##### Table of Contents



UNITED STATES
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, 2009
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to
 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)
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ(Do not check if a smaller reporting company)
    
    Smaller Reporting Company o
 o þ
  Class
    
    Shares OutstandingCommon Stock
    
    7,687,470




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##### 



PagePart I. Financial Information:Item 1. Financial StatementsThe following condensed consolidated financial statements of
Dearborn Bancorp, Inc. and its subsidiary are included in this report:Report of Independent Registered Public Accounting Firm
    
    
    3Condensed Consolidated Balance Sheets  September 30, 2009,
December 31, 2008 and September 30, 2008
    
    
    4Condensed Consolidated Statements of Operation  For the Three
and Nine Months Ended September 30, 2009 and 2008
    
    
    5Condensed Consolidated Statements of Comprehensive Loss  For the
Three and Nine Months Ended September 30, 2009 and 2008
    
    
    6Condensed Consolidated Statements of Cash Flows  For the Three
And Nine Months Ended September 30, 2009 and 2008
    
    
    7Notes to Condensed Consolidated Financial Statements
    
    
    9-28Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    29-50Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    51-54Item 4. Controls and Procedures
    
    
    55Part II. Other Information:Pursuant to SEC rules and regulations, the following item(s) are
included with the Form 10-Q Report:Item 1A Risk Factors
    
    
    56Item 6. ExhibitsPursuant 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. Unregistered Sales of Equity Securities and Use of ProceedsItem 3. Defaults upon Senior SecuritiesItem 4. Submission of Matters to a Vote of Security HoldersItem 5. Other InformationSIGNATURES
    
    
    62EX-3.(a)EX-31.1EX-31.2EX-32.1EX-32.2
  2




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Report of Independent Registered Public Accounting Firm
 
     
 3




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 DEARBORN BANCORP, INC. AND SUBSIDIARY  
 CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
 (Dollars, in thousands)
    
    09/30/09
    
    
    12/31/08
    
    
    09/30/08ASSETSCash and cash equivalentsCash and due from banks
    
    $
    17,330
    
    
    $
    11,671
    
    
    $
    15,744Federal funds sold
    
    
    6,206
    
    
    
    4,455
    
    
    
    14,281Interest bearing deposits with banks
    
    
    117,732
    
    
    
    36,876
    
    
    
    33,146Total cash and cash equivalents
    
    
    141,268
    
    
    
    53,002
    
    
    
    63,171Mortgage loans held for sale
    
    
    1,449
    
    
    
    1,834
    
    
    
    281Securities, available for sale
    
    
    13,547
    
    
    
    84,148
    
    
    
    2,520Securities, held to maturity
    
    
    363
    
    
    
    
    
    
    
    Federal Home Loan Bank stock
    
    
    3,698
    
    
    
    3,614
    
    
    
    3,614LoansLoans
    
    
    862,664
    
    
    
    933,269
    
    
    
    939,626Allowance for loan loss
    
    
    (28,373
    )
    
    
    (14,452
    )
    
    
    (16,429
    )Net loans
    
    
    834,291
    
    
    
    918,817
    
    
    
    923,197Premises and equipment, net
    
    
    20,477
    
    
    
    21,272
    
    
    
    21,491Real estate owned
    
    
    15,472
    
    
    
    9,657
    
    
    
    8,343Goodwill
    
    
    
    
    
    
    
    
    
    
    34,028Other intangible assets
    
    
    
    
    
    
    4,592
    
    
    
    10,165Accrued interest receivable
    
    
    3,619
    
    
    
    3,499
    
    
    
    3,601Other assets
    
    
    8,153
    
    
    
    21,483
    
    
    
    8,110Total assets
    
    $
    1,042,337
    
    
    $
    1,121,918
    
    
    $
    1,078,521LIABILITIESDepositsNon-interest bearing deposits
    
    $
    89,329
    
    
    $
    81,317
    
    
    $
    84,073Interest bearing deposits
    
    
    815,625
    
    
    
    857,078
    
    
    
    775,196Total deposits
    
    
    904,954
    
    
    
    938,395
    
    
    
    859,269Other liabilitiesSecurities sold under agreements to repurchase
    
    
    2,302
    
    
    
    2,461
    
    
    
    222Federal Home Loan Bank advances
    
    
    73,855
    
    
    
    65,019
    
    
    
    72,283Accrued interest payable
    
    
    956
    
    
    
    1,695
    
    
    
    1,734Other liabilities
    
    
    2,380
    
    
    
    1,037
    
    
    
    1,173Subordinated debentures
    
    
    10,000
    
    
    
    10,000
    
    
    
    10,000Total liabilities
    
    
    994,447
    
    
    
    1,018,607
    
    
    
    944,681COMMITMENTS AND CONTINGENT LIABILITIESSTOCKHOLDERS EQUITYCommon stock - 20,000,000 shares authorized,
7,687,470 shares at 09/30/09, 7,696,204 shares at
12/31/08; and 8,098,557 shares at 09/30/08
    
    
    131,898
    
    
    
    131,784
    
    
    
    133,099Accumulated deficit
    
    
    (84,043
    )
    
    
    (28,675
    )
    
    
    732Accumulated other comprehensive income
    
    
    35
    
    
    
    202
    
    
    
    9Total stockholders equity
    
    
    47,890
    
    
    
    103,311
    
    
    
    133,840Total liabilities and stockholders equity
    
    $
    1,042,337
    
    
    $
    1,121,918
    
    
    $
    1,078,521
  4




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DEARBORN BANCORP, INC. AND SUBSIDIARY  
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
 Three Months Ended
    
    
    Nine Months Ended(In thousands, except share and per share data)
    
    09/30/09
    
    
    09/30/08
    
    
    09/30/09
    
    
    09/30/08Interest incomeInterest on loans, including fees
    
    $
    13,135
    
    
    $
    14,742
    
    
    $
    40,231
    
    
    $
    45,910Interest on securities, available for sale
    
    
    33
    
    
    
    97
    
    
    
    467
    
    
    
    315Interest on federal funds
    
    
    2
    
    
    
    22
    
    
    
    14
    
    
    
    59Interest on deposits with banks
    
    
    76
    
    
    
    2
    
    
    
    273
    
    
    
    3Total interest income
    
    
    13,246
    
    
    
    14,863
    
    
    
    40,985
    
    
    
    46,287Interest expenseInterest on deposits
    
    
    4,806
    
    
    
    5,764
    
    
    
    16,262
    
    
    
    18,666Interest on other borrowings
    
    
    504
    
    
    
    709
    
    
    
    1,523
    
    
    
    2,514Interest on subordinated debentures
    
    
    110
    
    
    
    140
    
    
    
    320
    
    
    
    520Total interest expense
    
    
    5,420
    
    
    
    6,613
    
    
    
    18,105
    
    
    
    21,700Net interest income
    
    
    7,826
    
    
    
    8,250
    
    
    
    22,880
    
    
    
    24,587Provision for loan losses
    
    
    14,185
    
    
    
    90
    
    
    
    38,522
    
    
    
    9,722Net interest income (loss) after provision for loan losses
    
    
    (6,359
    )
    
    
    8,160
    
    
    
    (15,642
    )
    
    
    14,865Non-interest income (loss)Service charges on deposit accounts
    
    
    388
    
    
    
    403
    
    
    
    1,118
    
    
    
    1,146Fees for other services to customers
    
    
    33
    
    
    
    23
    
    
    
    95
    
    
    
    89Gain on the sale of loans
    
    
    37
    
    
    
    61
    
    
    
    253
    
    
    
    165Write-down of real estate
    
    
    (639
    )
    
    
    (209
    )
    
    
    (2,499
    )
    
    
    (509
    )Gain (loss) on the sale of real estate
    
    
    (154
    )
    
    
    (16
    )
    
    
    (157
    )
    
    
    (720
    )Gain (loss) on the sale of securities
    
    
    
    
    
    
    9
    
    
    
    465
    
    
    
    9Other-than temporary impairment on securities,
held to maturity
    
    
    (387
    )
    
