods ending June 30, 2017 there were no troubled debt restructuring that experienced a payment default.
However, there was one commercial troubled debt restructuring that experienced a payment default within 12 months following the
modification within the three and six month periods ending June 30, 2016. The recorded investment at the time of default was $18,301.



-28-







COMMUNITY
SHORES BANK CORPORATION

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



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



Credit
Quality Indicators:



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



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

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

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

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

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

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

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

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

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



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



-29-







COMMUNITY
SHORES BANK CORPORATION

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



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



As
of June 30, 2017 and December 31, 2016, and based on the most recent analysis performed, the recorded investment by risk category
and class of loans is as follows:



|      |  |  |              |            |            | Commercial
    Real Estate |   |            | Commercial
    Real Estate | 
|----- |  |  | ------------ | ---------- | ---------- | -------------------------- | - | ---------- | -------------------------- | 
|      |  |  | Commercial   |            |            | General                    |   |            | Construction               | 
|      |  |  | June
    30, |            |            | December
    31,           |   |            | June
    30,               | 
|      |  |  | 2017         |            |            | 2016                       |   |            | 2017                       | 
|1     |  |  |              | $          | 0          |                            |   | $          | 7,391                      | 
|2     |  |  |              |            | 1,246,575  |                            |   |            | 1,281,578                  | 
|3     |  |  |              |            | 9,820,697  |                            |   |            | 10,420,192                 | 
|4     |  |  |              |            | 15,694,200 |                            |   |            | 16,356,758                 | 
|5     |  |  |              |            | 15,224,547 |                            |   |            | 17,186,851                 | 
|5M    |  |  |              |            | 1,938,281  |                            |   |            | 2,606,184                  | 
|6     |  |  |              |            | 1,150,624  |                            |   |            | 1,200,346                  | 
|7     |  |  |              |            | 1,033,640  |                            |   |            | 1,890,779                  | 
|8     |  |  |              |            | 58,788     |                            |   |            | 11,303                     | 
|Total |  |  | $            | 46,167,352 |            |                            | $ | 50,961,382 |                            | 



The
Company considers the performance of the loan portfolio and its impact on the allowance for loan losses. For residential and consumer
loan classes, the Company evaluates credit quality based on the aging status of the loan, which was previously presented and by
payment activity. The following tables present the recorded investment in residential and consumer loans based on payment activity
as of June 30, 2017 and December 31, 2016:





|           |  | Residential                    |            |  |                      |   |            |                            |  |   |                  |  |  |              |          
|---------- |  | ------------------------------ | ---------- |  | -------------------- | - | ---------- | -------------------------- |  | - | ---------------- |  |  | ------------ | ---------
|           |  | June
    30,                   |            |  | December
    31,     |   |            |                            |  |   |                  |  |  |              |          
|           |  | 2017                           |            |  | 2016                 |   |            |                            |  |   |                  |  |  |              |          
|Performing |  | $                              | 17,140,547 |  |                      | $ | 18,176,652 |                            |  |   |                  |  |  |              |          
|Impaired   |  |                                | 517,404    |  |                      |   | 526,736    |                            |  |   |                  |  |  |              |          
|Total      |  | $                              | 17,657,951 |  |                      | $ | 18,703,388 |                            |  |   |                  |  |  |              |          
|           |  |                                |            |  |                      |   |            |                            |  |   |                  |  |  |              |          
|           |  | Consumer
    – Lines of credit |            |  | Consumer
    – Other |   |            | Consumer
    – Credit card | 
|           |  | June
    30,                   |            |  | December
    31,     |   |            | June
    30,               |  |   | December
    31, |  |  | June
    30, |          
|           |  | 2017                           |            |  | 2016                 |   |            | 2017                       |  |   | 2016             |  |  | 2017         |          
|Performing |  | $                              | 6,304,296  |  |                      | $ | 5,843,821  |                            |  | $ | 1,110,966        |  |  | $            | 1,153,453
|Impaired   |  |                                | 107,300    |  |                      |   | 144,693    |                            |  |   | 19,135           |  |  |              | 20,481   
|Total      |  | $                              | 6,411,596  |  |                      | $ | 5,988,514  |                            |  | $ | 1,130,101        |  |  | $            | 1,173,934





-30-







COMMUNITY
SHORES BANK CORPORATION

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



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



Foreclosed
asset activity for the period ended:



|                                                   |  | June
    30, |           |   | December
    31, |  
|-------------------------------------------------- |  | ------------ | --------- | - | ---------------- | -
|                                                   |  | 2017         |           |   | 2016             |  
|Beginning of year                                  |  | $            | 1,460,394 |   |                  | $
|Additions                                          |  |              | 0         |   |                  |  
|Reductions from sales                              |  |              | (7,351    | ) |                  |  
|Direct write-downs                                 |  |              | (97,483   | ) |                  |  
|End of period                                      |  | $            | 1,355,560 |   |                  | $
|                                                   |  |              |           |   |                  |  
|Expenses related to foreclosed assets
    include: |  |              |           |   |                  |  
|Operating expenses,
    net of rental income       |  | $            | 46,924    |   |                  | $



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



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



Period
end premises and equipment were as follows at June 30, 2017 and December 31, 2016:



|                                      |  | June
    30, |            |  | December
    31, |  
|------------------------------------- |  | ------------ | ---------- |  | ---------------- | -
|                                      |  | 2017         |            |  | 2016             |  
|Land & land improvements              |  | $            | 4,704,624  |  |                  | $
|Buildings & building improvements     |  |              | 6,334,781  |  |                  |  
|Furniture, fixtures
    and equipment |  |              | 3,017,085  |  |                  |  
|                                      |  |              | 14,056,490 |  |                  |  
|Less:  accumulated
    depreciation   |  |              | 5,719,053  |  |                  |  
|                                      |  | $            | 8,337,437  |  |                  | $



Depreciation
and amortization expenses were $173,466 and $184,893 for the six months ended June 30, 2017 and 2016, respectively.



-31-







COMMUNITY
SHORES BANK CORPORATION

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



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



The
components of the outstanding deposit balances at June 30, 2017 and December 31, 2016 were as follows:



|                             |  | June
    30, |             |  | December
    31, |  
|---------------------------- |  | ------------ | ----------- |  | ---------------- | -
|                             |  | 2017         |             |  | 2016             |  
|Non-interest-bearing
    DDA |  | $            | 43,340,389  |  |                  | $
|Interest-bearing
    DDA     |  |              | 45,723,186  |  |                  |  
|Money market                 |  |              | 22,435,302  |  |                  |  
|Savings                      |  |              | 33,678,408  |  |                  |  
|Time, under $100,000         |  |              | 14,553,646  |  |                  |  
|Time,
    over $100,000      |  |              | 9,230,926   |  |                  |  
|Total Deposits               |  | $            | 168,961,857 |  |                  | $



Time
deposits of $250,000 or more were $1,392,955 at June 30, 2017 and $1,387,575 at December 31, 2016. There were no brokered deposits
at either June 30, 2017 or December 31, 2016.



