##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2010
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 000-51166
 Community Shores Bank Corporation
 
 Michigan
    
    38-3423227(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)1030 W. Norton Avenue, Muskegon, MI
    
    49441(Address of principal executive offices)
    
    (Zip Code)
 231) 780-1800
 
  þ o
  o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
  o þ




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##### 



Page No.PART I. Financial InformationItem 1. Financial Statements
    
    
    1Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    30Item 4. Controls and Procedures
    
    
    30PART II. Other InformationItem 1. Legal Proceedings
    
    
    30Item 1A. Risk Factors
    
    
    30Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    30Item 3. Defaults upon Senior Securities
    
    
    30Item 4. Submission of Matters to a Vote of Security Holders
    
    
    30Item 5. Other Information
    
    
    30Item 6. Exhibits
    
    
    30Signatures
    
    
    32EX-31.1EX-31.2EX-32.1EX-32.2




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##### Table of Contents



March 31,
    
    
    December 31,2010
    
    
    2009(unaudited)ASSETSCash and due from financial institutions
    
    $
    3,552,229
    
    
    $
    2,161,388Interest-bearing deposits in other financial institutions
    
    
    21,151,387
    
    
    
    662,700Total cash and cash equivalents
    
    
    24,703,616
    
    
    
    2,824,088SecuritiesAvailable for sale (at fair value)
    
    
    29,978,208
    
    
    
    21,650,026Held to maturity (fair value of $0 at March 31, 2010 and
$5,945,437 at December 31, 2009)
    
    
    0
    
    
    
    5,841,421Total securities
    
    
    29,978,208
    
    
    
    27,491,447Loans held for sale
    
    
    611,103
    
    
    
    1,070,692Loans
    
    
    180,608,114
    
    
    
    183,247,827Less: Allowance for loan losses
    
    
    3,317,566
    
    
    
    3,782,132Net loans
    
    
    177,290,548
    
    
    
    179,465,695Federal Home Loan Bank stock
    
    
    404,100
    
    
    
    404,100Premises and equipment, net
    
    
    11,216,060
    
    
    
    11,293,169Accrued interest receivable
    
    
    807,720
    
    
    
    885,103Foreclosed assets
    
    
    6,827,813
    
    
    
    6,440,916Other assets
    
    
    1,516,568
    
    
    
    1,554,849Total assets
    
    $
    253,355,736
    
    
    $
    231,430,059LIABILITIES AND SHAREHOLDERS EQUITYDepositsNon-interest-bearing
    
    $
    21,777,790
    
    
    $
    24,884,625Interest-bearing
    
    
    198,735,690
    
    
    
    173,691,984Total deposits
    
    
    220,513,480
    
    
    
    198,576,609Federal funds purchased and repurchase agreements
    
    
    8,873,575
    
    
    
    7,000,327Federal Home Loan Bank advances
    
    
    4,500,000
    
    
    
    6,000,000Subordinated debentures
    
    
    4,500,000
    
    
    
    4,500,000Notes payable
    
    
    5,000,000
    
    
    
    5,000,000Accrued expenses and other liabilities
    
    
    659,502
    
    
    
    613,132Total liabilities
    
    
    244,046,557
    
    
    
    221,690,068Shareholders equityPreferred Stock, no par value: 1,000,000 shares
authorized and none issued
    
    
    0
    
    
    
    0Common Stock, no par value: 9,000,000 shares authorized;
1,468,800 at March 31, 2010 and December 31, 2009
    
    
    13,296,691
    
    
    
    13,296,691Retained (deficit) earnings
    
    
    (4,174,700
    )
    
    
    (3,734,295
    )Accumulated other comprehensive income
    
    
    187,188
    
    
    
    177,595Total shareholders equity
    
    
    9,309,179
    
    
    
    9,739,991Total liabilities and shareholders equity
    
    $
    253,355,736
    
    
    $
    231,430,059
  - 1 -




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##### Table of Contents



Three Months
    
    
    Three MonthsEnded
    
    
    EndedMarch 31, 2010
    
    
    March 31, 2009Interest and dividend incomeLoans, including fees
    
    $
    2,805,607
    
    
    $
    3,171,300Securities
    
    
    211,435
    
    
    
    257,006Federal funds sold, FHLB dividends and other income
    
    
    7,459
    
    
    
    9,758Total interest income
    
    
    3,024,501
    
    
    
    3,438,064Interest expenseDeposits
    
    
    1,107,977
    
    
    
    1,679,238Repurchase agreements, federal funds purchased, and other debt
    
    
    20,571
    
    
    
    7,125Federal Home Loan Bank advances and notes payable
    
    
    184,532
    
    
    
    169,455Total interest expense
    
    
    1,313,080
    
    
    
    1,855,818Net Interest Income
    
    
    1,711,421
    
    
    
    1,582,246Provision for loan losses
    
    
    529,081
    
    
    
    348,243Net Interest Income After Provision for Loan Losses
    
    
    1,182,340
    
    
    
    1,234,003Non-interest incomeService charges on deposit accounts
    
    
    174,533
    
    
    
    224,376Gain on sale of loans
    
    
    45,906
    
    
    
    101,290Gain on sale of securities
    
    
    79,814
    
    
    
    129,107Gain (loss) on sale of foreclosed assets
    
    
    (8,689
    )
    
    
    0Other
    
    
    193,271
    
    
    
    121,932Total non-interest income
    
    
    484,835
    
    
    
    576,705Non-interest expenseSalaries and employee benefits
    
    
    1,032,156
    
    
    
    1,121,402Occupancy
    
    
    165,616
    
    
    
    174,285Furniture and equipment
    
    
    159,128
    
    
    
    168,572Advertising
    
    
    18,165
    
    
    
    18,731Data processing
    
    
    122,779
    
    
    
    122,182Professional services
    
    
    124,650
    
    
    
    110,280Foreclosed asset impairment
    
    
    24,655
    
    
    
    83,412Other
    
    
    460,431
    
    
    
    450,113Total non-interest expense
    
    
    2,107,580
    
    
    
    2,248,977Loss Before Federal Income Taxes
    
    
    (440,405
    )
    
    
    (438,269
    )Federal income tax expense (benefit)
    
    
    0
    
    
    
    (167,355
    )Net Loss
    
    $
    (440,405
    )
    
    $
    (270,914
    )Comprehensive Loss
    
    $
    (430,812
    )
    
    $
    (343,006
    )Weighted average shares outstanding
    
    
    1,468,800
    
    
    
    1,468,800Diluted average shares outstanding
    
    
    1,468,800
    
    
    
    1,468,800Basic loss per share
    
    $
    (0.30
    )
    
    $
    (0.18
    )Diluted loss per share
    
    $
    (0.30
    )
    
    $
    (0.18
    )
  - 2 -




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##### Table of Contents



AccumulatedRetained
    
    
    Other
    
    
    TotalCommon
    
    
    (Deficit)
    
