##### Table of Contents



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 September 30, 2006.
 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
    
    5,617,565
  o þ o
  o þ




---



##### Table of Contents



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  September 30, 2006, December 31, 2005 and September 30, 2005
    
    
    4Consolidated Statements of Income - For the Three and Nine Months Ended September 30, 2006 and 2005
    
    
    5Consolidated Statements of Comprehensive Income  - For the Three and Nine Months Ended September 30, 2006 and 2005
    
    
    6Consolidated Statements of Cash Flows - For the Nine Months Ended September 30, 2006 and 2005
    
    
    7-8Notes to Consolidated Financial Statements
    
    
    9-16Item 1A
    
    
    
    Risk Factors
    
    
    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 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 4.   Submission of Matters to a Vote of Security HoldersItem 5.   Other InformationSIGNATURES
    
    
    
    
    39CEO Certification pursuant to Section 302CFO Certification pursuant to Section 302CEO Certification pursuant to Section 906CFO Certification pursuant to Section 906
 2




---



##### Table of Contents



/s/ Crowe Chizek and Company LLCGrand Rapids, MichiganNovember 8, 2006
 3




---



##### Table of Contents



DEARBORN BANCORP, INC. AND SUBSIDIARY
 
 CONSOLIDATED BALANCE SHEETS (unaudited)
 (Dollars, in thousands)
    
    09/30/06
    
    
    12/31/05
    
    
    09/30/05ASSETSCash and cash equivalentsCash and due from banks
    
    $
    8,975
    
    
    $
    7,118
    
    
    $
    8,714Federal funds sold
    
    
    9,093
    
    
    
    2,268
    
    
    
    7,893Interest bearing deposits with banks
    
    
    52
    
    
    
    69
    
    
    
    74Total cash and cash equivalents
    
    
    18,120
    
    
    
    9,455
    
    
    
    16,681Mortgage loans held for sale
    
    
    1,096
    
    
    
    1,041
    
    
    
    2,697Securities, available for sale
    
    
    5,837
    
    
    
    17,153
    
    
    
    14,137Federal Home Loan Bank stock
    
    
    1,290
    
    
    
    1,293
    
    
    
    1,293LoansLoans
    
    
    741,030
    
    
    
    657,037
    
    
    
    645,003Allowance for loan loss
    
    
    (7,615
    )
    
    
    (6,808
    )
    
    
    (6,757
    )Net loans
    
    
    733,415
    
    
    
    650,229
    
    
    
    638,246Premises and equipment, net
    
    
    14,173
    
    
    
    13,792
    
    
    
    14,101Real estate owned
    
    
    52
    
    
    
    663
    
    
    
    661Goodwill
    
    
    5,473
    
    
    
    5,473
    
    
    
    5,473Other intangible assets
    
    
    2,103
    
    
    
    2,291
    
    
    
    2,368Accrued interest receivable
    
    
    2,868
    
    
    
    2,586
    
    
    
    2,014Other assets
    
    
    3,372
    
    
    
    2,521
    
    
    
    2,726Total assets
    
    $
    787,799
    
    
    $
    706,497
    
    
    $
    700,397LIABILITIESDepositsNon-interest bearing deposits
    
    $
    54,292
    
    
    $
    59,652
    
    
    $
    60,222Interest bearing deposits
    
    
    596,819
    
    
    
    522,786
    
    
    
    513,732Total deposits
    
    
    651,111
    
    
    
    582,438
    
    
    
    573,954Other liabilitiesFederal funds purchased
    
    
    10,200
    
    
    
    
    
    
    
    4,500Securities sold under agreements to repurchase
    
    
    631
    
    
    
    1,615
    
    
    
    2,361Federal Home Loan Bank advances
    
    
    25,561
    
    
    
    25,588
    
    
    
    25,588Other liabilities
    
    
    421
    
    
    
    960
    
    
    
    998Accrued interest payable
    
    
    2,508
    
    
    
    1,683
    
    
    
    1,507Subordinated debentures
    
    
    10,000
    
    
    
    10,000
    
    
    
    10,000Total liabilities
    
    
    700,432
    
    
    
    622,284
    
    
    
    618,908STOCKHOLDERS EQUITYCommon stock - 10,000,000 shares authorized,
5,617,565 shares at 09/30/06, 5,683,061 shares at
12/31/05; and 5,663,329 shares at 09/30/05
    
    
    85,353
    
    
    
    83,684
    
    
    
    79,240Retained earnings
    
    
    2,025
    
    
    
    573
    
    
    
    2,293Accumulated other comprehensive loss
    
    
    (11
    )
    
    
    (44
    )
    
    
    (44
    )Total stockholders equity
    
    
    87,367
    
    
    
    84,213
    
    
    
    81,489Total liabilities and stockholders equity
    
    $
    787,799
    
    
    $
    706,497
    
    
    $
    700,397
  4




---



##### Table of Contents



DEARBORN BANCORP, INC. AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF INCOME (unaudited)
 Three Months Ended
    
    
    Nine Months Ended(In thousands, except share and per share data)
    
    09/30/06
    
    
    09/30/05
    
    
    09/30/06
    
    
    09/30/05Interest incomeInterest on loans, including fees
    
    $
    13,505
    
    
    $
    11,133
    
    
    $
    38,129
    
    
    $
    31,153Interest on securities, available for sale
    
    
    204
    
    
    
    125
    
    
    
    519
    
    
    
    425Interest on federal funds
    
    
    155
    
    
    
    60
    
    
    
    376
    
    
    
    187Interest on deposits with banks
    
    
    6
    
    
    
    16
    
    
    
    152
    
    
    
    99Total interest income
    
    
    13,870
    
    
    
    11,334
    
    
    
    39,176
    
    
    
    31,864Interest expenseInterest on deposits
    
    
    6,332
    
    
    
