COMMUNITY SHORES BANK CORP, 10KSB40, 1999-03-30

COMMUNITY SHORES BANK CORP
10KSB40, 1999-03-30
STATE COMMERCIAL BANKS

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<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------

FORM 10-KSB

[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act
of 1934

For the fiscal year ended December 31, 1998 Commission File No. 333-63769

COMMUNITY SHORES BANK CORPORATION
(Name of small business issuer in its charter)

MICHIGAN 38-3423227
(State or other jurisdiction of
incorporation or organization) (IRS Employer Identification No.)

1030 W. NORTON AVENUE, MUSKEGON, MICHIGAN 49441
(Address of principal executive offices)

(616) 780-1800
(Issuer's telephone number)

Securities registered under Section 12(b) of the Act: NONE
Securities registered under Section 12(g) of the Act: NONE

Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 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.
YES X NO
------ ------

Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]

Issuer's revenue for its most recent fiscal year was approximately
$13,000.

The aggregate market value of voting stock of the registrant held by
nonaffiliates was approximately $7,357,000 as of February 1, 1999; based on the
average of the closing bid and asked prices ($8.75) on that date.

As of March 16, 1999, 1,170,000 shares of Common Stock of the issuer
were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

Parts II and III Portions of 1998 Annual Report
to the Shareholders of the issuer for the
period from July 23, 1998 (inception) to
December 31, 1998.

Part III Portions of the Proxy Statement of the issuer
for its April 15, 1999 Annual Meeting

Transitional Small Business Disclosure Format YES NO X
------ -------

<PAGE> 2

PART I

ITEM 1. DESCRIPTION OF BUSINESS

THE CORPORATION

Community Shores Bank Corporation (the "Corporation") is a bank holding
company under the Bank Holding Company Act of 1956, as amended (the "Bank
Holding Company Act"). As a bank holding company, the Corporation is subject to
regulation by the Federal Reserve Board. The Corporation was organized on July
23, 1998, under the laws of the State of Michigan, and formed Community Shores
Bank (the "Bank"), which commenced business on January 15, 1999. The Corporation
exists primarily for the purpose of holding all of the stock of the Bank, and of
such other subsidiaries as the Corporation may acquire or establish.

The expenses of the Corporation to date have generally been paid using
the proceeds from its initial public stock offering in December of 1998. The
Corporation's principal source of future operating funds is expected to be
dividends from the Bank.

THE BANK

The Bank is a state banking corporation which operates under the laws
of the State of Michigan, pursuant to a charter issued by the Financial
Institutions Bureau of the State of Michigan. The Bank's deposits are insured to
the maximum extent provided by the Federal Deposit Insurance Corporation. The
Bank's primary service area is Muskegon County, which includes the City of
Muskegon, and Northern Ottawa County, which includes the City of Grand Haven.

The Bank, through its office at 1030 W. Norton Avenue, Muskegon,
Michigan provides a wide variety of commercial banking services to individuals,
businesses, governmental units, and other institutions. Its services include
accepting time, demand and savings deposits, including regular checking
accounts, NOW and money market accounts, and certificates of deposit. In
addition, the Bank makes secured and unsecured commercial, construction,
mortgage, and consumer loans, and finances commercial transactions. The Bank has
an automated teller machine ("ATM") which participates in MAC, a regional
network, as well as other ATM networks throughout the country. In addition to
the foregoing services, the Bank provides its customers with extended banking
hours, and is considering a system to perform certain transactions by telephone
to be provided by its data processing vendor. The Bank does not have trust
powers.

EFFECT OF GOVERNMENT MONETARY POLICIES

The earnings of the Corporation are affected by domestic economic
conditions and the monetary and fiscal policies of the United States government,
its agencies, and the Federal Reserve Board. The Federal Reserve Board's
monetary policies have had, and will likely continue to have, an important
impact on the operating results of commercial banks through its power to
implement national monetary policy in order to, among other things, curb
inflation or avoid a recession. The policies of the Federal Reserve Board have a
major effect upon the levels of bank loans, investments and deposits through its
open market operations in United States government securities, and through its
regulation of, among other things, the discount rate on borrowings of member
banks and the reserve requirements against member bank deposits. It is not
possible to predict the nature and impact of future changes in monetary and

2
<PAGE> 3

fiscal policies. The Bank maintains reserves with the Federal Reserve Bank on a
pass-through basis through a correspondent financial institution.

REGULATION AND SUPERVISION

The Corporation, as a bank holding company under the Bank Holding
Company Act, is required to file an annual report with the Federal Reserve Board
and such additional information as the Federal Reserve Board may require
pursuant to the Bank Holding Company Act, and is subject to examination by the
Federal Reserve Board.

The Bank Holding Company Act limits the activities which may be engaged
in by the Corporation and its subsidiary to those of banking and the management
of banking organizations, and to certain non-banking activities, including those
activities which the Federal Reserve Board may find, by order or regulation, to
be so closely related to banking or managing or controlling banks as to be a
proper incident thereto. The Federal Reserve Board is empowered to differentiate
between activities by a bank holding company, or a subsidiary thereof, and
activities commenced by acquisition of a going concern.

With respect to non-banking activities, the Federal Reserve Board has,
by regulation, determined that certain non-banking activities are closely
related to banking within the meaning of the Bank Holding Company Act. These
activities include, among other things, operating a mortgage company, finance
company, credit card company or factoring company, performing certain data
processing operations, providing certain investment and financial advice, acting
as an insurance agent for certain types of credit related insurance, leasing
property on a full-payout, nonoperating basis; and, subject to certain
limitations, providing discount securities brokerage services for customers. The
Corporation has no current plans to engage in non-banking activities.

The Bank is subject to certain restrictions imposed by federal law on
any extension of credit to the Corporation for investments in stock or other
securities thereof, and on the taking of such stock or securities as collateral
for loans to any borrower. Federal law prevents the Corporation from borrowing
from the Bank unless the loans are secured in designated amounts.

With respect to the acquisition of banking organizations, the
Corporation is required to obtain the prior approval of the Federal Reserve
Board before it can acquire all or substantially all of the assets of any bank,
or acquire ownership or control of any voting shares of any bank, if, after such
acquisition, it will own or control more than 5% of the voting shares of such
bank. Acquisitions across state lines are subject to certain state and Federal
Reserve Board restrictions.

EMPLOYEES

As of December 31, 1998, the Corporation employed 17 persons.

LOAN POLICY

The Bank makes loans primarily to individuals and businesses located
within the Bank's market area. The loan policy of the Bank states that the
function of the lending operation is to provide a means for the investment of
funds at a profitable rate of return with an acceptable degree of risk, and to
meet the credit needs of qualified businesses and individuals who

3
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become customers of the Bank. The Board of Directors of the Bank recognizes
that, in the normal business of lending, some losses on loans will be
inevitable. These losses will be carefully monitored and evaluated and are
recognized as a normal cost of conducting business.

The Bank's loan policy anticipates that priorities in extending loans
will change from time to time as interest rates, market conditions and
competitive factors change. The policy is designed to assist the Bank in
managing the business risk involved in extending credit. It sets forth
guidelines on a nondiscriminatory basis for lending in accordance with
applicable laws and regulations. The policy describes criteria for evaluating a
borrower's ability to support debt, including character of the borrower,
evidence of financial responsibility, knowledge of collateral type, value and
loan to value ratio, terms of repayment, source of repayment, payment history,
and economic conditions.

The Bank provides oversight and monitoring of lending practices and
loan portfolio quality through the use of an Officers Loan Committee (the "Loan
Committee"). The Loan Committee members include all commercial lenders, the
Senior Vice President and Senior Lender, the Chairman of the Board, President
and Chief Executive Officer, and other designated lending personnel. The Loan
Committee is presently permitted to approve requests for loans in an amount not
exceeding $750,000. The Loan Committee may recommend that requests exceeding
this amount be approved by a Committee of the Board of Directors (the "Board
Committee") whose lending authority is approximately $1,395,000. Loan requests
in excess of the Board Committee's limit require the approval of the Board of
Directors. The Board of Directors has the maximum lending authority permitted by
law. However, generally, the loan policy establishes an "in house" limit
slightly lower than the actual legal lending limit. The Bank's general legal
lending limit, as of March 1, 1999, was approximately $1,395,000, subject to a
higher legal lending limit of approximately $2,325,000 in specific cases with
approval by two-thirds of the Bank's Board of Directors.

In addition to the lending authority described above, the Bank's Board
of Directors delegates significant authority to officers of the Bank. The Board
believes this empowerment enables the Bank to be more responsive to its
customers. The Chairman of the Board, President and Chief Executive Officer, and
the Senior Vice President and Senior Lender have been delegated authority, where
they deem it appropriate, to approve loans up to the limit authorized for the
Board Committee. Other officers have been delegated authority to approve loans
of lesser amounts, where they deem it appropriate, without approval by the Loan
Committee.

The loan policy outlines the amount of funds that may be loaned against
specific types of collateral. The loan to value ratios for first mortgages on
residences are expected to comply with the guidelines of secondary market
investors. First mortgages held within the Bank's portfolio are expected to
mirror secondary market requirements. In those instances where loan to value
ratio exceeds 80%, it is intended that private mortgage insurance will be
obtained to minimize the Bank's risk. Loans secured by a second or junior lien
generally will be limited to a loan to value ratio of 100%. Loans for improved
residential real estate lots generally will not exceed a loan to value ratio of
80%, and loans for unimproved residential sites generally will not exceed a loan
to value ratio of 75%. For certain loans secured by real estate, an appraisal of
the property offered as collateral, by a state licensed or certified independent
appraiser, will be required.

<PAGE> 5

The loan policy also provides general guidelines as to collateral,
provides for environmental policy review, contains specific limitations with
respect to loans to employees, executive officers and directors, provides for
problem loan identification, establishes a policy for the maintenance of a loan
loss reserve, provides for loan reviews and sets forth policies for mortgage
lending and other matters relating to the Bank's lending practices.

LENDING ACTIVITY

Commercial Loans. The Bank's commercial lending group originates
commercial loans primarily in the Western Michigan Counties of Muskegon and
Northern Ottawa. Commercial loans are originated by experienced lenders,
including the Chairman of the Board, President and Chief Executive Officer, and
the Senior Vice President and Senior Lender. Loans are originated for general
business purposes, including working capital, accounts receivable financing,
machinery and equipment acquisition and commercial real estate financing,
including new construction and land development.

Working capital loans that are structured as a line of credit are
reviewed periodically in connection with the borrower's year end financial
reporting. These loans generally are secured by assets of the borrower and have
an interest rate tied to the prime rate. Loans for machinery and equipment
purposes typically have a maturity of five to seven years and are fully
amortizing. Commercial real estate loans may have an interest rate that is fixed
to maturity or floats with a margin over the prime rate or a U.S. Treasury
Index.