    
    Comprehensive
    
    
    ShareholdersShares
    
    
    Stock
    
    
    Earnings
    
    
    Income
    
    
    EquityBalance at January 1, 2009
    
    
    1,468,800
    
    
    $
    13,296,691
    
    
    $
    1,228,084
    
    
    $
    421,679
    
    
    $
    14,946,454Comprehensive income (loss):Net loss
    
    
    
    
    
    
    
    
    
    
    (270,914
    )
    
    
    
    
    
    
    (270,914
    )Unrealized gain (loss) on securities available for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (72,092
    )
    
    
    (72,092
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (343,006
    )Balance at March 31, 2009
    
    
    1,468,800
    
    
    $
    13,296,691
    
    
    $
    957,170
    
    
    $
    349,587
    
    
    $
    14,603,448Balance at January 1, 2010
    
    
    1,468,800
    
    
    $
    13,296,691
    
    
    $
    (3,734,295
    )
    
    $
    177,595
    
    
    $
    9,739,991Comprehensive income (loss):Net loss
    
    
    
    
    
    
    
    
    
    
    (440,405
    )
    
    
    
    
    
    
    (440,405
    )Unrealized gain (loss) on securities available for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,593
    
    
    
    9,593Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (430,812
    )Balance at March 31, 2010
    
    
    1,468,800
    
    
    $
    13,296,691
    
    
    $
    (4,174,700
    )
    
    $
    187,188
    
    
    $
    9,309,179
  - 3 -




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##### Table of Contents



Three Months
    
    
    Three MonthsEnded
    
    
    EndedMarch 31, 2010
    
    
    March 31, 2009Cash flows from operating activitiesNet loss
    
    $
    (440,405
    )
    
    $
    (270,914
    )Adjustments
to reconcile net loss to net cash from operating activities:Provision for loan losses
    
    
    529,081
    
    
    
    348,243Depreciation and amortization
    
    
    161,505
    
    
    
    174,441Net amortization of securities
    
    
    36,330
    
    
    
    14,989Net realized gain on sale of securities
    
    
    (79,814
    )
    
    
    (129,107
    )Net realized gain on sale of loans
    
    
    (45,906
    )
    
    
    (101,290
    )Net realized loss on sale of foreclosed assets
    
    
    8,689
    
    
    
    0Foreclosed asset impairment
    
    
    24,655
    
    
    
    83,412Originations of loans for sale
    
    
    (2,776,126
    )
    
    
    (7,476,793
    )Proceeds from loan sales
    
    
    3,281,621
    
    
    
    8,759,750Net change in:Accrued interest receivable and other assets
    
    
    115,664
    
    
    
    (98,758
    )Accrued interest payable and other liabilities
    
    
    46,370
    
    
    
    17,528Net cash from (used in) operating activities
    
    
    861,664
    
    
    
    1,321,501Cash flows from investing activitiesActivity in available for sale securities:Sales
    
    
    3,751,027
    
    
    
    1,596,050Maturities, prepayments and calls
    
    
    3,469,445
    
    
    
    1,590,925Purchases
    
    
    (9,654,156
    )
    
    
    (5,161,163
    )Loan originations and payments, net
    
    
    1,101,702
    
    
    
    5,736,872Additions to premises and equipment, net
    
    
    (84,396
    )
    
    
    (19,725
    )Proceeds from the sale of foreclosed assets
    
    
    121,448
    
    
    
    0Net cash from (used in) investing activities
    
    
    (1,292,255
    )
    
    
    3,742,959Cash flow from financing activitiesNet change in deposits
    
    
    21,936,871
    
    
    
    11,982,249Net change in federal funds purchased and
repurchase agreements
    
    
    1,873,248
    
    
    
    (160,203
    )Repayment of FHLB advance
    
    
    (1,500,000
    )
    
    
    0Net cash (used in) from financing activities
    
    
    22,310,119
    
    
    
    11,822,046Net change in cash and cash equivalents
    
    
    21,879,528
    
    
    
    16,886,506Beginning cash and cash equivalents
    
    
    2,824,088
    
    
    
    5,671,801Ending cash and cash equivalents
    
    $
    24,703,616
    
    
    $
    22,558,307Supplemental cash flow information:Cash paid during the period for interest
    
    $
    1,298,830
    
    
    $
    1,926,780Transfers from loans to foreclosed assets
    
    
    544,364
    
    
    
    458,935Transfers from securities held to maturity to available for sale
    
    
    5,839,614
    
    
    
    0
  - 4 -




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##### Table of Contents



COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 1.
    
    BASIS OF PRESENTATION AND RECENT ACCOUNTING DEVELOPMENTS:
 The unaudited, consolidated financial statements as of and for the three month period ended March
31, 2010 include the consolidated results of operations of Community Shores Bank Corporation
(Company) and its wholly-owned subsidiaries, Community Shores Bank (Bank) and Community Shores
Financial Services, and a wholly-owned subsidiary of the Bank, Community Shores Mortgage Company
(Mortgage Company). Community Shores Capital Trust I (the Trust) is not consolidated and
exists solely to issue capital securities. These consolidated financial statements have been
prepared in accordance with the instructions for Form 10-Q and Article 8 of Regulation S-X and do
not include all disclosures required by generally accepted accounting principles for a complete
presentation of the Companys financial condition and results of operations. In the opinion of
management, the information reflects all adjustments (consisting only of normal recurring
adjustments) which are necessary in order to make the financial statements not misleading and for a
fair representation of the results of operations for such periods. The results for the period
ended March 31, 2010 should not be considered as indicative of results for a full year. For
further information, refer to the consolidated financial statements and footnotes included in the
Companys annual report on Form 10-K for the period ended December 31, 2009. Some items in the
prior year financial statements may be reclassified to conform to the current presentation.In June 2009, the FASB amended previous guidance relating to transfers of financial assets,
and for consolidation of variable interest entity by replacing the quantitative-based risks
and rewards calculation for determining which enterprise, if any, has a controlling
financial interest in a variable interest entity with an approach focused on identifying
which enterprise has the power to direct the activities of a variable interest entity that
most significantly impact the entitys economic performance and (1) the obligation to
absorb losses of the entity or (2) the right to receive benefits from the entity.
Additional disclosures about an enterprises involvement in variable interest entities are also
required. This guidance is effective as of the beginning of each reporting entitys first
annual reporting period that begins after November 15, 2009, for interim periods within that
first annual reporting period, and for interim and annual reporting periods thereafter. This
guidance must be applied to transfers occurring on or after the effective date. The disclosure
provisions were also amended and apply to transfers that occurred both before and after the
effective date of this guidance. Early adoption is prohibited. Adoption of this new guidance by
the Company on January 1, 2010 did not have a material impact on our results of operations or
financial condition.
 - 5 -




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##### Table of Contents



COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 2.
    