    
    
    
    
    
    (387
    )
    
    
    Portion of loss recognized in other
comprehensive income before taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net impairment losses recognized in earnings
    
    
    (387
    )
    
    
    
    
    
    
    (387
    )
    
    
    Write-down of other assets
    
    
    
    
    
    
    
    
    
    
    (100
    )
    
    
    Other income
    
    
    122
    
    
    
    48
    
    
    
    369
    
    
    
    195Total non-interest income (loss)
    
    
    (600
    )
    
    
    319
    
    
    
    (843
    )
    
    
    375Non-interest expensesSalaries and employee benefits
    
    
    3,159
    
    
    
    3,413
    
    
    
    9,657
    
    
    
    9,906Occupancy and equipment expense
    
    
    903
    
    
    
    908
    
    
    
    2,753
    
    
    
    2,771Intangible expense
    
    
    4,195
    
    
    
    323
    
    
    
    4,592
    
    
    
    968FDIC Assessment
    
    
    672
    
    
    
    174
    
    
    
    1,853
    
    
    
    522Advertising and marketing
    
    
    48
    
    
    
    138
    
    
    
    177
    
    
    
    392Stationery and supplies
    
    
    120
    
    
    
    103
    
    
    
    340
    
    
    
    407Professional services
    
    
    234
    
    
    
    241
    
    
    
    598
    
    
    
    726Data processing
    
    
    219
    
    
    
    145
    
    
    
    685
    
    
    
    602Defaulted loan expense
    
    
    1,827
    
    
    
    483
    
    
    
    3,514
    
    
    
    1,429Other operating expenses
    
    
    433
    
    
    
    384
    
    
    
    1,255
    
    
    
    1,255Total non-interest expenses
    
    
    11,810
    
    
    
    6,312
    
    
    
    25,424
    
    
    
    18,978Income (loss) before income tax provision
    
    
    (18,769
    )
    
    
    2,167
    
    
    
    (41,909
    )
    
    
    (3,738
    )Income tax provision (benefit)
    
    
    21,276
    
    
    
    747
    
    
    
    13,460
    
    
    
    (1,220
    )Net income (loss)
    
    $
    (40,045
    )
    
    $
    1,420
    
    
    $
    (55,369
    )
    
    $
    (2,518
    )Per share data:Net income (loss)  basic
    
    $
    (5.24
    )
    
    $
    0.18
    
    
    $
    (7.24
    )
    
    $
    (0.31
    )Net income (loss)  diluted
    
    $
    (5.24
    )
    
    $
    0.18
    
    
    $
    (7.24
    )
    
    $
    (0.31
    )Weighted average number of shares outstanding  basic
    
    
    7,645,940
    
    
    
    8,044,180
    
    
    
    7,644,785
    
    
    
    8,078,188Weighted average number of shares outstanding  diluted
    
    
    7,645,940
    
    
    
    8,082,263
    
    
    
    7,644,785
    
    
    
    8,078,188
  5




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DEARBORN BANCORP, INC. AND SUBSIDIARY  
 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (unaudited)
 Three Months Ended
    
    
    Nine Months Ended(In thousands)
    
    09/30/09
    
    
    09/30/08
    
    
    09/30/09
    
    
    09/30/08Net income (loss)
    
    $
    (40,045
    )
    
    $
    1,420
    
    
    $
    (55,369
    )
    
    $
    (2,518
    )Other comprehensive income (loss), net of taxUnrealized losses on securitiesUnrealized holding gains (losses) arising
during period
    
    
    424
    
    
    
    (13
    )
    
    
    (333
    )
    
    
    (26
    )Less: net unrealized loss on securities, held to
maturity which has been recognized in income
    
    
    (387
    )
    
    
    
    
    
    
    (387
    )
    
    
    Less: reclassification adjustment for gains
included in net income (loss)
    
    
    
    
    
    
    9
    
    
    
    465
    
    
    
    9Tax effects
    
    
    (11
    )
    
    
    1
    
    
    
    88
    
    
    
    6Other comprehensive income (loss)
    
    
    26
    
    
    
    (3
    )
    
    
    (167
    )
    
    
    (11
    )Comprehensive income (loss)
    
    $
    (40,019
    )
    
    $
    1,417
    
    
    $
    (55,536
    )
    
    $
    (2,529
    )
  6




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##### Table of Contents



DEARBORN BANCORP, INC. AND SUBSIDIARY



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Nine Months Ended(In thousands)
    
    9/30/2009
    
    
    9/30/2008Cash flows from operating activitiesInterest and fees received
    
    $
    40,865
    
    
    $
    46,502Interest paid
    
    
    (18,844
    )
    
    
    (23,134
    )Proceeds from sale of mortgages held for sale
    
    
    26,150
    
    
    
    17,158Origination of mortgages held for sale
    
    
    (25,512
    )
    
    
    (15,861
    )Proceeds from the sale of real estate owned
    
    
    4,197
    
    
    
    5,137Taxes paid (refunded)
    
    
    
    
    
    
    (181
    )Cash paid to suppliers and employees
    
    
    (16,288
    )
    
    
    (16,450
    )Net cash provided by operating activities
    
    
    10,568
    
    
    
    13,171Cash flows from investing activitiesProceeds from the sale of securities available for sale
    
    
    50,126
    
    
    
    5,827Proceeds from calls, maturities and repayments of
of securities available for sale
    
    
    52,067
    
    
    
    10,803Purchases of securities available for sale
    
    
    (32,777
    )
    
    
    (10,157
    )Purchase of Federal Home Loan Bank stock
    
    
    (84
    )
    
    
    (1,542
    )Decrease in loans, net of payments received
    
    
    33,336
    
    
    
    65Purchases of property and equipment
    
    
    (206
    )
    
    
    (404
    )Net cash provided by investing activities
    
    
    102,462
    
    
    
    4,592Cash flows from financing activitiesNet increase in non-interest bearing deposits
    
    
    8,012
    
    
    
    479Net increase (decrease) in interest bearing deposits
    
    
    (41,453
    )
    
    
    36,163Decrease in other borrowings
    
    
    (159
    )
    
    
    (258
    )Net decrease in federal funds payable
    
    
    
    
    
    
    (30,100
    )Proceeds from Federal Home Loan Bank advances
    
    
    8,836
    
    
    
    30,913Purchase of common stock
    
    
    
    
    
    
    (1,271
    )Net cash provided by (used in) financing activities
    
    
    (24,764
    )
    
    
    35,926Increase in cash and cash equivalents
    
    
    88,266
    
    
    
    53,689Cash and cash equivalents at the beginning of the period
    
    
    53,002
    
    
    
    9,482Cash and cash equivalents at the end of the period
    
    $
    141,268
    
    
    $
    63,171
  7




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DEARBORN BANCORP, INC. AND SUBSIDIARY  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
 Nine Months Ended(In thousands)
    
    9/30/2009
    
    
    9/30/2008Reconciliation of net income to net cash provided by operating
activitiesNet income
    
    $
    (55,369
    )
    
    $
    (2,518
    )Adjustments to reconcile net income to net cash
provided by operating activitiesProvision for loan losses
    
    
    38,522
    
    
    
    9,722Depreciation and amortization expense
    
    
    1,001
    
    
    
    1,011Restricted stock award expense
    
    
    61
    
    
    
    40Stock option expense
    
    
    54
    
    
    
    52Accretion of discount on investment securities
    
    
    183
    
    
    
    (119
    )Amortization of premium on investment securities
    
    
    
    
    
    
    11Impairment of investment securities
    
    
    387
    
    
    
    Writedown of other real estate owned
    
    
    2,499
    
    
    
    1,322Amortization of intangible assets
    
    
    595
    
    
    
    968Impairment of intangible assets
    
    
    3,997
    
    
    
    Decrease in mortgages held for sale
    
    
    385
    
    
    
    1,035Increase (decrease) in interest receivable
    
    
    (120
    )
    
    
    215Decrease in interest payable
    
    
    (739
    )
    