The Bank evaluates many aspects of a commercial loan transaction in
order to minimize credit and interest rate risk. Underwriting commercial loans
requires an assessment of management, products, markets, cash flow, capital,
income and collateral. The analysis includes a review of historical and
projected financial results. On certain transactions, where real estate is the
primary collateral, and in some cases where equipment is the primary collateral,
appraisals are obtained from licensed or certified appraisers. In certain
situations, for creditworthy customers, the Bank may accept title reports
instead of requiring lenders' policies of title insurance.

Commercial real estate lending involves more risk than residential
lending, because loan balances are greater and repayment is dependent upon the
borrower's operations. the Bank attempts to minimize risk associated with these
transactions by generally limiting its exposure to owner operated properties of
well known customers or new customers with an established profitable history. In
certain cases, risk may be further reduced by (i) limiting the amount of credit
to any one borrower to an amount less than the Bank's legal lending limit, and
(ii) avoiding certain types of commercial real estate financing.

Single Family Residential Real Estate Loans. The Bank originates first
mortgage residential real estate loans in its market area according to secondary
market underwriting standards. These loans are likely to provide borrowers with
a fixed or adjustable interest rate with terms up to 30 years. A majority of the
single family residential real estate loans are expected to be sold on a
servicing released basis in the secondary market with all interest rate risk and
credit risk passed to the purchaser. The Bank may periodically elect to
underwrite certain residential real estate loans, generally with maturities of
seven years or less, to be held in its own loan portfolio.

<PAGE> 6

Consumer Loans. The Bank originates consumer loans for a variety of
personal financial needs. Consumer loans are likely to include fixed home equity
and equity lines of credit, new and used automobile loans, boat loans, personal
unsecured lines of credit, credit cards (through third-party providers to
minimize risk) and overdraft protection for checking account customers.

Consumer loans generally have shorter terms and higher interest rates
than residential mortgage loans and, except for home equity lines of credit,
usually will involve greater credit risk due to the type and nature of the
collateral securing the debt. Strong emphasis is placed on the amount of the
down payment, credit quality, employment stability and monthly income. Hazard
insurance is obtained (in favor of the Bank) on certain loan types, including
automobiles and boats.

Consumer loans are generally repaid on a monthly basis with the source
of repayment tied to the borrower's periodic income. It is recognized that
consumer loan delinquency and losses are dependent on the borrower's continuing
financial stability. Job loss, illness and personal bankruptcy may adversely
affect repayment. In many cases, repossessed collateral (on a secured consumer
loan) may not be sufficient to satisfy the outstanding loan balance. This is a
common occurrence due to depreciation of the underlying collateral. The Bank
believes that the generally higher yields earned on consumer loans compensate
for the increased credit risk associated with such loans. Consumer loans are
expected to be an important component in the Bank's efforts to meet the credit
needs of the communities and customers that it serves.

INVESTMENTS

The principal investment of the Corporation is its investment in the
common stock of the Bank. Funds retained by the Corporation from time to time
may be invested in various debt instruments, including but not limited to
obligations of or guaranteed by the United States, general obligations of a
state or political subdivision or agency thereof, banker's acceptances or
certificates of deposit of United States commercial banks, or commercial paper
of United States issuers rated in the highest category by a
nationally-recognized investment rating service. Although the Corporation is
permitted to make limited portfolio investments in equity securities and to make
equity investments in subsidiary corporations engaged in certain non-banking
activities which may include real estate-related activities, such as mortgage
banking, community development, real estate appraisals, arranging equity
financing for commercial real estate, and owning and operating real estate used
substantially by the Bank or acquired for its future use, the Corporation has no
present plans to make any such equity investment. The Corporation's Board of
Directors may alter the Corporation's investment policy without shareholder
approval.

The Bank may invest its funds in a wide variety of debt instruments and
may participate in the federal funds market with other depository institutions.
Subject to certain exceptions, the Bank is prohibited from investing in equity
securities. Under one such exception, in certain circumstances and with the
prior approval of the FDIC, the Bank could invest up to 10% of its total assets
in the equity securities of a subsidiary corporation engaged in certain real
estate-related activities. The Bank has no present plans to make such an
investment. Real estate acquired by the Bank in satisfaction of or foreclosure
upon loans may be held by the Bank, subject to a determination by a majority of
the Bank's Board of Directors at least annually of the advisability of retaining
the property, for a period not exceeding 60 months after the date of
acquisition, or such longer period as the Commissioner of the Michigan Financial
Institutions Bureau may approve. The Bank is also permitted to invest an
aggregate amount not in excess

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of two-thirds of the capital and surplus of the Bank in such real estate as is
necessary for the convenient transaction of its business. The Bank's Board of
Directors may alter the Bank's investment policy without shareholder approval.

COMPETITION

All phases of the business of the Bank are highly competitive. The Bank
competes with numerous financial institutions, including other commercial banks
in Muskegon County and Ottawa County, Michigan. The Bank, along with other
commercial banks, competes with respect to its lending activities, and competes
in attracting demand deposits, with savings banks, savings and loan
associations, insurance companies, small loan companies, credit unions and with
the issuers of commercial paper and other securities, such as various mutual
funds. Many of these institutions are substantially larger and have greater
financial resources than the Bank.

The competitive factors among financial institutions can be classified
into two categories; competitive rates and competitive services. Interest rates
are widely advertised and thus competitive, especially in the area of time
deposits. From a service standpoint, financial institutions compete against each
other in types and quality of services. The Bank is generally competitive with
other financial institutions in its area with respect to interest rates paid on
time and savings deposits, charges on deposit accounts, and interest rates
charged on loans. With respect to services, the Bank offers a customer service
oriented atmosphere which management believes is better suited to its customers
than that offered by other institutions in the local market.

SELECTED STATISTICAL INFORMATION

A. Distribution of Assets, Liabilities and Shareholder's Equity
B. Interest Rates and Interest Differential

The information required by these sections are not applicable to the
Corporation and the Bank had not yet commenced operation as of December 31,
1998.

SECURITIES PORTFOLIO

A. Book value of investments in US Treasury and other U.S.
Government agencies; States of the U.S. and political
subdivisions; and other securities and maturities along with
weighted average yield of each.

As of December 31, 1998, no securities portfolio was held by the
Corporation, and the Bank had not yet commenced operations.

LOAN PORTFOLIO

A. Schedule of maturities and interest rate sensitivity.

The information required by this section is not applicable to the
Corporation; and the Bank had not yet commenced operation as of December 31,
1998.

<PAGE> 8

ALLOWANCE FOR LOAN LOSSES

A. Analysis of the allowance and related detail on charge offs and
recoveries.

The information required by this section is not applicable to the
Corporation; and the Bank had not yet commenced operation as of December 31,
1998.

DEPOSITS

A. Average amount and rate paid on deposit categories which are in
excess of 10% of average total deposits.
B. Aggregate amount of deposits by foreign depositors, if material.
C. Amount outstanding of time deposits of $100,000 or more by time
remaining until maturity.

The information required by this section is not applicable to the
Corporation; and the Bank had not yet commenced operation as of December 31,
1998. The Bank held no deposits as of December 31, 1998.

RETURN ON EQUITY AND ASSETS

The following table contains selected ratios:

Period from July 23, 1998 (inception)
to December 31, 1998
------------------------------
<S> <C>
Return on average total assets (16.9%)
Return on average equity (24%)
Dividend payout ratio N/A
Average equity to average assets 70.6%
</TABLE>

ITEM 2. DESCRIPTION OF PROPERTY

The Corporation is constructing a new one-story building at 1030 W.
Norton Avenue, in Roosevelt Park, Michigan, a suburb of Muskegon, for use as the
Bank's main office and the Corporation's headquarters. The building will be
approximately 11,500 square feet with a two lane drive-up facility, one drive-up
ATM, safe deposit boxes and a night depository. There is expected to be free
on-site parking of approximately 60 spaces.

The Bank is utilizing temporary, modular office space on the permanent
site until the new premises is completed. This temporary facility will be leased
by the Bank until the construction of the Bank's main office is complete. The
temporary office space consists of three attached modular units totaling
approximately 3,400 square feet with a drive-up window and ATM. The Bank is also
leasing approximately 1,900 square feet of office space on the first floor of an
office building at 1060 W. Norton Avenue adjacent to the Bank's temporary
facility. The lease of this adjacent office space is a ten month lease expiring
September 30, 1999, which is renewable on a month-to-month basis. The Bank
expects to complete and move into its permanent facility in the second half of
1999.

<PAGE> 9

ITEM 3. LEGAL PROCEEDINGS

As a depository of funds, the Bank could occasionally be named as a
defendant in lawsuits (such as garnishment proceedings) involving claims to the
ownership of funds in particular accounts. Such litigation is incidental to the
Bank's business.

No litigation is pending in which the Corporation, or the Bank, is
likely to experience loss or exposure which would materially affect the
Corporation's equity, financial position, or liquidity as presented herein.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The information shown under the caption "Stock Information" in the
Notice of Annual Meeting, Proxy Statement & 1998 Annual Report of the
Corporation ("Proxy Statement & 1998 Annual Report") furnished to the Securities
and Exchange Commission ("SEC") as Exhibit 13 to this Report is incorporated
here by reference.

In December of 1998, the Corporation commenced an initial public
offering of its Common Stock. Pursuant to the public offering, the Corporation
registered for sale to the public under the Securities Act of 1933, shares of
its Common Stock. The registration statement for the public offering was
assigned SEC file number 333-63769, and became effective on December 17, 1998.
Of the shares registered with the SEC, the closing for the 1,100,000 firm shares
included in the offering occurred on December 22, 1998, and the closing for
70,000 of the shares included in the Underwriter's over-allotment option
occurred on January 21, 1999. Accordingly, the public offering terminated by
January 21, 1999, after 1,170,000 shares covered by the registration statement
had been sold by the Corporation. The managing underwriter for the offering was
Roney Capital Markets, a division of First Chicago Capital Markets, Inc. The
shares were sold to the public at a price of $10 per share for an aggregate
offering price of $11,170,000.

In connection with the offering, the Corporation paid underwriting
discounts and commissions of approximately $654,000, and other expenses of
approximately $167,000; for a total of approximately $821,000 of aggregate
underwriting discounts and commissions, and other expenses of the offering. The
net proceeds of the offering received by the Corporation, after deducting the
discounts, commissions, and other expenses of the offering was approximately
$10,879,000.

From the net proceeds of the offering, the Corporation used $1,155,000
to repay director loans, with interest at 5% per annum, which were made to the
Corporation by members of it's Board of Directors to finance, on an interim
basis, the Bank's pre-opening expenses which consisted mainly of purchasing the
capital assets discussed below as well as expenses for salaries and benefits
($279,000), offering costs ($167,000) other than the Underwriters discount and
many other miscellaneous start-up expenses ($64,000).