    SECURITIESThe following tables represent the securities held in the Companys portfolio at March 31, 2010 and
at December 31, 2009:
 Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairMarch 31, 2010
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    ValueAvailable for sale:US Treasury
    
    $
    1,006,764
    
    
    $
    0
    
    
    $
    (1,139
    )
    
    $
    1,005,625US Government and federal agency
    
    
    17,907,636
    
    
    
    152,397
    
    
    
    (26,968
    )
    
    
    18,033,065Municipals
    
    
    3,310,840
    
    
    
    54,190
    
    
    
    0
    
    
    
    3,365,030Mortgage-backed  residential
    
    
    7,348,551
    
    
    
    244,273
    
    
    
    (18,336
    )
    
    
    7,574,488$
    29,573,791
    
    
    $
    450,860
    
    
    $
    (46,443
    )
    
    $
    29,978,208Held to maturity:Municipals
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
 Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairDecember 31, 2009
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    ValueAvailable for sale:US Government and federal agency
    
    $
    14,357,370
    
    
    $
    138,037
    
    
    $
    0
    
    
    $
    14,495,407Municipals
    
    
    1,144,121
    
    
    
    33,165
    
    
    
    0
    
    
    
    1,177,286Mortgage-backed  residential
    
    
    5,753,711
    
    
    
    226,766
    
    
    
    (3,144
    )
    
    
    5,977,333$
    21,255,202
    
    
    $
    397,968
    
    
    $
    (3,144
    )
    
    $
    21,650,026Held to maturity:Municipals
    
    $
    5,841,421
    
    
    $
    104,016
    
    
    $
    0
    
    
    $
    5,945,437
 The amortized cost and fair value of the securities portfolio are shown by expected maturity.
Expected maturities may differ from contractual maturities if borrowers have the right to call or
prepay obligations with or without call or prepayment fees. Below is the schedule of contractual
maturities for securities held at March 31, 2010:
 Available for SaleAmortized
    
    
    FairCost
    
    
    ValueDue in one year or less
    
    $
    3,037,807
    
    
    $
    3,079,952Due from one to five years
    
    
    17,430,117
    
    
    
    17,550,788Due from five to ten years
    
    
    1,757,316
    
    
    
    1,772,980Due in more than ten years
    
    
    0
    
    
    
    0Mortgage-backed-residential
    
    
    7,348,551
    
    
    
    7,574,488$
    29,573,791
    
    
    $
    29,978,208
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##### Table of Contents



COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
   Less than 12 Months
    
    12 Months or Longer
    
    TotalMarch 31, 2010
    
    Fair
    
    Unrealized
    
    Fair
    
    Unrealized
    
    Fair
    
    UnrealizedAvailable for Sale
    
    Value
    
    Losses
    
    Value
    
    Losses
    
    Value
    
    LossesUS Treasury
    
    $
    1,005,625
    
    
    $
    (1,139
    )
    
    $
    0
    
    
    $
    0
    
    
    $
    1,005,625
    
    
    $
    (1,139
    )US Government and
federal agency
    
    
    5,555,494
    
    
    
    (26,968
    )
    
    
    0
    
    
    
    0
    
    
    
    5,555,494
    
    
    
    (26,968
    )Mortgage-backed
-residential
    
    
    1,736,762
    
    
    
    (18,336
    )
    
    
    0
    
    
    
    0
    
    
    
    1,736,762
    
    
    
    (18,336
    )$
    8,297,881
    
    
    $
    (46,443
    )
    
    $
    0
    
    
    $
    0
    
    
    $
    8,297,881
    
    
    $
    (46,443
    )
 Less than 12 Months
    
    12 Months or Longer
    
    TotalDecember 31, 2009
    
    Fair
    
    Unrealized
    
    Fair
    
    Unrealized
    
    Fair
    
    UnrealizedAvailable for Sale
    
    Value
    
    Losses
    
    Value
    
    Losses
    
    Value
    
    LossesMortgage-backed-
residential
    
    $
    237,655
    
    
    $
    (3,144
    )
    
    $
    0
    
    
    $
    0
    
    
    $
    237,655
    
    
    $
    (3,144
    )$
    237,655
    
    
    $
    (3,144
    )
    
    $
    0
    
    
    $
    0
    
    
    $
    237,655
    
    
    $
    (3,144
    )
    Other-Than- -Impairment
   - 7 -




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##### Table of Contents



COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 2.
    
    SECURITIES (Continued)
    Mortgage-backed Securities
  - 8 -




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##### Table of Contents



COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 3.
    
    LOANS
  March 31
    
    
    December 31,2010
    
    
    2009Commercial
    
    $
    67,795,989
    
    
    $
    69,926,958Real Estate:Commercial
    
    
    71,411,747
    
    
    
    70,504,399Residential
    
    
    18,342,007
    
    
    
    18,625,574Construction
    
    
    1,600,854
    
    
    
    1,518,378Consumer
    
    
    20,980,761
    
    
    
    22,140,462Credit Cards
    
    
    528,612
    
    
    
    596,584Subtotal
    
    
    180,659,970
    
    
    
    183,312,355Allowance for loan losses
    
    
    (3,317,566
    )
    
    
    (3,782,132
    )Net deferred loan fees
    
    
    (51,856
    )
    
    
    (64,528
    )Loans, Net
    
    $
    177,290,548
    
    
    $
    179,465,695
  4.
    
    ALLOWANCE FOR LOAN LOSSES AND IMPAIRED LOANS
  Three Months
    
    
    Three MonthsEnded
    
    
    Ended3/31/10
    
    
    3/31/09Beginning Balance
    
    $
    3,782,132
    
    
    $
    4,350,903Charge-offsCommercial
    
    
    (339,003
    )
    
    
    (1,909,893
    )Real Estate-Commercial
    
    
    (475,136
    )
    
    
    (38,602
    )Real Estate-Residential
    
    
    (34,565
    )
    
    
    0Consumer
    
    
    (165,928
    )
    
    
    (31,504
    )Total Charge-offs
    
    
    (1,014,632
    )
    
    
    (1,979,999
    )RecoveriesCommercial
    
    
    2,303
    
    
    
    9,818Real Estate-Commercial
    
    
    0
    
    
    
    150Consumer
    
    
    18,682
    
    
    
    10,293Total Recoveries
    
    
    20,985
    
    
    
    20,261Net Charge-offs
    
    
    (993,647
    )
    
    
    (1,959,738
    )Provision for loan losses
    
    
    529,081
    
    
    
    348,243Ending Balance
    
    $
    3,317,566
    
    
    $
    2,739,408
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##### Table of Contents



COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 4.
    