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



The
Company’s short-term borrowings outstanding consisted entirely of repurchase agreements at June 30, 2017 and December 31,
2016. The Company has not utilized its line of credit with the FHLB in 2017, and only utilized it once during 2016. Information
regarding repurchase agreements and borrowings from the FHLB is summarized below:



|                                            |  | Repurchase |           |   | Borrowings    |  
|------------------------------------------- |  | ---------- | --------- | - | ------------- | -
|                                            |  | Agreements |           |   | from
    FHLB |  
|                                            |  |            |           |   |               |  
|Outstanding at June 30, 2017                |  | $          | 5,255,475 |   |               | $
|Average interest
    rate at period end     |  |            | 0.41      | % |               |  
|Average balance during period               |  |            | 4,593,411 |   |               |  
|Average interest rate during period         |  |            | 0.41      | % |               |  
|Maximum month end
    balance during period |  |            | 5,320,693 |   |               |  
|                                            |  |            |           |   |               |  
|Outstanding at December 31, 2016            |  | $          | 4,639,766 |   |               | $
|Average interest
    rate at year-end       |  |            | 0.40      | % |               |  
|Average balance during
    year             |  |            | 4,283,900 |   |               |  
|Average interest
    rate during year       |  |            | 0.41      | % |               |  
|Maximum month end
    balance during year   |  |            | 5,382,709 |   |               |  



The
Bank had securities of $5,184,056 pledged to repurchase agreements at June 30, 2017 and $4,000,396 pledged at December 31, 2016.
The Company had approximately $3.5 million of residential mortgage loans pledged to support its line of credit with the FHLB at
June 30, 2017.



-32-







COMMUNITY
SHORES BANK CORPORATION

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



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



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



|Fair
    Market Value of Securities Pledged to 
    Repurchase Agreements |  | June
    30, 2017 |           |  | December
    31, 2016 |  
|------------------------------------------------------------------------- |  | ----------------- | --------- |  | --------------------- | -
|U.S. Treasury and agency
    securities                                   |  | $                 | 2,937,708 |  |                       | $
|Mortgage-backed securities                                                |  |                   | 1,692,069 |  |                       |  
|Collateralized
    mortgage obligations                                   |  |                   | 554,279   |  |                       |  
|Total                                                                     |  | $                 | 5,184,056 |  |                       | $



Another
source of short-term borrowings is available through the Federal Reserve Discount Window (“Discount Window”). At June
30, 2017, collateral pledged for Discount Window borrowings consisted of $1,829,366 in home equity loans while at December 31,
2016 the collateral pledged consisted of $1,781,289 in home equity loans.



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



The
Bank is a member of the FHLB of Indianapolis. Based on its current FHLB stock holdings and collateral, the Bank has the capacity
to borrow $2,167,279 at June 30, 2017. Each borrowing requires a direct pledge of securities and/or loans. To support potential
borrowings with the FHLB, the Bank had loans with a carrying value of $7,266,803 pledged at June 30, 2017 and $7,216,020 pledged
at year-end 2016. The Bank uses a portion of the loans pledged to the FHLB as collateral for the Bank’s $2,000,000 overdraft
line of credit. The remaining pledged loans are available to collateralize longer term FHLB borrowings. The Bank had no balance
outstanding on the line of credit and the Bank had no other borrowings with the FHLB at either June 30, 2017 or December 31, 2016.



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



The
Trust, as discussed in Note 1, sold 4,500 Cumulative Preferred Securities (“trust preferred securities”) at $1,000
per security in a December 2004 offering. The proceeds from the sale of the trust preferred securities were used by the Trust
to purchase an equivalent amount of subordinated debentures from the Company. The trust preferred securities and subordinated
debentures carry a floating rate of 2.05% over the 3-month LIBOR and was 3.35% at June 30, 2017 and 3.05% at December 31, 2016.
The stated maturity is December 30, 2034. The trust preferred securities are redeemable at par value on any interest payment date
and are, in effect, guaranteed by the Company. Interest on the subordinated debentures is payable quarterly on March 30th,
June 30th, September 30th and December 30th. The Company is not considered the primary beneficiary
of the Trust (under the variable interest entity rules), therefore the Trust is not consolidated in the Company’s financial
statements, rather the subordinated debentures are shown as a liability, and the interest expense is recorded on the Company’s
consolidated statement of income.



-33-







COMMUNITY
SHORES BANK CORPORATION

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



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



The
terms of the subordinated debentures, the trust preferred securities and the agreements under which they were issued, give the
Company the right, from time to time, to defer payment of interest for up to 20 consecutive quarters, unless certain specified
events of default have occurred and are continuing. The deferral of interest payments on the subordinated debentures results in
the deferral of distributions on the trust preferred securities.



On
April 27, 2016, the Company’s Board of Directors voted to again defer interest payments in order to preserve its cash for
general operations and potential capital support for the Bank as it grows. The deferral of interest does not constitute an event
of default. The Company exercised its option to defer regularly scheduled quarterly interest payments beginning with the quarterly
interest payment that was scheduled to be paid on June 30, 2016. As of June 30, 2017, the accrued and unpaid interest owed on
the subordinated debentures was $173,714. Accrued and unpaid interest owed on the subordinated debentures at December 31, 2016
was $98,892.



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



Sale
of Common Stock



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



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



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



| | 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.



-34-







COMMUNITY
SHORES BANK CORPORATION

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



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



A
summary of the notional and contractual amounts of outstanding financing instruments with off-balance-sheet risk as of June 30,
2017 and December 31, 2016 follows:



|                                 |  | June
    30, 2017 |            |  | December
    31, 2016 |  
|-------------------------------- |  | ----------------- | ---------- |  | --------------------- | -
|                                 |  |                   |            |  |                       |  
|Unused lines of credit           |  | $                 | 25,097,329 |  |                       | $
|Unused standby letters of credit |  |                   | 721,600    |  |                       |  
|Commitments to make loans        |  |                   | 28,500     |  |                       |  



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



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



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



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



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



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



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



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



-35-







COMMUNITY
SHORES BANK CORPORATION

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



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



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



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



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



-36-







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, 2017 and December 31, 2016:



|                                                                          |  |       |            |  | Fair
    Value Measurements Using |  
|------------------------------------------------------------------------- |  | ----- | ---------- |  | --------------------------------- | -
|                                                                          |  |       |            |  | Quoted
    Prices                 |  
|                                                                          |  |       |            |  | in
    Active                     |  
|                                                                          |  |       |            |  | Markets
    for                   |  
|                                                                          |  |       |            |  | Identical
    Assets              |  
|June
    30, 2017                                                         |  | Total |            |  | (Level
    1)                     |  
|Available for sale securities:                                            |  |       |            |  |                                   |  
|US
    Treasury                                                           |  | $     | 3,993,828  |  |                                   | $
|US
    Government and federal agency                                      |  |       | 4,453,344  |  |                                   |  
|Mortgage-backed
    and collateralized mortgage obligations – residential |  |       | 8,657,617  |  |                                   |  
|Total                                                                     |  | $     | 17,104,789 |  |                                   | $