    3,730
    
    
    
    16,783
    
    
    
    10,107Interest on other borrowings
    
    
    467
    
    
    
    361
    
    
    
    1,100
    
    
    
    949Interest on subordinated debentures
    
    
    225
    
    
    
    190
    
    
    
    635
    
    
    
    510Total interest expense
    
    
    7,024
    
    
    
    4,281
    
    
    
    18,518
    
    
    
    11,566Net interest income
    
    
    6,846
    
    
    
    7,053
    
    
    
    20,658
    
    
    
    20,298Provision for loan losses
    
    
    470
    
    
    
    248
    
    
    
    782
    
    
    
    991Net interest income after provision for loan losses
    
    
    6,376
    
    
    
    6,805
    
    
    
    19,876
    
    
    
    19,307Non-interest incomeService charges on deposit accounts
    
    
    184
    
    
    
    164
    
    
    
    507
    
    
    
    480Fees for other services to customers
    
    
    12
    
    
    
    16
    
    
    
    38
    
    
    
    65Gain on the sale of loans
    
    
    79
    
    
    
    125
    
    
    
    254
    
    
    
    459Gain (loss) on the sale of securities,
available for sale
    
    
    9
    
    
    
    (44
    )
    
    
    9
    
    
    
    (44
    )Other than temporary impairment of securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (696
    )Gain (loss) on the sale of real estate
    
    
    
    
    
    
    4
    
    
    
    (103
    )
    
    
    92Other income
    
    
    13
    
    
    
    40
    
    
    
    32
    
    
    
    56Total non-interest income
    
    
    297
    
    
    
    305
    
    
    
    737
    
    
    
    412Non-interest expensesSalaries and employee benefits
    
    
    2,637
    
    
    
    2,357
    
    
    
    7,514
    
    
    
    7,003Commissions on the origination of loans
    
    
    87
    
    
    
    48
    
    
    
    152
    
    
    
    179Occupancy and equipment expense
    
    
    602
    
    
    
    628
    
    
    
    1,827
    
    
    
    1,875Intangible expense
    
    
    63
    
    
    
    76
    
    
    
    188
    
    
    
    153Advertising and marketing
    
    
    138
    
    
    
    74
    
    
    
    339
    
    
    
    297Stationery and supplies
    
    
    124
    
    
    
    96
    
    
    
    285
    
    
    
    281Professional services
    
    
    220
    
    
    
    265
    
    
    
    578
    
    
    
    644Data processing
    
    
    124
    
    
    
    95
    
    
    
    380
    
    
    
    324Other operating expenses
    
    
    306
    
    
    
    322
    
    
    
    914
    
    
    
    1,002Total non-interest expenses
    
    
    4,301
    
    
    
    3,961
    
    
    
    12,177
    
    
    
    11,758Income before income tax provision
    
    
    2,372
    
    
    
    3,149
    
    
    
    8,436
    
    
    
    7,961Income tax provision
    
    
    807
    
    
    
    1,070
    
    
    
    2,869
    
    
    
    2,705Net income
    
    $
    1,565
    
    
    $
    2,079
    
    
    $
    5,567
    
    
    $
    5,256Per share data:Net income  basic
    
    $
    0.28
    
    
    $
    0.37
    
    
    $
    0.98
    
    
    $
    0.94Net income  diluted
    
    $
    0.26
    
    
    $
    0.35
    
    
    $
    0.93
    
    
    $
    0.88Weighted average number of shares outstanding  basic
    
    
    5,645,102
    
    
    
    5,633,994
    
    
    
    5,681,843
    
    
    
    5,599,836Weighted average number of shares outstanding  diluted
    
    
    5,941,324
    
    
    
    5,988,593
    
    
    
    5,978,345
    
    
    
    5,975,606
  5




---



##### Table of Contents



DEARBORN BANCORP, INC. AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
 Three Months Ended
    
    
    Nine Months Ended(In thousands)
    
    09/30/06
    
    
    09/30/05
    
    
    09/30/06
    
    
    09/30/05Net income
    
    $
    1,565
    
    
    $
    2,079
    
    
    $
    5,567
    
    
    $
    5,256Other comprehensive income (loss), net of taxUnrealized gains (losses) on securitiesUnrealized holding gains (losses) arising during
period
    
    
    44
    
    
    
    (42
    )
    
    
    59
    
    
    
    191Less: reclassification adjustment for (gains) losses
included in net income
    
    
    (9
    )
    
    
    44
    
    
    
    (9
    )
    
    
    740Tax effects
    
    
    (12
    )
    
    
    (2
    )
    
    
    (17
    )
    
    
    (317
    )Other comprehensive income
    
    
    23
    
    
    
    
    
    
    
    33
    
    
    
    614Comprehensive income
    
    $
    1,588
    
    
    $
    2,079
    
    
    $
    5,600
    
    
    $
    5,870
  6




---



##### Table of Contents



DEARBORN BANCORP, INC. AND SUBSIDIARY
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Nine Months Ended(In thousands)
    
    9/30/06
    
    
    9/30/05Cash flows from operating activitiesInterest and fees received
    
    $
    38,897
    
    
    $
    31,437Interest paid
    
    
    (17,693
    )
    
    
    (9,707
    )Proceeds from sale of mortgage loans held for sale
    
    
    16,810
    
    
    
    26,390Origination of mortgage loans held for sale
    
    
    (16,611
    )
    
    
    (26,936
    )Taxes paid
    
    
    (3,490
    )
    
    
    (2,380
    )Gain/(loss) on sale of real estate owned
    
    
    (103
    )
    
    
    92Cash paid to suppliers and employees
    
    
    (10,993
    )
    
    
    (13,187
    )Net cash provided by operating activities
    
    
    6,817
    
    
    
    5,709Cash flows from investing activitiesProceeds from calls, maturities, sales and repayments
of securities, available for sale
    
