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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 June 30, 2010
 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 
incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 (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 o
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company þ
  o þ
  Class
    
    Shares OutstandingCommon Stock
    
    7,685,705




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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  June 30, 2010,
December 31, 2009 and June 30, 2009
    
    
    4Condensed Consolidated Statements of Operation  For the Three
And Six Months Ended June 30, 2010 and 2009
    
    
    5Condensed Consolidated Statements of Comprehensive Loss  For the
Three and Six Months Ended June 30, 2010 and 2009
    
    
    6Condensed Consolidated Statements of Cash Flows  For the Six
Months Ended June 30, 2010 and 2009
    
    
    7Notes to Condensed Consolidated Financial Statements
    
    
    9-27Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    28-47Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    47-50Item 4. Controls and Procedures
    
    
    51Part 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
    
    
    52-53Item 4. Submission of Matters to a Vote of Security HoldersItem 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 5. Other InformationSIGNATURES
    
    
    54EX-31.1EX-31.2EX-32.1EX-32.2
  2




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Report of Independent Registered Public Accounting Firm
 
     BKD, llp
 
 3




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PART I  FINANCIAL INFORMATION
 ITEM 1. FINANCIAL STATEMENTS
 DEARBORN BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited)
    
    
    
    
    
    
    (Unaudited)(Dollars, in thousands)
    
    6/30/2010
    
    
    12/31/2009
    
    
    6/30/2009ASSETSCash and cash equivalentsCash and due from banks
    
    $
    7,088
    
    
    $
    7,803
    
    
    $
    25,475Federal funds sold
    
    
    57
    
    
    
    156
    
    
    
    1,425Interest bearing deposits with banks
    
    
    67,056
    
    
    
    69,538
    
    
    
    18,454Total cash and cash equivalents
    
    
    74,201
    
    
    
    77,497
    
    
    
    45,354Mortgage loans held for sale
    
    
    1,169
    
    
    
    1,129
    
    
    
    60Securities available for sale
    
    
    46,171
    
    
    
    45,964
    
    
    
    3,257Securities held to maturity
    
    
    336
    
    
    
    336
    
    
    
    Federal Home Loan Bank stock
    
    
    3,698
    
    
    
    3,698
    
    
    
    3,698LoansLoans
    
    
    783,032
    
    
    
    833,136
    
    
    
    882,568Allowance for loan losses
    
    
    (31,574
    )
    
    
    (35,125
    )
    
    
    (22,422
    )Net loans
    
    
    751,458
    
    
    
    798,011
    
    
    
    860,146Premises and equipment, net
    
    
    19,724
    
    
    
    20,194
    
    
    
    20,784Real estate owned
    
    
    23,976
    
    
    
    23,435
    
    
    
    17,434Other intangible assets
    
    
    
    
    
    
    
    
    
    
    4,195Accrued interest receivable
    
    
    3,181
    
    
    
    3,562
    
    
    
    3,512Other assets
    
    
    9,199
    
    
    
    12,660
    
    
    
    31,360Total assets
    
    $
    933,113
    
    
    $
    986,486
    
    
    $
    989,800LIABILITIESDepositsNon-interest bearing deposits
    
    $
    91,447
    
    
    $
    83,873
    
    
    $
    83,752Interest bearing deposits
    
    
    736,217
    
    
    
    784,082
    
    
    
    729,415Total deposits
    
    
    827,664
    
    
    
    867,955
    
    
    
    813,167Other liabilitiesSecurities sold under agreements to repurchase
    
    
    
    
    
    
    
    
    
    
    2,206Federal Home Loan Bank advances
    
    
    63,799
    
    
    
    63,855
    
    
    
    73,955Accrued interest payable
    
    
    941
    
    
    
    1,046
    
    
    
    1,104Other liabilities
    
    
    746
    
    
    
    1,685
    
    
    
    1,491Subordinated debentures
    
    
    10,000
    
    
    
    10,000
    
    
    
    10,000Total liabilities
    
    
    903,150
    
    
    
    944,541
    
    
    
    901,923COMMITMENT AND CONTINGENT LIABILITIES
    
    
    
    
    
    
    
    
    
    
    STOCKHOLDERS EQUITYCommon stock - 100,000,000 shares
authorized, 7,685,705 at 6/30/10, 7,687,470
shares at 12/31/09 and 7,687,470 shares at 6/30/09
    
    
    131,991
    
    
    
    131,929
    
    
    
    131,866Accumulated deficit
    
    
    (102,350
    )
    
    
    (89,850
    )
    