    ALLOWANCE FOR LOAN LOSSES AND IMPAIRED LOANS (Continued)
  3/31/10
    
    
    12/31/09End of period loans with no allocated allowance for loan losses
    
    $
    6,160,241
    
    
    $
    5,025,520End of period loans with allocated allowance for loan losses
    
    
    8,143,607
    
    
    
    9,148,730Total
    
    $
    14,303,848
    
    
    $
    14,174,250Amount of the allowance for loan losses allocated
    
    $
    1,169,473
    
    
    $
    1,726,570
 Three Months
    
    
    Three MonthsEnded
    
    
    Ended3/31/10
    
    
    3/31/09Average of impaired loans during the period:
    
    $
    14,198,675
    
    
    $
    10,852,661Interest income recognized during impairment:
    
    
    66,275
    
    
    
    93,771Cash-basis interest income recognized:
    
    
    64,449
    
    
    
    68,565
  3/31/10
    
    
    12/31/09Loans past due over 90 days still on accrual:
    
    $
    114,761
    
    
    $
    981,704Non-accrual loans:
    
    
    8,690,220
    
    
    
    8,117,994
  5.
    
    FORECLOSED ASSETS
  March 31,
    
    
    March 31,2010
    
    
    2009Beginning of year
    
    $
    6,440,916
    
    
    $
    5,884,093Additions
    
    
    544,364
    
    
    
    458,935Proceeds from sales
    
    
    (124,123
    )
    
    
    0Losses from sales
    
    
    (8,689
    )
    
    
    0Direct write-downs
    
    
    (24,655
    )
    
    
    (83,412
    )End of period
    
    $
    6,827,813
    
    
    $
    6,259,616Expenses related to foreclosed assets include:Operating expenses, net of rental income
    
    $
    17,769
    
    
    $
    39,391
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COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
   March 31,
    
    
    December 31,2010
    
    
    2009Land & land improvements
    
    $
    5,447,328
    
    
    $
    5,447,328Buildings & building improvements
    
    
    6,070,954
    
    
    
    5,959,371Furniture, fixtures and equipment
    
    
    3,661,802
    
    
    
    3,648,675Construction in process
    
    
    21,118
    
    
    
    61,43215,201,202
    
    
    
    15,116,806Less: accumulated depreciation
    
    
    3,985,142
    
    
    
    3,823,637$
    11,216,060
    
    
    $
    11,293,169
   March 31,
    
    
    December 31,2010
    
    
    2009Non-interest-bearing DDA
    
    $
    21,777,790
    
    
    $
    24,884,625Interest-bearing DDA
    
    
    38,860,969
    
    
    
    27,677,774Money market
    
    
    20,440,193
    
    
    
    19,330,781Savings
    
    
    9,131,333
    
    
    
    8,611,038Time, under $100,000
    
    
    42,936,484
    
    
    
    35,095,482Time, over $100,000
    
    
    87,366,711
    
    
    
    82,976,909Total Deposits
    
    $
    220,513,480
    
    
    $
    198,576,609
   Repurchase
    
    
    BorrowingsAgreements
    
    
    From FRBOutstanding at March 31, 2010
    
    $
    8,873,575
    
    
    $
    0Average interest rate at period end
    
    
    1.33
    %
    
    
    0.00
    %Average balance during period
    
    
    7,173,360
    
    
    
    1,279,222Average interest rate during period
    
    
    1.15
    
    
    
    0.49Maximum month end balance during period
    
    
    8,873,575
    
    
    
    0Outstanding at December 31, 2009
    
    $
    7,000,327
    
    
    $
    0Average interest rate at year end
    
    
    0.66
    %
    
    
    0.00
    %Average balance during year
    
    
    7,489,802
    
    
    
    150,959Average interest rate during year
    
    
    0.78
    
    
    
    0.50Maximum month end balance during year
    
    
    10,393,960
    
    
    
    2,120,000
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COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
   Current
    
    
    March 31,
    
    
    December 31,Maturity Date
    
    Interest Rate
    
    
    2010
    
    
    2009March 24, 2010
    
    
    5.99
    
    
    
    0
    
    
    
    1,500,000November 3, 2010
    
    
    5.95
    
    
    
    2,000,000
    
    
    
    2,000,000December 13, 2010
    
    
    5.10
    
    
    
    2,500,000
    
    
    
    2,500,000$
    4,500,000
    
    
    $
    6,000,000
  th th th th
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COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
      March 31,
    
    
    December 31,2010
    
    
    2009Unused lines of credit and letters of credit
    
    $
    27,187,325
    
    
    $
    28,256,337Commitments to make loans
    
    
    25,000
    
    
    
    866,340
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COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
           - 14 -




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COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 13.
    
    FAIR VALUE MEASUREMENTS (Continued)
 Level 3 classification. In cases where the carrying amount exceeds the fair value, less costs to
sell, an impairment loss is recognized.Assets measured at fair value on a recurring basis are summarized below for the periods ended March
31, 2010 and December 31, 2009:
 Fair Value Measurements UsingQuoted Prices inActive Markets for
    
    
    Significant Other
    
    
    SignificantIdentical Assets
    
    
    Observable Inputs
    
    
    Unobservable InputsTotal
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)March 31, 2010Available for sale securities:US Treasury
    
    $
    1,005,625
    
    
    $
    1,005,625
    
    
    $
    0
    
    
    $
    0US Government and
federal agency
    
    
    18,033,065
    
    
    
    1,999,158
    
    
    
    16,033,907
    
    
    
    0Municipal securities
    
    
    3,365,030
    
    
    
    0
    
    
    
    3,365,030
    
    
    
    0Mortgage-backed -
residential
    
    
    7,574,488
    
    
    
    1,039,724
    
    
    
    6,534,764
    
    
    
    0Servicing assets
    
    
    37,096
    
    
    
    0
    
    
    
    37,096
    
    
    
    0December 31, 2009Available for sale securities:US Government and
federal agency
    
    $
    14,495,407
    
    
    $
    500,000
    
    
    $
    13,995,407
    
    
    
    0Municipal securities
    
    
    1,177,286
    
    
    
    0
    
    
    
    1,177,286
    
    
    
    0Mortgage-backed -
residential
    
    
    5,977,333
    
    
    
    0
    
    
    
    5,977,333
    
    
    
    0Servicing assets
    
    
    45,602
    
    
    
    0
    
    
    
    45,602
    
    
    
    0
  Fair Value Measurements UsingQuoted Prices inActive Markets for
    
    
    Significant Other
    
    
    SignificantIdentical Assets
    
    
    Observable Inputs
    
    
    Unobservable InputsTotal
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)March 31, 2010Impaired loans
    
    $
    6,974,134
    
    
    $
    0
    
    
    $
    0
    
    
    $
    6,974,134Foreclosed assets
    
    
    6,827,813
    
    
    
    0
    
    
    
    0
    
    
    
    6,827,813December 31, 2009Impaired loans
    
    $
    7,422,160
    
    
    $
    0
    
    
    $
    0
    
    
    $
    7,422,160Foreclosed assets
    
    
    6,210,650
    
    
    
    0
    
    
    
    0
    
    
    
    6,210,650
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##### Table of Contents



COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 13.
    