    
    30,669
    
    
    
    11,409Purchases of securities available for sale
    
    
    (19,039
    )
    
    
    (3,535
    )(Purchase) sale of Federal Home Loan Bank stock
    
    
    3
    
    
    
    (171
    )Increase in loans, net of payments received
    
    
    (83,968
    )
    
    
    (57,559
    )Purchases of property and equipment
    
    
    (1,087
    )
    
    
    (1,691
    )Net cash used in investing activities
    
    
    (73,422
    )
    
    
    (51,547
    )Cash flows from financing activitiesNet decrease in non-interest bearing deposits
    
    
    (5,360
    )
    
    
    (2,843
    )Net increase in interest bearing deposits
    
    
    74,033
    
    
    
    35,917Increase (decrease) in Federal Home Loan Bank advances
    
    
    (27
    )
    
    
    4,974Net increase in federal funds payable
    
    
    10,200
    
    
    
    4,500Decrease in other borrowings
    
    
    (984
    )
    
    
    (1,754
    )Purchase of common stock
    
    
    (2,824
    )
    
    
    Exercise of stock options
    
    
    174
    
    
    
    764Tax benefit of stock options exercised
    
    
    58
    
    
    
    Net cash provided by financing activities
    
    
    75,270
    
    
    
    41,558Increase (decrease) in cash and cash equivalents
    
    
    8,665
    
    
    
    (4,188
    )Cash and cash equivalents at the beginning of the period
    
    
    9,455
    
    
    
    20,869Cash and cash equivalents at the end of the period
    
    $
    18,120
    
    
    $
    16,681
  7




---



##### Table of Contents



DEARBORN BANCORP, INC. AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
 Nine Months Ended(In thousands)
    
    9/30/06
    
    
    9/30/05Reconciliation of net income to net cash provided by operating activitiesNet income
    
    $
    5,567
    
    
    $
    5,256Adjustments
to reconcile net income to net cash provided by operating activitiesProvision for loan losses
    
    
    782
    
    
    
    991Depreciation and amortization expense
    
    
    706
    
    
    
    714Restricted stock award expense
    
    
    101
    
    
    
    Stock option expense
    
    
    45
    
    
    
    Accretion of discount on investment securities
    
    
    (272
    )
    
    
    (30
    )Amortization of premium on investment securities
    
    
    8
    
    
    
    25Amortization of intangible assets
    
    
    188
    
    
    
    153Increase in mortgage loans held for sale
    
    
    (55
    )
    
    
    (1,005
    )Increase in interest receivable
    
    
    (282
    )
    
    
    (125
    )Increase in interest payable
    
    
    825
    
    
    
    400Increase in other assets
    
    
    (257
    )
    
    
    (576
    )Decrease in other liabilities
    
    
    (539
    )
    
    
    (94
    )Net cash provided by operating activities
    
    $
    6,817
    
    
    $
    5,709Supplemental noncash disclosures:Transfers from loans to real estate owned
    
    $
    91
    
    
    $
    1,850
  8




---



##### Table of Contents



A.
    
    Accounting and Reporting PoliciesThe consolidated financial statements of Dearborn Bancorp, Inc. (the Corporation) include
the consolidation of its only subsidiary, Community Bank of Dearborn (the 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 September 30, 2006 and 2005,
and December 31, 2005 and for the three and nine month periods ended September 30, 2006 and
2005 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 quarter are not necessarily indicative of results of
operations for the entire year.The consolidated financial statements as of September 30, 2006 and 2005, and for the three
and nine month periods ended September 30, 2006 and 2005 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 interim 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 thereon included in the Corporations 2005 Annual
Report to Stockholders 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.
 9




---



##### Table of Contents



A.
    
    Accounting and Reporting Policies (continued)The Corporation adopted FAS 123, Revised on January 1, 2006. FAS 123, Revised, requires
companies to record compensation cost for stock options provided to employees in return
for employment service. The cost is measured at the fair value of the options when granted,
and this cost is expensed over the employment service period, which is normally the vesting
period of the options. This will apply to awards granted or modified in fiscal years
beginning in 2006. The effect on results of operations will depend on the level of future
option grants and the calculation of the fair value of the options granted at such future
date, as well as the vesting periods provided, and so cannot currently be predicted.
Options granted under the 2005 Long Term Incentive Plan were variable, as defined by FAS
123. Upon adoption of FAS 123, Revised, the remaining unrecognized fair value of these
options at the grant date will be expensed over the remaining service period. Any income
tax benefit for the exercise of stock options in excess of income tax expense for
financial reporting purposes will be classified as a cash inflow for financing
activities and a cash outflow for operating activities in the statement of cash flows. For
additional information regarding the Corporations incentive stock plans, refer to
Note C.
 10




---



##### Table of Contents



B.
    
    Securities Available For SaleThe amortized cost and fair value of securities available for sale are as follows
(in thousands):
 September 30, 2006Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueUS Treasury securities
    
    $
    4,995
    
    
    $
    
    
    
    
    ($20
    )
    
    $
    4,975Mortgage backed securities
    
    
    441
    
    
    
    
    
    
    
    (1
    )
    
    
    440Municipal securities
    
    
    418
    
    
    
    4
    
    
    
    
    
    
    
    422Totals
    
    $
    5,854
    
    
    $
    4
    
    
    
    ($21
    )
    
    $
    5,837
 December 31, 2005Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueUS Treasury securities
    
    $
    16,665
    
    
    $
    
    
    
    
    ($68
    )
    
    $
    16,597Mortgage backed securities
    
    
    555
    
    
    
    2
    
    
    
    (1
    )
    
    
    556Totals
    
    $
    17,220
    
    
    $
    2
    
    
    
    ($69
    )
    
    $
    17,153
 The amortized cost and fair value of securities available for sale at September 30,
2006 by contractual maturity are shown below (in thousands):
 Amortized
    
