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SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the Quarterly period ended June 30, 2007.
 Commission file number 000-24478.
 DEARBORN BANCORP, INC.
  Michigan
    
    38-3073622(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)
 1360 Porter Street, Dearborn, MI
    
    48124(Address of principal executive office)
    
    (Zip Code)
 (Registrants
telephone number, including area code)
 (Former name, former
address and former fiscal year, if changed since last report)
  þ o
  Class
    
    Shares OutstandingCommon Stock
    
    8,594,819
  o þ o
  o þ




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##### 



PagePart I.
    
    Financial Information:Item 1.
    
    Financial StatementsThe following consolidated financial statements of Dearborn
Bancorp, Inc. and its subsidiary included in this report are:Report of Independent Registered Public Accounting Firm
    
    3Consolidated Balance Sheets  June 30, 2007,
December 31, 2006 and June 30, 2006
    
    4Consolidated Statements of Income  For the Three
and Six Months Ended June 30, 2007 and 2006
    
    5Consolidated Statements of Comprehensive Income   For
the Three and Six Months Ended June 30, 2007 and 2006
    
    6Consolidated Statements of Cash Flows  For the
Three and Six Months Ended June 30, 2007 and 2006
    
    7Notes to Consolidated Financial Statements
    
    9-16Item 2.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations, Liquidity and Capital
    
    17-33Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    34-36Item 4.
    
    Controls and Procedures
    
    37Part II.
    
    Other Information:Pursuant to SEC rules and regulations, the following item(s) are
included with the Form 10-Q Report:Item 4. Submission of Matters to a Vote of Security Holders
    
    38Item 6. Exhibits and Reports on Form 8-KPursuant to SEC rules and regulations, the following items are omitted
from this Form 10-Q as inapplicable or to which the answer is negative:Item 1. Legal ProceedingsItem 2. Changes in Securities and Use of ProceedsItem 3. Defaults upon Senior SecuritiesItem 5 Other InformationSIGNATURES
    
    
    
    39Section 302 Certification of Chief Executive OfficerSection 302 Certification of Chief Financial OfficerSection 906 Certification of Chief Executive OfficerSection 906 Certification of Chief Financial Officer
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DEARBORN BANCORP, INC. AND SUBSIDIARY
 
 CONSOLIDATED BALANCE SHEETS (unaudited)
 (Dollars, in thousands)
    
    06/30/07
    
    
    12/31/06
    
    
    06/30/06ASSETSCash and cash equivalentsCash and due from banks
    
    $
    13,621
    
    
    $
    5,824
    
    
    $
    8,091Federal funds sold
    
    
    3,392
    
    
    
    64,198
    
    
    
    8,520Interest bearing deposits with banks
    
    
    104
    
    
    
    8
    
    
    
    107Total cash and cash equivalents
    
    
    17,117
    
    
    
    70,030
    
    
    
    16,718Mortgage loans held for sale
    
    
    1,136
    
    
    
    1,823
    
    
    
    1,174Securities, available for sale
    
    
    11,039
    
    
    
    5,878
    
    
    
    27,038Federal Home Loan Bank stock
    
    
    1,927
    
    
    
    1,288
    
    
    
    1,293LoansLoans
    
    
    945,554
    
    
    
    756,420
    
    
    
    696,052Allowance for loan loss
    
    
    (9,949
    )
    
    
    (7,775
    )
    
    
    (7,154
    )Net loans
    
    
    935,605
    
    
    
    748,645
    
    
    
    688,898Premises and equipment, net
    
    
    23,268
    
    
    
    14,293
    
    
    
    14,092Real estate owned
    
    
    3,008
    
    
    
    52
    
    
    
    Goodwill
    
    
    32,110
    
    
    
    5,473
    
    
    
    5,473Other intangible assets
    
    
    13,697
    
    
    
    2,041
    
    
    
    2,166Accrued interest receivable
    
    
    3,833
    
    
    
    3,337
    
    
    
    2,652Other assets
    
    
    3,464
    
    
    
    3,071
    
    
    
    2,986Total assets
    
    $
    1,046,204
    
    
    $
    855,931
    
    
    $
    762,490LIABILITIESDepositsNon-interest bearing deposits
    
    $
    103,641
    
    
    $
    53,065
    
    
    $
    59,976Interest bearing deposits
    
    
    727,090
    
    
    
    580,151
    
    
    
    552,294Total deposits
    
    
    830,731
    
    
    
    633,216
    
    
    
    612,270Other liabilitiesFederal funds purchased
    
    
    21,200
    
    
    
    37,300
    
    
    
    24,500Securities sold under agreements to repurchase
    
    
    288
    
    
    
    619
    
    
    
    310Federal Home Loan Bank advances
    
    
    37,130
    
    
    
    25,561
    
    
    
    25,588Other liabilities
    
    
    757
    
    
    
    516
    
    
    
    260Accrued interest payable
    
    
    3,336
    
    
    
    3,734
    
    
    
    1,912Subordinated debentures
    
    
    10,000
    
    
    
    10,000
    
    
    
    10,000Total liabilities
    
    
    903,442
    
    
    
    710,946
    
    
    
    674,840STOCKHOLDERS EQUITYCommon stock - 20,000,000 shares authorized; outstanding:8,614,819 shares at 06/30/07, 8,975,085 shares at
12/31/06; and 5,961,795 shares at 06/30/06
    
    
    138,230
    
    
    
    144,907
    
    
    
    87,224Retained earnings
    
    
    4,530
    
    
    
    84
    
    
    
    460Accumulated other comprehensive income (loss)
    
    
    2
    
    
    
    (6
    )
    
    
    (34
    )Total stockholders equity
    
    
    142,762
    
    
    
    144,985
    
    
    
    87,650Total liabilities and stockholders equity
    
    $
    1,046,204
    
    
    $
    855,931
    
    
    $
    762,490
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DEARBORN BANCORP, INC. AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF INCOME (unaudited)
 (In thousands, except share and per share data)
    
    Three Months Ended
    
    
    Six Months Ended06/30/07
    
    
    06/30/06
    
    
    06/30/07
    
    
    06/30/06Interest incomeInterest on loans, including fees
    
    $
    17,259
    
    
    $
    12,678
    
    
    $
    34,384
    
    
    $
    24,624Interest on securities, available for sale
    
    
    163
    
    
    
    152
    
    
    
    341
    
    
    
    315Interest on federal funds
    
    
    109
    
    
    
    153
    
    
    
    277
    
    
    
    221Interest on deposits with banks
    
    
    42
    
    
    
    79
    
    
    
    42
    
    
    
    146Total interest income
    
    
    17,573
    
    
    
    13,062
    
    
    
    35,044
    
    
    
    25,306Interest expenseInterest on deposits
    
    
    8,246
    
    
    
    5,578
    
    
    
    16,024
    
    
    
    10,451Interest on other borrowings
    
    
    507
    
    
    
    313
    
    
    
    1,311
    
    
    