    
    (1,434
    )Decrease in real estate owned
    
    
    4,354
    
    
    
    5,137(Increase) decrease in other assets
    
    
    13,415
    
    
    
    (1,756
    )Increase (decrease) in other liabilities
    
    
    1,343
    
    
    
    (515
    )Net cash provided by operating activities
    
    $
    10,568
    
    
    $
    13,171Supplemental noncash disclosures:Transfers from loans to real estate owned
    
    $
    12,668
    
    
    $
    8,483
  8




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9




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##### Table of Contents



Income (Loss) Per Share
   Nine Months Ended9/30/2009
    
    
    9/30/2008BasicNet income
    
    $
    (55,369
    )
    
    $
    (2,518
    )Weighted average common shares
    
    
    7,644,785
    
    
    
    8,078,188Basic earnings per common share
    
    $
    (7.24
    )
    
    $
    (0.31
    )DilutedNet income
    
    $
    (55,369
    )
    
    $
    (2,518
    )Weighted average common shares outstanding
for basic earnings per common share
    
    
    7,644,785
    
    
    
    8,078,188Add: Dilutive effects of assumed exercise
of stock options
    
    
    
    
    
    
    Average shares and dilutive potential common shares
    
    
    7,644,785
    
    
    
    8,078,188Dilutive earnings per common share
    
    $
    (7.24
    )
    
    $
    (0.31
    )
  10




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Effect of Newly Issued Accounting Standards
 , Measuring Liabilities at Fair Value
  Generally Accepted Accounting Principles -
FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles
  Amendments to FASB Interpretation No. 46(R)
  
 11




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Effect of Newly Issued Accounting Standards
 Accounting for
Transfers of Financial Assets, an amendment of FASB Statement No. 140
  Subsequent Events
  Interim Disclosures about
Fair Value of Financial Instruments
  
 12




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##### Table of Contents



Effect of Newly Issued Accounting Standards
 Determining Whether Instruments
Granted in Shared-Based Payment Transaction are Participating Securities.
  13




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September 30, 2009Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueUS Government sponsored
agency securities
    
    $
    13,380
    
    
    $
    46
    
    
    
    
    
    
    $
    13,426Mortgage backed securities
    
    
    114
    
    
    
    7
    
    
    
    
    
    
    
    121Totals
    
    $
    13,494
    
    
    $
    53
    
    
    $
    
    
    
    $
    13,547
 December 31, 2008Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueUS Government sponsored
agency securities
    
    $
    21,175
    
    
    $
    226
    
    
    $
    (2
    )
    
    $
    21,399Corporate bonds
    
    
    13,185
    
    
    
    54
    
    
    
    (4
    )
    
    
    13,235Municipal securities
    
    
    1,303
    
    
    
    28
    
    
    
    
    
    
    
    1,331Mortgage backed securities
    
    
    179
    
    
    
    4
    
    
    
    
    
    
    
    183Money market mutual funds
    
    
    48,000
    
    
    
    
    
    
    
    
    
    
    
    48,000Totals
    
    $
    83,842
    
    
    $
    312
    
    
    $
    (6
    )
    
    $
    84,148
  Amortized
    
    
    FairCost
    
    
    ValueDue in less than one year
    
    
    2,078
    
    
    
    2,090Due in one year through five years
    
    
    11,302
    
    
    
    11,336Mortgage backed securities
    
    
    114
    
    
    
    121Totals
    
    $
    13,494
    
    
    $
    13,547
  14




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##### Table of Contents



For the Nine Months Ended9/30/2009
    
    9/30/2008Gross gains
    
    $
    465
    
    
    $
    9Gross losses
    
    
    
    
    
    
    
   September 30, 2009Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueTrust preferred securities
    
    $
    363
    
    
    $
    
    
    
    $
    
    
    
    $
    363Totals
    
    $
    363
    
    
    $
    
    
    
    $
    
    
    
    $
    363
    
 15




---



##### Table of Contents



09/30/09
    
    
    12/31/08
    
    
    09/30/08Consumer loans
    
    $
    30,028
    
    
    $
    31,864
    
    
    $
    32,472Commercial, financial, & other
    
    
    154,358
    
    
    
    164,740
    
    
    
    162,828Land development loans  residential property
    
    
    44,997
    
    
    
    54,323
    
    
    
    56,878Land development loans  non residential property
    
    
    11,604
    
    
    
    16,094
    
    
    
    17,894Commercial real estate construction  residential property
    
    
    15,042
    
    
    
    17,296
    
    
    
    20,573Commercial real estate construction  non residential property
    
    
    20,445
    
    
    
    25,322
    
    
    
    30,145Commercial real estate mortgages
    
    
    539,200
    
    
    
    571,204
    
    
    
    565,365Residential real estate mortgages
    
    
    46,990
    
    
    
    52,426
    
    
    
    53,471862,664
    
    
    
    933,269
    
    
    
    939,626Allowance for loan losses
    
    
    (28,373
    )
    
    
    (14,452
    )
    
    
    (16,429
    )$
    834,291
    
    
    $
    918,817
    
    
    $
    923,197
  09/30/09
    
    
    12/31/08
    
    
    09/30/08Troubled debt restructuring  accruing
    
    
    46,025
    
    
    
    17,765
    
    
    
    15,328Over 90 days past due and still accruing
    
    
    
    
    
    
    450
    
    
    
    3,141Non-accrual loans
    
    
    58,866
    
    
    
    51,708
    
    
    
    51,342Total non-performing loans
    
    
    104,891
    
    
    
    69,923
    
    
    
    69,811Real estate owned
    
    
    11,684
    
    
    
    9,657
    
    
    
    8,343Real estate in redemption
    
    
    3,788
    
    
    
    
    
    
    
    Other repossessed assets
    
    
    
    
    
    
    
    
    
    
    Other non-performing assets
    
    
    15,472
    
    
    
    9,657
    
    
    
    8,343Total non-performing assets
    
    $
    120,363
    
    
    $
    79,580
    
    
    $
    78,154
  16




---



##### Table of Contents



Number ofLoans
    
    
    BalanceConsumer loans
    
    
    17
    
    
    $
    1,235Commercial, financial, & other
    
    
    47
    
    
    
    8,638Land development loans  residential property
    
    
    19
    
    
    
    14,485Land development loans  non residential property
    
    
    2
    
    
    
    3,129Commercial real estate construction  residential property
    
    
    14
    
    
    
    5,555Commercial real estate construction  non residential property
    
    
    2
    
    
    
    3,067Commercial real estate mortgages
    
    
    42
    
    
    
    20,467Residential real estate mortgages
    
    
    15
    
    
    
    2,290Total non-accrual loans
    
    
    158
    
    
    $
    58,866
   Nine Months
    
    
    
    
    
    
    Nine MonthsEnded
    
    
    Year Ended
    
    
    Ended09/30/09
    
    
    12/31/08
    
    
    09/30/08Balance, beginning of year
    
    $
    14,452
    
    
    $
    10,617
    
    
    $
    10,617Charge-offs:Consumer loans
    
    
    718
    
    
    
    318
    
    
    
    176Commercial, financial & other
    
    
    3,616
    
    
    
    4,304
    
    
    
    3,155Land development loans  residential property
    
    
    7,050
    
    
    
    1,777
    
    
    
    229Land development loans  non residential property
    
    
    3,999
    
    
    
    
    
    
    
    Commercial real estate construction  residential property
    
    
    1,270
    
    
    
    1,635
    
    
    
    58Commercial real estate construction  non residential
property
    
    
    1,981
    
    
    
    192
    
    
    
    Commercial real estate mortgages
    
    
    5,770
    
    
    
    2,446
    
    
    
    190Residential real estate mortgages
    
    
    691
    
    
    
    296
    
    
    
    188Recoveries:Consumer loans
    
    
    171
    
    
    
    19
    
    
    
    16Commercial, financial & other
    
    
    247
    
    
    
    117
    
    
    
    61Land development loans  residential property
    
    
    42
    
    
    