<PAGE> 10

Additionally, from the net proceeds of the offering, the Corporation
contributed $8,063,000 in cash to the Bank and $1,237,000 in capital assets
including $445,000 of land purchased to build the Bank's main office and
$477,000 of banking equipment. In return for this capital infusion the
Corporation received 100% of the Bank's authorized common stock. The purchase
of the Bank's stock was intended to provide the Bank with the capital required
by the regulators to commence operations and to support asset growth, fund
loans, acquire investments, construct the main office, purchase any remaining
equipment necessary for operation and to provide payment for operating expenses.
On January 21, 1999, the Corporation opened a Money Market account with the Bank
in the amount of $1,000,000 and plans to leave most of this money on deposit
until more capital is needed by the Bank to finance future growth.

A summary of the sources and uses of the proceeds from the initial
public offering is set forth below:

<TABLE>
<CAPTION>
(Dollars in thousands) Amount Percentage
------ ----------
<S> <C> <C>
Sources:
Sale of 1,170,000 shares of Common Stock ............................. $11,700 100%
Uses:
Capital Contribution to the Bank
Asset Transfer ............................................. 1,237 11%
Cash ........................................................ 8,063 69%
Underwriting Discounts ............................................... 654 6%
Offering Expenses ................................................... 167 1%
Operating and Startup Expenditures ................................... 579 5%
Money Market Deposit Account ......................................... 1,000 8%
------- ---
Total Uses ................................................................... $11,700 100%

</TABLE>

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

The information shown under the caption "Plan of Operation" in the
Proxy Statement & 1998 Annual Report of the Corporation, furnished to the SEC as
Exhibit 13 to this Report is incorporated here by reference.

ITEM 7. FINANCIAL STATEMENTS

The information presented under the captions "Consolidated Balance
Sheet," "Consolidated Statement of Income," "Consolidated Statement of Changes
in Shareholders' Equity," "Consolidated Statement of Cash Flows," and "Notes to
Consolidated Financial Statements," as well as the Report of Independent
Auditors, Crowe, Chizek and Company LLP, dated February 4, 1999, in the Proxy
Statement & 1998 Annual Report of the Corporation, furnished to the SEC as
Exhibit 13 to this Report are incorporated here by reference.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None

<PAGE> 11

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

The information listed under the caption "Information about Directors,
Nominees and Executive Officers in the Proxy Statement & 1998 Annual Report of
the Corporation furnished to the SEC as Exhibit 13 to this Report is
incorporated here by reference.

The Corporation does not have a class of equity securities registered
pursuant to Section 12 of the Securities Exchange Act of 1934 so information
regarding compliance with Section 16(a) is not applicable.

ITEM 10. EXECUTIVE COMPENSATION

The information presented under the captions "Summary Compensation
Table," "Options Granted in 1998," and "Aggregated Stock Option Exercises in
1998 and Year End Option Values" in the Proxy Statement & 1998 Annual Report of
the Corporation furnished to the SEC as Exhibit 13 to this Report is
incorporated here by reference.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information presented under the caption "Stock Ownership of Certain
Beneficial Owners and Management" in the Proxy Statement & 1998 Annual Report of
the Corporation furnished to the SEC as Exhibit 13 to this Report is
incorporated here by reference.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information listed under the caption "Certain Transactions" in the
Proxy Statement & 1998 Annual Report of the Corporation furnished to the SEC as
Exhibit 13 to this Report is incorporated here by reference.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

EXHIBIT NO. EXHIBIT DESCRIPTION
<S> <C>
3.1 Articles of Incorporation are incorporated by reference to exhibit 3.1 of the Corporation's
Registration Statement on Form SB-2 (SEC File no. 333-63769) that become effective on
December 17, 1998)

3.2 Bylaws of the Corporation are incorporated by reference to exhibit 3.2 of the Corporation's
Registration Statement on Form SB-2 (SEC File No. 333-63769) which became effective on
December 17, 1998

10.1 1998 Employee Stock Option Plan is incorporated by reference to exhibit 10.1 of the
Corporation's Registration Statement on Form SB-2 (SEC File
</TABLE>

<PAGE> 12

No. 333-63769) which became effective on December 17, 1998 (Management contract or
compensatory plan)

10.2 Development Coordination and Construction Oversight Agreement between the Corporation and
Investment Property Associates, Inc. is incorporated by reference to exhibit 10.2 of the
Corporation's Registration Statement on Form SB-2 (SEC File No. 333-63769) which became
effective on December 17, 1998

10.3 First Amendment to 1998 Employee Stock Option Plan is incorporated by reference to exhibit
10.3 of the Corporation's Registration Statement on Form SB-2 (SEC File No. 333-63769)
which became effective on December 17, 1998

10.4 Agreement between Fiserv Solutions, Inc. and Community Shores Bank is incorporated by
reference to exhibit 10.4 of the Corporation's Registration Statement on Form SB-2 (SEC
File No. 333-63769) which became effective on December 17, 1998

13 Proxy Statement & 1998 Annual Report of the Corporation. Except for the portions of the
Proxy Statement & 1998 Annual Report that are expressly incorporated by reference in this
Annual Report on Form 10-KSB, the Proxy Statement & 1998 Annual Report of the Corporation
shall not be deemed filed as a part thereof

20 Proxy Statement of the Corporation for its April 15, 1999 Annual Meeting is included as
part of the Proxy Statement & 1998 Annual Report of the Corporation (front cover through
page 10 thereof) that is set forth as Exhibit 13 to this Annual Report on Form 10-KSB.
Except for the portions of the Proxy Statement & 1998 Annual Report that are expressly
incorporated by reference in this Annual Report on Form 10-KSB, the Proxy Statement & 1998
Annual Report of the Corporation shall not be deemed filed as a part thereof

21 Subsidiaries of the Issuer

27 Financial Data Schedule
</TABLE>

(b) Reports on Form 8-K

The Corporation has not filed any reports on Form 8-K during the last
quarter of the period covered by this Report.

<PAGE> 13

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on March 23, 1999.

COMMUNITY SHORES BANK CORPORATION

/S/ JOSE' A. INFANTE
--------------------------------------
Jose' A. Infante
Chairman of the Board, President
and Chief Executive Officer

In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant, and in the capacities
indicated on March 23, 1999.

<TABLE>

<S> <C>
/S/ DAVID C. BLISS /S/ MICHAEL D. GLUHANICH
- ----------------------------------- ----------------------------------------------
David C. Bliss, Director Michael D. Gluhanich, Director

/S/GARY F. BOGNER
- ----------------------------------- ----------------------------------------------
Gary F. Bogner, Director Donald E. Hegedus, Director

- ----------------------------------- ----------------------------------------------
John C. Carlyle, Director John L. Hilt, Director

/S/ROBERT L. CHANDONNET /S/ JOSE' A. INFANTE
- ----------------------------------- ----------------------------------------------
Robert L. Chandonnet, Director Jose' A. Infante, Chairman of the Board,
President and Chief Executive Officer and
Director (principal executive officer)

/S/DENNIS L. CHERETTE /S/ JOY R. NELSON
- ----------------------------------- ----------------------------------------------
Dennis L. Cherette, Director Joy R. Nelson, Director

/S/ BRUCE J. ESSEX /S/ TRACEY A. WELSH
- ----------------------------------- ----------------------------------------------
Bruce J. Essex , Director Tracey A. Welsh (principal financial
and accounting officer)

</TABLE>

<PAGE> 14

EXHIBIT INDEX

Exhibit No. EXHIBIT DESCRIPTION
<S> <C>
3.1 Articles of Incorporation are incorporated by reference to exhibit 3.1 of the Corporation's
Registration Statement on Form SB-2 (SEC File no. 333-63769) that become effective on
December 17, 1998)

10.1 1998 Employee Stock Option Plan is incorporated by reference to exhibit 10.1 of the
Corporation's Registration Statement on Form SB-2 (SEC File No. 333-63769) which became
effective on December 17, 1998 (Management contract or compensatory plan)

21 Subsidiaries of the Issuer

27 Financial Data Schedule

</TABLE>

<PAGE> 1
EXHIBIT 13

COMMUNITY SHORES BANK CORPORATION [LOGO]

NOTICE OF
ANNUAL MEETING,
PROXY STATEMENT
&
1998 ANNUAL REPORT
<PAGE> 2

COMMUNITY SHORES BANK CORPORATION
1030 W. NORTON AVENUE
MUSKEGON, MICHIGAN 49441

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 15, 1999

TO THE HOLDERS OF SHARES OF COMMON STOCK OF
COMMUNITY SHORES BANK CORPORATION

NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
COMMUNITY SHORES BANK CORPORATION will be held at the Holiday Inn at 939 Third
Street, in Muskegon, Michigan, on Thursday, April 15, 1999, at 2:00 p.m., for
the purpose of considering and voting upon the following matters:

1. ELECTION OF DIRECTORS. To elect four Class I directors for a three
year term, as detailed in the accompanying Proxy Statement.

2. OTHER BUSINESS. To transact such other business as may properly be
brought before the meeting or any adjournment or adjournments thereof.

Only those shareholders of record at the close of business on Monday,
March 1, 1999, shall be entitled to notice of and to vote at the meeting.

We urge you to sign and return the enclosed proxy as promptly as
possible, whether or not you plan to attend the meeting in person. If you plan
to attend the meeting, please let us know by checking the box provided for this
purpose on the enclosed proxy. We would appreciate receiving your proxy by
Monday, April 5, 1999.

By Order of the Board of Directors,

Jose' A. Infante
Chairman of the Board, President
and Chief Executive Officer

Dated: March 15, 1999

<PAGE> 3

COMMUNITY SHORES BANK CORPORATION
1030 W. NORTON AVENUE
MUSKEGON, MICHIGAN 49441

March 15, 1999

PROXY STATEMENT

GENERAL INFORMATION

This Proxy Statement is furnished to shareholders of Community Shores
Bank Corporation (the "Corporation") in connection with the solicitation of
proxies by the Board of Directors of the Corporation for use at the Annual
Meeting of shareholders of the Corporation to be held on Thursday, April 15,
1999, at 2:00 p.m., at the Holiday Inn at 939 Third Street, Muskegon, Michigan,
and at any and all adjournments thereof. It is expected that the proxy materials
will be mailed to shareholders on or about March 15, 1999.

Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its exercise. Unless the proxy is revoked,
the shares represented thereby will be voted at the Annual Meeting or any
adjournment thereof.

The entire cost of soliciting proxies will be borne by the Corporation.
Proxies may be solicited by mail, facsimile or telegraph, or by directors,
officers, or regular employees of the Corporation or its subsidiary, in person
or by telephone. The Corporation will reimburse brokerage houses and other
custodians, nominees and fiduciaries for their out-of-pocket expenses for
forwarding soliciting material to the beneficial owners of Common Stock of the
Corporation.

The Board of Directors, in accordance with the By-Laws of the
Corporation, has fixed the close of business on March 1, 1999 as the record date
for determining shareholders entitled to notice of and to vote at the Annual
Meeting and at any and all adjournments thereof.