    
    FairCost
    
    
    ValueDue in three months or less
    
    $
    1,000
    
    
    $
    996Due in over three months through one year
    
    
    1,995
    
    
    
    1,989Due in over one year through five years
    
    
    2,000
    
    
    
    1,990Due in over five years
    
    
    418
    
    
    
    422Mortgage backed securities
    
    
    441
    
    
    
    440Totals
    
    $
    5,854
    
    
    $
    5,837
 11




---



##### Table of Contents



The entire portfolio has a net unrealized loss of $17,000 at September 30, 2006.
Securities with unrealized losses at September 30, 2006, aggregated by investment category
and the length of time that the securities have been in a continuous loss position (in
thousands) are as follows:
 Investment category
    
    Fair Value
    
    
    Unrealized LossUS treasury securities
    
    $
    4,975
    
    
    
    ($20
    )Mortgage backed securities
    
    
    171
    
    
    
    (1
    )Total temporarily impaired
    
    $
    5,146
    
    
    
    ($21
    )
 Length of time in a continuous loss position
    
    Fair Value
    
    
    Unrealized LossLess than one year
    
    $
    4,149
    
    
    
    ($17
    )One to three years
    
    
    997
    
    
    
    (4
    )Total temporarily impaired
    
    $
    5,146
    
    
    
    ($21
    )
 Unrealized losses on these securities have not been recognized into income 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 largely due to
changes in interest rates. The fair value is expected to recover as the securities approach
their maturity date or reset date.The Corporation does not hold any securities in the Held to Maturity category nor does the
Corporation hold or utilize derivatives.
 12




---



##### Table of Contents



C.
    
    Stock Incentive 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 738,729 shares. No further options grants may be made under this plan.A summary of the option activity in the 1994 Plan follows:
 WeightedAvailable
    
    
    
    
    
    
    AverageFor
    
    
    Options
    
    
    ExerciseGrant
    
    
    Outstanding
    
    
    PriceOutstanding at January 1, 2006
    
    
    
    
    
    
    492,510
    
    
    $
    8.40Exercised
    
    
    
    
    
    
    (33,861
    )
    
    
    5.53Outstanding at September 30, 2006
    
    
    
    
    
    
    458,649
    
    
    $
    8.61
 For the options outstanding at September 30, 2006, the range of exercise prices was
$4.39 to $15.38 per share with a weighted-average remaining contractual term of 4.7 years.
At September 30, 2006, 458,649 options were exercisable at weighted average exercise price
of $8.61 per share. There were no antidilutive options outstanding for the quarters ended
September 30, 2006 and 2005, respectively. The intrinsic value of options exercised during
the nine months ended September, 2006 was approximately $570,000 and the intrinsic value of
options outstanding at September 30, 2006 was approximately $6,958,000.During 2005, the Corporation initiated the 2005 Long-Term Incentive Plan. Under this plan,
up to 330,750 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. In October of 2005 and
August of 2006, the Corporations Board of Directors approved grants of stock options and
restricted stock. 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 options. 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




---



##### 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. A summary of options granted under the 2005 Incentive
Plan is listed below:
 WeightedAverageOptions
    
    ExerciseGrant Date
    
    Outstanding
    
    Price
    
    Vesting Date10/12/2005
    
    
    16,631
    
    
    $
    21.87
    
    
    6/30/20088/29/2006
    
    
    16,934
    
    
    
    23.95
    
    
    6/30/200933,565
    
    
    $
    22.92
 There were 33,565 anti-dilutive stock options for the quarter ended September 30, 2006.
There were no anti-dilutive stock options for the quarter ended September 30, 2005. The
intrinsic value of the options outstanding at September 30, 2006 was approximately $32,000.The following assumptions were used to determine weighted average fair value of the options
granted on 8/29/06 as of the grant date:
 2006Risk-free interest rate
    
    
    4.77
    %Expected option life
    
    6.5 yearsDividend yield
    
    
    0.00
    %Expected volatility of stock price
    
    
    18.36
    %
 During the nine months ended September 30, 2006, the Corporation recognized stock
option compensation expense of $45,000. The stock options vest on June 30, 2008 and June
30, 2009. Compensation cost of $67,000, $87,000 and $44,000 is expected to be recognized
during 2006, 2007 and 2008, respectively.Restricted Stock Grants   Restricted stock totaling 12,231 shares and 11,656 shares were
granted to officers on October 12, 2005 and August 29, 2006, respectively. The restricted
stock vests on June 30, 2008 and June 30, 2009. Compensation cost of $101,000 and a tax
benefit of $34,000 was recognized during the nine months ended September 30, 2006.
Compensation cost of $150,000, $197,000 and $93,000 is expected to be recognized during
2006, 2007 and 2008, respectively.
 14




---



##### Table of Contents



C.
    
    Incentive Stock Plans (cont)FAS 123, Revised, adopted January 1, 2006 requires certain additional disclosures beyond
what was included in the Corporations 2005 Annual Report. The intrinsic value of options
exercised during 2003, 2004 and 2005 were $572,000, $1,280,000 and $1,592,000, respectively.
The intrinsic value of options outstanding at December 31, 2005 was $7,472,000 for options
issued under the 1994 Stock Option Plan and $27,000 for options issued under the 2005
Long-Term Incentive Plan. The fair value of options vesting during 2003 and 2004 was
$792,000 and $9,000, respectively. No options vested in 2005. Shares issued for option
exercises are expected to come from authorized but unissued shares.D.
    