    FAIR VALUE MEASUREMENTS (Continued)
 The following represents impairment charges recognized during the period:Collateral dependent impaired loans are measured using the fair value of the collateral. At March
31, 2010, such impaired loans had a principal amount of $8,143,607, with a valuation allowance of
$1,169,473 compared to impaired loans with a principal amount of $9,148,730 and a valuation
allowance of $1,726,570 at December 31, 2009. The fair values of the collateral on these loans were
determined primarily using independent appraisals and broker market opinions which were adjusted
for anticipated disposition costs.At March 31, 2010 and December 31, 2009, foreclosed assets carried a fair value of $6,827,813 and
$6,210,650 respectively. During the three month period ended March 31, 2010, one property included
in this total was written down by $24,655. During the twelve month period ended December 31, 2009,
thirty properties were written down by $1,905,622. There were also three properties totaling
$544,364 (at fair value) added to other real estate owned during the first three months of 2010,
while during the twelve month period ended December 31, 2009 there were nineteen properties
totaling $2,928,689 added. The fair value of other real estate owned was determined primarily using
independent appraisals and broker market opinions which were adjusted for anticipated disposition
costs.Carrying amount and estimated fair values of financial instruments were as follows:
 March 31,
    
    
    December 31,2010
    
    
    2009Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    Value(in thousands)Financial assetsCash and cash equivalents
    
    $
    24,704
    
    
    $
    24,704
    
    
    $
    2,824
    
    
    $
    2,824Securities available for sale
    
    
    29,978
    
    
    
    29,978
    
    
    
    21,650
    
    
    
    21,650Securities held to maturity
    
    
    0
    
    
    
    0
    
    
    
    5,841
    
    
    
    5,945Loans held for sale
    
    
    611
    
    
    
    612
    
    
    
    1,071
    
    
    
    1,078Loans, net
    
    
    177,291
    
    
    
    173,557
    
    
    
    179,466
    
    
    
    176,157FHLB stock
    
    
    404
    
    
    
    N/A
    
    
    
    404
    
    
    
    N/AAccrued interest receivable
    
    
    808
    
    
    
    808
    
    
    
    885
    
    
    
    885Financial liabilitiesDeposits
    
    
    220,513
    
    
    
    223,476
    
    
    
    198,577
    
    
    
    202,151Federal funds purchased and
repurchase agreements
    
    
    8,874
    
    
    
    8,874
    
    
    
    7,000
    
    
    
    7,000FHLB advances
    
    
    4,500
    
    
    
    4,507
    
    
    
    6,000
    
    
    
    6,020Subordinated debentures
    
    
    4,500
    
    
    
    3,785
    
    
    
    4,500
    
    
    
    3,758Notes payable
    
    
    5,000
    
    
    
    5,000
    
    
    
    5,000
    
    
    
    5,000Accrued interest payable
    
    
    178
    
    
    
    178
    
    
    
    164
    
    
    
    164
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##### Table of Contents



COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 13.
    
    FAIR VALUE MEASUREMENTS (Continued)
 The methods and assumptions used to estimate fair value are described as follows:Carrying amount is the estimated fair value for cash and cash equivalents, short-term borrowings,
accrued interest receivable and payable, demand deposits, short-term debt, and variable rate loans
or deposits that reprice frequently and fully. Security fair values are based on the information
previously presented. For fixed rate loans or deposits and for variable rate loans or deposits with
infrequent repricing or repricing limits, fair value is based on discounted cash flows using
current market rates applied to the estimated life and credit risk including consideration for
widening credit spreads. Fair values for impaired loans are estimated using discounted cash flow
analysis or underlying collateral values. Fair value of loans held for sale is based on market
quotes. Fair value of debt is based on current rates for similar financing. It was not practical
to determine the fair value of Federal Home Loan Bank stock due to restrictions placed on its
transferability. Estimated fair value for other financial instruments and off-balance sheet loan
commitments are considered to approximate carrying value.
 14.
    
    INCOME TAXES
 Accounting guidance related to income taxes requires that companies assess whether a valuation
allowance should be established against their deferred tax assets based on the consideration of all
available evidence using a more likely than not standard. In making such judgments, we consider
both positive and negative evidence and analyze changes in near-term market conditions as well as
other factors which may impact future operating results. Significant weight is given to evidence
that can be objectively verified. The continuing recent losses resulting from the distressed
operating environment in Michigan have significantly restricted our ability under the accounting
rules to rely on projections of future taxable income to support the recovery of our deferred tax
assets. Consequently, we determined it necessary to establish a valuation allowance against our
entire net deferred tax asset. The valuation allowance against our deferred tax assets may be
reversed to income in future periods to the extent that the related deferred income tax assets are
realized or the valuation allowance is otherwise no longer required. We will continue to monitor
our deferred tax assets quarterly for changes affecting their realizability.
 15.
    
    REGULATORY MATTERS
 Banks are subject to regulatory capital requirements administered by the federal banking agencies.
Since the Company is a one bank holding company with consolidated assets less than $500 million,
regulatory minimum capital ratios are applied only to the Bank. Capital adequacy guidelines and
prompt corrective action regulations involve quantitative measures of assets, liabilities, and
certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts
and classifications are also subject to qualitative judgments by regulators. Failure to meet
various capital requirements can initiate regulatory action.Prompt corrective action regulations provide five classifications, including well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized, and critically
undercapitalized, although these terms are not used to represent overall financial condition. If a
bank is not well capitalized, regulatory approval is required to accept brokered deposits. Subject
to limited exceptions, a bank may not make a capital distribution if,
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COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 15.
    
    REGULATORY MATTERS (Continued)
 after making the distribution, it would be undercapitalized. If a bank is undercapitalized, it is
subject to being closely monitored by its principal federal regulator, its asset growth and
expansion are restricted, and plans for capital restoration are required. In addition, further
specific types of restrictions may be imposed on the bank at the discretion of the federal
regulator. The Bank was in the well-capitalized category under the regulatory framework for prompt
corrective action at both March 31, 2010 and December 31, 2009.Actual and required capital amounts and ratios at March 31, 2010 and December 31, 2009 for the Bank
were:
 Minimum Required toBe Well CapitalizedMinimum Required
    
    
    Under PromptFor Capital
    
    
    Corrective ActionActual
    
    
    Adequacy Purposes
    
    
    ProvisionsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioMarch 31, 2010Total Capital (Tier 1
and Tier 2) to
risk-weighted
assets of the Bank
    
    $
    20,746,000
    
    
    
    10.40
    %
    
    $
    15,961,105
    
    
    
    8.00
    %
    
    $
    19,951,381
    
    
    
    10.00
    %Tier 1 (Core) Capital
to risk-weighted
assets of the Bank
    
    
    18,241,916
    
    
    
    9.14
    
    
    
    7,980,553
    
    
    
    4.00
    
    
    
    11,970,829
    
    
    
    6.00Tier 1 (Core) Capital
to average assets
of the Bank
    
    
    18,241,916
    
    
    
    7.56
    
    
    
    9,653,728
    
    
    
    4.00
    
    
    