    
    (43,998
    )Accumulated other comprehensive income (loss)
    
    
    322
    
    
    
    (134
    )
    
    
    9Total stockholders equity
    
    
    29,963
    
    
    
    41,945
    
    
    
    87,877Total liabilities and stockholders equity
    
    $
    933,113
    
    
    $
    986,486
    
    
    $
    989,800
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DEARBORN BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
 Three Months Ended
    
    
    Six Months Ended(In thousands, except share data)
    
    6/30/10
    
    
    6/30/09
    
    
    6/30/10
    
    
    6/30/09Interest incomeInterest on loans
    
    $
    11,536
    
    
    $
    13,286
    
    
    $
    23,314
    
    
    $
    27,096Interest on securities, available for sale
    
    
    157
    
    
    
    178
    
    
    
    325
    
    
    
    434Interest on deposits with banks
    
    
    64
    
    
    
    103
    
    
    
    101
    
    
    
    197Interest on federal funds
    
    
    
    
    
    
    6
    
    
    
    1
    
    
    
    12Total interest income
    
    
    11,757
    
    
    
    13,573
    
    
    
    23,741
    
    
    
    27,739Interest expenseInterest on deposits
    
    
    2,925
    
    
    
    5,458
    
    
    
    6,468
    
    
    
    11,456Interest on other liabilities
    
    
    376
    
    
    
    578
    
    
    
    762
    
    
    
    1,229Total interest expense
    
    
    3,301
    
    
    
    6,036
    
    
    
    7,230
    
    
    
    12,685Net interest income
    
    
    8,456
    
    
    
    7,537
    
    
    
    16,511
    
    
    
    15,054Provision for loan losses
    
    
    11,803
    
    
    
    13,610
    
    
    
    11,903
    
    
    
    24,337Net interest income (loss) after provision for loan losses
    
    
    (3,347
    )
    
    
    (6,073
    )
    
    
    4,608
    
    
    
    (9,283
    )Non-interest lossService charges on deposit accounts
    
    
    380
    
    
    
    375
    
    
    
    723
    
    
    
    730Fees for other services to customers
    
    
    49
    
    
    
    37
    
    
    
    85
    
    
    
    62Gain on the sale of loans
    
    
    66
    
    
    
    160
    
    
    
    124
    
    
    
    216Gain on the sale of securities
    
    
    
    
    
    
    270
    
    
    
    69
    
    
    
    465Gain (loss) on the sale of real estate owned
    
    
    43
    
    
    
    (32
    )
    
    
    32
    
    
    
    (3
    )Loss on the write-down of real estate owned
    
    
    (3,693
    )
    
    
    (1,506
    )
    
    
    (4,349
    )
    
    
    (1,860
    )Other income
    
    
    78
    
    
    
    125
    
    
    
    180
    
    
    
    147Total non-interest loss
    
    
    (3,077
    )
    
    
    (571
    )
    
    
    (3,136
    )
    
    
    (243
    )Non-interest expenseSalaries and employee benefits
    
    
    3,078
    
    
    
    3,208
    
    
    
    6,197
    
    
    
    6,498Occupancy and equipment expense
    
    
    777
    
    
    
    916
    
    
    
    1,631
    
    
    
    1,850Amortization of intangible expense
    
    
    
    
    
    
    199
    
    
    
    
    
    
    
    397FDIC assessment
    
    
    1,125
    
    
    
    833
    
    
    
    2,075
    
    
    
    1,181Advertising and marketing
    
    
    33
    
    
    
    59
    
    
    
    60
    
    
    
    129Stationery and supplies
    
    
    75
    
    
    
    109
    
    
    
    147
    
    
    
    220Professional services
    
    
    306
    
    
    
    173
    
    
    
    472
    
    
    
    364Data processing
    
    
    174
    
    
    
    238
    
    
    
    360
    
    
    
    466Defaulted loan expense
    
    
    1,054
    
    
    
    926
    
    
    
    2,089
    
    
    
    1,687Other operating expenses
    
    
    583
    
    
    
    442
    
    
    
    942
    
    
    
    822Total non-interest expense
    
    
    7,205
    
    
    
    7,103
    
    
    
    13,973
    
    
    
    13,614Loss before federal income tax benefit
    
    
    (13,629
    )
    
    
    (13,747
    )
    
    
    (12,501
    )
    
    
    (23,140
    )Income tax benefit
    
    
    
    
    
    
    (4,672
    )
    
    
    
    
    
    
    (7,816
    )Net loss
    
    
    ($13,629
    )
    
    
    ($9,075
    )
    
    
    ($12,501
    )
    