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



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



-37-







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, 2017 and December 31, 2016:



|                       |  |       |           |  | Quoted
    Prices in   |   |   | Significant          |  |   |                         | 
|---------------------- |  | ----- | --------- |  | ---------------------- | - | - | -------------------- |  | - | ----------------------- | 
|                       |  |       |           |  | Active
    Markets for |   |   | Other
    Observable |  |   | Significant             | 
|                       |  |       |           |  | Identical
    Assets   |   |   | Inputs               |  |   | Unobservable
    Inputs | 
|                       |  | Total |           |  | (Level
    1)          |   |   | (Level
    2)        |  |   | (Level
    3)           | 
|June 30, 2017          |  |       |           |  |                        |   |   |                      |  |   |                         | 
|Impaired
    loans1:   |  | $     | 4,431,126 |  |                        | $ | 0 |                      |  | $ | 0                       | 
|Foreclosed
    assets: |  |       | 1,355,560 |  |                        |   | 0 |                      |  |   | 0                       | 
|Total                  |  | $     | 5,786,686 |  |                        | $ | 0 |                      |  | $ | 0                       | 



|                       |  |       |           |  | Quoted
    Prices in   |   |   | Significant          |  |   |                         | 
|---------------------- |  | ----- | --------- |  | ---------------------- | - | - | -------------------- |  | - | ----------------------- | 
|                       |  |       |           |  | Active
    Markets for |   |   | Other
    Observable |  |   | Significant             | 
|                       |  |       |           |  | Identical
    Assets   |   |   | Inputs               |  |   | Unobservable
    Inputs | 
|                       |  | Total |           |  | (Level
    1)          |   |   | (Level
    2)        |  |   | (Level
    3)           | 
|December 31, 2016      |  |       |           |  |                        |   |   |                      |  |   |                         | 
|Impaired
    loans1:   |  | $     | 3,210,340 |  |                        | $ | 0 |                      |  | $ | 0                       | 
|Foreclosed
    assets: |  |       | 1,460,394 |  |                        |   | 0 |                      |  |   | 0                       | 
|Total                  |  | $     | 4,670,734 |  |                        | $ | 0 |                      |  | $ | 0                       | 










1Collateral dependent



-38-









COMMUNITY
SHORES BANK CORPORATION

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



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



The
following tables present information as of June 30, 2017 and December 31, 2016 about significant unobservable inputs related to
the Bank’s individually material Level 3 financial assets, by class, measured on a non-recurring basis:



|                  |  | Valuation                 |  | Significant
    Unobservable                             |  | Range         |            
|----------------- |  | ------------------------- |  | -------------------------------------------------------- |  | ------------- | -----------
|                  |  | Technique                 |  | Inputs                                                   |  | of
    Inputs |            
|June 30, 2017     |  |                           |  |                                                          |  |               |            
|                  |  |                           |  |                                                          |  |               |            
|Impaired loans    |  | Sales comparison approach |  | Adjustments for differences between
    comparable sales |  |               | (23)-35    
|                  |  | Income approach           |  | Capitalization rate                                      |  |               | 9-12.5     
|                  |  |                           |  |                                                          |  |               |            
|Foreclosed assets |  | Sales comparison approach |  | Adjustments for differences between
    comparable sales |  |               | (48.5)-(33)



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



-39-







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 |  
|----------------------------------- |  | ------------------ | ------- |  | --------------------------- | -
|                                    |  | Carrying           |         |  | at
    June 30, 2017 Using  |  
|                                    |  | Amount             |         |  | Level
    1                 |  
|                                    |  | (in
    thousands) |        
|Financial assets                    |  |                    |         |  |                             |  
|Cash
    and cash equivalents       |  | $                  | 24,456  |  |                             | $
|Loans held for sale                 |  |                    | 44      |  |                             |  
|Loans, net (including
    impaired) |  |                    | 136,930 |  |                             |  
|FHLB stock                          |  |                    | 301     |  |                             |  
|Accrued interest
    receivable     |  |                    | 397     |  |                             |  
|                                    |  |                    |         |  |                             |  
|Financial liabilities               |  |                    |         |  |                             |  
|Deposits                            |  |                    | 168,962 |  |                             |  
|Repurchase agreements               |  |                    | 5,255   |  |                             |  
|Subordinated debentures             |  |                    | 4,500   |  |                             |  
|Accrued interest
    payable        |  |                    | 194     |  |                             |  



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



-40-







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



(e)
Repurchase agreements and other short-term borrowings



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



(f)
Subordinated debentures



The
fair values of the Company’s subordinated debentures 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.



-41-







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



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



There
were no unrecognized tax benefits at June 30, 2017 or December 31, 2016, and the Company does not expect the total amount of unrecognized
tax benefits to significantly increase or decrease in the next 12 months. The Company is only subject to examination by the Internal
Revenue Service for years after 2012.



| | 16. | SHARE-BASED
                                         COMPENSATION
| | --- | -----------------------------------------------------------------



The
Company has one share-based compensation plan as described below. Total compensation expense that has been charged against income
for that plan was $5,469 for the first half of 2017. There was no compensation expense charged against income for the first half
of 2016.



Stock
Incentive Plan of 2016



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



On
December 20, 2016, the Board granted 30,000 shares of restricted stock. The restricted stock will vest over five years. On May
8, 2017, 5,000 shares of restricted stock what were granted on December 20, 2016, were forfeited due to the voluntary termination
of one of the recipients. None of the shares had vested. At June 30, 2017, there were 475,000 shares available for future stock
rewards whereas at year-end 2016, there were 470,000 shares available for the same purpose.



-42-







COMMUNITY
SHORES BANK CORPORATION

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



| | 16. | SHARE-BASED
                                         COMPENSATION (Continued)
| | --- | -----------------------------------------------------------------------------



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



|                                  |  |               |        |   | Weighted
    Average |  
|--------------------------------- |  | ------------- | ------ | - | -------------------- | -
|                                  |  | Number
    of |        |   | Grant
    Date       |  
|                                  |  | Shares        |        |   | Fair
    Value       |  
|Non-vested at beginning of period |  |               | 30,000 |   |                      | $
|Granted                           |  |               | 0      |   |                      |  
|Exercised                         |  |               | 0      |   |                      |  
|Forfeited                         |  |               | (5,000 | ) |                      |  
|Non-vested at end of period       |  |               | 25,000 |   |                      | $



| | 17. | REGULATORY
                                         MATTERS
| | --- | -----------------------------------------------------------



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



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



Under
final capital rules that became effective on January 1, 2015, there was a requirement for a capital buffer to be phased in over
three years beginning in 2016. Banks that do not maintain this required capital buffer will become subject to progressively more
stringent limitations on the percentage of earnings that can be paid out in dividends or used for stock repurchases and on the
payment of discretionary bonuses to senior executive management. The capital buffer requirement effectively raises the minimum
Common Equity Tier One ratio to 7.0%, Tier One Capital (to risk weighted assets) ratio to 8.5% and Total Risk Based Capital Ratio
to 10.5% . Management believes that as of June 30, 2017, the Bank would meet the capital buffer requirements under the BASEL III
capital rules on a fully phased-in basis as if all such requirements were currently in effect.



Since
March 31, 2016, the Bank’s capital ratios were above the level of well-capitalized according to prompt corrective action
regulations. On March 31, 2017, the Company contributed $385,000 of additional capital to the Bank so that it would continue to
be above the well-capitalized level. At June 30, 2017, the Bank’s was still considered well-capitalized according
to prompt corrective action guidance with a total risk-based capital ratio of 12.10% and a Tier 1 to average assets ratio of 7.90%.
At December 31, 2016, the Bank’s total risk-based capital ratio was 11.12% and its Tier 1 to average assets ratio was 8.30%;
both above the minimum required for a well-capitalized regulatory status.