    633Interest on subordinated debentures
    
    
    225
    
    
    
    215
    
    
    
    465
    
    
    
    410Total interest expense
    
    
    8,978
    
    
    
    6,106
    
    
    
    17,800
    
    
    
    11,494Net interest income
    
    
    8,595
    
    
    
    6,956
    
    
    
    17,244
    
    
    
    13,812Provision for loan losses
    
    
    289
    
    
    
    155
    
    
    
    906
    
    
    
    312Net interest income after provision for loan losses
    
    
    8,306
    
    
    
    6,801
    
    
    
    16,338
    
    
    
    13,500Non-interest incomeService charges on deposit accounts
    
    
    331
    
    
    
    166
    
    
    
    649
    
    
    
    323Fees for other services to customers
    
    
    15
    
    
    
    13
    
    
    
    69
    
    
    
    26Gain on the sale of loans
    
    
    47
    
    
    
    68
    
    
    
    101
    
    
    
    110Write-down of real estate
    
    
    (100
    )
    
    
    
    
    
    
    (100
    )Gain (loss) on the sale of real estate
    
    
    
    
    
    
    (49
    )
    
    
    
    
    
    
    (103
    )Other income
    
    
    64
    
    
    
    8
    
    
    
    83
    
    
    
    19Total non-interest income
    
    
    357
    
    
    
    206
    
    
    
    802
    
    
    
    375Non-interest expenseSalaries and employee benefits
    
    
    3,102
    
    
    
    2,445
    
    
    
    6,654
    
    
    
    4,877Occupancy and equipment expense
    
    
    887
    
    
    
    595
    
    
    
    1,845
    
    
    
    1,225Amortization of intangible assets
    
    
    336
    
    
    
    62
    
    
    
    672
    
    
    
    125Advertising and marketing
    
    
    143
    
    
    
    113
    
    
    
    220
    
    
    
    201Stationery and supplies
    
    
    232
    
    
    
    89
    
    
    
    356
    
    
    
    161Professional services
    
    
    222
    
    
    
    175
    
    
    
    486
    
    
    
    358Data processing
    
    
    204
    
    
    
    131
    
    
    
    328
    
    
    
    256Other operating expenses
    
    
    453
    
    
    
    282
    
    
    
    1,005
    
    
    
    608Total non-interest expense
    
    
    5,579
    
    
    
    3,892
    
    
    
    11,566
    
    
    
    7,811Income before income taxes
    
    
    3,084
    
    
    
    3,115
    
    
    
    5,574
    
    
    
    6,064Income tax expense
    
    
    1,079
    
    
    
    1,059
    
    
    
    1,951
    
    
    
    2,062Net income
    
    $
    2,005
    
    
    $
    2,056
    
    
    $
    3,623
    
    
    $
    4,002Per share data:Net income  basic
    
    $
    0.23
    
    
    $
    0.34
    
    
    $
    0.41
    
    
    $
    0.67Net income  diluted
    
    $
    0.22
    
    
    $
    0.33
    
    
    $
    0.40
    
    
    $
    0.64Weighted average number of shares outstanding  basic
    
    
    8,769,939
    
    
    
    5,989,232
    
    
    
    8,833,645
    
    
    
    5,985,823Weighted average number of shares outstanding 
diluted
    
    
    9,005,730
    
    
    
    6,292,544
    
    
    
    9,085,837
    
    
    
    6,298,182
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DEARBORN BANCORP, INC. AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
 (In thousands)
    
    Three Months Ended
    
    
    Six Months Ended06/30/07
    
    
    06/30/06
    
    
    06/30/07
    
    
    06/30/06Net income
    
    $
    2,005
    
    
    $
    2,056
    
    
    $
    3,623
    
    
    $
    4,002Other comprehensive income (loss), net of taxUnrealized gains (losses) on securitiesUnrealized holding gains (losses) arising during
 period
    
    
    (5
    )
    
    
    4
    
    
    
    11
    
    
    
    15Less: reclassification adjustment for losses
included in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Tax effects
    
    
    2
    
    
    
    (1
    )
    
    
    (3
    )
    
    
    (5
    )Other comprehensive income/(loss)
    
    
    (3
    )
    
    
    3
    
    
    
    8
    
    
    
    10Comprehensive income
    
    $
    2,002
    
    
    $
    2,059
    
    
    $
    3,631
    
    
    $
    4,012
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DEARBORN BANCORP, INC. AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
    
    Six Months Ended6/30/2007
    
    
    6/30/2006Cash flows from operating activitiesInterest and fees received
    
    $
    34,548
    
    
    $
    25,240Interest paid
    
    
    (18,198
    )
    
    
    (11,264
    )Proceeds from sale of mortgages held for sale
    
    
    11,303
    
    
    
    11,517Origination of mortgages held for sale
    
    
    (10,515
    )
    
    
    (11,475
    )Taxes paid
    
    
    (1,830
    )
    
    
    (2,700
    )Gain (loss) on sale of real estate owned
    
    
    
    
    
    
    (103
    )Cash paid to suppliers and employees
    
    
    (12,768
    )
    
    
    (6,736
    )Net cash from operating activities
    
    
    2,540
    
    
    
    4,479Cash flows from investing activitiesProceeds from the sale of securities available for sale
    
    
    18,007
    
    
    
    Proceeds from calls, maturities and repayments of
of securities available for sale
    
    
    2,358
    
    
    
    8,783Purchases of securities available for sale
    
    
    (25,428
    )
    
    
    (18,621
    )Purchase of Federal Home Loan Bank stock
    
    
    (639
    )
    
    
    Increase in loans, net of payments received
    
    
    (10,017
    )
    
    
    (38,981
    )Purchases of property and equipment
    
    
    (4,966
    )
    
    
    (774
    )Net cash paid in Fidelity acquisition
    
    
    (32,111
    )
    
    
    Net cash from investing activities
    
    
    (52,796
    )
    
    
    (49,593
    )Cash flows from financing activitiesNet increase (decrease) in non-interest bearing deposits
    
    
    4,568
    
    
    
    324Net increase in interest bearing deposits
    
    
    5,400
    
    
    
    29,508Increase (decrease) in other borrowings
    
    
    (331
    )
    
    
    (1,305
    )Net increase (decrease) in federal funds purchased
    
    
    (16,100
    )
    
    
    24,500Proceeds from Federal Home Loan Bank advances
    
    
    9,802
    
    
    
    Purchase of common stock
    
    
    (6,263
    )
    
    
    (878
    )Exercise of stock options
    
    
    58
    
    
    
    170Tax benefit of stock options exercised
    
    
    209
    
    
    
    58Net cash from financing activities
    
    
    (2,657
    )
    
    
    52,377Increase (decrease) in cash and cash equivalents
    
    
    (52,913
    )
    
    
    7,263Cash and cash equivalents at the beginning of the period
    
    
    70,030
    
    
    