    33
    
    
    
    Land development loans  non residential property
    
    
    
    
    
    
    
    
    
    
    Commercial real estate construction  residential property
    
    
    
    
    
    
    0
    
    
    
    Commercial real estate construction  non residential
property
    
    
    
    
    
    
    3
    
    
    
    Commercial real estate mortgages
    
    
    27
    
    
    
    21
    
    
    
    5Residential real estate mortgages
    
    
    7
    
    
    
    4
    
    
    
    4Net charge-offs (recoveries)
    
    
    24,601
    
    
    
    10,771
    
    
    
    3,910Provision for loan losses
    
    
    38,522
    
    
    
    14,606
    
    
    
    9,722Balance, end of period
    
    $
    28,373
    
    
    $
    14,452
    
    
    $
    16,429Allowance to total loans
    
    
    3.29
    %
    
    
    1.55
    %
    
    
    1.75
    %Allowance to nonperforming assets
    
    
    23.57
    %
    
    
    18.16
    %
    
    
    21.02
    %Net charge-offs to average loans
    
    
    2.74
    %
    
    
    1.14
    %
    
    
    0.41
    %
 17




---



##### Table of Contents



09/30/09
    
    
    12/31/08
    
    
    09/30/08Impaired loans with no allocated allowance for loan
losses
    
    $
    114,226
    
    
    $
    71,961
    
    
    $
    35,771Impaired loans with allocated allowance for loan losses
    
    
    
    
    
    
    26,908
    
    
    
    46,471Total
    
    $
    114,226
    
    
    $
    98,869
    
    
    $
    82,242Amount of the allowance for loan loss allocated
    
    $
    
    
    
    $
    5,273
    
    
    $
    8,541
  18




---



##### Table of Contents



19




---



##### Table of Contents



Net unrealized gains on securities available for sale
    
    $
    (255
    )Tax effects
    
    
    88Other comprehensive loss
    
    $
    (167
    )
  Net unrealized gains on securities available for sale
    
    $
    51Tax effects
    
    
    16Other comprehensive income
    
    $
    35
     
 20




---



##### Table of Contents



Level 2 
    
    Observable inputs other than Level 1 prices, such as quoted prices for
similar assets or liabilities; quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable market data for
substantially the full term of the assets or liabilities. Observable inputs may
include available credit information and bond terms and conditions of similar
securities, market spreads, cash flow analysis and market concensus prepayment speeds.Level 2 securities include U.S. agency and U.S. government sponsored
enterprise mortgage-backed securities. Level 2 securities are valued by a third
party pricing service commonly used in the banking industry utilizing observable
inputs. The pricing provider utilizes evaluated pricing models that vary based
on asset class. These models incorporate available market information including
quoted prices of securities with similar characteristics and, because many
fixed-income securities do not trade on a daily basis, apply available
information through processes such as benchmark curves, benchmarking of like
securities, sector grouping and matrix pricing. In addition, model processes,
such as an option adjusted spread model is used to develop prepayment and
interest rate scenarios for securities with prepayment features.
 Level 3 
    
    Unobservable inputs that are supported by little or no market activity and that
are significant to the fair value of the assets or liabilities.
  Securities available for sale
   
 21




---



##### Table of Contents



Quoted Prices in
    
    
    Significant Other
    
    
    SignificantActive Markets for
    
    
    Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    InputsAt 9/30/2009
    
    Fair Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)US Government sponsored agency
securities
    
    $
    13,426
    
    
    $
    
    
    
    $
    13,426
    
    
    $
    Mortgage backed securities
    
    
    121
    
    
    
    
    
    
    
    121
    
    
    
    Total securities, available for sale
    
    $
    13,547
    
    
    $
    
    
    
    $
    13,547
    
    
    $
    
 Quoted Prices in
    
    Significant Other
    
    SignificantActive Markets for
    
    Observable
    
    UnobservableIdentical Assets
    
    Inputs
    
    InputsAt 12/31/2008
    
    Fair Value
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Securities, available for sale
    
    $
    84,148
    
    
    $
    48,000
    
    
    $
    36,148
    
    
    $
    0
 Quoted Prices in
    
    Significant Other
    
    SignificantActive Markets for
    
    Observable
    
    UnobservableIdentical Assets
    
    Inputs
    
    InputsAt 9/30/2008
    
    Fair Value
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Securities, available for sale
    
    $
    2,520
    
    
    $
    
    $
    2,520
    
    
    $
 Impaired loans and other real estate owned
   
 22




---



##### Table of Contents



Quoted Prices in
    
    Significant Other
    
    SignificantActive Markets for
    
    Observable
    
    UnobservableIdentical Assets
    
    Inputs
    
    InputsAt 9/30/2009
    
    Fair Value
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Loans
    
    $
    36,703
    
    
    $
    
    $
    
    $
    36,703Other real estate
    
    $
    15,472
    
    
    $
    
    $
    
    $
    15,472
 Quoted Prices in
    
    Significant Other
    
    SignificantActive Markets for
    
    Observable
    
    UnobservableIdentical Assets
    
    Inputs
    
    InputsAt 12/31/2008
    
    Fair Value
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Loans
    
    $
    41,907
    
    
    $
    
    $
    
    $
    41,907Other real estate
    
    $
    9,657
    
    
    $
    
    $
    
    $
    9,657
 Quoted Prices in
    
    Significant Other
    
    SignificantActive Markets for
    
    Observable
    
    UnobservableIdentical Assets
    
    Inputs
    
    InputsAt 9/30/2008
    
    Fair Value
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Loans
    
    $
    38,384
    
    
    $
    
    $
    
    $
    38,384Other real estate
    
    $
    8,343
    
    
    $
    
    $
    
    $
    8,343
  At September 30, 2009
    
    At December 31, 2008Carrying
    
    Fair
    
    Carrying
    
    FairAmount
    
    Value
    
    Amount
    
    ValueAssets:Cash and cash equivalents
    
    $
    141,268
    
    
    $
    141,268
    
    
    $
    53,002
    
    
    $
    53,002Mortgage loans held for sale
    
    
    1,449
    
    
    
    1,471
    
    
    
    1,834
    
    
    
    1,861Securities available for sale
    
    
    13,547
    
    
    
    13,547
    
    
    
    84,148
    
    
    
    84,148Federal Home Loan Bank Stock
    
    
    3,698
    
    
    
    3,698
    
    
    
    3,614
    
    
    
    3,614Loans, net
    
    
    862,664
    
    
    
    861,540
    
    
    
    933,269
    
    
    
    934,826Accrued interest receivable
    
    
    3,619
    
    
    
    3,619
    
    
    
    3,499
    
    
    
    3,499Liabilities:Deposits
    
    
    904,954
    
    
    
    911,762
    
    
    
    938,395
    
    
    
    945,017Securities sold under
agreements to repurchase
    
    
    2,302
    
    
    
    2,302
    
    
    
    2,461
    
    
    
    2,461Federal Home Loan Bank advances
    
    
    73,855
    
    
    
    74,911
    
    
    
    65,019
    
    
    
    66,390Subordinated debentures
    
    
    10,000
    
    
    
    10,001
    
    
    
    10,000
    
    
    
    10,028Accrued interest payable
    
    
    956
    
    
    
    956
    
    
    
    1,695
    
    
    
    1,695
 23




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##### Table of Contents



9/30/2009
    
    
    12/31/2008Current
    
    $
    (3,330
    )
    
    $
    (2,370
    )Deferred
    
    
    16,790
    
    
    
    (14,117
    )$
    13,460
    
    
    $
    (16,487
    )
 24




---



##### Table of Contents



9/30/2009
    
    
    12/31/2008Deferred tax assetsAllowance for loan losses
    
    $
    7,657
    
    
    $
    4,913Net operating loss carryforward
    
    
    6,327
    
    
    
    Goodwill and other intangibles
    
    
    12,743
    
    
    
    11,877Capital loss carryforward
    
    
    251
    
    
    