-43-







COMMUNITY
SHORES BANK CORPORATION

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



| | 17. | REGULATORY
                                         MATTERS (Continued)
| | --- | -----------------------------------------------------------------------



Actual
capital amounts and ratios for the Bank and, required capital amounts and ratios for the Bank to be well capitalized at June 30,
2017 and December 31, 2016 were:



|                                                                          |  |        |            |  |                       |  |       |                       |  |   |                       |  |  | Minimum
    Required |     
|------------------------------------------------------------------------- |  | ------ | ---------- |  | --------------------- |  | ----- | --------------------- |  | - | --------------------- |  |  | -------------------- | ----
|                                                                          |  |        |            |  |                       |  |       |                       |  |   |                       |  |  | to
    Be Well       |     
|                                                                          |  |        |            |  |                       |  |       | Minimum
    Required  |  |   | Capitalized
    Under | 
|                                                                          |  |        |            |  |                       |  |       | For
    Capital       |  |   | Prompt
    Corrective | 
|                                                                          |  | Actual |            |  | Adequacy
    Purposes |  |       | Action
    Provisions | 
|                                                                          |  | Amount |            |  | Ratio                 |  |       | Amount                |  |   | Ratio                 |  |  | Amount               |     
|June 30, 2017                                                             |  |        |            |  |                       |  |       |                       |  |   |                       |  |  |                      |     
|Common
    Equity Tier 1 (CET1) to risk-weighted assets of the Bank       |  | $      | 15,663,356 |  |                       |  | 10.87 | %                     |  | $ | 6,484,919             |  |  |                      | 4.50
|Total
    Capital (Tier 1 and Tier 2) to risk-weighted assets of the Bank |  |        | 17,441,671 |  |                       |  | 12.10 |                       |  |   | 11,528,745            |  |  |                      | 8.00
|Tier
    1 (Core) Capital to risk-weighted assets of the Bank             |  |        | 15,663,356 |  |                       |  | 10.87 |                       |  |   | 8,646,559             |  |  |                      | 6.00
|Tier
    1 (Core) Capital to average assets of the Bank                   |  |        | 15,663,356 |  |                       |  | 7.90  |                       |  |   | 7,934,052             |  |  |                      | 4.00



-44-







COMMUNITY
SHORES BANK CORPORATION

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



| | 17. | REGULATORY
                                         MATTERS (Continued)
| | --- | -----------------------------------------------------------------------



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



Federal
Reserve guidelines limit the amount of allowance for loan losses that can be included in Tier 2 capital. In general only 1.25%
of net risk-weighted assets are allowed to be included. At both December 31, 2016 and June 30, 2017, the full recorded balance
of the Bank’s allowance for loan losses was counted as Tier 2 capital and nothing was disallowed. The balance of the allowance
for loan losses was $1,778,315 at June 30, 2017 and $1,611,820 at December 31, 2016.



-45-







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, 2017 and is separated into two parts which are labeled Financial Condition and Results of Operations. The part
labeled Financial Condition compares the financial condition at June 30, 2017 to that at December 31, 2016. The part labeled Results
of Operations discusses the three and six month periods ending June 30, 2017 as compared to the same periods of 2016. Both parts
should be read in conjunction with the interim consolidated financial statements and footnotes included in Item 1 of Part I of
this Form 10-Q.



This
discussion and analysis of financial condition and results of operations, and other sections of the Form 10-Q contain forward-looking
statements that are based on management’s beliefs, assumptions, current expectations, estimates and projections about the
financial services industry, the economy, and about the Company, the Bank, the Mortgage Company, Berryfield and CS Financial Services.
Words such as “anticipates”, “believes”, “estimates”, “expects”, “forecasts”,
“intends”, “is likely”, “plans”, “projects”, variations of such words and similar
expressions are intended to identify such forward-looking statements. These forward-looking statements are intended to be covered
by the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of
future performance and involve certain risks, uncertainties and assumptions (“Future Factors”) that are difficult
to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially
differ from what may be expressed or forecasted in such forward-looking statements. The Company undertakes no obligation to update,
amend, or clarify forward-looking statements, whether as a result of new information, future events (whether anticipated or unanticipated),
or otherwise.



Future
factors include, among others, changes in interest rates and interest rate relationships; demand for products and services; the
degree of competition by traditional and non-traditional competitors; changes in banking regulation or actions by bank regulators;
changes in tax laws; changes in prices, levies, and assessments; the impact of technological advances; governmental and regulatory
policy changes; the outcomes of contingencies; trends in customer behavior as well as their ability to repay loans; changes in
local real estate values; changes in the national and local economy; the Company’s ability to generate future taxable income;
the ability of the Company to borrow money or raise additional capital to maintain or increase its or the Bank’s capital
position or when desired to support future growth; failure to comply with provisions of the Written Agreement may result in further
regulatory action that could have a material adverse effect on the Company and its 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.



CRITICAL
ACCOUNTING POLICIES AND ESTIMATES:



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



-46-







COMMUNITY
SHORES BANK CORPORATION

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



REGULATORY
UPDATE



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



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



FINANCIAL
CONDITION



Total
assets were $193.5 million at June 30, 2017 compared to $191.4 million at December 31, 2016. Asset growth occurring in the first
half of 2017 stemmed primarily from increases to customer deposit and repurchase agreement accounts which drove up the Company’s
balance on deposit at the FRB.



Cash
and cash equivalents increased by $3.4 million to $24.4 million at June 30, 2017 from $21.0 million at December 31, 2016. The
Bank’s FRB balance increased $4.0 million since year-end 2016 and was $20.6 million on June 30, 2017. The increase in balance
was driven largely by an increase in customer deposit balances but also included proceeds from loan repayments and the Company’s
capital contribution to the Bank. Although excess liquidity is a conservative posture, it is detrimental to earnings. Typically,
a balance at the FRB of between $7 million 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. Management intends to use excess funds for loan originations and
securities purchased for pledging obligations.



The
Bank’s security portfolio was $17.1 million at June 30, 2017 and $15.8 million at December 31, 2016. Investment activity
in the first six months of the year consisted of purchases of $4.5 million and maturities, prepayments, calls of $3.1 million
and net amortization of $67,000.



Maintaining
an adequate level of pledgeable assets is one of the driving forces behind most of the Bank’s investment activity. The security
purchases in the first half of 2017 were specifically intended to increase the Bank’s level of unencumbered securities.
Unencumbered securities are those that are not pledged to any other entity. The Bank diligently seeks to manage unencumbered securities
to ensure there are enough available to meet parameters required by several of the Bank’s operating policies. Regardless
of whether securities are encumbered, they serve as a key source of collateral or potential liquidity for the Bank. The level
of unpledged securities is formally assessed monthly. Typically the Bank aims to leave between 10% and 20% of its investment portfolio
unpledged but at June 30, 2017, only 9% of the investment portfolio was unencumbered. The shortfall occurred due to an unexpected
increase in the balances of the Bank’s repurchase agreements coupled with expected maturities. In early July (2017), $3
million of securities were purchased to restore the Bank’s level of unencumbered securities to one which is within the level
specified above. At December 31, 2016, the Bank had a 10% unpledged position.



At
June 30, 2017, securities with an amortized cost of $15.6 million were pledged to public fund customers and customer repurchase
agreements, up from $14.3 million at year-end 2016.



-47-







COMMUNITY
SHORES BANK CORPORATION

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



The
market value of the investment portfolio is impacted by national and global economic news. During the first six months of 2017,
the investment portfolio had net unrealized losses of $7,000. Including the decrease in value during the first half, net unrealized
losses on the investment portfolio climbed to $41,000. At June 30, 2017, there were 32 securities with an amortized cost of $13.3
million having an unrealized loss of $77,000. See Note 2 for information regarding the Company’s assessment of other than
temporary impairment on these investments.