    Effect of Newly Issued But Not Yet Effective Accounting StandardsIn June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income
Taxes  an Interpretation of FASB Statement No. 109 (FIN 48), which clarifies the accounting
for uncertainty in income taxes recognized in a companys financial statements in accordance
with SFAS 109, Accounting for Income Taxes. FIN 48 prescribes a recognition and measurement
threshold for a tax position taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim periods,
disclosure, and transition. FIN 48 is effective for fiscal years beginning after December
15, 2006. The Corporation has not completed its evaluation of the impact of the adoption of
FIN 48.In September 2006, the Securities and Exchange Commission released Staff Accounting Bulletin
(SAB) 108. This SAB provides detailed guidance to registrants in the determination of what
is material to their financial statements. This SAB is required to be applied to financial
statements issued after November 15, 2006. Upon adoption, the cumulative effect of applying
the new guidance is to be reflected as an adjustment to opening retained earnings as of the
beginning of the current fiscal year. The Corporation has not completed its evaluation of
the impact of SAB 109.
 15




---



##### Table of Contents



E.
    
    AcquisitionOn September 14, 2006, the Corporation signed a definitive agreement to acquire Fidelity
Financial Corporation of Michigan (Fidelity) for $70,500,000 in cash. The transaction is
scheduled to close in January 2007, pending regulatory approval. As of June 30, 2006,
Fidelity had total assets of $251,000,000, gross loans of $185,000,000 and total deposits
of $217,000,000.The acquisition will be accounted for using the purchase method of accounting which
requires the purchase price to be allocated to the tangible and identified intangible
assets purchased and liabilities assumed based upon their estimated fair values at the date
of acquisition. These purchase accounting adjustments will be amortized or accreted into
income over the estimated lives of the related assets and liabilities. Goodwill will not
be amortized, but will be reviewed for impairment on an annual basis. Goodwill and other
intangible assets will be tax deductible over 15 years. Goodwill and other intangible
assets are expected to aggregate to approximately $42,000,000.The acquisition of Fidelity will be funded primarily with the issuance of 2,700,000 shares
of the Corporations common stock in a public offering during November 2006. The stock
offering is expected to raise approximately $55,000,000. The remainder of the purchase
price of Fidelity is expected to be funded with cash obtained through a reduction in
federal funds sold.
 
  There have been no material changes to the risk factors applicable to the Corporation from
those disclosed in its Annual report on Form 10-K for the year ended December 31, 2005.
 16




---



##### Table of Contents



PART I    FINANCIAL INFORMATION
 
     17




---



##### Table of Contents



Overview
  Date Opened
    
    Location
    
    Type of officeFebruary 1994
    
    22290 Michigan Avenue
Dearborn, Michigan 48124
    
    Full service retail branch with ATMDecember 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 branch
Regional lending centerOctober 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 centerOctober 2004
    
    2180 West Stadium Blvd.

Ann Arbor, MI 48103
    
    Full service retail branch with ATMDecember 2004
    
    1360 Porter Street
Dearborn, MI 48124
    
    Loan production office
Regional lending center
  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
 18




---



##### Table of Contents



19




---



##### Table of Contents



20




---



##### Table of Contents



Results of Operations
  Net Interest Income
 2006 Compared to 2005.
 Average Balances, Interest Rates and Yields.
 21




---



##### Table of Contents



Three months ended
    
    
    Three months endedSeptember 30, 2006
    
    
    September 30, 2005Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average(In thousands)
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateAssetsInterest-bearing deposits with banks
    
    $
    491
    
    
    $
    6
    
    
    
    4.85
    %
    
    $
    2,036
    
    
    $
    16
    
    
    
    3.12
    %Federal funds sold
    
    
    11,436
    
    
    
    155
    
    
    
    5.38
    %
    
    
    7,013
    
    
    
    60
    
    
    
    3.39
    %Investment securities, available for sale
    
    
    17,307
    
    
    
    204
    
    
    
    4.68
    %
    
    
    17,838
    
    
    
    125
    
    
    
    2.78
    %Loans
    
    
    715,783
    
    
    
    13,505
    
    
    
    7.49
    %
    
    
    638,699
    
    
    
    11,133
    
    
    
    6.92
    %Sub-total earning assets
    
    
    745,017
    
    
    
    13,870
    
    
    
    7.39
    %
    
    
    665,586
    
    
    
    11,334
    
    
    
    6.76
    %Other assets
    
    
    29,712
    
    
    
    
    
    
    
    
    
    
    
    31,312Total assets
    
    $
    774,729
    
    
    
    
    
    
    
    
    
    
    $
    696,898Liabilities and stockholders equityInterest bearing deposits
    
    $
    578,425
    
    
    $
    6,332
    
    
    
    4.34
    %
    
    $
    507,529
    
    
    $
    3,730
    
    
    
    2.92
    %Other borrowings
    
    
    48,621
    
    
    
    692
    
    
    
    5.65
    %
    
    
    38,145
    
    
    
    551
    
    
    
    5.73
    %Sub-total interest bearing liabilities
    
    
    627,046
    
    
    
    7,024
    
    
    
    4.44
    %
    
    
    545,674
    
    
    
    4,281
    
    
    
    3.11
    %Non-interest bearing deposits
    
    
    57,649
    
    
    
    
    
    
    
    
    
    
    
    62,494Other liabilities
    
    
    2,486
    
    
    
    
    
    
    
    
    
    
    
    2,413Stockholders equity
    
    
    87,548
    
    
    
    
    
    
    
    
    
    
    
    80,712Total liabilities and stockholders equity
    
    $
    774,729
    
    
    
    
    
    
    
    
    
    
    $
    696,898Net interest income
    
    
    
    
    
    $
    6,846
    
    
    
    
    
    
    
    
    
    
    $
    7,053Net interest rate spread
    
    
    
    
    
    
    
    
    
    
    2.95
    %
    
    
    
    
    
    
    
    
    
    
    3.65
    %Net interest margin on earning assets
    
    
    
    
    
    
    
    
    
    
    3.65
    %
    
    
    
    
    
    
    
    
    