    251Valuation allowance on capital loss carryforward
    
    
    (251
    )
    
    
    (251
    )Non accrual interest income
    
    
    80
    
    
    
    92Writedowns on other real estate owned
    
    
    1,121
    
    
    
    462Amortization of deferred issue costs
    
    
    79
    
    
    
    81Other
    
    
    84
    
    
    
    63Gross deferred tax assets
    
    
    28,091
    
    
    
    17,488Less: valuation allowance
    
    
    (26,976
    )
    
    
    Total net tax deferred assets
    
    $
    1,115
    
    
    $
    17,488Deferred tax liabilitiesPremises and equipment
    
    
    (263
    )
    
    
    (300
    )Prepaid expenses
    
    
    (301
    )
    
    
    (259
    )Unrealized losses on securities available for sale
    
    
    (80
    )
    
    
    (104
    )Deferred loan fees and costs
    
    
    (107
    )
    
    
    (73
    )Other
    
    
    (364
    )
    
    
    (66
    )Total deferred tax liabilities
    
    
    (1,115
    )
    
    
    (802
    )Net deferred tax asset
    
    $
    
    
    
    $
    16,686
  25




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##### Table of Contents



9/30/2009
    
    
    12/31/2008Federal income tax rate
    
    
    34
    %
    
    
    34
    %Effect of increase in deferred tax asset valuation allowance
    
    
    (64
    %)
    
    
    
    %Effect of capital loss carryforward
valuation allowance
    
    
    
    %
    
    
    
    %Other, net
    
    
    (2
    %)
    
    
    
    %Effective tax rate
    
    
    (32
    %)
    
    
    34
    %
    26




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##### Table of Contents



MinimumTo Be Well CapitalizedMinimum for Capital
    
    Under Prompt CorrectiveActual
    
    Adequacy Purposes
    
    Action ProvisionsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioAs of September 30, 2009Total capital
(to risk weighted
assets)Consolidated
    
    
    69,161
    
    
    
    7.78
    %
    
    
    71,151
    
    
    
    8.00
    %
    
    
    N/A
    
    
    
    N/ABank
    
    
    67,163
    
    
    
    7.57
    %
    
    
    70,990
    
    
    
    8.00
    %
    
    
    88,737
    
    
    
    10.00
    %Tier 1 capital
(to risk weighted
assets)Consolidated
    
    
    57,855
    
    
    
    6.51
    %
    
    
    35,575
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/ABank
    
    
    55,857
    
    
    
    6.29
    %
    
    
    35,495
    
    
    
    4.00
    %
    
    
    53,242
    
    
    
    6.00
    %Tier 1 capital
(to average assets)Consolidated
    
    
    57,855
    
    
    
    5.69
    %
    
    
    40,697
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/ABank
    
    
    55,857
    
    
    
    5.50
    %
    
    
    40,612
    
    
    
    4.00
    %
    
    
    50,765
    
    
    
    5.00
    %As of December 31, 2008Total capital
(to risk weighted
assets)Consolidated
    
    
    107,962
    
    
    
    10.69
    %
    
    
    80,832
    
    
    
    8.00
    %
    
    
    N/A
    
    
    
    N/ABank
    
    
    105,568
    
    
    
    10.47
    %
    
    
    80,667
    
    
    
    8.00
    %
    
    
    100,834
    
    
    
    10.00
    %Tier 1 capital
(to risk weighted
assets)Consolidated
    
    
    95,310
    
    
    
    9.43
    %
    
    
    40,416
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/ABank
    
    
    92,941
    
    
    
    9.22
    %
    
    
    40,334
    
    
    
    4.00
    %
    
    
    60,501
    
    
    
    6.00
    %Tier 1 capital
(to average assets)Consolidated
    
    
    95,310
    
    
    
    8.88
    %
    
    
    42,933
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/ABank
    
    
    92,941
    
    
    
    8.69
    %
    
    
    42,781
    
    
    
    4.00
    %
    
    
    53,476
    
    
    
    5.00
    %
 27




---



##### Table of Contents



28




---



##### Table of Contents



ITEM 2.
    
      MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    29




---



##### Table of Contents



Company Overview
        Date Formed
    
    Name
    
    Services OfferedAugust 1997
    
    Community Bank Insurance Agency, Inc.
    
    Limited insurance related activitiesMarch 2002
    
    Community Bank Audit Services, Inc.
    
    Internal auditing and complianceservices for financial institutions
  30




---



##### Table of Contents



Date Opened
    
    Location
    
    Type of officeFebruary 1994
    
    22290 Michigan Avenue
    
    Full service retail branch with ATMDearborn, Michigan 48123
    
    Regional lending centerDecember 1995
    
    24935 West Warren Avenue
    
    Full service retail branchDearborn Heights, Michigan 48127August 1997
    
    44623 Five Mile Road
    
    Full service retail branch with ATMPlymouth, Michigan 48170May 2001
    
    1325 North Canton Center Road
    
    Full service retail branch with ATMCanton, Michigan 48187December 2001
    
    45000 River Ridge Drive
    
    Regional lending centerClinton Township, Michigan 48038November 2002
    
    19100 Hall Road
    
    Full service retail branch with ATMClinton Township, Michigan 48038February 2003
    
    12820 Fort Street
    
    Full service retail branch with ATMSouthgate, Michigan 48195May 2003
    
    3201 University Drive, Suite 180
    
    Full service retail branchAuburn Hills, Michigan 48326October 2004
    
    450 East Michigan Avenue
    
    Full service retail branch with ATMSaline, Michigan 48176October 2004
    
    250 West Eisenhower Parkway
    
    Full service retail branch with ATMAnn Arbor, Michigan 48103
    
    Regional lending centerOctober 2004
    
    2180 West Stadium Blvd.
    
    Full service retail branch with ATMAnn Arbor, Michigan 48103December 2004
    
    1360 Porter Street
    
    Loan production officeDearborn, Michigan 48123
    
    Regional lending centerJanuary 2007
    
    1040 E. Maple
    
    Full service retail branch with ATMBirmingham, Michigan 48009
    
    Regional lending centerJanuary 2007
    
    3681 W. Maple
    
    Full service retail branch with ATMBloomfield Township, Michigan 48301January 2007
    
    30700 Telegraph
    
    Full service retail branch with ATMBingham Farms, Michigan 48025January 2007
    
    20000 Twelve Mile Road
    
    Full service retail branch with ATMSouthfield, Michigan 48076January 2007
    
    200 Galleria Officenter
    
    Full service retail branch with ATMSouthfield, MI 48076April 2007
    
    7755 23 Mile Road
    
    Full service retail branch with ATMShelby Township, Michigan 48075
  31




---



##### Table of Contents



32




---



##### Table of Contents



Results of Operations
  33




---



##### Table of Contents



Net Interest Income
 2009 Compared to 2008.
 Average Balances, Interest Rates and Yields.
 34




---



##### Table of Contents



Three months ended September 30, 2009
    
    
    Three months ended September 30, 2008Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average(In thousands)
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateAssetsInterest-bearing deposits with banks
    
    $
    66,331
    
    
    $
    76
    
    
    
    0.45
    %
    
    $
    1,227
    
    
    $
    2
    
    
    
    0.65
    %Federal funds sold
    
    
    4,315
    
    
    
    2
    
    
    
    0.28
    %
    
    
    4,482
    
    
    
    22
    
    
    
    1.95
    %Investment securities, available for sale
    
    
    11,532
    
    
    
    33
    
    
    
    1.14
    %
    
    
    11,389
    
    
    
    97
    
    
    
    3.39
    %Loans
    
    
    876,205
    
    
    
    13,135
    
    
    
    5.95
    %
    
    
    944,262
    
    
    
    14,742
    
    
    
    6.21
    %Sub-total earning assets
    
    
    958,383
    
    
    
    13,246
    
    
    
    5.48
    %
    
    
    961,360
    
    
    
    14,863
    
    
    
    6.15
    %Other assets
    
    
    59,937
    
    
    
    
    
    
    
    
    
    
    