    9,455Cash and cash equivalents at the end of the period
    
    $
    17,117
    
    
    $
    16,718
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DEARBORN BANCORP, INC. AND SUBSIDIARY
 CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
 (In thousands)
    
    Six Months Ended6/30/2007
    
    
    6/30/2006Reconciliation of net income to net cash provided by operating activitiesNet income
    
    $
    3,623
    
    
    $
    4,002Adjustments to reconcile net income to net cash
provided by operating activitiesProvision for loan losses
    
    
    906
    
    
    
    312Depreciation and amortization expense
    
    
    703
    
    
    
    474Restricted stock award expense
    
    
    98
    
    
    
    52Stock option expense
    
    
    44
    
    
    
    23Accretion of discount on securities
    
    
    (88
    )
    
    
    (39
    )Amortization of premium on securities
    
    
    
    
    
    
    7Amortization of intangible assets
    
    
    672
    
    
    
    125(Increase) decrease in mortgages held for sale
    
    
    687
    
    
    
    (133
    )(Increase) decrease in interest receivable
    
    
    748
    
    
    
    (66
    )(Increase) decrease in other assets
    
    
    (2,402
    )
    
    
    193Increase (decrease) in interest payable
    
    
    (735
    )
    
    
    229Decrease in other liabilities
    
    
    (1,716
    )
    
    
    (700
    )Net cash provided by operating activities
    
    $
    2,540
    
    
    $
    4,479Supplemental noncash disclosures:Transfers from loans to real estate owned
    
    $
    2,525
    
    
    $
    39Noncash investing activities:Fidelity Bank acquisition:Loans acquired
    
    
    178,052
    
    
    
    Bank premises and equipment
    
    
    9,214
    
    
    
    Acquisition intangibles recorded
    
    
    34,172
    
    
    
    Other assets acquired
    
    
    2,194
    
    
    
    Deposits assumed
    
    
    (187,459
    )
    
    
    Borrowings assumed
    
    
    (1,767
    )
    
    
    Other liabilities assumed
    
    
    (2,295
    )
    
    
    $
    32,111
    
    
    
    
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A.
    
    Accounting and Reporting PoliciesThe consolidated financial statements of Dearborn Bancorp, Inc. (the Corporation) include
the consolidation of its only subsidiary, Fidelity Bank (the Bank), formerly known as
Community Bank of Dearborn. As discussed in Note D, the Corporation acquired Fidelity
Financial Corporation of Michigan and its subsidiary, Fidelity Bank. As a result of the
acquisition, Fidelity Bank was merged into the Corporations subsidiary. On April 30, 2007,
Community Bank of Dearborn was renamed Fidelity Bank. The accounting and reporting policies of the
Corporation are in accordance with accounting principles generally accepted in the United
States of America and conform to practice within the banking industry.The consolidated financial statements of the Corporation as of June 30, 2007 and 2006, and
December 31, 2006 and for the three and six month periods ended June 30, 2007 and 2006
reflect all adjustments, consisting of normal recurring items which are, in the opinion of
management, necessary for a fair presentation of the results for the interim period. The
operating results for the three and six month periods ended June 30, 2007 are not
necessarily indicative of results of operations for the entire year.The consolidated financial statements as of June 30, 2007 and 2006, and for the three and
six months ended June 30, 2007 and 2006 included herein have been prepared by the
Corporation, without an audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally included in
annual financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted pursuant to such
rules and regulations. These financial statements should be read in conjunction with the
financial statements and notes thereto included in the Corporations 2006 Annual Report on
Form 10-K.Certain of the Corporations accounting policies are important to the portrayal of the
Corporations financial condition, since they require management to make difficult, complex
or subjective judgments, some of which may relate to matters that are inherently uncertain.
Estimates associated with these policies are susceptible to material changes as a result
of changes in facts and circumstances. Facts and circumstances which could affect these
material
judgments include, but without limitation, changes in interest rates, in the performance of
the economy or in the financial condition of borrowers. Management believes that its
critical accounting policies include determining the allowance for loan losses and
determining the fair value of securities and other financial instruments and assessing
other than temporary impairments of securities.
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A.
    
    Accounting and Reporting Policies (cont)Income Per ShareBasic income per share is net income divided by the weighted average number of common shares
outstanding during the period. Diluted income per share includes the dilutive effect of
unvested stock awards and additional potential common shares issuable under stock options.
Income per share is restated for all stock splits and dividends through the date of issue of
the financial statements.Stock options for 35,244 and 17,463 shares of common stock were not considered in computing
diluted earnings per common share for the six months ended June 30, 2007 and 2006,
respectively, because they were antidilutive. Stock options for 17,781 and 16,633 shares of
common stock were not considered in computing diluted earnings per common share for the
three months ended June 30, 2007 and 2006, respectively because they were antidilutive. All
share and per share amounts have been adjusted for stock dividends.Effect of Newly Issued Accounting StandardsThe Financial Accounting Standards Board (FASB) Interpretation 48, Accounting for
Uncertainty in Income Taxes (FIN 48), was adopted as of January 1, 2007. A tax position
is recognized as a benefit only if it is more likely than not that the tax position would
be sustained in a tax examination, with a tax examination being presumed to occur. The
amount recognized is the largest amount of tax benefit that is greater than 50% likely of
being realized on examination. For tax positions not meeting the more than likely than not
test, no tax benefit is recorded. The adoption had no material affect on the Corporations
consolidated financial statements. The Corporation is no longer subject to examination by
federal taxing authorities for years before 2003.
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Effect of Newly Issued but not yet Effective Accounting StandardsIn February 2006, FASB issued Statement No. 159, The Fair Value Option for Financial Assets
and Liabilities (SFAS 159). Adoption of SFAS 159 is required for January 1, 2008. Early
adoption was allowed, effective to January 1, 2007, if that election was made by April 30,
2007. This statement allows, but does not require, companies to record certain assets and
liabilities at their fair value. The fair value determination is made at the instrument
level, so similar assets or liabilities could be partially accounted for using the
historical cost method, while other similar assets or liabilities are accounted for using
the fair value method. Changes in fair value are recorded through the income statement in
subsequent periods. The statement provides for a one time opportunity to transfer existing
assets and liabilities to fair value at the point of adoption with a cumulative effect
adjustment recorded against equity. After adoption, the election to report assets or
liabilities at fair value must be made at the point of their inception. The Corporation did
not elect early adoption of SFAS 159 and has not yet determined which, if any, assets or
liabilities may be reported using the fair value accounting method. As such, the Corporation
has not yet determined the impact that the adoption of this statement may have on the
Corporations consolidated financial statements.B.
    