    
    4.20
    %
 22




---



##### Table of Contents



Nine Months Ended
    
    
    Nine Months EndedSeptember 30, 2006
    
    
    September 30, 2005Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average(In thousands)
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateAssetsInterest-bearing deposits with banks
    
    $
    4,427
    
    
    $
    152
    
    
    
    4.59
    %
    
    $
    4,506
    
    
    $
    99
    
    
    
    2.94
    %Federal funds sold
    
    
    9,929
    
    
    
    376
    
    
    
    5.06
    %
    
    
    8,516
    
    
    
    187
    
    
    
    2.94
    %Investment securities, available for sale
    
    
    15,849
    
    
    
    519
    
    
    
    4.38
    %
    
    
    20,123
    
    
    
    425
    
    
    
    2.82
    %Loans
    
    
    688,178
    
    
    
    38,129
    
    
    
    7.41
    %
    
    
    621,286
    
    
    
    31,153
    
    
    
    6.70
    %Sub-total earning assets
    
    
    718,383
    
    
    
    39,176
    
    
    
    7.29
    %
    
    
    654,431
    
    
    
    31,864
    
    
    
    6.51
    %Other assets
    
    
    30,508
    
    
    
    
    
    
    
    
    
    
    
    32,759Total assets
    
    $
    748,891
    
    
    
    
    
    
    
    
    
    
    $
    687,190Liabilities and stockholders equityInterest bearing deposits
    
    $
    559,676
    
    
    $
    16,783
    
    
    
    4.01
    %
    
    $
    501,985
    
    
    $
    10,107
    
    
    
    2.69
    %Other borrowings
    
    
    41,908
    
    
    
    1,735
    
    
    
    5.54
    %
    
    
    41,643
    
    
    
    1,459
    
    
    
    4.68
    %Sub-total interest bearing liabilities
    
    
    601,584
    
    
    
    18,518
    
    
    
    4.12
    %
    
    
    543,628
    
    
    
    11,566
    
    
    
    2.84
    %Non-interest bearing deposits
    
    
    58,152
    
    
    
    
    
    
    
    
    
    
    
    63,052Other liabilities
    
    
    2,128
    
    
    
    
    
    
    
    
    
    
    
    2,168Stockholders equity
    
    
    87,027
    
    
    
    
    
    
    
    
    
    
    
    78,342Total liabilities and stockholders equity
    
    $
    748,891
    
    
    
    
    
    
    
    
    
    
    $
    687,190Net interest income
    
    
    
    
    
    $
    20,658
    
    
    
    
    
    
    
    
    
    
    $
    20,298Net interest rate spread
    
    
    
    
    
    
    
    
    
    
    3.17
    %
    
    
    
    
    
    
    
    
    
    
    3.67
    %Net interest margin on earning assets
    
    
    
    
    
    
    
    
    
    
    3.84
    %
    
    
    
    
    
    
    
    
    
    
    4.15
    %
 23




---



##### Table of Contents



Rate/Volume Analysis.
 Three Months Ended
    
    
    Nine Months Ended2006/2005
    
    
    2006/2005Change 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
    (
    $
    19
    )
    
    $
    9
    
    (
    $
    10
    )
    
    $
    16
    
    
    $
    37
    
    
    $
    53Federal funds sold
    
    
    60
    
    
    
    35
    
    
    
    95
    
    
    
    98
    
    
    
    91
    
    
    
    189Investment securities, available for sale
    
    
    (6
    )
    
    
    85
    
    
    
    79
    
    
    
    (65
    )
    
    
    159
    
    
    
    94Loans
    
    
    1,462
    
    
    
    910
    
    
    
    2,372
    
    
    
    4,789
    
    
    
    2,187
    
    
    
    6,976Total earning assets
    
    $
    1,497
    
    
    $
    1,039
    
    
    $
    2,536
    
    
    $
    4,838
    
    
    $
    2,474
    
    
    $
    7,312LiabilitiesInterest bearing deposits
    
    $
    791
    
    
    $
    1,811
    
    
    $
    2,602
    
    
    $
    3,370
    
    
    $
    3,306
    
    
    $
    6,676Other borrowings
    
    
    149
    
    
    
    (8
    )
    
    
    141
    
    
    
    99
    
    
    
    177
    
    
    
    276Total interest bearing liabilities
    
    $
    940
    
    
    $
    1,803
    
    
    $
    2,743
    
    
    $
    3,469
    
    
    $
    3,483
    
    
    $
    6,952Net interest income
    
    
    
    
    
    
    
    
    (
    $
    207
    )
    
    
    
    
    
    
    
    
    
    $
    360Net interest rate spread
    
    
    
    
    
    
    
    
    
    
    (0.71
    %
    )
    
    
    
    
    
    
    
    
    
    (0.49
    %
    )Net interest margin on earning assets
    
    
    
    
    
    
    
    
    
    
    (0.56
    %
    )
    
    
    
    
    
    
    
    
    
    (0.30
    %
    )
 24




---



##### Table of Contents



Provision for Loan Losses
 2006 Compared to 2005.
 Non-interest Income
 2006 Compared to 2005.
  25




---



##### Table of Contents



Non-interest Expense
 2006 Compared to 2005.
  Income Tax Provision
 2006 Compared to 2005.
 26




---



##### Table of Contents



Comparison of Financial Condition at September 30, 2006 and December 31, 2005
 Assets.
 Federal Funds Sold.
 Interest bearing deposits with banks.
 Mortgage Loans Held for Sale.
 Securities  Available for Sale.
  Federal Home Loan Bank Stock.
 27




---



##### Table of Contents



Loans.
 09/30/06
    
    
    12/31/05
    
    
    09/30/05Consumer loans
    
    $
    33,261
    
    
    $
    35,041
    
    
    $
    38,146Commercial, financial, & other
    
    
    127,024
    
    
    