    
    ($15,324
    )Per share data:Net loss  basic
    
    
    (1.78
    )
    
    
    (1.19
    )
    
    
    (1.63
    )
    
    
    (2.00
    )Net loss  diluted
    
    
    (1.78
    )
    
    
    (1.19
    )
    
    
    (1.63
    )
    
    
    (2.00
    )Weighted average number of shares outstanding  basic
    
    
    7,645,940
    
    
    
    7,644,207
    
    
    
    7,645,940
    
    
    
    7,644,198Weighted average number of shares outstanding  diluted
    
    
    7,645,940
    
    
    
    7,644,207
    
    
    
    7,645,940
    
    
    
    7,644,198
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DEARBORN BANCORP, INC. AND SUBSIDIARY
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (unaudited)
 Three Months Ended
    
    
    Six Months Ended(In thousands)
    
    06/30/10
    
    
    06/30/09
    
    
    6/30/10
    
    
    6/30/09Net loss
    
    
    ($13,629
    )
    
    
    ($9,075
    )
    
    
    ($12,501
    )
    
    
    ($15,324
    )Other comprehensive income (loss) , net of taxUnrealized gains on securitiesUnrealized holding gains (losses) arising during period
    
    
    381
    
    
    
    (350
    )
    
    
    387
    
    
    
    (757
    )Less: reclassification adjustment for gains included
in net income
    
    
    
    
    
    
    270
    
    
    
    69
    
    
    
    465Tax effects
    
    
    
    
    
    
    27
    
    
    
    
    
    
    
    99Other comprehensive income (loss)
    
    
    381
    
    
    
    (53
    )
    
    
    456
    
    
    
    (193
    )Comprehensive income (loss)
    
    
    ($13,248
    )
    
    
    ($9,128
    )
    
    
    ($12,045
    )
    
    
    ($15,517
    )
  6




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DEARBORN BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 Six Months Ended(In thousands)
    
    6/30/2010
    
    
    6/30/2009Cash flows from operating activitiesInterest and fees received
    
    $
    24,122
    
    
    $
    27,726Interest paid
    
    
    (7,335
    )
    
    
    (13,276
    )Proceeds from sale of mortgages held for sale
    
    
    10,254
    
    
    
    21,654Origination of mortgages held for sale
    
    
    (10,170
    )
    
    
    (19,561
    )Taxes refunded
    
    
    4,074
    
    
    
    (Gain) loss on sale of real estate owned
    
    
    32
    
    
    
    (3
    )Gain on sale of securities
    
    
    (69
    )
    
    
    465Cash paid to suppliers and employees
    
    
    (13,431
    )
    
    
    (13,043
    )Net cash provided by operating activities
    
    
    7,477
    
    
    
    3,962Cash flows from investing activitiesSale of securities available for sale
    
    
    8,289
    
    
    
    50,126Proceeds from calls, maturities and repayments of
of securities available for sale
    
    
    2,538
    
    
    
    51,033Purchases of securities available for sale
    
    
    (10,689
    )
    
    
    (21,459
    )Purchase of Federal Home Loan Bank stock
    
    
    
    
    
    
    (84
    )Decrease in loans, net of payments received
    
    
    28,276
    
    
    
    24,281Proceeds from the sale of real estate owned
    
    
    1,215
    
    
    
    1,217Purchases of property and equipment
    
    
    (55
    )
    
    
    (177
    )Net cash provided by investing activities
    
    
    29,574
    
    
    
    104,937Cash flows from financing activitiesNet decrease in non-interest bearing deposits
    
    
    7,574
    
    
    
    2,435Net increase in interest bearing deposits
    
    
    (47,865
    )
    
    
    (127,663
    )Increase (decrease) in other borrowings
    
    
    
    
    
    
    (255
    )Repayments on Federal Home Loan Bank advances
    
    
    (56
    )
    
    
    8,936Net cash provided by financing activities
    
    
    (40,347
    )
    
    
    (116,547
    )Decrease in cash and cash equivalents
    
    
    (3,296
    )
    
    
    (7,648
    )Cash and cash equivalents at the beginning of year
    
    
    77,497
    
    
    
    53,002Cash and cash equivalents at the end of year
    
    $
    74,201
    
    
    $
    45,354
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DEARBORN BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Continued)
 Six Months Ended(In thousands)
    
    6/30/2010
    
    
    6/30/2009Reconciliation of net loss to net cash provided by operating activitiesNet loss
    
    
    ($12,501
    )
    
    
    ($15,324
    )Adjustments to reconcile net income to net cash provided by operating activitiesProvision for loan losses
    
