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SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For
the Quarterly period ended March 31, 2006.
 Commission
file number 000-24478.
 DEARBORN BANCORP, INC.
  Michigan
    
    38-3073622(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 1360 Porter Street, Dearborn, MI     48124
 (313) 565-5700
 N/A
  þ o
  o þ o
 o þ
  Class
    
    Shares OutstandingCommon Stock
    
    5,445,953




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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  March 31, 2006, December 31, 2005 and March 31, 2005
    
    
    4Consolidated Statements of Income  For the Three
Months Ended March 31, 2006 and 2005
    
    
    5Consolidated Statements of Comprehensive Income   For
the Three Months Ended March 31, 2006 and 2005
    
    
    6Consolidated Statements of Cash Flows  For the
Three Months Ended March 31, 2006 and 2005
    
    
    7Notes to Consolidated Financial Statements
    
    
    8-13Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations, Liquidity and Capital
    
    
    14-27Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    28-30Item 4. Controls and Procedures
    
    
    31Part 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-K
    
    
    32Pursuant 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
    
    
    33CEO Certification pursuant to Section 302CFO Certification pursuant to Section 302CEO Certification pursuant to Section 906CFO Certification pursuant to Section 906
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DEARBORN BANCORP, INC. AND SUBSIDIARY
 
 CONSOLIDATED BALANCE SHEETS (unaudited)
 (Dollars, in thousands)
    
    03/31/06
    
    
    12/31/05
    
    
    03/31/05ASSETSCash and cash equivalentsCash and due from banks
    
    $
    12,966
    
    
    $
    7,118
    
    
    $
    10,933Federal funds sold
    
    
    11,113
    
    
    
    2,268
    
    
    
    7,214Interest bearing deposits with banks
    
    
    23,991
    
    
    
    69
    
    
    
    412Total cash and cash equivalents
    
    
    48,070
    
    
    
    9,455
    
    
    
    18,559Mortgage loans held for sale
    
    
    545
    
    
    
    1,041
    
    
    
    4,458Securities, available for sale
    
    
    11,443
    
    
    
    17,153
    
    
    
    19,652Federal Home Loan Bank stock
    
    
    1,293
    
    
    
    1,293
    
    
    
    1,134LoansLoans
    
    
    676,233
    
    
    
    657,037
    
    
    
    612,472Allowance for loan loss
    
    
    (6,965
    )
    
    
    (6,808
    )
    
    
    (6,288
    )Net loans
    
    
    669,268
    
    
    
    650,229
    
    
    
    606,184Premises and equipment, net
    
    
    13,663
    
    
    
    13,792
    
    
    
    14,017Real estate owned
    
    
    177
    
    
    
    663
    
    
    
    146Goodwill
    
    
    5,473
    
    
    
    5,473
    
    
    
    7,042Other intangible assets
    
    
    2,229
    
    
    
    2,291
    
    
    
    863Accrued interest receivable
    
    
    2,455
    
    
    
    2,586
    
    
    
    2,017Other assets
    
    
    2,543
    
    
    
    2,521
    
    
    
    2,965Total assets
    
    $
    757,159
    
    
    $
    706,497
    
    
    $
    677,037LIABILITIESDepositsNon-interest bearing deposits
    
    $
    60,689
    
    
    $
    59,652
    
    
    $
    64,978Interest bearing deposits
    
    
    571,548
    
    
    
    522,786
    
    
    
    482,829Total deposits
    
    
    632,237
    
    
    
    582,438
    
    
    
    547,807Other liabilitiesFederal funds purchased
    
    
    
    
    
    
    
    
    
    
    16,060Securities sold under agreements to repurchase
    
    
    457
    
    
    
    1,615
    
    
    
    3,083Federal Home Loan Bank advances
    
    
    25,588
    
    
    
    25,588
    
    
    
    20,614Other liabilities
    
    
    350
    
    
    
    960
    
    
    
    1,187Accrued interest payable
    
    
    2,158
    
    
    