    12,067,160
    
    
    
    5.00December 31, 2009Total Capital (Tier 1
and Tier 2) to
risk-weighted
assets of the Bank
    
    $
    21,035,207
    
    
    
    10.41
    %
    
    $
    16,167,491
    
    
    
    8.00
    %
    
    $
    20,209,363
    
    
    
    10.00
    %Tier 1 (Core) Capital
to risk-weighted
assets of the Bank
    
    
    18,493,531
    
    
    
    9.15
    
    
    
    8,083,745
    
    
    
    4.00
    
    
    
    12,125,618
    
    
    
    6.00Tier 1 (Core) Capital
to average assets
of the Bank
    
    
    18,493,531
    
    
    
    7.79
    
    
    
    9,500,313
    
    
    
    4.00
    
    
    
    11,875,391
    
    
    
    5.00
 The Company and the Bank Boards of Directors have resolved to obtain regulatory approval prior to
paying dividends, among other reasons, in order to preserve capital given the asset quality and
overall financial condition of both entities. Additionally, they resolved that the Bank should
maintain a tier one capital (leverage) ratio of 8%. The Banks Leverage Ratio at March 31, 2010 was
7.56%.
 -18-




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##### Table of Contents



COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 16.
    
    OTHER COMPREHENSIVE INCOME
 Other comprehensive income (loss) components and related tax effects were as follows:
 Three Months
    
    
    Three MonthsEnded
    
    
    EndedMarch 31, 2010
    
    
    March 31, 2009Unrealized holding gains (losses) on held to maturity securities
transferred to available for sale
    
    $
    28,192
    
    
    $
    0Unrealized holding gains (losses) on available for sale securities
    
    
    61,215
    
    
    
    19,877Less reclassification adjustments for (gains) and losses later
recognized in income
    
    
    (79,814
    )
    
    
    (129,107
    )Net unrealized gain (loss)
    
    
    9,593
    
    
    
    (109,230
    )Tax effect
    
    
    0
    
    
    
    (37,138
    )Other comprehensive income (loss)
    
    $
    9,593
    
    
    $
    (72,092
    )
 
 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, through March 31, 2010 and is separated into two parts which are labeled,
Financial Condition and Results of Operations. The part labeled Financial Condition compares the
financial condition at March 31, 2010 to that at December 31, 2009. The part labeled Results of
Operations discusses the three month period ended March 31, 2010 as compared to the same period in
2009. 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 and other sections of this 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 and Community Shores 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.
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COMMUNITY SHORES BANK CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 Future Factors include, among others, changes in interest rates and interest rate relationships;
demand for products and services; the degree of competition by traditional and non-traditional
competitors; changes in banking regulation or actions by bank regulators; changes in tax laws;
changes in prices, levies, and assessments; the impact of technological advances; governmental and
regulatory policy changes; the outcomes of contingencies; trends in customer behavior as well as
their ability to repay loans; changes in local real estate values; changes in the national and
local economy; the ability of the Company to borrow money or raise additional capital to maintain
or increase its or the Banks capital position or to support future growth; and other factors,
including risk factors, referred to from time to time in filings made by the Company with the
Securities and Exchange Commission. These are representative of the Future Factors that could
cause a difference between an ultimate actual outcome and a preceding forward-looking statement.The overall economic environment is more challenging than we have ever seen and the lack of
financial health in the state of Michigan only stands to exacerbate the problems. Unemployment in
Muskegon and Ottawa counties appears to have stabilized but remains at a critical level. At March
31, 2010, unemployment was 16.5% for Muskegon County and 14.0% for Ottawa County. In addition to
high unemployment, property values have declined. A large portion of the difficulty in the
financial market centers on the lack of activity and declining valuations in real estate. The
negative effect of this downturn in real estate has adversely affected credit markets and consumer
confidence. It is unlikely that these trends will be reversed in the short term however recent data
has indicated that stabilization may have occurred.FINANCIAL CONDITIONTotal assets increased by $21.9 million to $253.3 million at March 31, 2010 from $231.4 million at
December 31, 2009. This is a 9.5% increase in assets during the first three months of 2010. Balance
sheet growth was funded by deposit growth and consisted mainly of increases in cash held in
interest bearing bank accounts and available for sale securities offset somewhat by a net decrease
in the Banks loan portfolio.Cash and cash equivalents increased by $21.9 million to $24.7 million at March 31, 2010 from $2.8
million at December 31, 2009. This change was mostly reflective of increases in balances held in
bank accounts between the above two periods. Balances kept at the Federal Reserve Bank of Chicago
(FRB) increased $20.5 million since year-end 2009. The increase in liquidity is driven largely by
the seasonal fluctuation in the balances of two of the Banks largest customers. Although these
depositors are expected to reduce their balances in the second quarter, it is the goal of
management to maintain elevated liquidity to provide a stronger funding base for unexpected cash
needs. Balances held at the FRB receive an interest rate which exceeds the federal funds sold rate.
Additionally, balances held at the FRB are given a preferential risk rating when computing total
risk based capital ratios. The current rate environment and the need to preserve capital, are given
great consideration when making cash management decisions.Securities increased $2.5 million since December 31, 2009. Investment activity in the first three
months of the year included purchases of $9.7 million, maturities and calls of $3.5 million and
sales of $3.7 million. During the first quarter of the year the Company sold off a majority of its
municipal portfolio and realized a net gain of
 -20-




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COMMUNITY SHORES BANK CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 $80,000. The Company will not be in a taxable
position in the near term so management chose to realize market value gains to supplement earnings
and capital. Many of the municipal securities were in the held to maturity
category of the investment portfolio. Accounting rules are such that selling held to maturity
investments prior to maturity disallows utilization of the held to maturity category until
management can again assert that it has the intent and ability to hold such securities until
maturity. It also requires the remaining securities to be transferred into the available for sale
category causing them to be carried at fair value. All of the securities had an unrealized gain on
March 31, 2010 so there was no detrimental impact to the transfer. In general, the entire
investment portfolio is strong and has an overall unrealized gain. The Companys present intent
does not include further liquidation of securities but occasionally liquidation strategies may be
selectively utilized to enhance earnings and capital or to provide liquidity.The Banks security portfolio was nearly 95% pledged at year-end 2009 compared to 81% pledged at
March 31, 2010. In order to provide opportunity for additional pledging, to secure access to
future liquidity and to maximize the return on the Banks deposits, securities are being
strategically purchased. It is likely that the Bank will make additional security purchases during
the next three quarters of 2010.Total loans (held for investment) decreased $2.6 million and were $180.6 million at March 31, 2010
down from $183.2 million at December 31, 2009. The decrease is evidenced by a decline of $2.1
million in the commercial portfolio, $1.2 decline in the consumer loan portfolio offset by a
moderate increase in the total real estate portfolio of $706,000. A portion of the overall decrease
was attributable to charge offs of $1.0 million in the first three months of 2010; the rest was
various loan payoffs. In spite of overall decrease in the loan portfolio, the concentration of
commercial and commercial real estate loans remained the same as year-end 2009 at a level of 77%.Loans held for sale activity during the first quarter of 2010 included, $2.8 million of residential
mortgage loan originations and $3.2 million of residential mortgage loan sales. The associated gain
on the loan sales was $46,000. These results compare to mortgage originations of $7.5 million,
sales of $8.6 million and gains of $101,000 occurring in the first three months of 2009.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.
 
