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Business Description


Community Shores Bank Corporation, organized in 1998, is a Michigan corporation and a bank holding company. The Company owns all of the common stock of Community Shores Bank (the "Bank"). The Bank was organized and commenced operations in January, 1999 as a Michigan chartered bank with depository accounts insured by the FDIC to the extent permitted by law. The Bank provides a full range of commercial and consumer banking services primarily in the communities of Muskegon County and Northern Ottawa County. The Bank's services include checking and savings accounts, certificates of deposit, electronic banking services, safe deposit boxes, courier service, and loans for commercial and consumer purposes.

Community Shores Mortgage Company (the “Mortgage Company”) was incorporated on December 13, 2001. The Mortgage Company, a wholly owned subsidiary of the Bank, can originate both commercial and residential real estate loans. Most fixed rate residential real estate loans originated by the Mortgage Company are sold to a third party. Commercial and residential real estate loans that are held in the Mortgage Company’s portfolio are serviced by the Bank pursuant to a servicing agreement.

The Bank offers a broad range of deposit services, including checking accounts, savings accounts and time deposits of various types. Transaction accounts and time certificates are tailored to the principal market area at rates competitive with those offered in the area. Electronic banking services such as ACH and online bill pay are offered to both personal and business customers. All qualified deposit accounts are insured by the FDIC up to the maximum amount permitted by law. The Bank solicits these accounts from individuals, businesses, schools, associations, churches, nonprofit organizations, financial institutions and government authorities. The Bank also uses alternative funding sources as needed, including advances from the Federal Home Loan Bank and obtaining deposits through an internet deposit listing service. Additionally, the Bank makes available mutual funds and annuities, which are not FDIC insured, through an alliance with Sorrento Pacific.

Commercial Loans. The Bank's commercial lending group originates commercial loans primarily in the western Michigan Counties of Muskegon and Northern Ottawa, but may include contiguous counties as well. Commercial loans are originated by experienced lenders under the leadership of the Chief Lending Officer. 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. These loans generally are secured by assets of the borrower and have an interest rate tied to either the Bank’s internal prime rate or national 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 spread to either the Bank’s internal prime rate or the national prime rate.

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 non-owner operated properties of well-known customers or new customers with an established history of profitability.

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 to be held in its own loan portfolio.

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 and overdraft protection for checking account customers. Consumer loans generally have shorter terms and higher interest rates than residential mortgage loans and 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, monthly income and appropriate insurance coverage.

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.




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