To
reduce exposure to future loss, both realized and unrealized, the Bank intends to adhere to the diversification principles outlined
in the investment policy and limit issuer concentrations. Besides fully-guaranteed U.S. government and federal agency securities,
there were no holdings of securities of any one issuer in an amount greater than 10% of the Bank’s common stock and surplus
at June 30, 2017.



Loans
held for sale activity during the first six months of 2017 included $4.5 million of loan originations and $4.6 million of sales.
The associated gain on the loan sales was $108,000. Loans held for sale at June 30, 2017 were $44,000 and $128,000 at December
31, 2016.



Total
loans (held for investment) decreased $2.1 million and were $138.7 million at June 30, 2017 down from $140.8 million at December
31, 2016. There were net decreases in a variety of loan segments and there were reclassifications that occurred between the commercial
and commercial real estate segments in the first half of 2017. The most significant transactions in the first quarter of 2017
occurred in January and February. In January, one commercial real estate customer sold his business and repaid loans totaling
$1.7 million. Additionally, the Bank sold its credit card portfolio in February to TCM Bank. The credit card balance at the time
of sale was $445,000. The gain on the sale of these balances was $46,000. Prior to the transaction, management evaluated the risks
associated with this type of lending as well its potential for future interest and interchange income and its regulatory capital
allocation. Going forward, the Bank will get a small portion of the interchange income on the transactions of the customers sold
as well as a referral fee for new customers. The reclassifications mentioned above consisted of $1.7 million of loans in the commercial
segment at year-end 2016 that were reclassified to the commercial real estate segment due to an internal collateral analysis that
occurred in the first quarter of 2017. Six construction loans secured end financing in the first half of 2017 and were refinanced
with term debt. All six of the loans were in the commercial real estate general category at June 30, 2017. In spite of the net
decline in the loan portfolio total since year-end 2016, in July (2017), the Bank originated $7.4 million in loans supporting
management’s belief that the Bank’s loan portfolio will experience net growth in 2017 and do so in a manner that assesses
multiple risk factors in conjunction with expected rate of return and related capital allocation.



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



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



-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
annual financial statements. At each period end, the balance in the allowance for loan losses is based on management’s estimation
of probable incurred credit losses. The estimation is the result of loan portfolio analysis completed utilizing a detailed methodology
prescribed in the Bank’s credit procedures.



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



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



At
June 30, 2017, the allowance for loan losses totaled $1.8 million. There was a loan loss provision that was made in June of $174,000
which increased the allowance for loan losses balance from $1.6 million at year-end 2016. In addition to the loan loss provision,
there were net charge-offs for the first six months of $7,000. As a result of the loan loss provision increasing the allowance
for loan losses at June 30, 2017, the ratio of allowance to gross loans outstanding rose to 1.28%, compared to 1.14% at year-end
2016.



The
allocation of the allowance at June 30, 2017 and December 31, 2016 was as follows:



|                         |  | June
    30, 2017 |           |  | December
    31, 2016 | 
|------------------------ |  | ----------------- | --------- |  | --------------------- | 
|                         |  |                   |           |  | Percent
    of        | 
|                         |  |                   |           |  | Loans
    in Each     | 
|Balance at End of Period |  |                   |           |  | Category
    to       | 
|Applicable
    to:       |  | Amount            |           |  | Total
    Loans       | 
|Commercial               |  | $                 | 560,840   |  |                       | 
|Commercial Real Estate   |  |                   | 818,050   |  |                       | 
|Consumer                 |  |                   | 219,334   |  |                       | 
|Residential              |  |                   | 180,091   |  |                       | 
|Unallocated              |  |                   | 0         |  |                       | 
|Total                    |  | $                 | 1,778,315 |  |                       | 



The
general component of the allowance for loan losses as a percentage of non-specifically identified loans was 0.83% at June 30,
2017 and 0.84% at year-end 2016. At June 30, 2017, there were no unallocated reserves in the allowance for loan losses while there
were unallocated reserves of $73,000 at December 31, 2016.



-49-







COMMUNITY
SHORES BANK CORPORATION

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



At
June 30, 2017, the allowance contained $703,000 in specific allocations for impaired loans whereas at December 31, 2016 there
was $432,000 specifically allocated for that purpose. The $271,000 increase during the first six months of the year was due to
two impaired loans. One loan was identified as impaired in the second quarter of 2017 and required a $66,000 allocation at June
30, 2017; an amount higher than that required when it was in the general pool. The second loan was identified as impaired at December
31, 2016 but had no reserve allocation. As a result of activities related to the collateral and the borrower an allocation of
$206,000 was required at June 30, 2017. There were other changes to the reserve allocations of several other specifically identified
loans but they had little net impact on the overall balance. In total, there was $9.9 million of recorded investment on impaired
loans at June 30, 2017 compared to $9.3 million at year-end 2016.



Not
all specifically identified loans require an allocation of reserves. After a loan is specifically identified and an evaluation
of the collateral or expected repayment is completed, typically a charge-off is made so that the remaining principal is the current
value of the assigned collateral or expected repayment, therefore no further reserve is required. There were 18 impaired loans
requiring no reserve at June 30, 2017. The recorded investment of these loans on that date was $6.8 million. The recorded investment
of loans requiring no reserve comprised 68% of total specifically identified loans at June 30, 2017. This outcome is down from
$7.8 million requiring no reserves at year-end 2016; 84% of the recorded investment of specifically identified loans. The decrease
is due to the impaired loans mentioned above requiring specific allocations since year-end 2016.



Specifically
identified loans requiring reserves had a recorded investment of $3.1 million at June 30, 2017 and $1.5 million at year-end 2016.
The two loans mentioned above are largely responsible for the increase.



Another
factor considered in the assessment of the adequacy of the allowance is the quality of the loan portfolio from a past due standpoint.
From year-end 2016 to June 30, 2017, the recorded investment in accruing past due and non-accrual loans increased by $853,000.
This was evidenced by a $771,000 increase in the recorded investment in past due loans and a $82,000 increase in the recorded
investment in non-accrual loans in the first half of 2017.



The
recorded investment of accruing loans past due 30-59 days was $1.4 million at June 30, 2017; a $941,000 increase since year-end
2016. There are only two loans past due 30-59 days at June 30; neither were past due at December 31, 2016. One loan comprises
99% of the balance. The loan responsible for a majority of the balance is impaired and was the loan that required a large specific
allocation in the second quarter. The loan had slipped to 60-89 days past due at July 31, 2017. The Bank has taken the real estate
property into Receivership and is working with the Receiver in obtaining payment. The Bank is considering a payment restructure
to accommodate a change in cashflow for the borrower related to this property.



The
recorded investment of accruing loans past due 60-89 days at June 30, 2017 was $567,000 compared to a recorded investment of $737,000
at December 31, 2016. A single loan comprises the entire balance 60-89 days past due at June 30, 2017. This same loan was 60-89
days past due at year-end 2016. A large portion of the balance outstanding is guaranteed by the Small Business Administration
(“SBA”). As a result of the delinquency and the borrower’s failure to comply with the terms of its troubled
debt restructure, the Bank put the loan on non-accrual in July. The Bank intends to work closely with the SBA and has
issued a demand letter to the borrower.



-50-







COMMUNITY
SHORES BANK CORPORATION

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



There
were no loans still accruing interest with a recorded investment past due 90 days and greater at either June 30, 2017 or December
31, 2016.