    1,683
    
    
    
    1,339Subordinated debentures
    
    
    10,000
    
    
    
    10,000
    
    
    
    10,000Total liabilities
    
    
    670,790
    
    
    
    622,284
    
    
    
    600,090STOCKHOLDERS EQUITYCommon stock
 10,000,000 shares authorized,
5,445,753 shares at 03/31/06, 5,423,556 shares at
12/31/05; and 5,326,090 shares at 03/31/05
    
    
    84,120
    
    
    
    83,944
    
    
    
    75,280Unearned restricted stock awards
    
    
    (233
    )
    
    
    (260
    )
    
    
    Retained earnings
    
    
    2,519
    
    
    
    573
    
    
    
    2,109Accumulated other comprehensive loss
    
    
    (37
    )
    
    
    (44
    )
    
    
    (442
    )Total stockholders equity
    
    
    86,369
    
    
    
    84,213
    
    
    
    76,947Total liabilities and stockholders equity
    
    $
    757,159
    
    
    $
    706,497
    
    
    $
    677,037
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DEARBORN BANCORP, INC. AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF INCOME (unaudited)
 Three Months Ended
    
    
    Three Months Ended(In thousands, except share and per share data)
    
    03/31/06
    
    
    03/31/05Interest incomeInterest on loans
    
    $
    11,946
    
    
    $
    9,702Interest on securities, available for sale
    
    
    163
    
    
    
    140Interest on federal funds
    
    
    68
    
    
    
    48Interest on deposits with banks
    
    
    67
    
    
    
    2Total interest income
    
    
    12,244
    
    
    
    9,892Interest expenseInterest on deposits
    
    
    4,873
    
    
    
    2,886Interest on other borrowings
    
    
    320
    
    
    
    286Interest on subordinated debentures
    
    
    195
    
    
    
    140Total interest expense
    
    
    5,388
    
    
    
    3,312Net interest income
    
    
    6,856
    
    
    
    6,580Provision for loan losses
    
    
    157
    
    
    
    464Net interest income after provision for loan losses
    
    
    6,699
    
    
    
    6,116Non-interest incomeService charges on deposit accounts
    
    
    157
    
    
    
    150Fees for other services to customers
    
    
    13
    
    
    
    32Gain on the sale of loans
    
    
    81
    
    
    
    130Gain on the sale of other real estate owned
    
    
    (54
    )
    
    
    87Other income
    
    
    11
    
    
    
    2Total non-interest income
    
    
    208
    
    
    
    401Non-interest expensesSalaries and employee benefits
    
    
    2,432
    
    
    
    2,307Commissions on the origination of loans
    
    
    39
    
    
    
    65Occupancy and equipment expense
    
    
    630
    
    
    
    634Intangible expense
    
    
    62
    
    
    
    38Advertising and marketing
    
    
    88
    
    
    
    114Stationery and supplies
    
    
    72
    
    
    
    89Professional services
    
    
    183
    
    
    
    199Data processing
    
    
    125
    
    
    
    116Other operating expenses
    
    
    327
    
    
    
    281Total non-interest expenses
    
    
    3,958
    
    
    
    3,843Income before income tax provision
    
    
    2,949
    
    
    
    2,674Income tax provision
    
    
    1,003
    
    
    
    909Net income
    
    $
    1,946
    
    
    $
    1,765Per share data:Net income  basic
    
    $
    0.36
    
    
    $
    0.33Net income  diluted
    
    $
    0.34
    
    
    $
    0.31Weighted average number of shares outstanding  basic
    
    
    5,426,236
    
    
    
    5,303,532Weighted average number of shares outstanding  diluted
    
    
    5,717,455
    
    
    
    5,680,575
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DEARBORN BANCORP, INC. AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
 Three Months Ended
    
    
    Three Months Ended(In thousands)
    
    03/31/06
    
    
    03/31/05Net income
    
    $
    1,946
    
    
    $
    1,765Other comprehensive income, net of taxUnrealized gains on securitiesUnrealized holding gains arising during period
    