    Securities Available For SaleThe amortized cost and fair value of securities available for sale are as follows (in
thousands):
 June 30, 2007Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueUS Treasury securities
    
    $
    9,927
    
    
    $
    3
    
    
    $
    (5
    )
    
    $
    9,925Municipal bonds
    
    
    759
    
    
    
    4
    
    
    
    
    
    
    
    763Mortgage backed securities
    
    
    351
    
    
    
    
    
    
    
    
    
    
    
    351Totals
    
    $
    11,037
    
    
    $
    7
    
    
    $
    (5
    )
    
    $
    11,039
 December 31, 2006Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueUS Treasury securities
    
    $
    4,982
    
    
    $
    
    
    
    $
    (14
    )
    
    $
    4,968Municipal bonds
    
    
    497
    
    
    
    4
    
    
    
    
    
    
    
    501Mortgage backed securities
    
    
    407
    
    
    
    2
    
    
    
    
    
    
    
    409Totals
    
    $
    5,886
    
    
    $
    6
    
    
    $
    (14
    )
    
    $
    5,878
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##### Table of Contents



B.
    
    Securities Available For Sale (cont)The amortized cost and fair value of securities available for sale at June 30, 2007 by
contractual maturity are shown below (in thousands):
 Amortized
    
    
    FairCost
    
    
    ValueDue in less than three months
    
    $
    4,225
    
    
    $
    4,228Due in three months through one year
    
    
    5,702
    
    
    
    5,697Due in one year through five years
    
    
    759
    
    
    
    763Mortgage backed securities
    
    
    351
    
    
    
    351Totals
    
    $
    11,037
    
    
    $
    11,039
 The entire portfolio has a net unrealized gain of $2,000 at June 30, 2007. Securities
with unrealized losses at June 30, 2007, aggregated by investment category and the length of
time that the securities have been in a continuous loss position, are as follows (in
thousands):
 Investment category
    
    Fair Value
    
    
    Unrealized LossUS treasury securities
    
    $
    2,988
    
    
    $
    4Mortgage backed securities
    
    
    201
    
    
    
    1Total temporarily impaired
    
    $
    2,988
    
    
    $
    5
 Length of time in a continuous loss position
    
    Fair Value
    
    
    Unrealized LossLess than one year
    
    $
    1,996
    
    
    $
    4One to three years
    
    
    992
    
    
    
    1Total temporarily impaired
    
    $
    2,988
    
    
    $
    5
 Unrealized losses on securities, available for sale at June 30, 2007 have not been
recognized because these securities are of high credit quality, management has the intent
and ability to hold these securities for the foreseeable future, and the decline in fair
value is believed to be largely due to changes in interest rates. The fair value is
expected to recover as the bonds approach their maturity date.The Corporation does not hold any securities in the Held to Maturity category nor
does the Corporation hold or utilize derivatives.
 12




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##### Table of Contents



C.
    
    Incentive Stock PlansIncentive stock awards have been granted to officers and employees under two Incentive Stock
Plans. The first plan is the 1994 Stock Option Plan. Options to buy common stock have been
granted to officers and employees under the 1994 Stock Option Plan, which provides for issue
of up to 814,449 shares. Exercise price is the market price at date of grant. The maximum
option term is ten years, and options vest fully after six months from the date of grant.A summary of the option activity in the 1994 Plan follows:
 WeightedAvailable
    
    
    
    
    
    
    Averagefor
    
    
    Options
    
    
    ExerciseGrant
    
    
    Outstanding
    
    
    PriceOutstanding at January 1, 2007
    
    
    
    
    
    
    468,423
    
    
    $
    8.16Exercised
    
    
    
    
    
    
    (13,337
    )
    
    
    4.44Outstanding at June 30, 2007
    
    
    
    
    
    
    455,086
    
    
    $
    8.27
 For the options outstanding at June 30, 2007, the range of exercise prices was $4.18 to
$14.65 per share with a weighted-average remaining contractual term of 4.0 years. At June
30, 2007, 455,086 options were exercisable at weighted average exercise price of $8.27 per
share. The intrinsic value of options exercised during the year was approximately $193,000
and the intrinsic value of options outstanding at June 30, 2007 was approximately
$3,950,000.During 2005, the Corporation initiated the 2005 Long-Term Incentive Plan. Under this plan,
up to 347,248 shares may be granted to officers and employees of the Bank. This plan
provides that stock awards may take the form of any combination of options, restricted
shares, restricted share units or performance awards.The administration of the plan, including the granting of awards and the nature of those
awards, is determined by the Corporations Compensation Committee. The Corporations Board
of Directors approved grants of stock options and restricted stock in 2005 and 2006. The
awards have a term of ten years and typically vest fully three years from the grant date.
In order
for vesting to occur, the Corporation must meet certain performance criteria over the
vesting period. The expected compensation cost of the 2005 plan is being calculated
assuming the Corporations attainment of target performance goals over the vesting period
of the awards. The actual cost of these awards could range from zero to 150% of the
currently recorded compensation cost, depending on the Corporations actual performance.
 13




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##### Table of Contents



C.
    
    Incentive Stock Plans (cont)Stock Options Granted  The incentive stock options were granted with exercise prices equal
to market prices on the day of grant. At June 30, 2007, there were 35,251 stock options
granted with a weighted average exercise price of $21.83. These options are eligible to
vest fully three years from grant date.The Corporation recognized stock option compensation expense of $44,000 and $23,000 during
the six months ended June 30, 2007 and 2006, respectively.Restricted Stock Grants   Restricted stock was awarded to officers in 2005 and 2006. The
restricted stock is eligible to vest three years from grant date. At June 30, 2007, there
were 23,956 shares of restricted stock outstanding.The Corporation recognized restricted stock compensation expense of $98,000 and $52,000
during the six months ended June 30, 2007 and 2006, respectively and a tax benefit of
$34,000 and $18,000 during the six months ended June 30, 2007 and 2006, respectively.
 14




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##### Table of Contents



D.
    
    AcquisitionOn January 4, 2007, the Corporation acquired Fidelity Financial Corporation of Michigan and
its subsidiary, Fidelity Bank (collectively Fidelity) for $70,500,000 in cash. Fidelity
was founded in 1973 and has its main office in Birmingham, Michigan with single branch
offices in Bloomfield Township, Michigan and Bingham Farms, Michigan and four branch offices
in Southfield, Michigan. As of December 31, 2006, Fidelity had total assets of
$220,419,000, gross loans of $179,553,000 and total deposits of $187,547,000. Fidelitys
results of operations are included in these financial statements since the date of
acquisition.The acquisition of Fidelity will enable the Corporation to build a competitive presence in
Oakland County for the Banks loan and deposit products. Management expects to build upon
Fidelitys reputation and continue to increase the Banks presence in Oakland County, while
decreasing operating expenses by utilizing the infrastructure and operational capabilities
already in place at the Bank.The acquisition has been accounted for using the purchase method of accounting and,
accordingly, the purchase price has been allocated to the tangible and identified intangible
assets purchased and the liabilities assumed based upon the estimated fair values at the
date of acquisition. There are refinements in the process of allocating the purchase price
that have not been entirely completed. Identified intangible assets and purchase accounting
fair value adjustments are being amortized under various methods over the expected lives of
the corresponding assets and liabilities. Goodwill will not be amortized, but will be
reviewed for impairment annually. Goodwill and other intangible assets are tax deductible
over 15 years. Currently, identified intangible assets from the acquisition of Fidelity
subject to amortization are $12,328,000. Goodwill from the acquisition of Fidelity
aggregates to $26,637,000.The table displayed on the following page presents pro forma information for the Corporation
including the acquisition of Fidelity for the three and six months ended June 30, 2006 as if
the acquisition had occurred at the beginning of 2006. The pro forma financial information
does not purport to be indicative of the operating results or financial position that would
have actually occurred or existed if the transactions had occurred on the dates indicated,
nor is it indicative of our future operating results or our financial position.
 15




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##### Table of Contents



D.
    