At the close of business on such record date, the outstanding number of
voting securities of the Corporation was 1,170,000 shares of Common Stock, each
of which is entitled to one vote. A majority of the outstanding shares will
constitute a quorum at the meeting. Abstentions and broker non-votes are counted
for purposes of determining the presence or absence of a quorum for the
transaction of business.

ELECTION OF DIRECTORS

The Corporation's Certificate of Incorporation and By-Laws provide that
the number of directors, as determined from time to time by the Board of
Directors, shall be no less than six and no more than fifteen. The Board of
Directors has presently fixed the number of directors at eleven. The Certificate
of Incorporation and By-Laws further provide that the directors shall be

1
<PAGE> 4

divided into three classes, Class I, Class II and Class III, with each class
serving a staggered three year term and with the number of directors in each
class being as nearly equal as possible.

The Board of Directors has nominated Gary F. Bogner, Robert L.
Chandonnet, Jose' A. Infante and Joy R. Nelson as Class I directors for three
year terms expiring at the 2002 Annual Meeting and upon election and
qualification of their successors. Each of the nominees is presently a Class I
director of the Corporation whose term expires at the April 15, 1999 Annual
Meeting of the shareholders. The other members of the Board, who are Class II
and Class III directors, will continue in office in accordance with their
previous elections until the expiration of their terms at the 2000 or 2001
Annual Meeting, as the case may be.

It is the intention of the persons named in the enclosed proxy to vote
such proxy for the election of the four nominees listed herein. The proposed
nominees for election as director are willing to be elected and serve; but in
the event that any nominee at the time of election is unable to serve or is
otherwise unavailable for election, the Board of Directors may select a
substitute nominee, and in that event the persons named in the enclosed proxy
intend to vote such proxy for the person so selected. If a substitute nominee is
not so selected, such proxy will be voted for the election of the remaining
nominees. The affirmative vote of a plurality of the votes cast at the meeting
is required for the nominees to be elected. Votes withheld and broker non-votes
are not counted toward a nominee's total.

STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table presents information regarding the beneficial
ownership of the Corporation's Common Stock as of February 1, 1999, by the
nominees for election as directors of the Corporation, the directors of the
Corporation whose terms of office will continue after the Annual Meeting, the
executive officer named in the Summary Compensation Table, and all directors and
executive officers of the Corporation as a group.

<TABLE>
<CAPTION>
Amount Percent of Class
Beneficially Beneficially
Name of Beneficial Owner Owned (1) Owned (2)
- ------------------------ ------------ ----------------

<S> <C> <C>
David C. Bliss.................................................. 20,000 1.7%
Gary F. Bogner.................................................. 26,800(3) 2.3%
John C. Carlyle................................................. 25,000 2.1%
Robert L. Chandonnet............................................ 25,000 2.1%
Dennis L. Cherette.............................................. 15,000 1.3%
Bruce J. Essex.................................................. 75,000 6.4%
Michael D. Gluhanich............................................ 25,600 2.2%
Donald E. Hegedus............................................... 25,700 2.3%
John L. Hilt.................................................... 40,000 3.4%
Jose' A. Infante................................................ 20,300(4) 1.7%
Joy R. Nelson................................................... 2,500 *
All directors and executive officers of the
Corporation as a group (14 persons)............................. 329,100(5) 27.6%
</TABLE>

2
<PAGE> 5

- -----------------------------
* Less than one percent
(1) Some or all of the Common Stock listed may be held jointly with, or for
the benefit of, spouses and children or grandchildren of, or various
trusts established by, the person indicated.
(2) The percentages shown are based on the 1,170,000 shares of the
Corporation's Common Stock outstanding as of February 1, 1999, plus the
number of shares that the named person or group has the right to
acquire within 60 days of February 1, 1999.
(3) Includes 1,800 shares held by Mr. Bogner's spouse.
(4) Includes 10,000 shares that Mr. Infante has the right to acquire within
60 days of February 1, 1999 pursuant to the Corporation's 1998 Employee
Stock Option Plan. Mr. Infante also holds an option under the Plan to
purchase an additional 30,000 shares, which has not yet vested.
Includes also 300 shares held by Mr. Infante's children.
(5) Includes 23,500 shares that such persons have the right to acquire
within 60 days of February 1, 1999 pursuant to the Corporation's 1998
Employee Stock Option Plan. Such persons also hold options under the
Plan to purchase an additional 70,500 shares which have not yet vested.

To the best of the Corporation's knowledge, no person other than Bruce
J. Essex, whose ownership is shown in the table above, owns 5% or more of the
Corporation's outstanding Common Stock. Mr. Essex and the other directors named
in the table have a business address at the office of the Corporation.

INFORMATION ABOUT DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS

The following information is furnished with respect to each continuing
director, nominee as a director, and executive officer of the Corporation. Each
of the continuing directors and nominees is currently a director of the
Corporation as well as a director of Community Shores Bank (the "Bank") which is
the Corporation's subsidiary.

Name, Age, and Position with Has Served As Year When Term
the Corporation and the Bank Director Since As a Director Expires
- ---------------------------- -------------- ---------------------
<S> <C> <C>
David C. Bliss, 61, Director 1998 2001
Gary F. Bogner, 56, Director 1998 1999
John C. Carlyle, 60, Director 1998 2000
Robert L. Chandonnet, 54, Director 1998 1999
Dennis L. Cherette, 44, Director 1998 2000
Bruce J. Essex, 49, Director 1998 2001
Michael D. Gluhanich, 53, Director 1998 2000
Donald E. Hegedus, 63, Director 1998 2000
John L. Hilt, 54, Director 1998 2001
Jose' A. Infante, 46, Chairman of the Board, President 1998 1999
and Chief Executive Officer, and Director
Joy R. Nelson, 61, Director 1998 1999
Ralph R. Berggren, 46, Senior Vice President and
Secretary of the Corporation, Senior Vice President,
Secretary, Cashier and Senior Lender of the Bank
Heather D. Brolick, 39, Senior Vice President of the
Corporation, Senior Vice President, Retail Lending
and Operations of the Bank
Robert J. Jacobs, 50, Senior Vice President of the
Corporation, Senior Vice President, Retail Banking
of the Bank
</TABLE>

3
<PAGE> 6

The business experience of each of the directors, nominees and
executive officers of the Corporation for at least the past five years is
summarized below:

DAVID C. BLISS (Director) is Chairman and Chief Executive Officer of
Quality Stores, Inc. ("Quality Stores"), located in Muskegon, Michigan. Quality
Stores operates over 100 retail farm and do-it-yourself stores located in
Michigan, Ohio, New York, Pennsylvania, West Virginia, Virginia and Indiana
under the names of Quality Farm and Fleet and County Post, and has annual sales
in excess of $520 million. Mr. Bliss has been the Chief Executive Officer of
Quality Stores since 1994, and Chairman of Quality Shores since 1996. Mr. Bliss
served on the Board and Executive Committee of FMB-Lumberman's Bank
("FMB-Lumberman") from May, 1995 to October, 1997 when he moved to the
Huntington Bank Advisory Board after the merger of FMB-Lumberman and Huntington
Bank. Mr. Bliss serves as the Vice Chair of Community Foundation of Muskegon
County, and as a member of the Boards of Directors of Muskegon Economic Growth
Alliance, OHIO FAA Sponsor Board, and International Mass Retailers Association.
Mr. Bliss previously served as a member of the Boards of Directors of United Way
of Muskegon County, the local YFCA, and Muskegon Community Health Project.

GARY F. BOGNER (Director) is a lifelong resident of Muskegon County.
Mr. Bogner became a pilot for Northwest Airlines in the late 1960s. While a
pilot he began investing in real estate in Muskegon County. He obtained his
Michigan Real Estate Broker license in 1971 and his contractors license in 1975.
Mr. Bogner continued to invest in commercial real estate throughout the 1980s
and 1990s. He owns several commercial and residential real estate developments
primarily in Muskegon County. His largest real estate holdings consist of two
mobile home parks, Park Meadows and Timberline Estates. Additionally, he is a
partner in two growing companies, Send Delivery Inc. and Send Resources Inc.,
that deliver small parcels within the Muskegon, Grand Rapids and Holland
triangle. Mr. Bogner resides in North Muskegon and is a member of the Airline
Pilots Association and Vice President of the Safari Club International.

JOHN C. CARLYLE (Director) is a partner in the law firm of Varnum,
Riddering, Schmidt and Howlett LLP. He joined the law firm in 1990 and his
office is located in Grand Haven, Michigan. Mr. Carlyle is also a certified
public accountant. He currently serves as Chairman of the Board of the North
Ottawa Community Hospital and as a member of the Board of Directors of the Grand
Rapids Symphony and the Hospice of North Ottawa Community Endowment Fund. From
1978 to 1996, Mr. Carlyle served as a member of the Board of Directors of Old
Kent Bank of Grand Haven. He resides in Spring Lake, Michigan.

ROBERT L. CHANDONNET (Director) is the owner of The Nugent Sand
Company, Inc. ("Nugent Sand"), which provides foundry sand to several foundries
in the Great Lakes Region. Mr. Chandonnet has worked in the foundry industry
since 1966. He began working at Nugent Sand as Sales Manager in 1980, and
progressed to President of the company in 1989. Mr. Chandonnet purchased Nugent
Sand from the prior owners in 1980. He is a member of the National Industrial
Sand Association, American Foundrymans Society, Muskegon Country Club, Muskegon
County Catholic Education Foundation, and DJ Campbell Scholarship Fund.

DENNIS L. CHERETTE (Director) is an owner and the President of
Investment Property Associates, Inc., IPA Construction Inc. and IPA Management.
Mr. Cherette formed IPA in 1985 and has over 22 years experience in real estate
development. Over the years Mr. Cherette has

4
<PAGE> 7

served as a corporate consultant for both national and regional firms and has
had real estate consulting assignments in 22 major markets. Mr. Cherette holds a
Certified Commercial Investment Member designation. He presently serves as
President of the Northwest Soccer Association, Secretary of the Board of
Directors of Mercy General Health Partners and Mercy General Osteopathic
Foundation, and as Secretary of the Joint Operating Authority and member of the
Finance Committee of Mercy General Health Partners. Mr. Cherette is also on the
National Board of Directors of First Priority of America, a youth ministry. He
has previously served as President of Hospice of North Ottawa Community. His
previous Board positions include the Advisory Board of Grand Bank (located in
Grand Rapids, Michigan), West Michigan Wellness Center, CBD 2000 Board of
Economics Development, and Salvation Army of Grand Haven.

BRUCE J. ESSEX (Director) owns and operates a group of companies
including Port City Die Cast, Port City Metal Products, Muskegon Casting Corp.
and Mirror Image Tool (known as the Port City Group). Mr. Essex has over 25
years experience in the die casting industry and has owned the Port City Group
since 1982. Mr. Essex is a longtime resident of Muskegon County. Mr. Essex is a
member of the Muskegon Economic Growth Alliance and YFCA partner with Youth
Campaign.