    
    11,903
    
    
    
    24,337Depreciation and amortization expense
    
    
    525
    
    
    
    665Restricted stock award expense
    
    
    32
    
    
    
    44Stock option expense
    
    
    32
    
    
    
    39Accretion of discount on investment securities
    
    
    (41
    )
    
    
    149Amortization of premium on investment securities
    
    
    222
    
    
    
    Write-down of real estate owned
    
    
    4,349
    
    
    
    1,860Amortization of intangible assets
    
    
    
    
    
    
    397(Increase) decrease in mortgages held for sale
    
    
    (40
    )
    
    
    1,774(Increase) decrease in interest receivable
    
    
    381
    
    
    
    (13
    )Decrease in interest payable
    
    
    (105
    )
    
    
    (591
    )(Increase) decrease in other assets
    
    
    3,659
    
    
    
    (9,829
    )Increase (decrease) in other liabilities
    
    
    (939
    )
    
    
    454Net cash provided by operating activities
    
    $
    7,477
    
    
    $
    3,962Supplemental noncash disclosures:Transfers from loans to real estate owned
    
    $
    6,374
    
    
    $
    10,803
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A.
    
    Accounting and Reporting PoliciesThe condensed consolidated financial statements of Dearborn Bancorp, Inc. (the
Corporation) include the consolidation of its only subsidiary, Fidelity Bank (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 condensed consolidated financial statements of the Corporation as of June 30, 2010 and
2009, and December 31, 2009 and for the three and six month periods ended June 30, 2010 and
2009 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 condensed consolidated balance sheet of the Corporation as of December 31, 2009 has
been derived from the audited consolidated balance sheet as of that date. The operating
results for the three and six month periods ended June 30, 2010 are not necessarily
indicative of results of operations for the entire year.The condensed consolidated financial statements as of June 30, 2010 and 2009, and for the
three and six month periods ended June 30, 2010 and 2009 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 2009 Annual
Report on Form 10-K.Certain of the Corporations accounting policies are important to the portrayal of the
Corporations financial condition, since they require management to make difficult, complex
or subjective judgments, some of which may relate to matters that are inherently uncertain.
Estimates associated with these policies are susceptible to material changes as a result
of changes in facts and circumstances. Facts and circumstances which could affect these
material judgments include, but without limitation, changes in interest rates, in the
performance of the economy or in the financial condition of borrowers. Management believes
that its critical accounting policies include determining the allowance for loan losses and
determining the fair value of securities and other financial instruments and assessing
other than temporary impairments of securities.
 9




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A.
    
    Accounting and Reporting Policies (cont)Income (Loss) Per ShareBasic income (loss) per share is net income (loss) divided by the weighted average number of
common shares outstanding during the period. Diluted income (loss) per share includes the
dilutive effect of additional potential common shares issuable under stock options. Income
(loss) per share is restated for all stock splits and dividends through the date of issue of
the financial statements.Factors in the basic and diluted income (loss) per share calculation follow (in thousands,
except share and per share data):
 Three Months Ended
    
    
    Six Months Ended6/30/2010
    
    
    6/30/2009
    
    
    6/30/2010
    
    
    6/30/2009BasicNet income
    
    
    ($13,629
    )
    
    
    ($9,075
    )
    
    
    ($12,501
    )
    
    
    ($15,324
    )Weighted average common shares
    
    
    7,645,940
    
    
    
    7,644,188
    
    
    
    7,645,940
    
    
    
    7,644,198Basic earnings per common share
    
    
    ($1.78
    )
    
    
    ($1.19
    )
    
    
    ($1.63
    )
    
    
    ($2.00
    )DilutedNet income
    
    
    ($13,629
    )
    
    
    ($9,075
    )
    
    
    ($12,501
    )
    
    
    ($15,324
    )Weighted average common shares outstanding
for basic earnings per common share
    
    
    7,645,940
    
    
    
    7,644,188
    
    
    
    7,645,940
    
    
    
    7,644,198Add: Dilutive effects of assumed exercise
of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Average shares and dilutive potential
common shares
    
    
    7,645,940
    
    
    
    7,644,188
    
    
    
    7,645,940
    
    
    
    7,644,198Dilutive earnings per common share
    
    
    ($1.78
    )
    
    
    ($1.19
    )
    
    
    ($1.63
    )
    
    
    ($2.00
    )
 Stock options for 549,975 and 592,777 shares of common stock were not considered in
computing diluted earnings per common share for the six months ended June 30, 2010 and 2009,
respectively, because they were antidilutive. All share and per share amounts have been
adjusted for stock dividends.
 10




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A.
    