 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. -21-




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##### Table of Contents



COMMUNITY SHORES BANK CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 The loan maturities and rate sensitivity of the loan portfolio at March 31, 2010 are set forth
below:
 Within
    
    
    Three to
    
    
    One to
    
    
    AfterThree
    
    
    Twelve
    
    
    Five
    
    
    FiveMonths
    
    
    Months
    
    
    Years
    
    
    Years
    
    
    TotalCommercial, financial
and other
    
    $
    12,036,575
    
    
    $
    28,528,030
    
    
    $
    22,545,193
    
    
    $
    4,634,335
    
    
    $
    67,744,133Real Estate:Commercial
    
    
    11,820,452
    
    
    
    12,478,057
    
    
    
    44,939,092
    
    
    
    2,174,146
    
    
    
    71,411,747Construction
    
    
    809,583
    
    
    
    551,345
    
    
    
    0
    
    
    
    239,926
    
    
    
    1,600,854Mortgages
    
    
    0
    
    
    
    0
    
    
    
    14,168
    
    
    
    18,327,839
    
    
    
    18,342,007Consumer
    
    
    571,703
    
    
    
    2,080,132
    
    
    
    12,331,793
    
    
    
    5,997,133
    
    
    
    20,980,761Credit Cards
    
    
    58,453
    
    
    
    183,248
    
    
    
    286,911
    
    
    
    0
    
    
    
    528,612$
    25,296,766
    
    
    $
    43,820,812
    
    
    $
    80,117,157
    
    
    $
    31,373,379
    
    
    $
    180,608,114Loans at fixed rates
    
    
    10,653,065
    
    
    
    26,093,021
    
    
    
    73,335,912
    
    
    
    23,483,018
    
    
    
    133,565,016Loans at variable rates
    
    
    14,643,701
    
    
    
    17,727,791
    
    
    
    6,781,245
    
    
    
    7,890,361
    
    
    
    47,043,098$
    25,296,766
    
    
    $
    43,820,812
    
    
    $
    80,117,157
    
    
    $
    31,373,379
    
    
    $
    180,608,114
 At March 31, 2010, there were 74% of the loan balances carrying a fixed rate and 26% a floating
rate, and only 17% of the entire portfolio had a contractual maturity longer than five years. Since
2008, the Banks concentration of fixed rate loans has been increasing. Some of the shift is a
factor of the types of loans that have paid off or have been added to the portfolio and some of the
change is related to customer preference at the time of renewal. Rates have remained low for an
extended period of time. It is likely that future rate movements will be rising. As a result of the
current mix of the loan portfolio, management will be challenged to improve loan income in a rising
rate environment.The maturity distribution of the loan portfolio has lengthened with the activity related to the
mortgage business line; however emphasis remains on originating loans salable into the secondary
market. Management prefers to retain only 10-15% of residential mortgages originated because of the
longer contractual terms generally involved in mortgage products.Another risk included as part of the Banks risk management program is credit risk estimation. 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 policy. The loan portfolio is reviewed and
analyzed on a regular basis for the purpose of estimating probable incurred credit losses. The
analysis of the allowance for loan losses is comprised of two portions: general credit allocations
and specific credit allocations. General credit allocations are made to various categories of loans
based on loan ratings, delinquency trends, historical loss experience as well as current economic
conditions. The specific credit allocation includes a detailed review of a credit resulting in an
allocation being made to the allowance for that particular loan. There are occasions when an
impaired 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
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##### Table of Contents



COMMUNITY SHORES BANK CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
     March 31, 2010
    
    
    December 31, 2009Percent of
    
    
    
    
    
    
    Percent ofAllowance
    
    
    
    
    
    
    AllowanceRelated to
    
    
    
    
    
    
    Related toBalance at End of Period Applicable to:
    
    Amount
    
    
    Loan Category
    
    
    Amount
    
    
    Loan CategoryCommercial
    
    $
    1,229,193
    
    
    
    1.8
    %
    
    $
    1,529,470
    
    
    
    2.2
    %Real Estate:Commercial
    
    
    1,600,723
    
    
    
    2.2
    
    
    
    1,828,022
    
    
    
    2.6Residential
    
    
    116,220
    
    
    
    0.6
    
    
    
    91,532
    
    
    
    0.5Construction
    
    
    20,971
    
    
    
    1.3
    
    
    
    17,461
    
    
    
    1.1Consumer
    
    
    350,459
    
    
    
    1.7
    
    
    
    315,647
    
    
    
    1.4Total
    
    $
    3,317,566
    
    
    
    1.8
    %
    
    $
    3,782,132
    
    
    
    2.1
    %
  IncreaseLoans Past Due:
    
    March 31, 2010
    
    
    December 31, 2009
    
    
    (Decrease)30-59 days
    
    $
    3,232,893
    
    
    $
    1,317,396
    
    
    $
    1,915,49760-89 days
    
    
    270,608
    
    
    
    881,712
    
    
    
    (611,104
    )90 days and greater
    
    
    114,761
    
    
    
    981,704
    
    
    
    (866,943
    )Non-accrual loans
    
    
    8,690,220
    
    
    
    8,117,994
    
    
    
    572,226
  - 23 -




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COMMUNITY SHORES BANK CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
         - 24 -




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##### Table of Contents



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




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##### Table of Contents



COMMUNITY SHORES BANK CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Three months ended March 31,2010
    
    2009Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateAssetsFederal funds sold and interest-
bearing deposits with banks
    
    $
    9,096,118
    
    
    $
    5,422
    
    
    
    0.24
    %
    
    $
    12,130,042
    
    
    $
    5,695
    
    
    
    0.19
    %Securities
    
    
    28,642,857
    
    
    
    241,220
    
    
    
    3.37
    
    
    
    26,132,581
    
    
    
    299,362
    
    
    
    4.58Loans (including held for sale and non
accrual)
    
    
    182,555,777
    
    
    
    2,805,607
    
    
    
    6.15
    
    
    
    201,236,490
    
    
    
    3,171,300
    
    
    
    6.30220,294,752
    
    
    
    3,052,249
    
    
    
    5.54
    
    
    
    239,499,113
    
    
    
    3,476,357
    
    
    
    5.81Other assets
    
    
    20,629,566
    
    
    
    
    
    
    
    
    
    
    
    18,468,942$
    240,924,318
    
    
    
    
    
    
    
    
    
    
    $
    257,968,055Liabilities and Shareholders EquityInterest-bearing deposits
    
    $
    183,853,617
    
    
    $
    1,107,977
    
    
    