MICHAEL D. GLUHANICH (Director) is President of Geerpres, Inc.
("Geerpres"). Geerpres is a leading manufacturer of janitorial supply equipment.
Mr. Gluhanich has owned Geerpres since 1992 and has over 25 years of progressive
staff and line experience in accounting, finance and operations, starting at
Dresser Industries, a Fortune 100 company and later at Shaw Walker, a large
privately held company located in Muskegon. Mr. Gluhanich serves on the Boards
of Directors of the Muskegon Economic Growth Alliance, Mercy Development Council
and The Child & Family Services of Muskegon, and as Chair of Norton Shores EDC
and Brownfield Authority.

DONALD E. HEGEDUS (Director) started his career in the construction
industry over 40 years ago. In 1970, Mr. Hegedus started Tridonn Construction
Company, which he sold to his employees in 1994. The company continues to
operate under its present ownership. In 1985, Mr. Hegedus started Tridonn
Development Company ("TDC"), which he continues to own today. TDC has owned and
operated businesses engaged in real estate development, lodging, commercial real
estate and restaurants. Mr. Hegedus is also part owner of LHR Properties and
Edgewater LLC, located in Muskegon County. Mr. Hegedus is a member of the
Muskegon Economic Growth Alliance. Additionally, he is a past board member of
the American Builders and Construction Association.

JOHN L. HILT (Director) is Chairman Emeritus and son of the founder of
Quality Stores. Mr. Hilt worked for Quality Stores for 31 years, and held
various positions including President, Chairman and Chairman Emeritus. Mr. Hilt
was a director of National Lumberman's Bank from 1975 to 1979. In 1979 National
Lumberman's Bank merged with First Michigan Bank Corporation. He remained as a
director for FMB-Lumberman's Bank until 1995. He served in various capacities on
the Board including member of the Executive Loan Committee. Mr. Hilt has been
involved with several community organizations such as Muskegon County Community
Foundation-Trustee, Western Michigan Cherry County Playhouse-Chairman, and Great
Lakes Aquarium.

5
<PAGE> 8

JOSE' A. INFANTE (Chairman of the Board, President and Chief Executive
Officer) has been in banking since 1970. Mr. Infante has experience in both
retail and commercial aspects of banking, and 27 of his 28 years of financial
services experience are in the West Michigan area. He started his West Michigan
career with Old Kent in 1971, where he held various positions in the areas of
retail banking, branch administration, credit administration and commercial
lending. In 1986, Mr. Infante left Old Kent to become Vice President of branch
administration for FMB-Lumberman in Muskegon. While at FMB-Lumberman, he was
promoted to Senior Vice President of Retail Banking in 1991, then to Executive
Vice President in 1992, and from 1994 to 1997 held the position of President and
CEO. After Huntington Bank acquired FMB-Lumberman in October of 1997, Mr.
Infante became District City Executive for Huntington Bank in Muskegon and
Northern Ottawa Counties, the markets of Oceana County, Newaygo County and the
cities of Reed City and Big Rapids in Mecosta County, with other City Executives
in these markets reporting to him. He held this position until his resignation
in June of 1998 to form the Bank. Mr. Infante is a Board Member,
Secretary/Treasurer, Finance Committee Chair and Executive Committee Member of
Mercy General Health Partners; Board Member of the Muskegon Economic Growth
Alliance; Cabinet Member of the United Way of Muskegon, and a member of The
State of Michigan Governor's Workforce Committee. Previously he served on the
Boards of Muskegon United Way, West Shore Symphony Organization, Greater
Muskegon Urban League, Churchill Porter Athletic Association, YFCA, and Muskegon
& Grand Rapids Jaycees. He also was a weekly TV commentator on WZZM/ABC "Your
Money".

JOY R. NELSON (Director) retired from Huntington Bank in 1998 with 40
years experience in the Muskegon market area. She began her career in 1958 with
National Lumberman's Bank, later known as FMB-Lumberman. During her tenure with
FMB-Lumberman, she held various positions including Retail Branch Manager, Vice
President of Branch Administration, Trust Department Head and Vice President in
charge of Private Banking. She was a member of FMB-Lumberman's Senior Management
Team from 1983 to 1998. Mrs. Nelson is the Chairperson of the Boards of Baker
College of Muskegon and the Workforce Development Board of Muskegon County. She
has previously held positions with numerous civic organizations including
Chairperson of Muskegon/Oceana Red Cross, Co-Chair of the United Way Campaign of
Muskegon, Vice President of the Board of Mercy Hospital, Executive Committee and
member of the Board of Hospice of Muskegon, Committee Member of Muskegon County
Heart Walk, and member of the Nominating Committee of Pine & Dunes Girl Scouts.

RALPH R. BERGGREN (Senior Vice President and Secretary of the
Corporation and Senior Vice President, Secretary, Cashier and Senior Lender of
the Bank) has over 23 years of commercial banking experience in the West
Michigan area. Mr. Berggren started his banking career in 1975 with Hackley Bank
and Trust in Muskegon ("Hackley Bank"), primarily in commercial lending. Hackley
Bank was acquired by Comerica Bank in 1977. In 1984, Mr. Berggren left Comerica
Bank and joined FMB-Lumberman (which was acquired by Huntington Bank in 1997) as
an Assistant Vice President in the Commercial Loan Department. In 1992, Mr.
Berggren was promoted to Commercial Loan Department Manager, and then later to
Senior Lender, a position he held until joining the Corporation in June of 1998.
Mr. Berggren is active in the Muskegon community, serving as President of
Muskegon Civic Theatre, a member of Ambucs and a member of the Finance Committee
of the local YFCA.

6
<PAGE> 9

HEATHER D. BROLICK (Senior Vice President of the Corporation and Senior
Vice President, Retail Lending and Operations Manger of the Bank) has over 17
years of commercial banking experience. Ms. Brolick began her career in 1981
with United California Bank, later known as FICal. In her nine years at FICal,
Ms. Brolick held various positions in retail branch operations, consumer lending
and compliance. In 1990 she joined FMB-Lumberman, where she served as a Retail
Branch Manger from 1990 to 1994, and Vice President/Regional Branch
Administrator from 1994 to 1996, and Mortgage/Consumer Loan Department Head from
1996 to 1997. From 1997 until joining the Corporation in September of 1998, she
was a Vice President and regional Branch Manager for the Huntington Mortgage
Company with all Mortgage responsibilities from Grand Haven to the Upper
Peninsula. Ms. Brolick is a board member of the West Shore Symphony Orchestra
and is an Ambassador for the Tri-Cities Chamber of Commerce.

ROBERT J. JACOBS (Senior Vice President of the Corporation and Senior
Vice President, Retail Banking of the Bank) has over 24 years of financial
services experience. Mr. Jacobs' career, which began at Old Kent in 1974,
included positions in branch management, sales management, marketing and private
banking. In 1991, Mr. Jacobs became Senior Vice President with Founders Trust of
Grand Rapids, Michigan. In 1992, he joined FMB-Lumberman as Branch
Administrator, and in 1994 was promoted to Senior Vice President of Retail
Banking. After Huntington Bank's acquisition of FMB-Lumberman in 1997, Mr.
Jacobs became a Vice President of Huntington Bank, responsible for Cash
Management Sales in the West Michigan area. Mr. Jacobs served Huntington Bank in
this position until he joined the Corporation in July of 1998. Mr. Jacobs is a
board member of the Muskegon United Way and Muskegon's Summer Celebration. He
has been active in the YMCA, American Heart Association, West Michigan Better
Business Bureau, Jaycees and Rotary.

BOARD OF DIRECTORS MEETINGS AND COMMITTEES

The Corporation has standing Audit, Compensation, and Nominating
Committees of the Board of Directors.

The members of the Audit Committee consist of John C. Carlyle, Michael
D. Gluhanich and Joy R. Nelson. The Audit Committee's responsibilities include
recommending to the Board of Directors the selection of independent accountants,
approving the scope of audit and non-audit services performed by the independent
accountants, reviewing the results of their audit, reviewing the Corporation's
internal auditing activities and financial statements, and reviewing the
Corporation's system of accounting controls and recordkeeping.

The members of the Compensation Committee consist of Dennis L.
Cherette, Bruce J. Essex, John L. Hilt and Joy R. Nelson. The Compensation
Committee's responsibilities include considering and recommending to the Board
of Directors any changes in compensation and benefits for officers of the
Corporation. At present, all officers of the Corporation are also officers of
the Bank, and although they receive compensation from the Bank in their capacity
as officers of the Bank, they presently receive no separate cash compensation
from the Corporation.

The members of the Nominating Committee consist of David C. Bliss, John
C. Carlyle, Robert L. Chandonnet, Donald E. Hegedus, and Jose' A. Infante. The
Nominating Committee is responsible for reviewing and making recommendations to
the Board of Directors as to its size

7
<PAGE> 10

and composition, and recommending to the Board of Directors candidates for
election as directors at the Corporation's annual meetings. The Nominating
Committee will consider as potential nominees persons recommended by
shareholders. Recommendations should be submitted to the Nominating Committee in
care of Jose' A. Infante., Chairman of the Board, President and Chief Executive
Officer of the Corporation. Each recommendation should include a personal
biography of the suggested nominee, an indication of the background or
experience that qualifies such person for consideration, and a statement that
such person has agreed to serve if nominated and elected. Shareholders who
themselves wish to effectively nominate a person for election to the Board of
Directors, as contrasted with recommending a potential nominee to the Nominating
Committee for its consideration, are required to comply with the advance notice
and other requirements set forth in the Corporation's Articles of Incorporation.

During the period from July 23, 1998 (inception) to December 31, 1998,
there were a total of five meetings of the Board of Directors of the
Corporation. Each director attended at least 75% of the total number of meetings
of the Board of Directors and Committees of the Board held during the period
that the director served, except Messrs. Bogner, Carlyle, and Essex, who
attended 40% of the meetings, and Messrs. Cherette and Gluhanich who attended
60% of the meetings. There were no meetings of the Audit Committee, Compensation
Committee, or Nominating Committee during the approximately five months of 1998
that the Corporation was in existence.

During 1998, no compensation was paid to any directors of the
Corporation for their services in such capacities.