    110,805
    
    
    
    128,996Commercial real estate construction
    
    
    133,201
    
    
    
    118,358
    
    
    
    97,924Commercial real estate mortgages
    
    
    402,008
    
    
    
    345,536
    
    
    
    334,660Residential real estate mortgages
    
    
    45,536
    
    
    
    47,297
    
    
    
    45,277741,030
    
    
    
    657,037
    
    
    
    645,003Allowance for loan losses
    
    
    (7,615
    )
    
    
    (6,808
    )
    
    
    (6,757
    )$
    733,415
    
    
    $
    650,229
    
    
    $
    638,246
  09/30/06
    
    
    12/31/05
    
    
    09/30/05Over 90 days past due and still accruing
    
    $
    189
    
    
    $
    189
    
    
    $
    62Non-accrual loans
    
    
    4,602
    
    
    
    984
    
    
    
    944Total non-performing loans
    
    
    4,791
    
    
    
    1,173
    
    
    
    1,006Real estate owned
    
    
    52
    
    
    
    661
    
    
    
    661Other repossessed assets
    
    
    
    
    
    
    2
    
    
    
    Other non-performing assets
    
    
    52
    
    
    
    663
    
    
    
    661Total non-performing assets
    
    $
    4,843
    
    
    $
    1,836
    
    
    $
    1,667
  Number ofLoans
    
    
    BalanceConsumer loans
    
    
    2
    
    
    $
    68Commercial, financial, & other
    
    
    1
    
    
    
    300Commercial real estate construction
    
    
    1
    
    
    
    945Commercial real estate mortgages
    
    
    6
    
    
    
    3,062Residential real estate mortgages
    
    
    2
    
    
    
    227Total non-accrual loans
    
    
    12
    
    
    $
    4,602
 28




---



##### Table of Contents



Allowance for Loan Losses.
  Nine months ended
    
    
    Year Ended
    
    
    Nine months ended09/30/06
    
    
    12/31/05
    
    
    09/30/05Balance, beginning of year
    
    $
    6,808
    
    
    $
    5,884
    
    
    $
    5,884Allowance on loans acquired
    
    
    
    
    
    
    
    
    
    
    Charge-offs:Consumer loans
    
    
    
    
    
    
    112
    
    
    
    105Commercial, financial & other
    
    
    40
    
    
    
    169
    
    
    
    122Commercial real estate construction
    
    
    
    
    
    
    
    
    
    
    Commercial real estate mortgages
    
    
    36
    
    
    
    86
    
    
    
    86Residential real estate mortgages
    
    
    38
    
    
    
    
    
    
    
    Recoveries:Consumer loans
    
    
    16
    
    
    
    37
    
    
    
    27Commercial, financial & other
    
    
    102
    
    
    
    131
    
    
    
    127Commercial real estate construction
    
    
    
    
    
    
    
    
    
    
    Commercial real estate mortgages
    
    
    21
    
    
    
    10
    
    
    
    9Residential real estate mortgages
    
    
    
    
    
    
    32
    
    
    
    32Net charge-offs (recoveries)
    
    
    (25
    )
    
    
    157
    
    
    
    118Additions charged to operations
    
    
    782
    
    
    
    1,081
    
    
    
    991Balance, end of period
    
    $
    7,615
    
    
    $
    6,808
    
    
    $
    6,757Allowance to total loans
    
    
    1.03
    %
    
    
    1.04
    %
    
    
    1.05
    %Allowance to nonperforming assets
    
    
    157.24
    %
    
    
    370.81
    %
    
    
    405.34
    %Net charge-offs (recoveries) to average
loans
    
    
    0.00
    %
    
    
    0.02
    %
    
    
    0.02
    %
 29




---



##### Table of Contents



Premises and Equipment.
 Real estate owned.
 Goodwill and other intangible assets.
  Accrued Interest Receivable.
 Other Assets
 30




---



##### Table of Contents



Deposits.
 09/30/06
    
    
    12/31/05
    
    
    09/30/05Non-interest bearing:Demand
    
    $
    54,292
    
    
    $
    59,652
    
    
    $
    60,222Interest bearing:Checking
    
    $
    101,587
    
    
    $
    13,413
    
    
    $
    15,286Money market
    
    
    14,928
    
    
    
    26,514
    
    
    
    38,118Savings
    
    
    45,004
    
    
    
    69,503
    
    
    
    74,687Time, under $100,000
    
    
    128,834
    
    
    
    151,038
    
    
    
    140,639Time, $100,000 and over
    
    
    306,466
    
    
    
    262,318
    
    
    
    245,002596,819
    
    
    
    522,786
    
    
    
    513,732Total deposits
    
    $
    651,111
    
    
    $
    582,438
    
    
    $
    573,954
   09/30/06
    
    
    12/31/05
    
    
    09/30/05Interest bearing checking
    
    $
    1,008
    
    
    $
    1,020
    
    
    $
    1,380Time, $100,000 and over
    
    
    101,259
    
    
    
    85,236
    
    
    
    81,264Total municipal deposits
    
    $
    102,267
    
    
    $
    86,256
    
    
    $
    82,644
  31




---



##### 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 ProvisionsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioAs of September 30, 2006Total capital(to risk weighted assets)Consolidated
    
    $
    97,418
    
    
    
    12.69
    %
    
    $
    61,438
    
    
    
    8.00
    %
    
    $
    76,797
    
    
    
    10.00
    %Bank
    
    
    83,022
    
    
    
    10.87
    %
    
    
    61,085
    
    
    
    8.00
    %
    
    
    76,357
    
    
    
    10.00
    %Tier 1 capital(to risk weighted assets)Consolidated
    
    
    89,803
    
    
    
    11.69
    %
    
    
    30,719
    
    
    
    4.00
    %
    
    
    46,078
    
    
    