    Acquisition (cont)
 Three Months Ended
    
    
    Six Months Ended(In thousands, except share and per share data
    
    06/30/06
    
    
    06/30/06Interest income
    
    $
    17,063
    
    
    $
    33,000Interest expense
    
    
    7,310
    
    
    
    13,726Net interest income
    
    
    9,753
    
    
    
    19,274Provision for loan loss
    
    
    245
    
    
    
    472Net interest income after provision
for loan losses
    
    
    9,508
    
    
    
    18,802Non-interest income
    
    $
    579
    
    
    
    1,124Non-interest expense
    
    
    6,236
    
    
    
    12,263Income before income tax expense
    
    
    3,851
    
    
    
    7,663Income tax expense
    
    
    1,309
    
    
    
    2,605Net income
    
    $
    2,542
    
    
    $
    5,058Basic earnings per share
    
    $
    0.28
    
    
    $
    0.56Diluted earnings per share
    
    $
    0.27
    
    
    $
    0.54Weighted average shares outstanding  basic
    
    
    9,049,986
    
    
    
    9,053,395Weighted average shares outstanding  diluted
    
    
    9,362,345
    
    
    
    9,356,707
 16




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##### Table of Contents



PART I   FINANCIAL INFORMATION
 
     17




---



##### Table of Contents



Company Overview
         18




---



##### Table of Contents



Date Formed
    
    Name
    
    Services OfferedAugust 1997
    
    Community Bank Insurance Agency, Inc.
    
    Limited insurance related activitiesMay 2001
    
    Community Bank Mortgage, Inc.
    
    Origination of commercial and
residential mortgage loansMarch 2002
    
    Community Bank Audit Services, Inc.
    
    Internal auditing and compliance
services for financial institutions
       19




---



##### Table of Contents



Date Opened
    
    Location
    
    Type of officeFebruary 1994
    
    22290 Michigan Avenue
Dearborn, Michigan 48123
    
    Full service retail branch with ATM
Regional lending certerDecember 1995
    
    24935 West Warren Avenue
Dearborn Heights, Michigan 48127
    
    Full service retail branchAugust 1997
    
    44623 Five Mile Road
Plymouth, Michigan 48170
    
    Full service retail branch with ATMMay 2001
    
    1325 North Canton Center Road
Canton, Michigan 48187
    
    Full service retail branch with ATMDecember 2001
    
    45000 River Ridge Drive
Clinton Township, Michigan 48038
    
    Regional lending centerNovember 2002
    
    19100 Hall Road
Clinton Township, Michigan 48038
    
    Full service retail branch with ATMFebruary 2003
    
    12820 Fort Street
Southgate, Michigan 48195
    
    Full service retail branch with ATMMay 2003
    
    3201 University Drive, Suite 180
Auburn Hills, Michigan 48326
    
    Full service retail branchOctober 2004
    
    450 East Michigan Avenue
Saline, MI 48176
    
    Full service retail branch with ATMOctober 2004
    
    250 West Eisenhower Parkway
Ann Arbor, MI 48103
    
    Full service retail branch with ATM
Regional lending certerOctober 2004
    
    2180 West Stadium Blvd. 
Ann Arbor, MI 48103
    
    Full service retail branch with ATMDecember 2004
    
    1360 Porter Street
Dearborn, MI 48123
    
    Loan production office
Regional lending centerJanuary 2007
    
    1040 E. Maple 
Birmingham, MI 48009
    
    Full service retail branch with ATM
Regional lending certerJanuary 2007
    
    3681 W. Maple 
Birmingham, MI 48301
    
    Full service retail branch with ATMJanuary 2007
    
    30700 Telegraph
Bingham Farms, Mi 48025
    
    Full service retail branch with ATMJanuary 2007
    
    20000 Twelve Mile Road
Southfield, Mi 48076
    
    Full service retail branch with ATMJanuary 2007
    
    26555 Evergreen
Southfield, Mi 48076
    
    Full service retail branch with ATMJanuary 2007
    
    200 Galleria Officenter
Southfield, Mi 48034
    
    Full service retail branch with ATMJanuary 2007
    
    17117 W. Nine Mile Road 
Southfield, Mi 48075
    
    Full service retail branch with ATMApril 2007
    
    7755 23 Mile Road
Shelby Township, MI 48316
    
    Full service retail branch with ATM
 20




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##### Table of Contents



Results of Operations
  Net Interest Income
 2007 Compared to 2006.
 Average Balances, Interest Rates and Yields.
 21




---



##### Table of Contents



Three months ended June 30,
    
    
    Three months ended June 30,2007
    
    
    2006Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average(In thousands)
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateAssetsInterest-bearing deposits with banks
    
    $
    3,570
    
    
    $
    42
    
    
    
    4.72
    %
    
    $
    7,286
    
    
    $
    79
    
    
    
    4.35
    %Federal funds sold
    
    
    8,344
    
    
    
    109
    
    
    
    5.24
    %
    
    
    12,159
    
    
    
    153
    
    
    
    5.05
    %Securities, available for sale
    
    
    12,883
    
    
    
    163
    
    
    
    5.07
    %
    
    
    13,466
    
    
    
    152
    
    
    
    4.53
    %Loans
    
    
    941,259
    
    
    
    17,259
    
    
    
    7.35
    %
    
    
    686,235
    
    
    
    12,678
    
    
    
    7.41
    %Total earning assets
    
    
    966,056
    
    
    
    17,573
    
    
    
    7.30
    %
    
    
    719,146
    
    
    
    13,062
    
    
    
    7.29
    %Other assets
    
    
    83,599
    
    
    
    
    
    
    
    
    
    
    
    30,809Total assets
    
    $
    1,049,655
    
    
    
    
    
    
    
    
    
    
    $
    749,955Liabilities and stockholders equityInterest bearing deposits
    
    $
    749,303
    
    
    $
    8,246
    
    
    
    4.41
    %
    
    $
    562,717
    
    
    $
    5,578
    
    
    
    3.98
    %Other borrowings
    
    
    51,699
    
    
    
    732
    
    
    
    5.68
    %
    
    
    38,045
    
    
    
    528
    
    
    
    5.57
    %Total interest bearing liabilities
    
    
    801,002
    
    
    
    8,978
    
    
    
    4.50
    %
    
    
    600,762
    
    
    