SUMMARY COMPENSATION TABLE

The following table details the compensation received by the named
executive for the period from July 23, 1998 (inception) to December 31, 1998:

<TABLE>
<CAPTION>
Annual Compensation Long Term
------------------- Compensation
Name and -------------
Principal All Other
Position Year Salary Bonus Options Compensation
---- ------ ----- ------- ------------
<S> <C> <C> <C> <C> <C>
Jose' A. Infante, 1998 $58,089 $ 0 40,000 $ 0
Chairman of the Board,
President and Chief
Executive Officer
</TABLE>

OPTIONS GRANTED IN 1998

Under the Corporation's 1998 Employee Stock Option Plan, stock options
are granted to the Corporation's and the Bank's senior management and other key
employees. The Board of Directors of the Corporation is responsible for awarding
the stock options. These options are

8
<PAGE> 11

awarded to give senior management and key employees an additional interest in
the Corporation from a shareholder's perspective, and enable them to participate
in the future growth and profitability of the Corporation. In making awards, the
Board may consider the position and responsibilities of the employee, the nature
and value of his or her services and accomplishments, the present and potential
contribution of the employee to the success of the Corporation, and such other
factors as the Board may deem relevant.

The following table provides information on options granted to the
named executive during the period from July 23, 1998 (inception) to December 31,
1998:

<TABLE>
<CAPTION>
Individual Grants
-----------------

Number of % of Total
Shares Options
Underlying Granted to Exercise or
Options Employees Base Price Expiration
Name Granted (1) in 1998 Per Share (2) Date
- ---- --------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Jose' A. Infante 40,000 43% $10.00 September 9, 2008
</TABLE>

- -----------------------------
(1) The option was immediately exercisable for 10,000 shares as of
September 10, 1998, and becomes exercisable for an additional 10,000 of
the shares covered by the option on each September 10 thereafter, until
September 10, 2001, when it is exercisable in full for all 40,000
shares.

(2) The exercise price equals the price at which the Corporation offered
its stock to the public in its initial public offering. The exercise
price may be paid in cash, by the delivery of previously owned shares,
or a combination thereof.

AGGREGATED STOCK OPTION EXERCISES IN 1998 AND YEAR END OPTION VALUES

The following table provides information on the exercise of stock
options during the year ended December 31, 1998 by the named executive and the
value of unexercised options at December 31, 1998:

<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Shares Options at Options at
Acquired on Value 12/31/98 12/31/98 (1)
Name Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Jose' A. Infante None N/A 10,000/30,000 $1,250/$3,750

</TABLE>
- -----------------------------
(1) In accordance with the SEC's rules, values are calculated by
subtracting the exercise price from the fair market value of the
underlying Common Stock. For purposes of this table, fair market value
is deemed to be $10.125 per share, the average of the closing bid and
asked prices reported on the OTC Bulletin Board on December 31, 1998.

9
<PAGE> 12

CERTAIN TRANSACTIONS

The Bank has had, and expects in the future to have, loan and other
financial transactions in the ordinary course of business with the Corporation's
directors, executive officers, and principal shareholders (and their associates)
on substantially the same terms as those prevailing for comparable transactions
with others. All such transactions (i) were made in the ordinary course of
business, (ii) were made on substantially the same terms, including interest
rates and collateral on loans, as those prevailing at the time for comparable
transactions with other persons, and (iii) in the opinion of management did not
involve more than the normal risk of collectibility or present other unfavorable
features.

As of February 1, 1999, the Bank had outstanding three loans to the
directors or executive officers of the Corporation and affiliated entities
totaling approximately $640,000 in aggregate amount under commitments totaling
approximately $1.45 million.

During 1998, organizers of the Bank loaned approximately $1,138,000 in
aggregate amount to the Corporation to cover organizational and other preopening
expenses of the Bank and the Corporation. Interest was paid on these loans at
the rate of 5% per annum. All of these loans were repaid by the Corporation from
net proceeds of its initial public offering in December of 1998. Each of the
organizers who loaned money to the Corporation was a member of the Corporation's
Board of Directors.

SELECTION OF INDEPENDENT AUDITORS

The Board of Directors has selected Crowe, Chizek & Company LLP as the
Corporation's principal independent auditors for the year ending December 31,
1999. Representatives of Crowe, Chizek & Company LLP plan to attend the Annual
Meeting of shareholders, will have the opportunity to make a statement if they
desire to do so, and will respond to appropriate questions by shareholders.

SHAREHOLDER PROPOSALS FOR 2000 ANNUAL MEETING

A proposal submitted by a shareholder for the 2000 Annual Meeting of
shareholders must be sent to the Secretary of the Corporation, 1030 W. Norton
Avenue, Muskegon, Michigan 49441, and received by November 16, 1999 in order to
be eligible to be included in the Corporation's Proxy Statement for that
meeting.

OTHER MATTERS

The Board of Directors does not know of any other matters to be brought
before the Annual Meeting. If other matters are presented upon which a vote may
properly be taken it is the intention of the persons named in the proxy to vote
the proxies in accordance with their best judgment.

<PAGE> 13

COMMUNITY SHORES
BANK
CORPORATION

1998 ANNUAL REPORT

DECEMBER 31, 1998

<PAGE> 14

COMMUNITY SHORES BANK CORPORATION
Muskegon, Michigan

1998 ANNUAL REPORT

CONTENTS

<TABLE>

<S> <C>
MESSAGE TO THE SHAREHOLDERS................................................................................... S-2

PLAN OF OPERATION............................................................................................. S-3

REPORT OF INDEPENDENT AUDITORS................................................................................ S-5

CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEET............................................................................... S-6

CONSOLIDATED STATEMENT OF INCOME......................................................................... S-7

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY................................................ S-8

CONSOLIDATED STATEMENT OF CASH FLOWS..................................................................... S-9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS............................................................... S-10

SHAREHOLDER INFORMATION....................................................................................... S-15

DIRECTORS AND EXECUTIVE OFFICERS.............................................................................. S-17
</TABLE>

S-1
<PAGE> 15

MESSAGE TO THE SHAREHOLDERS

Muskegon, Michigan
February 23, 1999

Please let me take this opportunity to thank each one of you for investing in
Community Shores Bank Corporation. As an owner of this corporation, you are an
owner in Community Shores Bank, a true community bank.

I would like to tell you about our Bank and some of the exciting things we
anticipate over the next several months.

What makes us different from other banks is that we are locally headquartered.
What that means is that all decisions are made by experienced bankers who live
locally, in our community and who have a vested interest in making sure that
customer needs are being met in an effective and friendly manner.

Merger and acquisition activity in West Michigan over the past several years has
created a service void in our market and it is exactly that void which Community
Shores intends to fill. The comments we hear from people in our area, have led
us to believe that our community is eager and ready to endorse a bank that
provides high quality service with local management. Additionally, your Board of
Directors, all of whom are local community leaders, founders of and investors in
our Bank, are instrumental in the development and delivery of our community
banking orientation and strategy.

One of the primary reasons that Community Shores will be successful is because
of our employees. Community banking is all about people and providing services
that meet the needs of individuals and businesses. We have assembled a team of
experienced professionals who are highly motivated. We have given them products
that are very competitive, and surrounded them with technology and training that
is challenging, exciting, and most importantly fun.

Our market area is Muskegon and Northern Ottawa Counties. We intend to serve
small to medium-sized businesses and retail customers. Statistics indicate that
these markets have been experiencing rapid growth over the past several years
and we plan to be aggressive with business development efforts as well as civic
involvement.

From an operations perspective, it is important that we approach technology as
an ally that will help us balance economics with opportunity. Now that we are up
and running, our staff has begun looking for ways to develop new
technologically-based products that will lead the charge for increased revenue
in the next millennium. We are excited about these new developments and we look
forward to the year 2000.

All of us at Community Shores Bank make a pledge to you to do the very best that
we can to provide you with an investment that meets your expectations with
regard to financial growth and economic return. This is your bank, so please
stop by and see us, and become a customer as well as a shareholder. Our staff
will be pleased to show you our temporary offices and tell you about our new
main office which will be completed in the fall of 1999.

On behalf of our staff, thank you for the confidence you have shown in us and
your assistance in bringing community banking to this area.

S-2
<PAGE> 16

PLAN OF OPERATION

Community Shores Bank Corporation was incorporated on July 23, 1998 to establish
and own Community Shores Bank. Based on preopening growth projections,
management believes that the Bank is likely to have adequate funds to meet its
capital requirements for the next several years.

Since opening its doors on January 18, 1999, the Bank has seen steady growth.
The majority of its growth has occurred in the commercial loan area as
management had expected. Within the next few weeks, management will start its
marketing awareness campaign and the permanent building will begin construction
in the first few weeks of March.

Management has chosen to fund anticipated loan growth in the later half of 1999,
in part, by obtaining brokered and out-of-state deposits to augment normal
deposit growth. At this time, local deposit growth has been adequate to meet
loan demands.

As of December 31, 1998, the Corporation had a retained deficit of $439,000. The
retained deficit was primarily the result of preopening fees and expenses.
Management believes that the Corporation will generate a net loss for 1999 as a
result of expenditures made to organize and grow the Bank to the size necessary
to generate revenues to exceed the cost of its overhead structure. Significant
ongoing additions to loan loss reserves will also contribute to this deficit due
to the projected increase in the loan portfolio. The expenditures made will
create the infrastructure and lay the foundation for growth in subsequent years.

The Corporation's plan of operation for the next 12 months does not contemplate
the need to raise additional funds during that period. Management has concluded,
based on current growth projections, that the Bank is likely to have adequate
funds to meet its cash requirements for at least the next several years.
Management has no specific plans for product research or development which would
be performed within the next 12 months. Management plans to expend approximately
$2.1 million for the land and building for its main office (including the
temporary facility to be used pending completion of the permanent facility), and
approximately $850,000 for fixtures, furniture, equipment and other necessary
assets. During the next 12 months, the Corporation does not anticipate requiring
substantial additional equipment. The Corporation is exploring leasing a
facility in Grand Haven, Michigan that is ready to serve as a branch bank in the
first half of 1999. The Bank presently has 20 employees. No significant changes
in the number of employees are anticipated in the next 12 months of operation.

S-3
<PAGE> 17

The approach of the year 2000 presents potential problems to businesses that
utilize computers. Some computer systems may not be able to properly interpret
or process dates after December 31, 1999 because they use only two digits to
indicate the year in the date. These computer systems do not properly recognize
a year that begins with "20" instead of the familiar "19". The effects of this
problem may vary from system to system. If not corrected, many computer
applications could fail or create erroneous results. The Corporation intends to
obtain information and account processing services and reports ("Processing
Services") from a reputable and experienced company that provides such services
for many financial institutions. The Corporation intends to obtain written
assurances from its Processing Services supplier and computer equipment
suppliers that their products are or will be year 2000 ready or compliant. The
Corporation intends to assess year 2000 compliance by the Corporation and its
vendors. Vendors whose year 2000 compliance may affect the Corporation's
business and operations include its Processing Services supplier, electronic
banking vendors, correspondent banks, utilities and communications companies.
Security systems, heating, ventilating, air conditioning and other systems may
also be affected. The Corporation expects to require assurances from commercial
borrowers as to their year 2000 compliance as part of the loan application and
review process. The Corporation has appointed one of its senior officers to
oversee its year 2000 programs, and the Corporation intends to apprise its Board
of Directors of the progress being made on a regular basis. Costs to the
Corporation related to year 2000 matters are estimated to be less than $25,000.
These costs may include testing of equipment and software programs, equipment
upgrades and customer education. It is difficult to predict such costs, and
additional funds may be needed for expenses relating to year 2000 testing,
training, education, system or software failure or replacements, or losses due
to vendor or customer failure to be year 2000 compliant. The failure of the
Corporation, its vendors, or customers to successfully address year 2000 issues
could interfere with the Corporation's ability to operate its business and have
a material adverse effect on the Corporation's financial condition and results
of operation. The Corporation intends to develop a contingency plan to address
year 2000 problems that may occur after December 31, 1999, and expects to
develop the plan during the first half of 1999.