    
    11
    
    
    
    328Tax effects
    
    
    (4
    )
    
    
    (112
    )Other comprehensive income
    
    
    7
    
    
    
    216Comprehensive income
    
    $
    1,953
    
    
    $
    1,981
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DEARBORN BANCORP, INC. AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Three Months Ended(In thousands)
    
    3/31/06
    
    
    3/31/05Cash flows from operating activitiesInterest and fees received
    
    $
    12,375
    
    
    $
    9,764Interest paid
    
    
    (4,913
    )
    
    
    (3,080
    )Proceeds from sale of mortgage loans held for sale
    
    
    5,299
    
    
    
    8,272Origination of mortgage loans held for sale
    
    
    (4,722
    )
    
    
    (10,908
    )Taxes paid
    
    
    (600
    )
    
    
    (250
    )Gain (loss) on sale of real estate owned
    
    
    (54
    )
    
    
    87Cash paid to suppliers and employees
    
    
    (3,967
    )
    
    
    (4,083
    )Net cash provided by (used in) operating activities
    
    
    3,418
    
    
    
    (198
    )Cash flows from investing activitiesProceeds from calls, maturities and repayments of
securities available for sale
    
    
    5,735
    
    
    
    3,289Purchases of securities available for sale
    
    
    
    
    
    
    (1,535
    )Purchase of Federal Home Loan Bank stock
    
    
    
    
    
    
    (12
    )Increase in loans, net of payments received
    
    
    (19,196
    )
    
    
    (24,970
    )Purchases of property and equipment
    
    
    (108
    )
    
    
    (1,107
    )Net cash used in investing activities
    
    
    (13,569
    )
    
    
    (24,335
    )Cash flows from financing activitiesIncrease in non-interest bearing deposits
    
    
    1,045
    
    
    
    1,913Increase in interest bearing deposits
    
    
    48,754
    
    
    
    5,014Increase in federal funds payable
    
    
    
    
    
    
    16,060Decrease in other borrowings
    
    
    (1,158
    )
    
    
    (1,032
    )Exercise of stock options
    
    
    125
    
    
    
    268Net cash provided by financing activities
    
    
    48,766
    
    
    
    22,223Increase (decrease) in cash and cash equivalents
    
    
    38,615
    
    
    
    (2,310
    )Cash and cash equivalents at the beginning of the period
    
    
    9,455
    
    
    
    20,869Cash and cash equivalents at the end of the period
    
    $
    48,070
    
    
    $
    18,559
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DEARBORN BANCORP, INC. AND SUBSIDIARY
 CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
 Three Months Ended(In thousands)
    
    3/31/06
    
    
    3/31/05Reconciliation of net income to net cash provided by operating activitiesNet income
    
    $
    1,946
    
    
    $
    1,765Adjustments to reconcile net income to net cash
provided by operating activitiesProvision for loan losses
    
    
    157
    
    
    
    464Depreciation and amortization expense
    
    
    237
    
    
    
    214Restricted stock award expense
    
    
    26
    
    
    
    Stock option expense
    
    
    12
    
    
    
    Tax benefit of stock options exercised
    
    
    40
    
    
    
    Accretion of discount on investment securities
    
    
    (21
    )
    
    
    (12
    )Amortization of premium on investment securities
    
    
    7
    
    
    
    9Amortization of intangible assets
    
    
    62
    
    
    
    38(Increase) decrease in mortgage loans held for sale
    
    
    496
    
    
    
    (2,766
    )(Increase) decrease in interest receivable
    
    
    131
    
    
    
    (128
    )Increase in interest payable
    
    
    475
    
    
    
    232Increase in other assets
    
    
    460
    
    
    
    85Decrease in other liabilities
    
    
    (610
    )
    
    
    (99
    )Net cash provided by operating activities
    
    $
    3,418
    
    
    
    ($198
    )Supplemental noncash disclosures:Transfers from loans to real estate owned
    
    $
    39
    
    
    $
    904
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##### 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 March 31, 2006 and 2005, and
December 31, 2005 and for the three month periods ended March 31, 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 March 31, 2006 and 2005, and for the three
months ended March 31, 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.
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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 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.
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B.
    