    80,792Total assets
    
    $
    1,018,320
    
    
    
    
    
    
    
    
    
    
    $
    1,042,152Liabilities and stockholders equityInterest bearing deposits
    
    $
    757,236
    
    
    $
    4,806
    
    
    
    2.52
    %
    
    $
    738,640
    
    
    $
    5,764
    
    
    
    3.10
    %Other borrowings
    
    
    86,213
    
    
    
    614
    
    
    
    2.83
    %
    
    
    82,894
    
    
    
    849
    
    
    
    4.07
    %Sub-total interest bearing liabilities
    
    
    843,449
    
    
    
    5,420
    
    
    
    2.55
    %
    
    
    821,534
    
    
    
    6,613
    
    
    
    3.20
    %Non-interest bearing deposits
    
    
    84,211
    
    
    
    
    
    
    
    
    
    
    
    83,784Other liabilities
    
    
    2,095
    
    
    
    
    
    
    
    
    
    
    
    2,885Stockholders equity
    
    
    88,565
    
    
    
    
    
    
    
    
    
    
    
    133,949Total liabilities and stockholders equity
    
    $
    1,018,320
    
    
    
    
    
    
    
    
    
    
    $
    1,042,152Net interest income
    
    
    
    
    
    $
    7,826
    
    
    
    
    
    
    
    
    
    
    $
    8,250Net interest rate spread
    
    
    
    
    
    
    
    
    
    
    2.93
    %
    
    
    
    
    
    
    
    
    
    
    2.95
    %Net interest margin on earning assets
    
    
    
    
    
    
    
    
    
    
    3.24
    %
    
    
    
    
    
    
    
    
    
    
    3.41
    %
 35




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##### Table of Contents



Nine months ended September 30, 2009
    
    
    Nine months ended September 30, 2008Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average(In thousands)
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateAssetsInterest-bearing deposits with banks
    
    $
    60,304
    
    
    $
    273
    
    
    
    0.61
    %
    
    $
    540
    
    
    $
    3
    
    
    
    0.74
    %Federal funds sold
    
    
    6,335
    
    
    
    15
    
    
    
    0.32
    %
    
    
    3,722
    
    
    
    59
    
    
    
    2.11
    %Investment securities, available for sale
    
    
    40,724
    
    
    
    467
    
    
    
    1.53
    %
    
    
    12,055
    
    
    
    315
    
    
    
    3.48
    %Loans
    
    
    896,849
    
    
    
    40,231
    
    
    
    6.00
    %
    
    
    946,278
    
    
    
    45,910
    
    
    
    6.46
    %Sub-total earning assets
    
    
    1,004,212
    
    
    
    40,986
    
    
    
    5.46
    %
    
    
    962,595
    
    
    
    46,287
    
    
    
    6.41
    %Other assets
    
    
    56,628
    
    
    
    
    
    
    
    
    
    
    
    81,778Total assets
    
    $
    1,060,840
    
    
    
    
    
    
    
    
    
    
    $
    1,044,373Liabilities and stockholders equityInterest bearing deposits
    
    $
    805,701
    
    
    $
    16,262
    
    
    
    2.70
    %
    
    $
    722,926
    
    
    $
    18,666
    
    
    
    3.44
    %Other borrowings
    
    
    76,596
    
    
    
    1,843
    
    
    
    3.22
    %
    
    
    98,424
    
    
    
    3,034
    
    
    
    4.11
    %Sub-total interest bearing liabilities
    
    
    882,297
    
    
    
    18,105
    
    
    
    2.74
    %
    
    
    821,350
    
    
    
    21,700
    
    
    
    3.52
    %Non-interest bearing deposits
    
    
    81,669
    
    
    
    
    
    
    
    
    
    
    
    83,418Other liabilities
    
    
    2,040
    
    
    
    
    
    
    
    
    
    
    
    2,938Stockholders equity
    
    
    94,834
    
    
    
    
    
    
    
    
    
    
    
    136,667Total liabilities and stockholders equity
    
    $
    1,060,840
    
    
    
    
    
    
    
    
    
    
    $
    1,044,373Net interest income
    
    
    
    
    
    $
    22,881
    
    
    
    
    
    
    
    
    
    
    $
    24,587Net interest rate spread
    
    
    
    
    
    
    
    
    
    
    2.71
    %
    
    
    
    
    
    
    
    
    
    
    2.89
    %Net interest margin on earning assets
    
    
    
    
    
    
    
    
    
    
    3.05
    %
    
    
    
    
    
    
    
    
    
    
    3.40
    %
 Rate/Volume Analysis.
 36




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30, 2009/2008
    
    
    September 30, 2009/2008Change 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
    
    $
    75
    
    
    $
    (1
    )
    
    $
    74
    
    
    $
    270
    
    
    $
    (
    )
    
    $
    270Federal funds sold
    
    
    
    
    
    
    (19
    )
    
    
    (19
    )
    
    
    (11
    )
    
    
    (33
    )
    
    
    (44
    )Investment securities, available for sale
    
    
    
    
    
    
    (64
    )
    
    
    (64
    )
    
    
    267
    
    
    
    (115
    )
    
    
    152Loans
    
    
    (978
    )
    
    
    (629
    )
    
    
    (1,607
    )
    
    
    (3,508
    )
    
    
    (2,171
    )
    
    
    (5,679
    )Total earning assets
    
    $
    (903
    )
    
    $
    (713
    )
    
    $
    (1,616
    )
    
    $
    (2,982
    )
    
    $
    (2,319
    )
    
    $
    (5,301
    )LiabilitiesInterest bearing deposits
    
    $
    109
    
    
    $
    (1,067
    )
    
    $
    (958
    )
    
    $
    284
    
    
    $
    (2,688
    )
    
    $
    (2,404
    )Other borrowings
    
    
    24
    
    
    
    (259
    )
    
    
    (235
    )
    
    
    (751
    )
    
    
    (440
    )
    
    
    (1,191
    )Total interest bearing liabilities
    
    $
    133
    
    
    $
    (1,326
    )
    
    $
    (1,193
    )
    
    $
    (467
    )
    
    $
    (3,128
    )
    
    $
    (3,595
    )Net interest income
    
    
    
    
    
    
    
    
    
    $
    (423
    )
    
    
    
    
    
    
    
    
    
    $
    (1,706
    )Net interest rate spread
    
    
    
    
    
    
    
    
    
    
    (0.02
    )%
    
    
    
    
    
    
    
    
    
    
    (0.17
    )%Net interest margin on earning assets
    
    
    
    
    
    
    
    
    
    
    (0.17
    )%
    
    
    
    
    
    
    
    
    
    
    (0.35
    )%
 Provision for Loan Losses
 2009 Compared to 2008.
   37




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##### Table of Contents



Non-interest Income (Loss)
 2009 Compared to 2008.
  Non-interest Expense
 2009 Compared to 2008.
  38




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##### Table of Contents



Income Tax Provision
 2009 Compared to 2008.
 39




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##### Table of Contents



Comparison of Financial Condition at September 30, 2009 and December 31, 2008
 Assets.
 Federal Funds Sold.
 Interest bearing deposits with banks.
 Mortgage Loans Held for Sale.
 Securities  Available for Sale.
  Federal Home Loan Bank Stock.
 Loans.
 40




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##### Table of Contents



09/30/09
    
    
    12/31/08
    
    
    09/30/08Consumer loans
    
    $
    30,028
    
    
    $
    31,864
    
    
    $
    32,472Commercial, financial, & other
    
    
    154,358
    
    
    
    164,740
    
    
    
    162,828Land development loans  residential property
    
    
    44,997
    
    
    
    54,323
    
    
    
    56,878Land development loans  non residential property
    
    
    11,604
    
    
    
    16,094
    
    
    
    17,894Commercial real estate construction  residential property
    
    
    15,042
    
    
    
    17,296
    
    
    
    20,573Commercial real estate construction  non residential property
    
    
    20,445
    
    
    
    25,322
    
    
    