    6.00
    %Bank
    
    
    75,407
    
    
    
    9.88
    %
    
    
    30,543
    
    
    
    4.00
    %
    
    
    45,814
    
    
    
    6.00
    %Tier 1 capital(to average assets)Consolidated
    
    
    89,803
    
    
    
    11.59
    %
    
    
    30,686
    
    
    
    4.00
    %
    
    
    38,358
    
    
    
    5.00
    %Bank
    
    
    75,407
    
    
    
    10.02
    %
    
    
    30,099
    
    
    
    4.00
    %
    
    
    37,624
    
    
    
    5.00
    %As of December 31, 2005Total capital(to risk weighted assets)Consolidated
    
    $
    93,281
    
    
    
    13.29
    %
    
    $
    56,147
    
    
    
    8.00
    %
    
    $
    70,184
    
    
    
    10.00
    %Bank
    
    
    75,918
    
    
    
    10.89
    %
    
    
    55,756
    
    
    
    8.00
    %
    
    
    69,695
    
    
    
    10.00
    %Tier 1 capital(to risk weighted assets)Consolidated
    
    
    86,472
    
    
    
    12.32
    %
    
    
    28,073
    
    
    
    4.00
    %
    
    
    42,110
    
    
    
    6.00
    %Bank
    
    
    69,109
    
    
    
    9.92
    %
    
    
    27,878
    
    
    
    4.00
    %
    
    
    41,817
    
    
    
    6.00
    %Tier 1 capital(to average assets)Consolidated
    
    
    86,472
    
    
    
    12.32
    %
    
    
    28,074
    
    
    
    4.00
    %
    
    
    35,092
    
    
    
    5.00
    %Bank
    
    
    69,109
    
    
    
    10.09
    %
    
    
    27,400
    
    
    
    4.00
    %
    
    
    34,250
    
    
    
    5.00
    %
  33




---



##### Table of Contents



PART I    FINANCIAL INFORMATION
 
  Interest Rate Sensitivity Analysis.
   34




---



##### Table of Contents



Interest Rate Sensitivity Period1-90
    
    
    91-365
    
    
    1-5
    
    
    Over(In thousands)
    
    Days
    
    
    Days
    
    
    Years
    
    
    5 Years
    
    
    TotalEarning assetsFederal funds sold
    
    $
    9,093
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    9,093Interest bearing deposits with banks
    
    
    52
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    52Mortgage loans held for sale
    
    
    1,096
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,096Securities available for sale
    
    
    997
    
    
    
    1,988
    
    
    
    2,681
    
    
    
    171
    
    
    
    5,837Federal Home Loan Bank stock
    
    
    1,290
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,290Total loans, net of non-accrual
    
    
    262,005
    
    
    
    45,415
    
    
    
    392,715
    
    
    
    36,292
    
    
    
    736,427Total earning assets
    
    
    274,533
    
    
    
    47,403
    
    
    
    395,396
    
    
    
    36,463
    
    
    
    753,795Interest bearing liabilitiesTotal interest bearing deposits
    
    
    282,071
    
    
    
    244,031
    
    
    
    70,717
    
    
    
    
    
    
    
    596,819Federal Home Loan Bank advances
    
    
    10,000
    
    
    
    
    
    
    
    15,561
    
    
    
    
    
    
    
    25,561Federal funds purchased
    
    
    10,200
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,200Other borrowings
    
    
    631
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    631Subordinated debentures
    
    
    10,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,000Total interest bearing liabilities
    
    
    312,902
    
    
    
    244,031
    
    
    
    86,278
    
    
    
    
    
    
    
    643,211Net asset (liability) funding gap
    
    
    (38,369
    )
    
    
    (196,628
    )
    
    
    309,118
    
    
    
    36,463
    
    
    $
    110,584Cumulative net asset (liability) funding gap
    
    ($
    38,369
    )
    
    ($
    234,997
    )
    
    $
    74,121
    
    
    $
    110,584
 35




---



##### Table of Contents



Liquidity.
   Payments Due By PeriodLess Than
    
    
    1-3
    
    
    3-5
    
    
    Over 51 Year
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    TotalSecurities sold under
agreements to repurchase
    
    $
    631
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    631Federal funds purchased
    
    $
    10,200
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,200Certificates of deposit
    
    
    364,584
    
    
    
    42,230
    
    
    
    28,486
    
    
    
    
    
    
    
    435,300Long-term borrowings
    
    
    10,000
    
    
    
    15,561
    
    
    
    
    
    
    
    
    
    
    
    25,561Lease commitments
    
    
    524
    
    
    
    900
    
    
    
    729
    
    
    
    54
    
    
    
    2,207Subordinated debentures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,000
    
    
    
    10,000Totals
    
    $
    385,939
    
    
    $
    58,691
    
    
    $
    29,215
    
    
    $
    10,054
    
    
    $
    483,899
  Amount Of Commitment Expiration Per PeriodLess Than
    
    
    1-3
    
    
    3-5
    
    
    Over 51 Year
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    TotalUnused loan commitments
    
    $
    93,106
    
    
    $
    36,903
    
    
    $
    1,722
    
    
    $
    21,661
    
    
    $
    153,392Standby letters of credit
    
    
    2,362
    
    
    
    6,017
    
    
    
    
    
    
    
    
    
    
    
    8,379Totals
    
    $
    95,468
    
    
    $
    42,920
    
    
    $
    1,722
    
    
    $
    21,661
    
    
    $
    161,771
 36




---



##### 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
 
  (a)
    
    ExhibitsExhibit 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)
    
    Three Form 8-K Reports, dated July 18, 2006, September 14, 2006 and September 22, 2006 were
filed during the quarter ended September 30, 2006.
 38




---



##### 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




---



##### Table of Contents



Exhibit Index
 Exhibits
    
    Description of ExhibitExhibit 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.
 40