    Securities Available For SaleThe amortized cost and fair value of securities available for sale are as follows (in
thousands):
 March 31, 2006Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueUS Treasury securities
    
    $
    10,979
    
    
    $
    
    
    
    
    ($55
    )
    
    $
    10,924Mortgage backed securities
    
    
    520
    
    
    
    
    
    
    
    (1
    )
    
    
    519Totals
    
    $
    11,499
    
    
    $
    
    
    
    
    ($56
    )
    
    $
    11,443
 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 March 31, 2006
by contractual maturity are shown below (in thousands):
 Amortized
    
    
    FairCost
    
    
    ValueDue in three months or less
    
    $
    2,991
    
    
    $
    2,987Due in three months through one year
    
    
    4,002
    
    
    
    3,972Due in over one year through five years
    
    
    3,986
    
    
    
    3,965Mortgage backed securities
    
    
    520
    
    
    
    519Totals
    
    $
    11,499
    
    
    $
    11,443
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The entire portfolio has a net unrealized loss of $56,000 at March 31, 2006.
Securities with unrealized losses at March 31, 2006, 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
    
    $
    10,924
    
    
    
    ($55
    )FHLMC preferred stock
    
    
    519
    
    
    
    (1
    )Total temporarily impaired
    
    $
    11,443
    
    
    
    ($56
    )
 Length of time in a continuous loss position
    
    Fair Value
    
    
    Unrealized LossLess than one year
    
    $
    8,465
    
    
    
    ($32
    )One to three years
    
    
    2,978
    
    
    
    (24
    )Total temporarily impaired
    
    $
    11,443
    
    
    
    ($56
    )
 Unrealized losses on securities, available for sale at March 31, 2006 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.
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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 738,729 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.
If an option expires or terminates without having been exercised, such option becomes
available for future grant under the Plan.A summary of the option activity in the 1994 Plan follows:
 WeightedAvailable
    
    
    
    
    
    
    Averagefor
    
    
    Options
    
    
    ExerciseGrant
    
    
    Outstanding
    
    
    PriceOutstanding at January 1, 2006
    
    
    
    
    
    
    469,057
    
    
    $
    8.82Exercised
    
    
    
    
    
    
    (22,197
    )
    
    
    5.54Outstanding at March 31, 2006
    
    
    
    
    
    
    446,860
    
    
    $
    8.99
 For the options outstanding at March 31, 2006, the range of exercise prices was $4.61
to $16.15 per share with a weighted-average remaining contractual term of 5.2 years. At
March 31, 2006, 446,860 options were exercisable at weighted average exercise price of $8.99
per share. There were 15,841 antidilutive options outstanding for the quarter ended March
31, 2006. There were no antidilutive options for the quarter ended March 31, 2005. The
intrinsic value of options exercised during the quarter was approximately $415,000 and the
intrinsic value of options outstanding at March 31, 2006 was approximately $6,037,000.During 2005, the Corporation initiated the 2005 Long-Term Incentive Plan. Under this plan,
up to 315,000 shares will 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, 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.
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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 March 31, 2006, there were 15,839 stock options
granted with a weighted average exercise price of $22.96. These options are eligible to
vest fully on June 30, 2008.During the three months ended March 31, 2006, the Corporation recognized stock option
compensation expense of $12,000. The stock options vest on June 30, 2008. Compensation
cost of $49,000, $49,000 and $24,000 is expected to be recognized during 2006, 2007 and
2008, respectively.Restricted Stock Grants   Restricted stock totaling 11,649 shares were granted to officers
on October 12, 2005. The restricted stock vests on June 30, 2008. Compensation cost of
$26,000 and a tax benefit of $9,000 was recognized during the three months ended March 31,
2006. Compensation cost of $104,000, $104,000 and $52,000 will be recognized during 2006,
2007 and 2008, respectively.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.
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PART I    FINANCIAL INFORMATION
 