    Accounting and Reporting Policies (cont)Current Accounting DevelopmentsIn June 2009, the FASB issued guidance on accounting for transfers of financial assets to
improve the reporting for the transfer of financial assets resulting from (1) practices that
have developed since the issuance of the prior standard that are not consistent with the
original intent and key requirements of the prior standard, and (2) concerns of financial
statement users that many of the financial assets (and related obligations) that have been
derecognized should continue to be reported in the financial statements of transferors.
This guidance is included in the Codification as ASC 860. The Corporation adopted this
guidance effective January 1, 2010. The adoption did not have a material impact on the
Corporations financial position or statement of operations.In June 2009, the FASB issued guidance on the consolidation of variable interest entities to
improve financial reporting by enterprises involved with variable interest entities and to
provide more relevant and reliable information to users of financial statements. This
guidance is included in the Codification as part of ASC 810. The Corporation adopted this
guidance effective January 1, 2010. The adoption did not have a material impact on the
Corporations financial position or statement of operations.In January 2010, the FASB issued guidance for improving disclosures about fair value
measurements. The guidance requires additional disclosure in two areas: (1) a description
of, as well as the disclosure of, the dollar amount of transfers in or out of Level 1 or
Level 2, and (2) in the reconciliation of fair value measurements using significant
unobservable inputs (Level 3), a reporting entity should present separately information
about purchases, sales, issuances, and settlements. Increased disclosures regarding the
transfers in/out of Level 1 and 2 are required for interim and annual periods beginning
after December 15, 2009. Increased disclosures for the Level 3 fair value reconciliation
are required for fiscal years beginning after December 15, 2010. The adoption of both parts
of this guidance did not have a material impact on the Corporations consolidated financial
position or statement of operations.In July 2010, the FASB issued guidance for improving disclosures about an entitys allowance
for loan losses and the credit quality of its loans. The guidance requires additional
disclosure to facilitate financial statement users evaluation of the following: (1) the
nature of credit risk inherent in the entitys loan portfolio, (2) how that risk is analyzed
and assessed in arriving at the allowance for loan losses, and (3) the changes and reasons
for those changes in the allowance for loan losses. For public companies, increased
disclosures as of the end of a reporting period are effective for periods ending on or after
December 15, 2010. Increased disclosures about activity that occurs during a reporting
period are effective for interim and annual reporting periods beginning on or after December
31, 2010. The Corporation is currently evaluating the requirements of this guidance, but
does not expect it to have a material impact on the Corporations consolidated financial
position or statement of operations.
 11




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##### Table of Contents



B.
    
    SecuritiesThe amortized cost and fair value of securities available for sale are as follows (in
thousands):
 June 30, 2010Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueUS Government sponsored
agency securities
    
    $
    2,008
    
    
    $
    
    
    
    $
    
    
    
    $
    2,008Corporate bonds
    
    
    43,778
    
    
    
    320
    
    
    
    
    
    
    
    44,098Mortgage backed securities
    
    
    63
    
    
    
    2
    
    
    
    
    
    
    
    65Totals
    
    $
    45,849
    
    
    $
    322
    
    
    $
    
    
    
    $
    46,171
 December 31, 2009Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueUS Government sponsored
agency securities
    
    $
    12,759
    
    
    $
    20
    
    
    
    ($30
    )
    
    $
    12,749Corporate bonds
    
    
    33,308
    
    
    
    
    
    
    
    (197
    )
    
    
    33,111Mortgage backed securities
    
    
    101
    
    
    
    3
    
    
    
    
    
    
    
    104Totals
    
    $
    46,168
    
    
    $
    23
    
    
    
    ($227
    )
    
    $
    45,964
 The amortized cost and fair value of securities available for sale at June 30, 2010 by
contractual maturity are shown below (in thousands):
 Amortized
    
    
    FairCost
    
    
    ValueDue in one year through five years
    
    $
    45,786
    
    
    $
    46,106Mortgage backed securities
    
    
    63
    
    
    
    65Totals
    
    $
    45,849
    
    
    $
    46,171
 The entire portfolio has a net unrealized gain of $322,000 at June 30, 2010, compared
to net unrealized loss of $204,000 at December 31, 2009. The Corporation does not hold or
utilize derivatives.
 The Corporation did not hold any securities with unrealized losses at June 30,
2010.
 12




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##### Table of Contents



For the three months ended
    
    
    For the six months ended6/30/2010
    
    
    6/30/2009
    
    
    6/30/2010
    
    
    6/30/2009Gross Gains
    
    $
    
    
    