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



The
recorded investment of non-accrual loans totaled $205,000 at June 30, 2017; up $82,000 from year-end 2016. There were five non-accrual
notes at June 30, 2017 and none were secured by undeveloped real estate. At June 30, 2017, there were specific allocations of
$53,000 in the allowance for any estimated collateral deficiency on these notes.



There
were net charge-offs of $14,000 for the second quarter of 2017 and net charge-offs of $7,000 for the first six months of 2017
and the corresponding ratio of annualized net recoveries to average loans was 0.04% and 0.01%. Similarly, there were net charge-offs
of $66,000 for the second quarter of 2016 and net charge-offs of $33,000 for the first six months of 2016. The ratio of annualized
net charge-offs to average loans was 0.21% for the second quarter and 0.05% for the first six months of 2016.



Another
risk identified by the Company is interest rate risk. The Company attempts to mitigate interest rate risk in its loan portfolio
in many ways. In addition to product diversification, two other methods used are to balance the rate sensitivity of the portfolio
and avoid extension risk1.



The
loan maturities and rate sensitivity of the loan portfolio at June 30, 2017 are set forth below:



|                            |  | Within
    Three     Months |            |  | Three
    to Twelve
    Months |   |            | One
    to Five
    Years |  |   | After
    Five     Years |  |  | Total |           
|--------------------------- |  | --------------------------- | ---------- |  | ------------------------------ | - | ---------- | ------------------------- |  | - | ------------------------ |  |  | ----- | ----------
|Commercial                  |  | $                           | 7,385,319  |  |                                | $ | 10,330,227 |                           |  | $ | 20,152,903               |  |  | $     | 8,137,583 
|Commercial Real Estate:     |  |                             |            |  |                                |   |            |                           |  |   |                          |  |  |       |           
|General                     |  |                             | 6,142,828  |  |                                |   | 11,873,957 |                           |  |   | 36,442,378               |  |  |       | 7,616,269 
|Construction                |  |                             | 2,179,141  |  |                                |   | 0          |                           |  |   | 1,911,033                |  |  |       | 1,407,828 
|Consumer:                   |  |                             |            |  |                                |   |            |                           |  |   |                          |  |  |       |           
|Lines of credit             |  |                             | 453,176    |  |                                |   | 362,638    |                           |  |   | 1,996,211                |  |  |       | 3,578,753 
|Other                       |  |                             | 38,569     |  |                                |   | 72,834     |                           |  |   | 689,453                  |  |  |       | 325,149   
|Residential                 |  |                             | 234,071    |  |                                |   | 951,829    |                           |  |   | 32,693                   |  |  |       | 16,393,280
|                            |  | $                           | 16,433,104 |  |                                | $ | 23,591,485 |                           |  | $ | 61,224,671               |  |  | $     | 37,458,862
|Loans at fixed rates        |  | $                           | 4,180,445  |  |                                | $ | 12,743,445 |                           |  | $ | 48,074,070               |  |  | $     | 26,624,806
|Loans at variable
    rates |  |                             | 12,252,659 |  |                                |   | 10,848,040 |                           |  |   | 13,150,601               |  |  |       | 10,834,056
|                            |  | $                           | 16,433,104 |  |                                | $ | 23,591,485 |                           |  | $ | 61,224,671               |  |  | $     | 37,458,862



At
June 30, 2017, 66% of the Bank’s loan balances carried a fixed rate and 34% carried a floating rate. Since year-end 2016,
there has been a 2% increase in the concentration of loans carrying a fixed rate. Some of the shift is a factor of the types of
loans that have been paid off or have been added to the portfolio and some of the change is related to customer preference at
the time of renewal. Since the rate environment is leaning toward further rate increases, management will be challenged to increase
the Bank’s concentration of floating rate loans and limit originating loans with a fixed rate.








| | 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



Avoidance
of extension risk is another important means to mitigate interest rate risk. The maturity distribution of the Bank’s loan
portfolio remained relatively balanced between short-term (less than one year) and long-term (greater than five years) maturities
at both June 30, 2017 and December 31, 2016. At June 30, 2017, short-term maturities comprised 29% of the loan portfolio and long
term maturities comprised approximately 27%. These results are similar to year-end 2016. At December 31, 2016, short term maturities
were 31% and long term maturities were the same at 27% of the portfolio.



Foreclosed
assets were $1.4 million at June 30, 2017, down slightly since December 31, 2016. Foreclosed assets consist of relinquished properties
through the collection process which were previously customer collateral supporting various borrowings. There were three properties
sold during the first half of 2017. Vacant land held in foreclosed assets for future development, will remain in the number of
foreclosed properties until the last lot is sold. The net gains realized on these sales were $51,000. No properties were added
in the first half of 2017. At June 30, 2017, foreclosed assets consisted of 11 real estate holdings, three less than at December
31, 2016.



Deposit
balances were $169.0 million at June 30, 2017, up from $167.7 million at December 31, 2016. The $1.3 million increase in deposits
since year-end is mostly driven by existing customers increasing their balances since year-end 2016.



Repurchase
agreement balances were $5.3 million at June 30, 2017 and $4.6 million at December 31, 2016, an increase of $616,000. Similar
to deposits, growth between the two period ends was the result of existing customers increasing their balances.



Shareholders’
equity was approximately $14.2 million on June 30, 2017. On December 31, 2016, the balance was $14.1 million. The net increase
was primarily made up of net income of $162,000. Share based compensation of $5,000 was negated by a net comprehensive loss from
security market value change of $5,000.



Total
shares outstanding at both June 30, 2017 and December 31, 2016 were 4,101,664. The book value per share was $3.47 at June 30,
2017 compared to $3.43 at December 31, 2016.



In
March 2017, the Company contributed $385,000 of capital to the Bank to supplement its regulatory capital ratios. The Bank has
had regulatory capital ratios which are at a level considered to be well capitalized according to prompt corrective action guidance
since its capital raise was completed in March 2016. The Bank continues to be well capitalized. At June 30, 2017, the Bank’s
total risk-based capital ratio was 12.10% and its Tier 1 to average assets ratio was 7.90% compared to 11.12% and 8.30%, respectively,
at December 31, 2016.



RESULTS
OF OPERATIONS



There
was net income of $162,000 for the first half of 2017 which compares favorably to $55,000 recorded for the first half of 2016.
The corresponding basic and diluted income per share for the first six months of 2017 were $0.04 and $0.02 for the same period
in 2016.



The
Company’s net income for the second quarter of 2017 was $25,000 and the basic and diluted income per share was $0.01 while
for the second quarter of 2016, net income was $79,000 and basic and diluted earnings per share was $0.02.



-52-







COMMUNITY
SHORES BANK CORPORATION

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



For
the first six months of 2017, the annualized return on the Company’s average total assets was 0.16% compared to 0.06% for
the first six months of 2016. For the second quarter of 2017, the annualized return on the Company’s average assets was
0.05%. For the second quarter of 2016, the annualized return on the Company’s average total assets was 0.17%.



The
annualized return on the Company’s average equity for the first half and second quarter of 2017 was 2.26% and 0.71%, respectively.
For the first half of 2016, the annualized return on the Company’s average equity was 0.99% and was 2.25% for the second
quarter of 2016.