    30,145Commercial real estate mortgages
    
    
    539,200
    
    
    
    571,204
    
    
    
    565,365Residential real estate mortgages
    
    
    46,990
    
    
    
    52,426
    
    
    
    53,471862,664
    
    
    
    933,269
    
    
    
    939,626Allowance for loan losses
    
    
    (28,373
    )
    
    
    (14,452
    )
    
    
    (16,429
    )$
    834,291
    
    
    $
    918,817
    
    
    $
    923,197
  09/30/09
    
    
    12/31/08
    
    
    09/30/08Troubled debt restructuring  accruing
    
    
    46,025
    
    
    
    17,765
    
    
    
    15,328Over 90 days past due and still accruing
    
    
    
    
    
    
    450
    
    
    
    3,141Non-accrual loans
    
    
    58,866
    
    
    
    51,708
    
    
    
    51,342Total non-performing loans
    
    
    104,891
    
    
    
    69,923
    
    
    
    69,811Real estate owned
    
    
    11,684
    
    
    
    9,657
    
    
    
    8,343Real estate in redemption
    
    
    3,788
    
    
    
    
    
    
    
    Other repossessed assets
    
    
    
    
    
    
    
    
    
    
    Other non-performing assets
    
    
    15,472
    
    
    
    9,657
    
    
    
    8,343Total non-performing assets
    
    $
    120,363
    
    
    $
    79,580
    
    
    $
    78,154
   41




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##### Table of Contents



Number ofLoans
    
    
    BalanceConsumer loans
    
    
    17
    
    
    $
    1,235Commercial, financial, & other
    
    
    47
    
    
    
    8,638Land development loans  residential property
    
    
    19
    
    
    
    14,485Land development loans  non residential property
    
    
    2
    
    
    
    3,129Commercial real estate construction  residential property
    
    
    14
    
    
    
    5,555Commercial real estate construction  non residential property
    
    
    2
    
    
    
    3,067Commercial real estate mortgages
    
    
    42
    
    
    
    20,467Residential real estate mortgages
    
    
    15
    
    
    
    2,290Total non-accrual loans
    
    
    158
    
    
    $
    58,866
 Allowance for Loan Losses.
  42




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##### Table of Contents



Nine Months
    
    
    
    
    
    
    Nine MonthsEnded
    
    
    Year Ended
    
    
    Ended09/30/09
    
    
    12/31/08
    
    
    09/30/08Balance, beginning of year
    
    $
    14,452
    
    
    $
    10,617
    
    
    $
    10,617Charge-offs:Consumer loans
    
    
    718
    
    
    
    318
    
    
    
    176Commercial, financial & other
    
    
    3,616
    
    
    
    4,304
    
    
    
    3,155Land development loans  residential property
    
    
    7,050
    
    
    
    1,777
    
    
    
    229Land development loans  non residential property
    
    
    3,999
    
    
    
    
    
    
    
    Commercial real estate construction  residential property
    
    
    1,270
    
    
    
    1,635
    
    
    
    58Commercial real estate construction  non residential property
    
    
    1,981
    
    
    
    192
    
    
    
    Commercial real estate mortgages
    
    
    5,770
    
    
    
    2,446
    
    
    
    190Residential real estate mortgages
    
    
    691
    
    
    
    296
    
    
    
    188Recoveries:Consumer loans
    
    
    171
    
    
    
    19
    
    
    
    16Commercial, financial & other
    
    
    247
    
    
    
    117
    
    
    
    61Land development loans  residential property
    
    
    42
    
    
    
    33
    
    
    
    Land development loans  non residential property
    
    
    
    
    
    
    
    
    
    
    Commercial real estate construction  residential property
    
    
    
    
    
    
    0
    
    
    
    Commercial real estate construction  non residential property
    
    
    
    
    
    
    3
    
    
    
    Commercial real estate mortgages
    
    
    27
    
    
    
    21
    
    
    
    5Residential real estate mortgages
    
    
    7
    
    
    
    4
    
    
    
    4Net charge-offs (recoveries)
    
    
    24,601
    
    
    
    10,771
    
    
    
    3,910Provision for loan losses
    
    
    38,522
    
    
    
    14,606
    
    
    
    9,722Balance, end of period
    
    $
    28,373
    
    
    $
    14,452
    
    
    $
    16,429Allowance to total loans
    
    
    3.29
    %
    
    
    1.55
    %
    
    
    1.75
    %Allowance to nonperforming assets
    
    
    23.57
    %
    
    
    18.16
    %
    
    
    21.02
    %Net charge-offs to average loans
    
    
    2.74
    %
    
    
    1.14
    %
    
    
    0.41
    %
 Premises and Equipment.
 43




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##### Table of Contents



Other Real Estate.
 Number ofProperty Type
    
    Properties
    
    
    AmountSingle Family Homes
    
    
    33
    
    
    $
    3,987Condominium
    
    
    1
    
    
    
    1,001Vacant Land
    
    
    10
    
    
    
    4,847Commercial
    
    
    6
    
    
    
    4,297Office/Retail
    
    
    3
    
    
    
    1,340Total
    
    
    53
    
    
    $
    15,472
  Other intangible assets.
   44




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##### Table of Contents



2009Amortization of
    
    
    Impairment ofIntangible Assets
    
    
    Intangible AssetsCore deposit intangible from acquisition of:Bank of Washtenaw
    
    $
    33
    
    
    $
    231Fidelity Financial Corporation of Michigan
    
    
    312
    
    
    
    2,181Total core deposit intangible
    
    $
    345
    
    
    $
    2,412Borrower relationship intangible from acquisition of :Bank of Washtenaw
    
    $
    43
    
    
    $
    275Fidelity Financial Corporation of Michigan
    
    
    207
    
    
    
    1,310Total borrower relationship intangible
    
    $
    250
    
    
    $
    1,585Total intangible assets
    
    $
    595
    
    
    $
    3,997
 Accrued Interest Receivable.
 Other Assets
 Deposits.
 09/30/09
    
    
    12/31/08
    
    
    09/30/08Non-interest bearing:Demand
    
    $
    89,329
    
    
    $
    81,317
    
    
    $
    84,073Interest bearing:Checking
    
    $
    88,820
    
    
    $
    103,774
    
    
    $
    91,122Money market
    
    
    75,962
    
    
    
    163,611
    
    
    
    81,274Savings
    
    
    45,665
    
    
    
    54,164
    
    
    
    60,893Time, under $100,000
    
    
    291,314
    
    
    
    211,109
    
    
    
    194,530Time, $100,000 and over
    
    
    313,864
    
    
    
    324,420
    
    
    
    347,377815,625
    
    
    
    857,078
    
    
    
    775,196Total deposits
    
    $
    904,954
    
    
    $
    938,395
    
    
    $
    859,269
  45




---



##### Table of Contents



09/30/09
    
    
    12/31/08
    
    
    09/30/08Interest bearing checking
    
    $
    3,968
    
    
    $
    4,283
    
    
    $
    2,083Time, $100,000 and over
    
    
    7,451
    
    
    
    38,999
    
    
    
    77,578Total municipal deposits
    
    $
    11,419
    
    
    $
    43,282
    
    
    $
    79,661
 Securities Sold Under Agreement to Repurchase
 Federal Home Loan Bank Advances
 Accrued Interest Payable
 Other Liabilities
 46




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##### Table of Contents



Subordinated Debentures .
 Capital
    47




---



##### Table of Contents



MinimumTo Be Well CapitalizedMinimum for Capital
    
    Under Prompt CorrectiveActual
    
    Adequacy Purposes
    
    Action ProvisionsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioAs of September 30, 2009Total capital
(to risk weighted assets)Consolidated
    
    
    69,161
    
    
    
    7.78
    %
    
    
    71,151
    
    
    
    8.00
    %
    
    
    N/A
    
    
    
    N/ABank
    
    
    67,163
    
    
    
    7.57
    %
    
    
    70,990
    
    
    
    8.00
    %
    
    
    88,737
    
    
    