    $
    272
    
    
    $
    69
    
    
    $
    467Gross Losses
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    2
   June 30, 2010Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueTrust preferred securities
    
    $
    336
    
    
    $
    42
    
    
    $
    
    
    
    $
    378Totals
    
    $
    336
    
    
    $
    42
    
    
    $
    
    
    
    $
    378
 December 31, 2009Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueTrust preferred securities
    
    $
    336
    
    
    $
    
    
    
    $
    
    
    
    $
    336Totals
    
    $
    336
    
    
    $
    
    
    
    $
    
    
    
    $
    336
   13




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##### Table of Contents



Credit losses on debt securities held
    
    AmountBalance, January 1, 2010
    
    $
    414Additions related to other than temporary
Losses not previously recognized
    
    
    Balance, June 30, 2010
    
    $
    414
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##### Table of Contents



6/30/10
    
    
    12/31/09
    
    
    06/30/09Consumer loans
    
    $
    28,017
    
    
    $
    29,386
    
    
    $
    30,270Commercial, financial, & other
    
    
    134,199
    
    
    
    144,630
    
    
    
    157,438Land development loans  residential property
    
    
    29,233
    
    
    
    38,472
    
    
    
    48,454Land development loans  non residential property
    
    
    9,427
    
    
    
    11,644
    
    
    
    13,405Commercial real estate construction  residential property
    
    
    11,060
    
    
    
    13,287
    
    
    
    13,125Commercial real estate construction  non residential property
    
    
    17,935
    
    
    
    20,061
    
    
    
    22,518Commercial real estate mortgages
    
    
    511,265
    
    
    
    531,156
    
    
    
    549,275Residential real estate mortgages
    
    
    41,896
    
    
    
    44,500
    
    
    
    48,083783,032
    
    
    
    833,136
    
    
    
    882,568Allowance for loan losses
    
    
    (31,574
    )
    
    
    (35,125
    )
    
    
    (22,422
    )$
    751,458
    
    
    $
    798,011
    
    
    $
    860,146
  6/30/10
    
    
    12/31/09
    
    
    06/30/09Troubled debt restructuring
    
    $
    38,530
    
    
    $
    59,420
    
    
    $
    46,714Over 90 days past due and still accruing
    
    
    
    
    
    
    
    
    
    
    Non-accrual loans
    
    
    75,146
    
    
    
    49,341
    
    
    
    57,610Total non-performing loans
    
    
    113,676
    
    
    
    108,761
    
    
    
    104,324Real estate owned
    
    
    23,976
    
    
    
    23,435
    
    
    
    17,434Other repossessed assets
    
    
    
    
    
    
    
    
    
    
    Other non-performing assets
    
    
    23,976
    
    
    
    23,435
    
    
    
    17,434Total non-performing assets
    
    $
    137,652
    
    
    $
    132,196
    
    
    $
    121,758
   Number ofLoans
    
    
    BalanceConsumer loans
    
    
    16
    
    
    $
    1,051Commercial, financial, & other
    
    
    46
    
    
    
    14,134Land development loans  residential property
    
    
    19
    
    
    
    17,001Land development loans  non residential property
    
    
    1
    
    
    
    1,319Commercial real estate construction  residential property
    
    
    10
    
    
    
    8,213Commercial real estate construction  non residential property
    
    
    1
    
    
    
    333Commercial real estate mortgages
    
    
    65
    
    
    
    30,530Residential real estate mortgages
    
    
    13
    
    
    
    2,565Total non-accrual loans
    
    
    171
    
    
    $
    75,146
 15




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##### Table of Contents



Six Months Ended
    
    
    Year Ended
    
    
    Six Months Ended06/30/10
    
    
    12/31/09
    
    
    06/30/09Balance, beginning of year
    
    $
    35,125
    
    
    $
    14,452
    
    
    $
    14,452Charge-offs:Consumer loans
    
    
    419
    
    
    
    1,154
    
    
    
    539Commercial, financial & other
    
    
    2,725
    
    
    
    4,878
    
    
    
    2,490Land development loans  residential property
    
    
    7,185
    
    
    
    9,441
    
    
    
    5,308Land development loans  non residential property
    
    
    300
    
    
    
    4,364
    
    
    
    2,356Commercial real estate construction  residential property
    
    
    1,712
    
    
    
    1,471
    
    
    
    1,176Commercial real estate construction  non residential
property
    
    
    36
    
    
    
    1,981
    
    
    
    430Commercial real estate mortgages
    
    
    3,023
    
    
    