A
primary component of the Company’s revenue is its net interest income. The Company’s net interest income was more
for the first half of 2017 compared to the similar period in 2016 and the net interest margin was higher. The following table
sets forth certain information relating to the Company’s consolidated average interest earning assets and interest bearing
liabilities and reflects the average yield on assets and average cost of liabilities for the periods indicated. Such yields and
costs are derived by dividing annualized income or expenses by the average daily balance of assets or liabilities, respectively,
for the periods presented.



|                                                                            |  | Six
    Months ended June 30, |            
|--------------------------------------------------------------------------- |  | ----------------------------- | -----------
|                                                                            |  | 2017                          |            
|                                                                            |  | Average                       |            
|                                                                            |  | Balance                       |            
|Assets                                                                      |  |                               |            
|Federal
    funds sold and interest-bearing
deposits with banks             |  | $                             | 25,492,625 
|Securities                                                                  |  |                               | 17,971,005 
|Loans
    (including held for sale and non accrual)                         |  |                               | 139,582,100
|Total
    interest earning assets                                           |  |                               | 183,045,730
|Other
    assets                                                            |  |                               | 16,318,943 
|                                                                            |  | $                             | 199,364,673
|Liabilities
    and Shareholders’ Equity                                    |  |                               |            
|Interest-bearing
    deposits                                               |  | $                             | 130,899,722
|Repurchase
    agreements                                                   |  |                               | 4,593,411  
|Subordinated
    debentures and note payable                                |  |                               | 4,500,000  
|Total
    interest bearing liabilities                                      |  |                               | 139,993,133
|Non-interest-bearing
    deposits                                           |  |                               | 44,602,275 
|Other
    liabilities                                                       |  |                               | 484,686    
|Shareholders’
    Equity                                                    |  |                               | 14,284,579 
|                                                                            |  | $                             | 199,364,673
|Net
    interest income (tax equivalent basis)                              |  |                               |            
|Net
    interest spread on earning assets                                   |  |                               |            
|(tax
    equivalent basis)                                                  |  |                               |            
|Net
    interest margin on earning assets                                   |  |                               |            
|(tax
    equivalent basis)                                                  |  |                               |            
|Average
    interest-earning assets to average
interest-bearing liabilities |  |                               |            
|Tax
    equivalent adjustment                                               |  |                               |            
|Net
    interest income                                                     |  |                               |            





-53-











COMMUNITY
SHORES BANK CORPORATION

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



The
net interest income for the first six months of 2016 was $2.9 million compared to a figure of $3.2 million for the same six months
in 2017. Conversely, the net interest spread on average earning assets decreased 1 basis point to 3.35% in the past twelve months;
however, the net interest margin increased by 1 basis point and was 3.50% for the first six months of 2017. The lack of net interest
margin impact resulting from an additional $17.9 million more interest earning assets and $321,000 more in net interest income
was due to the fact that the mix of earning assets was less profitable. The concentration of interest earning balances on deposit
with other banks, mainly the FRB, comprised 4% more of earning assets than in the first half of 2016 while investments were 4%
less. The loan portfolio remained essentially the same between the two periods.



The
average rate earned on interest earning assets was 3.95% for the six month period ending June 30, 2017; a four basis point decrease
compared to 3.99% for the same period in 2016. As mentioned above a portion of the decrease was due to detrimental changes to
the earning asset composition but a large portion stemmed from a reduction in the rate earned on the loan portfolio, the Company’s
largest earning asset category. The average rate earned on the loan portfolio was 4.83% in the first half of 2017, a reduction
of 14 basis points compared to the first half of 2016. As the economy strengthens and the creditworthiness of borrowers improves,
financial institutions are more actively soliciting new business making the rate environment more competitive. In order to retain
current relationships and attract new ones, sometimes the Bank has to offer rates that are lower than the average portfolio rate.
Lower rates are not being automatically offered on renewals or new business. To maintain the quality of the loan portfolio, each
rate decision takes into consideration the strength of the loan from an underwriting standpoint. Lower rates are used selectively
based on the risk characteristics of the credit.



In
the first half of 2017, the Company’s cost of funds was 0.60%, an improvement of three basis points when compared to the
first half of 2016. The improvement occurred mainly because of the reduction in the Company’s debt as the rate paid on interest-bearing
deposits and repurchase agreements remained unchanged at 0.51% and 0.41% respectively when comparing the first half of 2017 to
that of 2016. Although national prime lending rates have risen over the past twelve months, the Bank has not made many changes
to the rates paid on deposits.



-54-







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, 2017 and 2016 is in the table below.



|                                                                            |  | Three
    Months ended June 30, |            
|--------------------------------------------------------------------------- |  | ------------------------------- | -----------
|                                                                            |  | 2017                            |            
|                                                                            |  | Average                         |            
|                                                                            |  | Balance                         |            
|Assets                                                                      |  |                                 |            
|Federal
    funds sold and interest- bearing deposits with banks            |  | $                               | 27,632,828 
|Securities                                                                  |  |                                 | 18,055,605 
|Loans
    (including held for sale and
    non accrual)                     |  |                                 | 139,538,137
|Total
    interest earning assets                                           |  |                                 | 185,226,570
|Other
    assets                                                            |  |                                 | 16,160,535 
|                                                                            |  | $                               | 201,387,105
|Liabilities
    and Shareholders’ Equity                                    |  |                                 |            
|Interest-bearing
    deposits                                               |  | $                               | 130,371,950
|Repurchase
    agreements                                                   |  |                                 | 4,882,680  
|Subordinated
    debentures and note
    payable                            |  |                                 | 4,500,000  
|Total
    interest bearing liabilities                                      |  |                                 | 139,754,630
|Non-interest-bearing
    deposits                                           |  |                                 | 46,726,957 
|Other
    liabilities                                                       |  |                                 | 558,369    
|Shareholders’
    Equity                                                    |  |                                 | 14,347,149 
|                                                                            |  | $                               | 201,387,105
|Net
    interest income (tax equivalent basis)                              |  |                                 |            
|Net
    interest spread on earning assets (tax
    equivalent basis)        |  |                                 |            
|Net
    interest margin on earning assets (tax
    equivalent basis)        |  |                                 |            
|Average
    interest-earning assets to average interest-bearing liabilities |  |                                 |            
|Tax
    equivalent adjustment                                               |  |                                 |            
|Net
    interest income                                                     |  |                                 |            



Net
interest income increased $154,000 in the second quarter of 2017 over the similar period in 2016; however, both the net interest
spread and net interest margin were lower. The net interest spread for the three month period ending June 30, 2017 was 3.37% compared
to 3.46% in the second quarter of 2016 and the net interest margin was four basis points lower. The net interest margin for the
second quarter of 2017 was 3.53% compared to 3.57% for the second quarter of 2016.



The
yield on earning assets fell six basis points between the second quarter of 2016 and the second quarter in 2017. Again, an increase
in the concentration of interest bearing deposits with other banks in relation to interest earning assets was responsible. This
earning asset category increased from 11% of average earning assets in the second quarter of 2016 to 15% of total average earning
assets in 2017. Interest bearing deposits with other financial institutions is the lowest yielding category.



-55-







COMMUNITY
SHORES BANK CORPORATION

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



The
Company’s cost of funds was 0.61% for the second quarter of 2017 rising three basis points compared to the second quarter
of 2016. All of the interest-bearing liabilities experienced minimal yield increases when compared to the second quarter of 2016.
A portion of the increase is also due to the tiered pricing which exists on many interest bearing products. As interest bearing
liabilities grow, they may move into a higher tier within the product. The higher tiers are typically subject to a slightly higher
rate. Average interest bearing liabilities increased $7.8 million when comparing the outstanding balances of the second quarter
of 2017 to those of the second quarter of 2016.