     15




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##### Table of Contents



General
  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
 16




---



##### Table of Contents



Results of Operations
  Net Interest Income
 2006 Compared to 2005.
 Average Balances, Interest Rates and Yields.
 17




---



##### Table of Contents



Three months ended
    
    
    Three months endedMarch 31, 2006
    
    
    March 31, 2005Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average(In thousands)
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateAssetsInterest bearing deposits with banks
    
    $
    5,558
    
    
    $
    67
    
    
    
    4.89
    %
    
    $
    453
    
    
    $
    2
    
    
    
    1.79
    %Federal funds sold
    
    
    5,975
    
    
    
    68
    
    
    
    4.62
    %
    
    
    8,248
    
    
    
    48
    
    
    
    2.36
    %Securities, available for sale
    
    
    16,949
    
    
    
    163
    
    
    
    3.90
    %
    
    
    21,702
    
    
    
    140
    
    
    
    2.62
    %Loans
    
    
    663,597
    
    
    
    11,946
    
    
    
    7.30
    %
    
    
    604,039
    
    
    
    9,702
    
    
    
    6.51
    %Sub-total earning assets
    
    
    692,079
    
    
    
    12,244
    
    
    
    7.17
    %
    
    
    634,442
    
    
    
    9,892
    
    
    
    6.32
    %Other assets
    
    
    30,072
    
    
    
    
    
    
    
    
    
    
    
    30,915Total assets
    
    $
    722,151
    
    
    
    
    
    
    
    
    
    
    $
    665,357Liabilities and stockholders equityInterest bearing deposits
    
    
    537,436
    
    
    
    4,873
    
    
    
    3.68
    %
    
    
    482,392
    
    
    
    2,886
    
    
    
    2.43
    %Other borrowings
    
    
    38,951
    
    
    
    515
    
    
    
    5.36
    %
    
    
    41,922
    
    
    
    426
    
    
    
    4.12
    %Sub-total interest bearing liabilities
    
    
    576,387
    
    
    
    5,388
    
    
    
    3.79
    %
    
    
    524,314
    
    
    
    3,312
    
    
    
    2.56
    %Non-interest bearing deposits
    
    
    57,795
    
    
    
    
    
    
    
    
    
    
    
    62,936Other liabilities
    
    
    2,226
    
    
    
    
    
    
    
    
    
    
    
    2,031Stockholders equity
    
    
    85,743
    
    
    
    
    
    
    
    
    
    
    
    76,075Total liabilities and stockholders equity
    
    $
    722,151
    
    
    
    
    
    
    
    
    
    
    $
    665,357Net interest income
    
    
    
    
    
    $
    6,856
    
    
    
    
    
    
    
    
    
    
    $
    6,580Net interest rate spread
    
    
    
    
    
    
    
    
    
    
    3.38
    %
    
    
    
    
    
    
    
    
    
    
    3.76
    %Net interest margin on earning assets
    
    
    
    
    
    
    
    
    
    
    4.02
    %
    
    
    
    
    
    
    
    
    
    
    4.21
    %
 18




---



##### Table of Contents



Rate/Volume Analysis.
 Three Months Ended March 31, 2006/2005Change in Interest Due to:Average
    
    
    Average
    
    
    Net(In thousands)
    
    Balance
    
    
    Rate
    
    
    ChangeAssetsInterest bearing deposits with banks
    
    $
    62
    
    
    $
    3
    
    
    $
    65Federal funds sold
    
    
    (26
    )
    
    
    46
    
    
    
    20Investment securities, available for sale
    
    
    (46
    )
    
    
    69
    
    
    
    23Loans
    
    
    1,072
    
    
    
    1,172
    
    
    