    6,919
    
    
    
    3,708Residential real estate mortgages
    
    
    221
    
    
    
    701
    
    
    
    621Recoveries:Consumer loans
    
    
    33
    
    
    
    176
    
    
    
    11Commercial, financial & other
    
    
    61
    
    
    
    339
    
    
    
    189Land development loans  residential property
    
    
    14
    
    
    
    107
    
    
    
    28Commercial real estate construction  residential property
    
    
    1
    
    
    
    0
    
    
    
    0Commercial real estate mortgages
    
    
    18
    
    
    
    61
    
    
    
    26Residential real estate mortgages
    
    
    40
    
    
    
    36
    
    
    
    7Net charge-offs (recoveries)
    
    
    15,454
    
    
    
    30,190
    
    
    
    16,367Provision for loan losses
    
    
    11,903
    
    
    
    50,863
    
    
    
    24,337Balance, end of period
    
    $
    31,574
    
    
    $
    35,125
    
    
    $
    22,422Allowance to total loans
    
    
    4.03
    %
    
    
    4.22
    %
    
    
    2.54
    %Allowance to nonperforming assets
    
    
    27.78
    %
    
    
    32.30
    %
    
    
    21.49
    %Net charge-offs to average loans
    
    
    1.90
    %
    
    
    3.40
    %
    
    
    1.80
    %
 16




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##### Table of Contents



C.
    
    Loans and Allowance for Loan Losses (cont)
 The Bank recorded net charge-offs of $15,454,000 during the six months ended June 30,
2010. Specific allocations of $4,058,000 were recorded on these loans at December 31, 2009.
These specific allocations were assigned as of December 31, 2009 based on information that
was received in 2010 but where deterioration of the credits related to events that occurred
in 2009. Accordingly, the provision for loan losses related to the charge-off of these
loans was recorded during the fourth quarter of 2009. Additionally, net charge-offs of
$3,667,000 were due to a change in the methodology relating to the valuation of residential
building lots. This change was related to the evaluation of appraisals of this type of
collateral, where the appraised value of developed residential building lots was required to
be discounted based on the absorption factor associated with the collateral. The remaining
charge-offs of $7,729,000 were due to the further deterioration of credits during 2010 and
updated appraisals received during 2010. The reserves established for classified loans are
based on the information currently available to the Corporation. However, in these
challenging economic conditions, information could become known in the future that could
materially alter our estimate.A primary factor in the continued decline in the underlying value of our collateral and the
decision to recognize these charge-offs was the continuing decline during the first six
months of 2010 in the economic environment in Southeastern Michigan. This decline in
economic conditions is heavily impacted by conditions and events that impacted the
automotive industry during 2009 and continues to impact the local economy. These conditions
have had a negative impact on the residential real estate and commercial real estate markets
in the Banks market area and these loans represent 79% of the Banks loan portfolio. These
conditions have led to an increase in the Banks classified assets during 2010. Management
has recognized this trend in our analysis of the allowance for loan losses at June 30, 2010.
The allowance for loan losses was based upon managements assessment of relevant factors,
including loan growth, types and amounts of non-performing loans, historical and anticipated
loss experience on such types of loans, and current economic conditions. If collateral
values continue to decline, additions to the allowance for loan losses will be required and
will have an adverse effect on the Corporations earnings through increases to the provision
for loan losses.
 The aggregate balance in impaired loans are as follows (in thousands):
 06/30/10
    
    
    12/31/09
    
    
    06/30/09Impaired loans with no allocated allowance for loan
losses
    
    $
    72,655
    
    
    $
    83,226
    
    
    $
    104,324Impaired loans with allocated allowance for loan losses
    
    
    44,080
    
    
    
    43,553
    
    
    
    Total
    
    $
    116,735
    
    
    $
    126,779
    
    
    $
    104,324Amount of the allowance for loan loss allocated
    
    $
    10,460
    
    
    $
    10,715
    
    
    $
    
 These loans have been evaluated under impairment standards and have been either
charged down to the collateral value or the collateral value exceeds the loan balance.
 17




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##### Table of Contents



D.
    