    6,106
    
    
    
    4.08
    %Non-interest bearing deposits
    
    
    99,918
    
    
    
    
    
    
    
    
    
    
    
    59,013Other liabilities
    
    
    4,910
    
    
    
    
    
    
    
    
    
    
    
    2,357Stockholders equity
    
    
    143,825
    
    
    
    
    
    
    
    
    
    
    
    87,823Total liabilities and stockholders equity
    
    $
    1,049,655
    
    
    
    
    
    
    
    
    
    
    $
    749,955Net interest income
    
    
    
    
    
    $
    8,595
    
    
    
    
    
    
    
    
    
    
    $
    6,956Net interest rate spread
    
    
    
    
    
    
    
    
    
    
    2.80
    %
    
    
    
    
    
    
    
    
    
    
    3.21
    %Net interest margin on earning assets
    
    
    
    
    
    
    
    
    
    
    3.57
    %
    
    
    
    
    
    
    
    
    
    
    3.88
    %
 22




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##### Table of Contents



Six months ended June 30,
    
    
    Six months ended June 30,2007
    
    
    2006Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average(In thousands)
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateAssets
Interest-bearing deposits with banks
    
    $
    1,934
    
    
    $
    42
    
    
    
    4.38
    %
    
    $
    6,427
    
    
    $
    146
    
    
    
    4.58
    %Federal funds sold
    
    
    9,321
    
    
    
    277
    
    
    
    5.99
    %
    
    
    9,191
    
    
    
    221
    
    
    
    4.85
    %Securities, available for sale
    
    
    13,657
    
    
    
    341
    
    
    
    5.04
    %
    
    
    15,053
    
    
    
    315
    
    
    
    4.22
    %Loans
    
    
    938,786
    
    
    
    34,384
    
    
    
    7.39
    %
    
    
    674,979
    
    
    
    24,624
    
    
    
    7.36
    %Total earning assets
    
    
    963,698
    
    
    
    35,044
    
    
    
    7.33
    %
    
    
    705,650
    
    
    
    25,306
    
    
    
    7.23
    %Other assets
    
    
    80,859
    
    
    
    
    
    
    
    
    
    
    
    30,083Total assets
    
    $
    1,044,557
    
    
    
    
    
    
    
    
    
    
    $
    735,733Liabilities and stockholders equityInterest bearing deposits
    
    $
    737,350
    
    
    $
    16,024
    
    
    
    4.38
    %
    
    $
    550,146
    
    
    $
    10,451
    
    
    
    3.83
    %Other borrowings
    
    
    61,353
    
    
    
    1,776
    
    
    
    5.84
    %
    
    
    38,496
    
    
    
    1,043
    
    
    
    5.46
    %Total interest bearing liabilities
    
    
    798,703
    
    
    
    17,800
    
    
    
    4.49
    %
    
    
    588,642
    
    
    
    11,494
    
    
    
    3.94
    %Non-interest bearing deposits
    
    
    96,093
    
    
    
    
    
    
    
    
    
    
    
    58,409Other liabilities
    
    
    4,693
    
    
    
    
    
    
    
    
    
    
    
    1,950Stockholders equity
    
    
    145,068
    
    
    
    
    
    
    
    
    
    
    
    86,732Total liabilities and stockholders equity
    
    $
    1,044,557
    
    
    
    
    
    
    
    
    
    
    $
    735,733Net interest income
    
    
    
    
    
    $
    17,244
    
    
    
    
    
    
    
    
    
    
    $
    13,812Net interest rate spread
    
    
    
    
    
    
    
    
    
    
    2.84
    %
    
    
    
    
    
    
    
    
    
    
    3.29
    %Net interest margin on earning assets
    
    
    
    
    
    
    
    
    
    
    3.61
    %
    
    
    
    
    
    
    
    
    
    
    3.95
    %
 23




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##### Table of Contents



Rate/Volume Analysis.
 Three Months Ended June 30,
    
    
    Six Months Ended June 30.2007/2006
    
    
    2007/2006Change in Interest Due to:
    
    
    Change in Interest Due to:Average
    
    
    Average
    
    
    Net
    
    
    Average
    
    
    Average
    
    
    Net(In thousands)
    
    Balance
    
    
    Rate
    
    
    Change
    
    
    Balance
    
    
    Rate
    
    
    ChangeAssetsInterest bearing deposits with banks
    
    $
    (44
    )
    
    
    7
    
    
    $
    (37
    )
    
    $
    (98
    )
    
    $
    (6
    )
    
    $
    (104
    )Federal funds sold
    
    
    (50
    )
    
    
    6
    
    
    
    (44
    )
    
    
    3
    
    
    
    53
    
    
    
    56Investment securities, available for sale
    
    
    (7
    )
    
    
    18
    
    
    
    11
    
    
    
    (38
    )
    
    
    64
    
    
    
    26Loans
    
    
    4,676
    
    
    
    (95
    )
    
    
    4,581
    
    
    
    9,660
    
    
    
    100
    
    
    
    9,760Total earning assets
    
    $
    4,575
    
    
    $
    (64
    )
    
    $
    4,511
    
    
    $
    9,528
    
    
    $
    210
    
    
    $
    9,738LiabilitiesInterest bearing deposits
    
    $
    2,052
    
    
    
    616
    
    
    $
    2,668
    
    
    $
    4,056
    
    
    $
    1,517
    
    
    $
    5,573Other borrowings
    
    
    193
    
    
    
    11
    
    
    
    204
    
    
    
    661
    
    
    
    72
    
    
    
    733Total interest bearing liabilities
    
    $
    2,245
    
    
    $
    627
    
    
    $
    2,872
    
    
    $
    4,717
    
    
    $
    1,589
    
    
    $
    6,306Net interest income
    
    
    
    
    
    
    
    
    
    $
    1,639
    
    
    
    
    
    
    
    
    
    
    $
    3,432Net interest rate spread
    
    
    
    
    
    
    
    
    
    
    (0.41
    %)
    
    
    
    
    
    
    
    
    
    
    (0.46
    %)Net interest margin on earning assets
    
    
    
    
    
    
    
    
    
    
    (0.31
    %)
    
    
    
    
    
    
    
    
    
    
    (0.34
    %)
 Provision for Loan Losses
 2007 Compared to 2006.
 24




---



##### Table of Contents



Non-interest Income
 2007 Compared to 2006.
 Non-interest Expense
 2007 Compared to 2006.
  Income Taxes
 2007 Compared to 2006.
 25




---



##### Table of Contents



Comparison of Financial Condition at June 30, 2007 and December 31, 2006
 Assets.
 Federal Funds Sold.
 Interest bearing deposits with banks.
 Mortgage Loans Held for Sale.
 Securities  Available for Sale.
  Federal Home Loan Bank Stock.
 26




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##### Table of Contents



Loans.
 06/30/07
    
    
    12/31/06
    
    
    06/30/06Consumer loans
    
    $
    35,666
    
    
    $
    32,282
    
    
    $
    31,159Commercial, financial, & other
    
    
    187,707
    
    
    