Management
expects the Company’s net interest margin to increase in the remaining quarters of 2017. Extra liquidity in interest bearing
deposits with other banks will be used to fund loans. If the loan portfolio increases and the interest earning balances at other
banks decreases, there should be a favorable movement in the composition of earning assets and an increase in net interest income
and its ratios.



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.



-56-







COMMUNITY
SHORES BANK CORPORATION

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



Details
of the repricing gap at June 30, 2017 were:



|                                                              |  | Interest
    Rate Sensitivity Period |            
|------------------------------------------------------------- |  | ------------------------------------ | -----------
|                                                              |  | Within                               |            
|                                                              |  | Three                                |            
|                                                              |  | Months                               |            
|Earning assets                                                |  |                                      |            
|Interest-bearing
    deposits in other financial institutions |  | $                                    | 20,729,648 
|Securities
    (including FHLB stock)                         |  |                                      | 3,098,881  
|Loans
    held for sale                                       |  |                                      | 0          
|Loans                                                         |  |                                      | 47,991,353 
|                                                              |  |                                      | 71,819,882 
|Interest-bearing
    liabilities                              |  |                                      |            
|Savings
    and checking                                      |  |                                      | 101,836,896
|Time
    deposits <$100,000                                   |  |                                      | 2,574,505  
|Time
    deposits >$100,000                                   |  |                                      | 1,165,918  
|Repurchase
    agreements and                                 |  |                                      |            
|Federal
    funds purchased                                   |  |                                      | 5,255,475  
|Notes
    payable and other borrowings                        |  |                                      | 4,500,000  
|                                                              |  |                                      | 115,332,794
|Net
    asset (liability) repricing gap                       |  | $                                    | (43,512,912
|Cumulative
    net asset (liability) repricing gap            |  | $                                    | (43,512,912



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. Recent
interpretation of the information from the Federal Open Market Committee of the Federal Reserve System has leaned towards further
rate increases; because the Company’s gap position is negative, there may be a negative effect on market rates for interest
bearing liabilities. The interest rate sensitivity table above simply illustrates what the Company is contractually able to change
in certain time frames.



There
was a provision for loan losses of $174,000 recorded in the second quarter of 2017 and none in the first quarter making the provision
expense for the first six months of the 2017, $174,000. There was none for the first six months of 2016. Calculated provision
expense is associated with changes in historical loss calculations, economic conditions (local and national) as well as delinquency,
net charge-offs or recoveries and changes to credit quality grades; 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. The provision expense
recorded in the second quarter of 2017 was due to changes in the credit quality of two loans identified as impaired. One loan
was identified as impaired in the second quarter of 2017 requiring a $66,000 allocation at June 30, 2017; an amount higher than
that required when it was in the general pool. The second loan was identified as impaired at December 31, 2016 but had no reserve
allocation. As a result of activities related to the collateral and the borrower an allocation of $206,000 was required at June
30, 2017. These allocations were partially funded by unallocated reserves. 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.



-57-







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 2017 was $814,000 compared to $855,000 recorded for the similar period in 2016. Although
the year-to-date results for non-interest income were similar in total, there were differences in the components. Gains on foreclosed
asset sales were $51,000 for the first half of 2017 compared to $147,000 for the first half of 2016. In the prior year, the Bank
benefitted from foreclosed asset sales carrying no book value. There were fewer lots available in 2017 and as of May 2017 all
of the lots were liquidated. Lower revenue stemming from foreclosed asset transactions is expected going forward.



Strengthened
revenue stemming from loan sales helped lessen the $96,000 difference related to foreclosed asset transactions. For the first
half of 2017, recorded gains on loan sales were $154,000 compared to $71,000 for the first half of 2016. A portion of the increase
stemmed from a single, specific transaction. In the first quarter of 2017, the Bank finalized the sale of its credit card portfolio.
On February 17, 2017, the Bank sold credit card receivables of $445,000. The gain on the transaction was $46,000. Complementing
this income was strengthened gains from selling mortgage loans. Gains on the sale of mortgage loans were $108,000 for the first
six months of 2017. This outcome was $37,000 more than gains recorded on the sale of mortgage loans in the first six months of
2016. The Bank added a mortgage lender in early 2016 and increases to this revenue have started to materialize. Also, there continues
to be decreases in service charges on deposit accounts; mainly overdraft fee income. Overdraft income was $14,000 less between
the first half of 2017 and that of 2016. The Bank attributes a portion of the difference to the improving economy. Management
is analyzing other fee opportunities on deposits to boost service fee revenue going forward.



Non-interest
income for the second quarter of 2017 was $397,000 compared to $473,000 of non-interest income in the second quarter of 2016.
Similar to year-to-date, a majority of the differences in the second quarter outcomes of 2017 and 2016 were due to the same areas;
lower gains on foreclosed asset sales partially offset by higher gains on loan sales. For the second quarter of 2017, gains of
foreclosed asset sales were $25,000 compared to $112,000 for the second quarter of 2016. Conversely, gains on loan sales were
$29,000 more. Gains on the sale of mortgage loans were $66,000 for the second quarter of 2017.



Non-interest
expenses for the first half of 2017 were $3.6 million; $60,000 less than the total for the first half of 2016. Similarly, non-interest
expenses of $1.8 million for the second quarter of 2017 were $20,000 lower compared to the second quarter of the previous year.



FDIC
insurance expenses were $74,000 for the first half of 2017 and $128,000 for the first half of 2016. The $54,000 reduction in the
Bank’s FDIC premium accruals were due to a strengthened regulatory capital position and improved risk

profile.
Continuing with the trend of reduction, FDIC insurance expenses were $35,000 for the second quarter of 2017 compared to $60,000
for the second quarter of 2016.



Also
affecting the second quarter of 2017, were differences in other non-interest expenses. Other non-interest expenses were $259,000
for the second quarter of 2017; $44,000 more than the second quarter of 2016 when other non-interest expenses were $215,000. In
the second quarter of 2017, there were additional expenses incurred to administrate the commercial loan that was impaired during
the quarter. Prior to this quarter, the trend of expenses incurred to administrate problem credits had been declining due to fewer
problem credits and a reduction in the number of foreclosed properties.



-58-







COMMUNITY
SHORES BANK CORPORATION

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



The
Company recorded a federal income tax expense of $83,000 for the first six months of 2017 compared to $23,000 for the first six
months of 2016. For the second quarter of 2017, federal income tax expense was $13,000 compared to $36,000 for the similar period
in 2016. Federal tax expense differences originate from differences in pre-tax income between the periods being compared.



-59-







COMMUNITY
SHORES BANK CORPORATION



| | 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, 2017.
Based on the evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure
controls and procedures were effective as of June 30, 2017.



Changes
in Internal Control



There
were no changes to our internal control over financial reporting during the first half of the year ended June 30, 2017 what materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.



-60-







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



None.



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



Not applicable.



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



Not
applicable.



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



None.



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



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



-61-







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,
    2017 | By:                                                                        
|Date                | Heather D. Brolick                                                         
|                    | President and Chief Executive Officer                                      
|                    | (principal executive officer)                                              
|                    |                                                                            
|August 14, 2017     | By:                                                                        
|Date                | Tracey A. Welsh                                                            
|                    | Senior Vice President, Chief Financial Officer, Secretary
    and Treasurer
|                    | (principal financial and accounting officer)                               



-62-







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.                                                                                               



-63-