    2.41
    
    
    $
    203,879,636
    
    
    $
    1,679,238
    
    
    
    3.29Federal funds purchased, repur-
chase agreements and FederalReserve Bank borrowings
    
    
    8,452,582
    
    
    
    20,571
    
    
    
    0.97
    
    
    
    5,290,074
    
    
    
    7,125
    
    
    
    0.54Subordinated Debentures, notes payable
and FHLB advances
    
    
    15,366,667
    
    
    
    184,532
    
    
    
    4.80
    
    
    
    14,700,000
    
    
    
    169,455
    
    
    
    4.61207,672,866
    
    
    
    1,313,080
    
    
    
    2.53
    
    
    
    223,869,710
    
    
    
    1,855,818
    
    
    
    3.32Non-interest-bearing deposits
    
    
    21,728,258
    
    
    
    
    
    
    
    
    
    
    
    19,127,438Other liabilities
    
    
    699,350
    
    
    
    
    
    
    
    
    
    
    
    581,055Shareholders Equity
    
    
    10,823,844
    
    
    
    
    
    
    
    
    
    
    
    14,389,852$
    240,924,318
    
    
    
    
    
    
    
    
    
    
    $
    257,968,055Net interest income (tax equivalent basis)
    
    
    
    
    
    
    1,739,169
    
    
    
    
    
    
    
    
    
    
    
    1,620,539Net interest spread on earning assets
(tax equivalent basis)
    
    
    
    
    
    
    
    
    
    
    3.01
    %
    
    
    
    
    
    
    
    
    
    
    2.49
    %Net interest margin on earning assets
(tax equivalent basis)
    
    
    
    
    
    
    
    
    
    
    3.16
    %
    
    
    
    
    
    
    
    
    
    
    2.71
    %Average interest-earning assets to average
interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    106.08
    %
    
    
    
    
    
    
    
    
    
    
    106.98
    %Tax equivalent adjustment
    
    
    
    
    
    
    27,748
    
    
    
    
    
    
    
    
    
    
    
    38,293Net interest income
    
    
    
    
    
    $
    1,711,421
    
    
    
    
    
    
    
    
    
    
    $
    1,582,246
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COMMUNITY SHORES BANK CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
      - 27 -




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COMMUNITY SHORES BANK CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   Interest Rate Sensitivity PeriodWithin
    
    
    Three to
    
    
    One to
    
    
    AfterThree
    
    
    Twelve
    
    
    Five
    
    
    FiveMonths
    
    
    Months
    
    
    Years
    
    
    Years
    
    
    TotalEarning assetsInterest-bearing deposits
in other financial institutions
    
    $
    21,151,387
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    21,151,387Securities (including FHLB stock)
    
    
    2,129,020
    
    
    
    5,914,382
    
    
    
    15,797,284
    
    
    
    6,541,622
    
    
    
    30,382,308Loans Held for Sale
    
    
    9,541
    
    
    
    31,011
    
    
    
    187,428
    
    
    
    383,123
    
    
    
    611,103Loans1
    
    
    53,621,756
    
    
    
    32,482,621
    
    
    
    73,855,614
    
    
    
    20,648,123
    
    
    
    180,608,11476,911,704
    
    
    
    38,428,014
    
    
    
    89,840,326
    
    
    
    27,572,868
    
    
    
    232,752,912Interest-bearing liabilitiesSavings and checking
    
    
    42,101,441
    
    
    
    26,331,051
    
    
    
    0
    
    
    
    0
    
    
    
    68,432,492Time deposits <$100,000
    
    
    2,896,584
    
    
    
    17,958,240
    
    
    
    22,101,670
    
    
    
    0
    
    
    
    42,956,494Time deposits >$100,000
    
    
    8,815,828
    
    
    
    36,577,902
    
    
    
    41,952,974
    
    
    
    0
    
    
    
    87,346,704Repurchase agreements andFederal funds purchased
    
    
    8,873,575
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    8,873,575Subordinated Debt and FederalHome Loan Bank Advances
    
    
    9,500,000
    
    
    
    4,500,000
    
    
    
    0
    
    
    
    0
    
    
    
    14,000,00072,187,428
    
    
    
    85,367,193
    
    
    
    64,054,644
    
    
    
    0
    
    
    
    221,609,265Net asset (liability) repricing gap
    
    $
    4,724,276
    
    
    $
    (46,939,179
    )
    
    $
    25,785,682
    
    
    $
    27,572,868
    
    
    $
    11,143,647Cumulative net asset (liability)Repricing gap
    
    $
    4,724,276
    
    
    $
    (42,214,903
    )
    
    $
    (16,429,221
    )
    
    $
    11,143,647
   
 1
    
    Includes non accrual loans. - 28 -




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COMMUNITY SHORES BANK CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
       - 29 -




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##### Table of Contents



COMMUNITY SHORES BANK CORPORATION
 
   
   
  
   
   
   
   
  
   
  - 30 -




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##### Table of Contents



COMMUNITY SHORES BANK CORPORATION
 EXHIBIT NO.
    
    EXHIBIT DESCRIPTION3.1
    
    Articles of Incorporation are incorporated by reference to exhibit
3.1 of the Companys June 30, 2004 Form 10-QSB (SEC file number
333-63769).3.2
    
    Bylaws of the Company are incorporated by reference to exhibit 3(ii)
of the Companys Form 8-K filed July 5, 2006 (SEC file number
000-51166).31.1
    
    Rule 13a-14(a) Certification of the principal executive officer.31.2
    
    Rule 13a-14(a) Certification of the principal financial officer.32.1
    
    Section 1350 Chief Executive Officer Certification.32.2
    
    Section 1350 Chief Financial Officer Certification.
 - 31 -




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##### Table of Contents



COMMUNITY SHORES BANK CORPORATIONMay 17, 2010 
Date
    By:
    /s/ Heather D. BrolickHeather D. BrolickPresident and Chief Executive Officer

(principal executive officer)May 17, 2010
 Date
    By:
    /s/ Tracey A. WelshTracey A. WelshSenior Vice President, Chief Financial Officer and Treasurer
(principal financial and accounting officer) - 32 -




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##### Table of Contents



EXHIBIT INDEX
 EXHIBIT NO.
    
    EXHIBIT DESCRIPTION3.1
    
    Articles of Incorporation are incorporated by reference to exhibit 3.1
of the Companys June 30, 2004 Form 10-QSB (SEC file number 333-63769).3.2
    
    Bylaws of the Company are incorporated by reference to exhibit 3(ii)
of the Companys Form 8-K filed July 5, 2006 (SEC file number
000-51166).31.1
    
    Rule 13a-14(a) Certification of the principal executive officer.31.2
    
    Rule 13a-14(a) Certification of the principal financial officer.32.1
    
    Section 1350 Chief Executive Officer Certification.32.2
    
    Section 1350 Chief Financial Officer Certification.
 - 33 -