S-4
<PAGE> 18

[CROWE, CHIZEK & COMPANY LETTERHEAD]

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Shareholders
Community Shores Bank Corporation
Roosevelt Park, Michigan

We have audited the accompanying consolidated balance sheet of Community Shores
Bank Corporation as of December 31, 1998 and the related statements of income,
changes in shareholders' equity and cash flows for the period from July 23, 1998
(inception) through December 31, 1998. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to in the first
paragraph present fairly, in all material respects, the financial position of
Community Shores Bank Corporation at December 31, 1998, and the results of its
operations and its cash flows for the period from July 23, 1998 (inception)
through December 31, 1998 in conformity with generally accepted accounting
principles.

/s/Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
Grand Rapids, Michigan
February 4, 1999

S-5
<PAGE> 19

COMMUNITY SHORES BANK CORPORATION
CONSOLIDATED BALANCE SHEET
December 31, 1998

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Cash and due from financial institutions $ 612,377
Interest earning deposits 8,000,000
---------------
Total cash and cash equivalents 8,612,377

Premises and equipment 1,237,489
Other assets 11,400

Total assets $ 9,861,266
===============

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable $ 72,214

Shareholders' equity
Preferred stock, no par value; no shares
authorized, none issued
Common stock, no par value: 9,000,000 shares
authorized and 1,100,000 shares outstanding 10,227,604
Retained deficit (438,552)
---------------
Total shareholders' equity 9,789,052

Total liabilities and shareholders' equity $ 9,861,266
===============

</TABLE>

See accompanying notes to consolidated financial statements.

S-6

<PAGE> 20

COMMUNITY SHORES BANK CORPORATION
CONSOLIDATED STATEMENT OF INCOME
Period from July 23, 1998 (inception) through December 31, 1998

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
Interest income $ 12,716

Interest expense
Notes payable 17,536

NET INTEREST MARGIN (4,820)

Noninterest expense
Salaries and benefits 279,481
Occupancy 17,336
Furniture and equipment 7,943
Directors and officers insurance 13,300
Professional services 67,842
Telephone 11,644
Other expense 36,186
---------------
Total noninterest expenses 433,732
---------------

NET LOSS $ (438,552)
===============

Basic and diluted loss per share $ (.40)
===============

Average shares outstanding 1,100,000
===============

</TABLE>

See accompanying notes to consolidated financial statements.

S-7

<PAGE> 21

COMMUNITY SHORES BANK CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS'
EQUITY Period from July 23, 1998 (inception) through December 31, 1998

- -------------------------------------------------------------------------------------------------------------------

Total
Preferred Common Retained Shareholders'
Stock Stock Deficit Equity
---------- ------- --------- --------------
<S> <C> <C> <C> <C>
BALANCE, JULY 23, 1998 (INCEPTION) $ 0 $ 0 $ 0 $ 0

Common stock sale, December 22,
1998 10,227,604 10,227,604

Net loss for the period from July 23,
1998 (inception) through
December 31, 1998 (438,552) (438,552)
--------- -------------- ------------ ---------------

BALANCE, DECEMBER 31, 1998 $ 0 $ 10,227,604 $ (438,552) $ 9,789,052
========= ============== ============ ===============

</TABLE>

See accompanying notes to consolidated financial statements.

S-8
<PAGE> 22

COMMUNITY SHORES BANK CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
Period from July 23, 1998 (inception) through December 31, 1998
<TABLE>
<CAPTION>

- -------------------------------------------------------------------------------------------------------------------

<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (438,552)
Adjustments to reconcile net loss to net
cash from operating activities
Net change in
Other assets (11,400)
Account payable 72,214
---------------
Net cash from operating activities (377,738)

CASH FLOWS FROM INVESTING ACTIVITIES
Additions to premises and equipment (1,237,489)
---------------
Net cash from investing activities (1,237,489)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from related party loans 1,137,500
Repayment of loans to related parties (1,137,500)
Net proceeds from stock offering 10,227,604
---------------
Net cash from financing activities 10,227,604
--------------
Net change in cash and cash equivalents 8,612,377

Cash and cash equivalents at beginning of period 0
---------------

CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,612,377
===============

Supplemental disclosures of cash flow information
Cash paid during the period for interest $ 17,536

</TABLE>

See accompanying notes to consolidated financial statements.

S-9

<PAGE> 23

COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation: The consolidated financial statements include the
accounts of Community Shores Bank Corporation (Corporation) and its wholly-owned
subsidiary, Community Shores Bank (Bank), after elimination of significant
intercompany transactions and accounts.

Nature of Operations: The Corporation was incorporated on July 23, 1998 under
Michigan law and will be a bank holding company owning all of the common stock
of the Bank. The Bank is a Michigan banking corporation with depository accounts
insured by the Bank Insurance Fund of the Federal Deposit Insurance Corporation
(the "FDIC"). The Bank intends to provide a range of commercial and consumer
banking services in West Michigan, primarily in Muskegon County, which includes
the City of Muskegon, and Northern Ottawa County, which includes the City of
Grand Haven. Those services will reflect the Bank's intended strategy of serving
small- to medium-sized businesses, and individual customers in its market area.
Services for businesses will include commercial loans and traditional business
accounts. Management intends to initially focus the Bank's retail banking
strategy on providing products and services, including automated teller machine,
computer home banking, telephone banking and automated bill paying services to
individuals in the Bank's market area. The Bank began operations on January 18,
1999.

Use of Estimates: To prepare financial statements in conformity with generally
accepted accounting principles, management makes estimates and assumptions based
on available information. These estimates and assumptions affect the amounts
reported in the financial statements and the disclosures provided, and future
results could differ.

Cash Flow Reporting: Cash and cash equivalents include cash on hand, demand
deposits with other financial institutions, short-term investments (securities
with daily put provisions) and federal funds sold. Cash flows are reported net
for customer loan and deposit transactions, interest-bearing time deposits with
other financial institutions and short-term borrowings with maturities of 90
days or less.

Premises and Equipment: Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed using both straight-line and
accelerated methods over the estimated useful lives of the respective assets.
Maintenance, repairs and minor alterations are charged to current operations as
expenditures occur and major improvements are capitalized. These assets are
reviewed for impairment under SFAS No. 121 when events indicate the carrying
amount may not be recoverable.

Stock Options: No expense for stock options is recorded, as the grant price
equals the market price of the stock at grant date. Pro-forma disclosures show
the effect on income and earnings per share had the options' fair value been
recorded using an option pricing model. The pro-forma effect is expected to
increase in the future as more options are granted. Options granted vest over
three years and have a maximum term of ten years.

(Continued)

S-10
<PAGE> 24

COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Income Taxes: Income tax expense is the sum of the current year income tax due
or refundable and the change in deferred tax assets and liabilities. Deferred
tax assets and liabilities are the expected future tax consequences of temporary
differences between the carrying amounts and tax bases of assets and
liabilities, computed using enacted tax rates. A valuation allowance has been
established to the extent of net deferred tax assets due to a lack of operating
performance to ensure that it is more likely than not it would be recovered.

Dividend Restriction: The Corporation and Bank are subject to banking
regulations which require the maintenance of certain capital levels and positive
retained earnings which will limit the amount of dividends which may be paid for
several years.

Earnings (Loss) Per Share: Basic earnings (loss) per share is based on weighted
average common shares outstanding. Diluted earnings (loss) per share further
assumes the issue of any dilutive potential common shares.

NOTE 2 - PREMISES AND EQUIPMENT

Year-end premises and equipment are as follows:

<TABLE>
<CAPTION>
Carrying
Value
<S> <C>
1998
Land $ 450,440
Furniture and equipment 477,119
Construction in Progress 309,930
----------------
$ 1,237,489
================
</TABLE>

(Continued)

S-11

<PAGE> 25

COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998

<TABLE>
- ----------------------------------------------------------------------------------------------------------

NOTE 3 - STOCK OPTION PLAN

<S> <C>
Stock options outstanding
Beginning 0
Granted 94,000
------
Ending 94,000
======

Option exercisable at year end 35,035

Minimum exercise price $ 10.00
Maximum exercise price 10.00
Average exercise price N/A
Weighted average remaining option term 9.7 years

Estimated fair value of stock options granted $ 259,640
Assumptions used:
Weighted average risk-free interest rate 4.62%
Expected option life 7 years
Expected stock volatility 25%
Expected dividends 0%

Proforma loss per share, assuming fair value method was used for stock
options:
Net loss $ (502,558)
Basic and diluted loss per share (.49)

</TABLE>

NOTE 4 - FEDERAL INCOME TAXES

The Corporation recorded no current or deferred benefit for income taxes as a
result of recording the valuation allowance in the amount of net deferred tax
assets.

Deferred tax asset consists of:

<TABLE>
<S> <C>
Start-up/pre-opening expenses $ 147,469
Valuation allowance for deferred tax asset (147,469)
-------------

Net deferred tax asset after valuation allowance $ 0
=============
</TABLE>

As a result of the valuation allowance, the Corporation's effective tax rate was
reduced from the statutory rate of 34% to 0%.

(Continued)

S-12
<PAGE> 26

COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998

NOTE 5 - COMMUNITY SHORES BANK CORPORATION (PARENT COMPANY ONLY)
CONDENSED FINANCIAL STATEMENTS

Following are condensed parent company only financial statements.