    2,244Total earning assets
    
    $
    1,062
    
    
    $
    1,290
    
    
    $
    2,352LiabilitiesInterest bearing deposits
    
    $
    499
    
    
    $
    1,488
    
    
    $
    1,987Other borrowings
    
    
    (39
    )
    
    
    128
    
    
    
    89Total interest bearing liabilities
    
    $
    460
    
    
    $
    1,616
    
    
    $
    2,076Net interest income
    
    
    
    
    
    
    
    
    
    $
    276Net interest rate spread
    
    
    
    
    
    
    
    
    
    
    (0.38
    %)Net interest margin on earning assets
    
    
    
    
    
    
    
    
    
    
    (0.19
    %)
 Provision for Loan Losses
 2006 Compared to 2005.
 19




---



##### Table of Contents



Non-interest Income
 2006 Compared to 2005.
 Non-interest Expense
 2006 Compared to 2005.
  Income Tax Provision
 2006 Compared to 2005.
 20




---



##### Table of Contents



Comparison of Financial Condition at March 31, 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.
 21




---



##### Table of Contents



Loans.
 03/31/06
    
    
    12/31/05
    
    
    03/31/05Consumer loans
    
    $
    31,010
    
    
    $
    35,041
    
    
    $
    42,464Commercial, financial, & other
    
    
    104,515
    
    
    
    110,805
    
    
    
    121,126Commercial real estate construction
    
    
    127,224
    
    
    
    118,358
    
    
    
    86,343Commercial real estate mortgages
    
    
    366,601
    
    
    
    345,536
    
    
    
    316,927Residential real estate mortgages
    
    
    46,883
    
    
    
    47,297
    
    
    
    45,612676,233
    
    
    
    657,037
    
    
    
    612,472Allowance for loan losses
    
    
    (6,965
    )
    
    
    (6,808
    )
    
    
    (6,288
    )$
    669,268
    
    
    $
    650,229
    
    
    $
    606,184
  03/31/06
    
    
    12/31/05
    
    
    03/31/05Over 90 days past due and still accruing
    
    $
    29
    
    
    $
    189
    
    
    $
    40Non-accrual loans
    
    
    1,169
    
    
    
    984
    
    
    
    1,868Total non-performing loans
    
    
    1,198
    
    
    
    1,173
    
    
    
    1,908Real estate owned
    
    
    175
    
    
    
    661
    
    
    
    146Other repossessed assets
    
    
    2
    
    
    
    2
    
    
    
    2Other non-performing assets
    
    
    177
    
    
    
    663
    
    
    
    148Total non-performing assets
    
    $
    1,375
    
    
    $
    1,836
    
    
    $
    2,056
  Number ofLoans
    
    
    BalanceConsumer loans
    
    
    2
    
    
    $
    69Commercial, financial, & other
    
    
    3
    
    
    
    382Commercial real estate mortgages
    
    
    4
    
    
    
    401Residential real estate mortgages
    
    
    3
    
    
    
    317Total non-accrual loans
    
    
    12
    
    
    $
    1,169
 22




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##### Table of Contents



Allowance for Loan Losses.
  Quarter Ended
    
    
    Year Ended
    
    
    Quarter Ended03/31/06
    
    
    12/31/05
    
    
    03/31/05Balance, beginning of year
    
    $
    6,808
    
    
    $
    5,884
    
    
    $
    5,884Charge-offs:Consumer loans
    
    
    
    
    
    
    112
    
    
    
    51Commercial, financial & other
    
    
    34
    
    
    
    169
    
    
    
    43Commercial real estate construction
    
    
    
    
    
    
    
    
    
    
    Commercial real estate mortgages
    
    
    36
    
    
    
    86
    
    
    
    Residential real estate mortgages
    
    
    10
    
    
    
    
    
    
    
    Recoveries:Consumer loans
    
    
    5
    
    
    
    37
    
    
    
    7Commercial, financial & other
    
    
    72
    
    
    
    131
    
    
    
    18Commercial real estate construction
    
    
    
    
    