    130,056
    
    
    
    116,089Commercial real estate construction
    
    
    136,437
    
    
    
    135,306
    
    
    
    126,538Commercial real estate mortgages
    
    
    534,140
    
    
    
    410,829
    
    
    
    376,970Residential real estate mortgages
    
    
    51,604
    
    
    
    47,947
    
    
    
    45,296945,554
    
    
    
    756,420
    
    
    
    696,052Allowance for loan losses
    
    
    (9,949
    )
    
    
    (7,775
    )
    
    
    (7,154
    )$
    935,605
    
    
    $
    748,645
    
    
    $
    688,898
  06/30/07
    
    
    12/31/06
    
    
    06/30/06Over 90 days past due and still accruing
    
    $
    2,217
    
    
    $
    2,101
    
    
    $
    982Non-accrual loans
    
    
    14,941
    
    
    
    5,560
    
    
    
    3,982Total non-performing loans
    
    
    17,158
    
    
    
    7,661
    
    
    
    4,964Real estate owned
    
    
    3,008
    
    
    
    52
    
    
    
    Other repossessed assets
    
    
    
    
    
    
    2
    
    
    
    Other non-performing assets
    
    
    3,008
    
    
    
    54
    
    
    
    Total non-performing assets
    
    $
    20,166
    
    
    $
    7,715
    
    
    $
    4,964
  Number ofLoans
    
    
    BalanceConsumer loans
    
    
    5
    
    
    $
    405Commercial, financial, & other
    
    
    7
    
    
    
    2,327Commercial real estate mortgages
    
    
    15
    
    
    
    4,649Commercial construction
    
    
    13
    
    
    
    7,286Residential real estate mortgages
    
    
    3
    
    
    
    274Total non-accrual loans
    
    
    43
    
    
    $
    14,941
 27




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##### Table of Contents



Allowance for Loan Losses.
  Six MonthsEnded
    
    
    Year Ended
    
    
    Six Months Ended06/30/07
    
    
    12/31/06
    
    
    06/30/06Balance, beginning of year
    
    $
    7,775
    
    
    $
    6,808
    
    
    $
    6,808Allowance on loans acquired
    
    
    1,704
    
    
    
    
    
    
    
    Charge-offs:Consumer loans
    
    
    87
    
    
    
    24
    
    
    
    Commercial, financial & other
    
    
    85
    
    
    
    139
    
    
    
    36Commercial real estate construction
    
    
    
    
    
    
    
    
    
    
    Commercial real estate mortgages
    
    
    142
    
    
    
    36
    
    
    
    36Residential real estate mortgages
    
    
    320
    
    
    
    38
    
    
    
    10Recoveries:Consumer loans
    
    
    5
    
    
    
    17
    
    
    
    9Commercial, financial & other
    
    
    174
    
    
    
    218
    
    
    
    88Commercial real estate construction
    
    
    
    
    
    
    
    
    
    
    Commercial real estate mortgages
    
    
    19
    
    
    
    26
    
    
    
    19Residential real estate mortgages
    
    
    
    
    
    
    
    
    
    
    Net charge-offs (recoveries)
    
    
    436
    
    
    
    (24
    )
    
    
    (34
    )Additions charged to operations
    
    
    906
    
    
    
    943
    
    
    
    312Balance, end of period
    
    $
    9,949
    
    
    $
    7,775
    
    
    $
    7,154Allowance to total loans
    
    
    1.05
    %
    
    
    1.03
    %
    
    
    1.03
    %Allowance to nonperforming assets
    
    
    49.34
    %
    
    
    100.78
    %
    
    
    144.12
    %Net charge-offs to average loans
    
    
    0.05
    %
    
    
    0.00
    %
    
    
    0.05
    %
 28




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##### Table of Contents



Premises and Equipment.
 Real estate owned.
 Goodwill and other intangible assets.
 GrossCarrying
    
    
    AccumulatedAmount
    
    
    AmortizationCore deposit intangible from acquisition of:Bank of Washtenaw
    
    $
    929
    
    
    $
    350Fidelity Financial Corporation of Michigan
    
    
    8,776
    
    
    
    440Total core deposit intangible
    
    $
    9,705
    
    
    $
    790Borrower relationship intangible from acquisition of:Bank of Washtenaw
    
    $
    1,620
    
    
    $
    286Fidelity Financial Corporation of Michigan
    
    
    3,552
    
    
    
    104Total borrower relationship intangible
    
    $
    5,172
    
    
    $
    390Total intangible assets
    
    $
    14,877
    
    
    $
    1,180
   29




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##### Table of Contents



Accrued Interest Receivable.
 Other Assets
 30




---



##### Table of Contents



Deposits.
 06/30/07
    
    
    12/31/06
    
    
    06/30/06Non-interest bearing:Demand
    
    $
    103,641
    
    
    $
    53,065
    
    
    $
    59,976Interest bearing:Checking
    
    $
    71,454
    
    
    $
    62,770
    
    
    $
    107,107Money market
    
    
    121,795
    
    
    
    14,289
    
    
    
    21,071Savings
    
    
    35,097
    
    
    
    42,169
    
    
    
    47,021Time, under $100,000
    
    
    158,689
    
    
    
    130,898
    
    
    
    138,088Time, $100,000 and over
    
    
    340,055
    
    
    
    330,025
    
    
    
    239,007727,090
    
    
    
    580,151
    
    
    
    552,294Total deposits
    
    $
    830,731
    
    
    $
    633,216
    
    
    $
    612,270
   06/30/07
    
    
    12/31/06
    
    
    06/30/06Interest bearing checking
    
    $
    2,318
    
    
    $
    889
    
    
    $
    895Time, $100,000 and over
    
    
    92,044
    
    
    
    115,362
    
    
    
    62,571Total municipal deposits
    
    $
    94,362
    
    
    $
    116,251
    
    
    $
    63,466
  31




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##### Table of Contents



Federal Funds Purchased
 Securities Sold Under Agreement to Repurchase
 Federal Home Loan Bank Advances
 Accrued Interest Payable
 Other Liabilities
 Subordinated Debentures .
 32




---



##### Table of Contents



Capital
   MinimumTo Be Well CapitalizedMinimum for Capital
    
    Under Prompt CorrectiveActual
    
    Adequacy Purposes
    
    Action ProvisionsAs of June 30, 2007Total capital(to risk weighted assets)Consolidated
    
    $
    116,902
    
    
    
    11.93
    %
    
    $
    78,387
    
    
    
    8.00
    %
    
    
    N/A
    
    
    
    N/ABank
    
    
    111,234
    
    
    
    11.40
    %
    
    
    78,088
    
    
    
    8.00
    %
    
    $
    97,610
    
    
    
    10.00
    %Tier 1 capital(to risk weighted assets)Consolidated
    
    
    106,953
    
    
    
    10.92
    %
    
    
    39,193
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/ABank
    
    
    101,285
    
    
    