CONDENSED BALANCE SHEET
<S> <C>
ASSETS
Cash and cash equivalents $ 609,866
Interest earning deposits 8,000,000
Investment in subsidiary 1,240,000
Other assets 11,400
----------------

Total assets $ 9,861,266
================

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities $ 72,214

Shareholders' equity
Common stock 10,227,604
Retained earnings (438,552)
----------------
Total shareholders' equity 9,789,052
----------------

Total liabilities and shareholders' equity $ 9,861,266
================

<CAPTION>
CONDENSED STATEMENT OF INCOME
Period from
July 23, 1998
(inception)
through
December 31,
1998
------------

<S> <C>
Income
Other $ 12,716

Expenses
Other operating expenses 451,268
----------------

LOSS BEFORE INCOME TAX AND EQUITY IN UNDISTRIBUTED
NET LOSS OF SUBSIDIARIES (438,522)

Federal income tax expense 0

Equity in undistributed net loss of subsidiary 0
----------------

NET LOSS $ (438,522)
================
</TABLE>

(Continued)

S-13
<PAGE> 27

COMMUNITY SHORES BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998

NOTE 5 - COMMUNITY SHORES BANK CORPORATION (PARENT COMPANY ONLY)
CONDENSED FINANCIAL STATEMENTS (Continued)

CONDENSED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
Period from
July 23, 1998
(inception)
through
December 31,
1998
----

<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (438,552)
Adjustments to reconcile net loss to net
cash from operating activities
Change in other assets (11,400)
Change in other liabilities 72,214
----------------
Net cash from operating activities (377,738)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of 1,100,000 shares of common stock 10,227,604
Capital investment into Community Shores (1,240,000)
----------------
Net cash from financing activities 8,987,604
----------------

Net change in cash and cash equivalents 8,609,866

Cash and cash equivalents at beginning of period 0
----------------

CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,609,866
================
</TABLE>

NOTE 6 - SUBSEQUENT EVENTS (UNAUDITED)

On January 21, 1999, the Corporation received the net proceeds of $651,000 from
the sale of 70,000 in overallotment shares from the stock offering completed in
December. This will be reflected as an increase in common stock in the first
quarter of 1999.

On January 19, 1999, the Bank formally opened for business in temporary mobile
units while the Bank's main office construction is completed. The Bank has been
accepting deposits and making loans. As of February 26, 1999, the Bank had
accumulated total assets of $19,525,000, total loans of $6,052,000 and total
deposits of $10,484,000.

S-14
<PAGE> 28

SHAREHOLDER INFORMATION

SEC FORM 10-KSB

COPIES OF THE CORPORATION'S ANNUAL REPORT ON FORM 10-KSB, AS FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION ARE AVAILABLE TO SHAREHOLDERS WITHOUT
CHARGE, UPON WRITTEN REQUEST. PLEASE MAIL YOUR REQUEST TO RALPH R. BERGGREN,
SENIOR VICE PRESIDENT AND SECRETARY OF THE CORPORATION, AT 1030 W. NORTON
AVENUE, MUSKEGON, MICHIGAN 49441.

STOCK INFORMATION

The Common Stock of Community Shores Bank Corporation is quoted on the
OTC Bulletin Board of the National Association of Securities Dealers, Inc. ("OTC
Bulletin Board") under the ticker symbol "CSHB." At December 31, 1998, there
were approximately 53 record holders of the Corporation's Common Stock. The
Corporation has paid no dividends since its formation in 1998.

The following table shows the high and low bid prices by quarter during
the period from the date of the Corporation's initial public stock offering
(December 17, 1998) through December 31, 1998. The quotations reflect bid prices
as reported by the OTC Bulletin Board and do not include retail mark-up,
mark-down or commission.

BID PRICES

<TABLE>
<CAPTION>
HIGH LOW
---- ---

CALENDAR YEAR 1998
<S> <C> <C>
Fourth Quarter...................................................................$ 10.00 $ 10.00

</TABLE>

MARKET MAKERS

At December 31, 1998, the following firms were registered with the OTC
Bulletin Board as market makers in Community Shores Bank Corporation common
stock:

Roney Capital Markets, a division of Robert W. Baird & Co. Incorporated
First Chicago Capital Markets, Inc. 777 East Wisconsin Avenue
One Griswold Street Milwaukee, Wisconsin 53202
Detroit, Michigan 48226

J. J. B. Hilliard, W. L. Lyons, Inc. Monroe Securities Inc.
501 South Fourth Street 47 State Street
Louisville, Kentucky 40202 Rochester, New York 14614

S-15
<PAGE> 29

STOCK REGISTRAR AND TRANSFER AGENT

State Street Bank & Trust Company
c/o EquiServe
P.O. Box 8200
Boston, MA 02266-8200
Shareholder Inquiries 1-800-426-5523

LEGAL COUNSEL

Dickinson Wright PLLC
500 Woodward Avenue, Suite 4000
Detroit, Michigan 48226
and
200 Ottawa Avenue, N.W., Suite 900
Grand Rapids, Michigan 49503

INDEPENDENT AUDITORS

Crowe, Chizek & Company LLP
55 Campau, Suite 400
Riverfront Plaza Building
Grand Rapids, Michigan 49503

ADDITIONAL INFORMATION

News media representatives and those seeking additional information
about the Corporation should contact Jose' A. Infante, Chairman of the Board,
President and Chief Executive Officer of the Corporation, at (616) 780-1800, or
by writing him at 1030 W. Norton Avenue, Muskegon, Michigan 49441.

ANNUAL MEETING

This year's Annual Meeting will be held at 2:00 p.m., on Thursday,
April 15, 1999, at the Holiday Inn at 939 Third Street, Muskegon, Michigan.

S-16
<PAGE> 30

DIRECTORS AND EXECUTIVE OFFICERS

DIRECTORS OF THE CORPORATION AND THE BANK

David C. Bliss, Chairman and Chief Executive Officer of Quality Stores, Inc.
(retail farm and do-it-yourself stores)
Gary F. Bogner, real estate investor
John C. Carlyle, partner of the law firm of Varnum, Riddering, Schmidt and
Howlett LLP, and a certified public accountant
Robert L. Chandonnet, President and owner of The Nugent Sand Company, Inc.
(provider of foundry sand to foundries)
Dennis L. Cherette, President and an owner of Investment Property Associates,
Inc., IPA Construction Inc. and IPA Management (real estate development and
management)
Bruce J. Essex, owner and operator of Port City Die Cast, Port City Metal
Products, Muskegon Castings Corp., and Mirror Image Tool (die casting)
Michael D. Gluhanich, President of Geerpres, Inc. (manufacturer of janitorial
supply equipment)
Donald E. Hegedus, Chairman of the Board, President and owner of Tridonn
Development Company (real estate development)
John L. Hilt, Chairman Emeritus of Quality Stores, Inc. (retail farm and
do-it-yourself stores)
Jose' A. Infante, Chairman of the Board, President and Chief Executive Officer
of the Corporation and the Bank
Joy R. Nelson, retired bank executive

EXECUTIVE OFFICERS OF THE CORPORATION

Jose' A. Infante, Chairman of the Board, President and Chief Executive Officer
of the Corporation and the Bank
Ralph R. Berggren, Senior Vice President and Secretary of the Corporation, and
Senior Vice President, Secretary, Cashier and Senior Lender of the Bank
Heather D. Brolick, Senior Vice President of the Corporation and Senior Vice
President, Retail Lending and Operations Manager of the Bank
Robert J. Jacobs, Senior Vice President of the Corporation and Senior Vice
President, Retail Banking of the Bank

S-17

<PAGE> 31

COMMUNITY SHORES BANK CORPORATION [LOGO]

1829-PS/AR-99
<PAGE> 32
COMMUNITY SHORES
BANK CORPORATION

c/o EquiServe
P.O. Box 8040
Boston, MA 02266-8040

Dear Shareholders,

Enclosed with this proxy is your Notice of Community Shores Bank Corporation's
Annual Meeting, Proxy Statement & 1998 Annual Report. We encourage you to
carefully read these materials and exercise your right to vote your shares.

Please mark the boxes on this proxy card to indicate how your shares will be
voted. Then sign the proxy card, detach it, and return your proxy vote in the
enclosed postage paid envelope. If you plan to attend the meeting, please mark
the appropriate box on the proxy card.

Your proxy card must be received prior to the Annual Meeting of the Shareholders
on April 15, 1999.

Sincerely,

Community Shores Bank Corporation

DETACH HERE

[X] Please mark
votes as in
this example

YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR ALL NOMINEES.

<TABLE>
<CAPTION>
<S><C>
1. Election of Directors. 2. In their discretion, the Proxies are authorized to vote
NOMINEES: Gary F. Bogner, Robert L. Chandonnet, upon such other matters as may properly come before the
Jose' A. Infante, Joy R. Nelson meeting, or at any adjournment of the meeting.

FOR WITHHELD
ALL [ ] [ ] FROM ALL
NOMINEES NOMINEES

[ ] MARK HERE IF YOU PLAN TO ATTEND THE MEETING [ ]
--------------------------------------------------
For all nominees except those whose names are
written on the line above. MARK HERE FOR ADDRESS CHANGES AND NOTE AT LEFT [ ]

PLEASE VOTE, DATE AND SIGN BELOW AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE.

Please sign exactly as your name(s) appears(s) hereon. Joint
owners should each sign personally. Trustees and other
fiduciaries should indicate the capacity in which they sign.
If a corporation or partnership, the signature should be that
of an authorized person who should state his or her title.

Signature:_________________________ Date:______________________ Signature:_________________________ Date:______________________

</TABLE>

<PAGE> 33
DETACH HERE

PROXY

COMMUNITY SHORES BANK CORPORATION

1030 W. Norton Avenue

Muskegon, Michigan 49441

Proxy Solicited by the Board of Directors for the
Annual Meeting of Shareholders
to be held April 15, 1999

The undersigned hereby appoints Dennis L. Cherette and John C. Carlyle,
or either of them, with power of substitution in each proxies of the undersigned
to vote all Common Stock of the undersigned in Community Shores Bank
Corporation, at the Annual Meeting of Shareholders to be held on April 15, 1999,
and at all adjournments thereof.

IF THIS PROXY IS PROPERLY EXECUTED, THE SHARES REPRESENTED BY THIS PROXY WILL BE
VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, THE SHARES WILL BE VOTED FOR
THE ELECTION OF ALL NOMINEES NAMED IN THE PROXY.

SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE

<PAGE> 1
EXHIBIT 21

SUBSIDIARIES OF THE ISSUER

Name of State or Jurisdiction of
Subsidiary Incorporation or Organization Description
__________ _____________________________ ____________
<S> <C> <C>
Community Shores Bank State of Michigan Michigan banking corporation

</TABLE>

<ARTICLE> 9

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 612,000
<INT-BEARING-DEPOSITS> 8,000,000
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 0
<ALLOWANCE> 0
<TOTAL-ASSETS> 9,861,000
<DEPOSITS> 0
<SHORT-TERM> 0
<LIABILITIES-OTHER> 72,000
<LONG-TERM> 0
0
0
<COMMON> 10,228,000
<OTHER-SE> (439,000)
<TOTAL-LIABILITIES-AND-EQUITY> 9,861,000
<INTEREST-LOAN> 0
<INTEREST-INVEST> 0
<INTEREST-OTHER> 13,000
<INTEREST-TOTAL> 13,000
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 18,000
<INTEREST-INCOME-NET> (5,000)
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 434,000
<INCOME-PRETAX> (439,000)
<INCOME-PRE-EXTRAORDINARY> (439,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (439,000)
<EPS-PRIMARY> (.40)
<EPS-DILUTED> (.40)
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0

</TABLE>