    
    
    
    
    
    Commercial real estate mortgages
    
    
    3
    
    
    
    10
    
    
    
    9Residential real estate mortgages
    
    
    
    
    
    
    32
    
    
    
    Net charge-offs
    
    
    
    
    
    
    157
    
    
    
    60Additions charged to operations
    
    
    157
    
    
    
    1,081
    
    
    
    464Balance, end of period
    
    $
    6,965
    
    
    $
    6,808
    
    
    $
    6,288Allowance to total loans
    
    
    1.03
    %
    
    
    1.04
    %
    
    
    1.03
    %Allowance to nonperforming assets
    
    
    505.44
    %
    
    
    370.81
    %
    
    
    305.84
    %Net charge-offs to average loans
    
    
    0.00
    %
    
    
    0.02
    %
    
    
    0.01
    %
 23




---



##### Table of Contents



Premises and Equipment.
 Real estate owned.
 Goodwill and other intangible assets.
  Accrued Interest Receivable.
 Other Assets
 24




---



##### Table of Contents



Deposits.
 03/31/06
    
    
    12/31/05
    
    
    03/31/05Non-interest bearing:Demand
    
    $
    60,689
    
    
    $
    59,652
    
    
    $
    64,978Interest bearing:Checking
    
    $
    75,530
    
    
    $
    13,413
    
    
    $
    14,140Money market
    
    
    22,311
    
    
    
    26,514
    
    
    
    60,531Savings
    
    
    56,784
    
    
    
    69,503
    
    
    
    77,297Time, under $100,000
    
    
    146,537
    
    
    
    151,038
    
    
    
    131,767Time, $100,000 and over
    
    
    270,386
    
    
    
    262,318
    
    
    
    199,094571,548
    
    
    
    522,786
    
    
    
    482,829Total deposits
    
    $
    632,237
    
    
    $
    582,438
    
    
    $
    547,807
   03/31/06
    
    
    12/31/05
    
    
    03/31/05Interest bearing checking
    
    $
    1,004
    
    
    $
    1,020
    
    
    $
    2,986Time, $100,000 and over
    
    
    92,586
    
    
    
    85,236
    
    
    
    67,187Total municipal deposits
    
    $
    93,590
    
    
    $
    86,256
    
    
    $
    70,173
  25




---



##### Table of Contents



Federal Funds Purchased
 Securities Sold Under Agreement to Repurchase
 Federal Home Loan Bank Advances
 Accrued Interest Payable
 Other Liabilities
 Subordinated Debentures .
 26




---



##### Table of Contents



Capital
   MinimumTo Be Well CapitalizedMinimum for Capital
    
    Under Prompt CorrectiveActual
    
    Adequacy Purposes
    
    Action ProvisionsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioAs of March 31, 2006Total capital
(to risk weighted assets)Consolidated
    
    $
    95,648
    
    
    
    13.35
    %
    
    $
    57,317
    
    
    
    8.00
    %
    
    $
    71,646
    
    
    
    10.00
    %Bank
    
    
    78,240
    
    
    
    11.00
    %
    
    
    56,917
    
    
    
    8.00
    %
    
    
    71,147
    
    
    
    10.00
    %Tier 1 capital
(to risk weighted assets)Consolidated
    
    
    88,683
    
    
    
    12.38
    %
    
    
    28,658
    
    
    
    4.00
    %
    
    
    42,988
    
    
    
    6.00
    %Bank
    
    
    71,275
    
    
    
    10.02
    %
    
    
    28,459
    
    
    
    4.00
    %
    
    
    42,688
    
    
    
    6.00
    %Tier 1 capital
(to average assets)Consolidated
    
    
    88,683
    
    
    
    12.41
    %
    
    
    28,578
    
    
    
    4.00
    %
    
    
    35,722
    
    
    
    5.00
    %Bank
    
    
    71,275
    
    
    
    10.22
    %
    
    
    27,904
    
    
    
    4.00
    %
    
    
    34,880
    
    
    