    10.38
    %
    
    
    39,044
    
    
    
    4.00
    %
    
    
    58,566
    
    
    
    6.00
    %Tier 1 capital(to average assets)Consolidated
    
    
    106,953
    
    
    
    10.66
    %
    
    
    40,145
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/ABank
    
    
    101,285
    
    
    
    10.16
    %
    
    
    39,887
    
    
    
    4.00
    %
    
    
    49,858
    
    
    
    5.00
    %As of December 31, 2006Total capital(to risk weighted assets)Consolidated
    
    $
    155,252
    
    
    
    19.69
    %
    
    $
    63,066
    
    
    
    8.00
    %
    
    
    N/A
    
    
    
    N/ABank
    
    
    85,451
    
    
    
    11.06
    %
    
    
    61,826
    
    
    
    8.00
    %
    
    $
    77,283
    
    
    
    10.00
    %Tier 1 capital(to risk weighted assets)Consolidated
    
    
    147,477
    
    
    
    18.71
    %
    
    
    31,533
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/ABank
    
    
    77,676
    
    
    
    10.05
    %
    
    
    30,913
    
    
    
    4.00
    %
    
    
    46,370
    
    
    
    6.00
    %Tier 1 capital(to average assets)Consolidated
    
    
    147,477
    
    
    
    18.12
    %
    
    
    32,555
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/ABank
    
    
    77,676
    
    
    
    10.11
    %
    
    
    30,739
    
    
    
    4.00
    %
    
    
    38,424
    
    
    
    5.00
    %
  33




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##### Table of Contents



PART I    FINANCIAL INFORMATION
 
  Interest Rate Sensitivity Analysis.
   34




---



##### Table of Contents



Interest Rate Sensitivity Period(In thousands)
    
    1-90
    
    
    91-365
    
    
    1-5
    
    
    OverDays
    
    
    Days
    
    
    Years
    
    
    5 Years
    
    
    TotalEarning assetsFederal funds sold
    
    $
    3,392
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    3,392Interest bearing deposits with Banks
    
    
    104
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104Mortgage loans held for sale
    
    
    1,136
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,136Securities available for sale
    
    
    2,300
    
    
    
    7,624
    
    
    
    965
    
    
    
    150
    
    
    
    11,039Federal Home Loan Bank stock
    
    
    1,927
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,927Total loans, net of non-accrual
    
    
    281,308
    
    
    
    89,175
    
    
    
    518,687
    
    
    
    41,443
    
    
    
    930,613Total earning assets
    
    
    290,167
    
    
    
    96,799
    
    
    
    519,652
    
    
    
    41,593
    
    
    
    948,211Interest bearing liabilitiesTotal interest bearing deposits
    
    
    474,304
    
    
    
    193,994
    
    
    
    58,544
    
    
    
    248
    
    
    
    727,090Federal Home Loan Bank advances
    
    
    561
    
    
    
    10,394
    
    
    
    26,175
    
    
    
    
    
    
    
    37,130Other Borrowings
    
    
    21,488
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,488Trust preferred securities
    
    
    10,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,000Total interest bearing liabilities
    
    
    506,353
    
    
    
    204,388
    
    
    
    84,719
    
    
    
    
    
    
    
    795,708Net asset (liability) funding gap
    
    
    (216,186
    )
    
    
    (107,589
    )
    
    
    434,933
    
    
    
    41,345
    
    
    $
    152,503Cumulative net asset (liability) funding gap
    
    $
    (216,186
    )
    
    $
    (323,775
    )
    
    $
    111,158
    
    
    $
    152,503
 35




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##### Table of Contents



Liquidity.
   Payments Due By PeriodLess Than 1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    Over 5 Years
    
    
    TotalSecurities sold under agreements
to repurchase
    
    $
    288
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    288Certificates of deposit
    
    
    439,952
    
    
    
    38,963
    
    
    
    19,581
    
    
    
    248
    
    
    
    498,744Long-term borrowings
    
    
    10,955
    
    
    
    25,323
    
    
    
    852
    
    
    
    
    
    
    
    37,130Lease commitments
    
    
    774
    
    
    
    1,413
    
    
    
    655
    
    
    
    
    
    
    
    2,842Subordinated debentures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,000
    
    
    
    10,000Totals
    
    $
    451,969
    
    
    $
    65,699
    
    
    $
    21,088
    
    
    $
    10,248
    
    
    $
    549,004
  Amount Of Commitment Expiration Per PeriodLess Than 1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    Over 5 Years
    
    
    TotalUnused loan commitments
    
    $
    122,311
    
    
    $
    19,383
    
    
    $
    4,171
    
    
    $
    20,060
    
    
    $
    165,925Standby letters of credit
    
    
    5,232
    
    
    
    4,135
    
    
    
    
    
    
    
    
    
    
    
    9,367Totals
    
    $
    127,543
    
    
    $
    23,518
    
    
    $
    4,171
    
    
    $
    20,060
    
    
    $
    175,292
 36




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##### Table of Contents



Item 4. Controls and Procedures
 Disclosure Controls and Procedures 
 Internal Controls Over Financial Reporting
 37




---



##### Table of Contents



PART II    OTHER INFORMATION
 
  The Corporation held its regular annual meeting of stockholders on May 15, 2007. The first
matter for consideration was the re-election of directors. Four directors were re-elected
to serve three year terms expiring in 2009. The voting results were as follows:
 Nominee
    
    Total ForMargaret I. Campbell
    
    
    8,094,127John E. Demmer
    
    
    7,124,772Michael V. Dorian Jr.
    
    
    8,091,447Donald G. Karcher
    
    
    7,085,393
 The second matter for consideration was the proposed amendment to the Articles of
Incorporation to increase the number of authorized shares of Common Stock from 10,000,000
shares to 20,000,000 shares. The amendment passed as 7,651,774 votes were cash in favor of
the amendment. The votes cast in favor of the proposal represents approximately 88% of the
total votes cast.
 
  (a)
    
    Exhibits
 Exhibit 31.1
    
    CEO Certification. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.Exhibit 31.2
    
    CFO Certification. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.Exhibit 32.1
    
    CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.Exhibit 32.2
    
    CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 (b)
    
    A Form 8-K Report, dated April 18, 2007 was filed during the quarter ended June 30, 2007.A Form 8-K Report, dated April 19, 2007 was filed during the quarter ended June 30, 2007.A Form 8-K Report, dated April 26, 2007 was filed during the quarter ended June 30, 2007.A Form 8-K Report, dated May 15, 2007 was filed during the quarter ended June 30, 2007.
 38




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##### Table of Contents



SIGNATURES
  Dearborn Bancorp, Inc.
(Registrant)/s/ John E. DemmerJohn E. DemmerChairman/s/ Michael J. RossMichael J. RossPresident and Chief Executive Officer/s/ Jeffrey L. KarafaJeffrey L. KarafaTreasurer and Chief Financial Officer
  39