    10.00
    %Tier 1 capital
(to risk weighted assets)Consolidated
    
    
    57,855
    
    
    
    6.51
    %
    
    
    35,575
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/ABank
    
    
    55,857
    
    
    
    6.29
    %
    
    
    35,495
    
    
    
    4.00
    %
    
    
    53,242
    
    
    
    6.00
    %Tier 1 capital
(to average assets)Consolidated
    
    
    57,855
    
    
    
    5.69
    %
    
    
    40,697
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/ABank
    
    
    55,857
    
    
    
    5.50
    %
    
    
    40,612
    
    
    
    4.00
    %
    
    
    50,765
    
    
    
    5.00
    %As of December 31, 2008Total capital
(to risk weighted assets)Consolidated
    
    
    107,962
    
    
    
    10.69
    %
    
    
    80,832
    
    
    
    8.00
    %
    
    
    N/A
    
    
    
    N/ABank
    
    
    105,568
    
    
    
    10.47
    %
    
    
    80,667
    
    
    
    8.00
    %
    
    
    100,834
    
    
    
    10.00
    %Tier 1 capital
(to risk weighted assets)Consolidated
    
    
    95,310
    
    
    
    9.43
    %
    
    
    40,416
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/ABank
    
    
    92,941
    
    
    
    9.22
    %
    
    
    40,334
    
    
    
    4.00
    %
    
    
    60,501
    
    
    
    6.00
    %Tier 1 capital
(to average assets)Consolidated
    
    
    95,310
    
    
    
    8.88
    %
    
    
    42,933
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/ABank
    
    
    92,941
    
    
    
    8.69
    %
    
    
    42,781
    
    
    
    4.00
    %
    
    
    53,476
    
    
    
    5.00
    %
   48




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##### Table of Contents



49




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##### Table of Contents



50




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##### Table of Contents



PART I   FINANCIAL INFORMATION
 
  Interest Rate Sensitivity Analysis.
   51




---



##### Table of Contents



Interest Rate Sensitivity Period1-90
    
    
    91-365
    
    
    1-5
    
    
    Over(In thousands)
    
    Days
    
    
    Days
    
    
    Years
    
    
    5 Years
    
    
    TotalEarning assetsFederal funds sold
    
    $
    6,206
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    6,206Interest bearing deposits with Banks
    
    
    109,734
    
    
    
    5,028
    
    
    
    2,970
    
    
    
    
    
    
    
    117,732Mortgage loans held for sale
    
    
    1,449
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,449Securities available for sale
    
    
    0
    
    
    
    3,089
    
    
    
    10,458
    
    
    
    363
    
    
    
    13,910Federal Home Loan Bank stock
    
    
    3,698
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,698Total loans, net of non-accrual
    
    
    184,182
    
    
    
    97,643
    
    
    
    488,096
    
    
    
    33,878
    
    
    
    803,799Total earning assets
    
    
    305,269
    
    
    
    105,760
    
    
    
    501,524
    
    
    
    34,241
    
    
    
    946,794Interest bearing liabilitiesTotal interest bearing deposits
    
    
    346,086
    
    
    
    442,199
    
    
    
    27,078
    
    
    
    262
    
    
    
    815,625Federal Home Loan Bank advances
    
    
    29,000
    
    
    
    15,084
    
    
    
    29,771
    
    
    
    
    
    
    
    73,855Other Borrowings
    
    
    2,302
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,302Subordinated debentures
    
    
    10,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,000Total interest bearing liabilities
    
    
    387,388
    
    
    
    457,283
    
    
    
    56,849
    
    
    
    262
    
    
    
    901,782Net asset (liability) funding gap
    
    
    (82,119
    )
    
    
    (351,523
    )
    
    
    444,675
    
    
    
    33,979
    
    
    $
    45,012Cumulative net asset (liability) funding gap
    
    $
    (82,119
    )
    
    $
    (433,642
    )
    
    $
    11,033
    
    
    $
    45,012
 52




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Liquidity.
    53




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##### Table of Contents



Payments Due By PeriodLess Than
    
    
    1-3
    
    
    3-5
    
    
    Over 51 Year
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    TotalSecurities sold under agreements
to repurchase
    
    $
    2,302
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    2,302Certificates of deposit
    
    
    577,838
    
    
    
    26,162
    
    
    
    1,178
    
    
    
    
    
    
    
    605,178Long-term borrowings
    
    
    44,084
    
    
    
    19,500
    
    
    
    10,271
    
    
    
    
    
    
    
    73,855Lease commitments
    
    
    731
    
    
    
    597
    
    
    
    36
    
    
    
    
    
    
    
    1,364Subordinated debentures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,000
    
    
    
    10,000Totals
    
    $
    624,955
    
    
    $
    46,259
    
    
    $
    11,485
    
    
    $
    10,000
    
    
    $
    692,699
  Amount Of Commitment Expiration Per PeriodLess Than
    
    
    1-3
    
    
    3-5
    
    
    Over 51 Year
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    TotalUnused loan commitments
    
    $
    63,667
    
    
    $
    11,706
    
    
    $
    6,696
    
    
    $
    9,146
    
    
    $
    91,215Standby letters of credit
    
    
    1,431
    
    
    
    1,500
    
    
    
    
    
    
    
    
    
    
    
    2,931Totals
    
    $
    65,098
    
    
    $
    13,206
    
    
    $
    6,696
    
    
    $
    9,146
    
    
    $
    94,146
 54




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##### Table of Contents



Item 4. Controls and Procedures
 Disclosure Controls and Procedures 
 Internal Controls Over Financial Reporting
 55




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##### Table of Contents



PART II   OTHER INFORMATION
 
 ITEM 1A.
    
    RISK FACTORS
  The Corporation may not be able to meet federal regulatory requirements regarding the restoration
of capital of the Bank.
    56




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##### Table of Contents



The Banks capital may not be sufficient to support the risk inherent in its loan portfolio.
  The Bank will be subject to higher deposit insurance premiums as a result of its capital position.
  57




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##### Table of Contents



The Bank may be required to pay additional insurance assessments to the FDIC in 2009 for its
federal deposit insurance.
  Further deterioration of the real estate market and the economy would further materially adversely
affect the Corporations business, liquidity and financial results.
  58




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##### Table of Contents



A segment of the Banks loans are construction loans which involve the additional risk that a
project may not be completed, increasing the risk of loss.
  The Bank may not pay any capital distribution or management fees to the Corporation.
  Because the Bank is undercapitalized, its ability to accept certain types of deposits is limited,
which may adversely affect its business, liquidity and financial results.
  The Banks ability to grow, to offer new products, or to engage in new lines of business, is
subject to regulatory restrictions.
  The Banks allowance for loan and lease losses may not be sufficient to cover actual loan losses,
which could adversely affect its results of operations. Additional loan losses will likely occur
in the future and may occur at a rate greater than the Bank has experienced to date.
 59




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##### Table of Contents



If the Corporation fails to meet the continued listing requirements of the Nasdaq Global Market,
its common stock could be delisted.
   60




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##### Table of Contents



ITEM 6.
    
    EXHIBITS
 Exhibit 3(a)
    
    Articles of Incorporation of RegistantExhibit 3(b)
    
    By-Laws of the Registrant, As Amended, were filed as Exhibit 3(b) to the Form
10-K Report of the Registrant for the fiscal year ended December 31, 1995 and is
incorporated herein by reference.Exhibit 31.1
    
    CEO Certification. pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.Exhibit 31.2
    
    CFO Certification. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 Exhibit 32.1
    
    CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.Exhibit 32.2
    
    CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 61




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SIGNATURES
  
  
    
    
    62




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Exhibit Index
 Exhibit
    
    Description3(a)
    
    Articles of Incorporation, As Amended3(b)
    
    By-Laws of the Registrant, As Amended were filed as Exhibit 3(b) to the
Form 10-K Report of the Registrant for the fiscal year ended December 31, 1995
and is incorporated herein by reference.31.1
    
    CEO Certification. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    CFO Certification. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 63