    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
    %
  27




---



##### Table of Contents



PART I    FINANCIAL INFORMATION
 
  Interest Rate Sensitivity Analysis.
   28




---



##### Table of Contents



Interest Rate Sensitivity Period1-90
    
    
    91-365
    
    
    1-5
    
    
    Over(In thousands)
    
    Days
    
    
    Days
    
    
    Years
    
    
    5 Years
    
    
    TotalEarning assetsFederal funds sold
    
    $
    11,113
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    11,113Interest bearing deposits with banks
    
    
    23,991
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,991Mortgage loans held for sale
    
    
    545
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    545Securities available for sale
    
    
    2,988
    
    
    
    3,971
    
    
    
    3,965
    
    
    
    519
    
    
    
    11,443Federal Home Loan Bank stock
    
    
    1,293
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,293Total loans, net of non-accrual
    
    
    264,289
    
    
    
    45,231
    
    
    
    329,947
    
    
    
    35,597
    
    
    
    675,064Total earning assets
    
    
    304,219
    
    
    
    49,202
    
    
    
    333,912
    
    
    
    36,116
    
    
    
    723,449Interest bearing liabilitiesTotal interest bearing deposits
    
    
    279,546
    
    
    
    199,912
    
    
    
    92,090
    
    
    
    
    
    
    
    571,548Federal Home Loan Bank advances
    
    
    
    
    
    
    10,000
    
    
    
    15,588
    
    
    
    
    
    
    
    25,588Other borrowings
    
    
    457
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    457Subordinated debentures
    
    
    10,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,000Total interest bearing liabilities
    
    
    290,003
    
    
    
    209,912
    
    
    
    107,678
    
    
    
    
    
    
    
    607,593Net asset (liability) funding gap
    
    
    14,216
    
    
    
    (160,710
    )
    
    
    226,234
    
    
    
    36,116
    
    
    $
    115,856Cumulative net asset (liability) funding gap
    
    $
    14,216
    
    
    
    ($146,494
    )
    
    $
    79,740
    
    
    $
    115,856
 29




---



##### 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
    
    $
    545
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    545Certificates of deposit
    
    
    324,833
    
    
    
    63,406
    
    
    
    28,684
    
    
    
    
    
    
    
    416,923Long-term borrowings
    
    
    10,027
    
    
    
    15,561
    
    
    
    
    
    
    
    
    
    
    
    25,588Lease commitments
    
    
    593
    
    
    
    919
    
    
    
    788
    
    
    
    216
    
    
    
    2,516Subordinated debentures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,000
    
    
    
    10,000Totals
    
    $
    335,998
    
    
    $
    79,886
    
    
    $
    29,472
    
    
    $
    10,216
    
    
    $
    455,572
  Amount Of Commitment Expiration Per PeriodLess Than 1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    Over 5 Years
    
    
    TotalUnused loan commitments
    
    $
    127,066
    
    
    $
    29,128
    
    
    $
    5,300
    
    
    $
    26,012
    
    
    $
    187,506Standby letters of credit
    
    
    2,408
    
    
    
    2,289
    
    
    
    992
    
    
    
    
    
    
    
    5,689Totals
    
    $
    129,474
    
    
    $
    31,417
    
    
    $
    6,292
    
    
    $
    26,012
    
    
    $
    193,195
 30




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##### Table of Contents



Item 4. Controls and Procedures
 Disclosure
Controls and Procedures 
 Internal
Controls Over Financial Reporting
 31




---



##### 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)
    
    A Form 8-K Report, dated January 17, 2006 was filed during the quarter ended March 31, 2006.A Form 8-K Report, dated January 26, 2006 was filed during the quarter ended March 31,
2006.A Form 8-K Report, dated March 21, 2006 was filed during the quarter ended March 31, 2006.
 32




---



##### 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
  33




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##### Table of Contents



EXHIBIT INDEX
 Ex. No.
    
    DescriptionExhibit 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.
 34