    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.
 There were 29,391 shares forfeited during the six month ended June 30, 2010. There were no
options exercised during the six months ended June 30, 2010. For the options outstanding at
June 30, 2010, the range of exercise prices was $4.94 to $14.65 per share with a
weighted-average remaining contractual term of 1.7 years. At June 30, 2010, options for
331,010 shares were exercisable at weighted average exercise price of $8.97 per share.
There was no intrinsic value at June 30, 2010.
 During 2005, the Corporation initiated the 2005 Long-Term Incentive Plan. Under this plan,
up to 347,248 shares may be granted to officers and employees of the Bank. This plan
provides that stock awards may take the form of any combination of options, restricted
shares, restricted share units or performance awards.
 The administration of the plan, including the granting of awards and the nature of those
awards is determined by the Corporations Compensation Committee. The Corporations Board
of Directors approved grants of stock options and restricted stock in 2005, 2006 and 2008.
The awards have a term of ten years and typically vest fully three years from the grant
date. In order for vesting to occur with some grants, the Corporation must meet certain
performance criteria over the vesting period. The expected compensation cost of the 2005
plan is being calculated assuming the Corporations attainment of target performance goals
over the vesting period of the awards. The actual cost of these awards could range from
zero to 100% of the currently recorded compensation cost, depending on the Corporations
actual performance. The awards granted in 2005 and 2006 did have such performance criteria.
The awards granted in 2008 did not have performance criteria.
 Stock Options Granted  Stock options were awarded to officers in 2005, 2006 and 2008. The
incentive stock options were granted with exercise prices equal to market prices on the day
of grant. At June 30, 2010, there were stock options outstanding for 170,846 shares with a
weighted average exercise price of $5.46 per share.
 The Corporation recognized stock option compensation expense of $32,000 and $39,000 during
the six months ended June 30, 2010 and 2009, respectively. Compensation cost of $62,000 and
$26,000 is expected to be recognized during 2010 and 2011, respectively.
 Restricted Stock Grants   Restricted stock was awarded to officers in 2005, 2006 and 2008.
The restricted stock is eligible to vest three years from grant date. Upon full vesting,
restricted shares are transferred to common shares. At June 30, 2010, there were 39,765
shares of restricted stock outstanding.
 18




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##### Table of Contents



D.
    
    Incentive Stock Plans (cont)The Corporation recognized restricted stock compensation expense of $31,000 and $44,000,
respectively during the six months ended June 30, 2010 and 2009, respectively. Compensation
cost of $62,000 and $26,000 is expected to be recognized during 2010 and 2011, respectively.
 E.
    
    Fair Value of Assets and Liabilities
 The Corporation has adopted fair value guidance which defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value measurements.
 Fair value is defined as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the
measurement date. A fair value hierarchy was also established which requires an entity to
maximize the use of observable inputs when measuring fair value. The standard describes
three levels of inputs that may be used to measure fair value:
 Level 1 
    
    Quoted prices in active markets for identical assets or liabilities.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.
 19




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##### Table of Contents



E.
    
    Fair Value of Assets and Liabilities ( cont)Following is a description of the valuation methodologies used for instruments measured at
fair value on a recurring basis and recognized in the accompanying balance sheet, as well as
the general classification of such instruments pursuant to our valuation hierarchy.
 Securities available for sale
 Fair values of securities, available for sale are estimated by a third party using inputs
that are observable or that can be corroborated by observable market data and, therefore,
are classified within Level 2 of the valuation hierarchy.
 The following table presents the fair value measurements of the Corporations assets and
liabilities recognized in the accompanying balance sheet measured at fair value on a
recurring basis and the level within the ASC 820 fair value hierarchy in which the fair
value measurements fall at June 30, 2010 and December 31, 2009 (in thousands):
 Quoted Prices in
    
    
    Significant Other
    
    
    SignificantActive Markets for
    
    
    Observable
    
    
    UnobservableFair
    
    
    Identical Assets
    
    
    Inputs
    
    
    InputsAt 6/30/2010
    
    Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)US Government sponsored agency
securities
    
    $
    2,008
    
    
    $
    
    
    
    $
    2,008
    
    
    $
    Corporate bonds
    
    
    44,098
    
    
    
    
    
    
    
    44,098
    
    
    
    Mortgage backed securities
    
    
    65
    
    
    
    
    
    
    
    65
    
    
    
    Total securities, available for sale
    
    $
    46,171
    
    
    $
    
    
    
    $
    46,171
    
    
    $
    
 Quoted Prices in
    
    
    Significant Other
    
    
    SignificantActive Markets for
    
    
    Observable
    
    
    UnobservableFair
    
    
    Identical Assets
    
    
    Inputs
    
    
    InputsAt 12/31/2009
    
    Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)US Government sponsored agency
securities
    
    $
    12,749
    
    
    $
    
    
    
    $
    12,749
    
    
    $
    Corporate bonds
    
    
    33,111
    
    
    
    
    
    
    
    33,111
    
    
    
    Mortgage backed securities
    
    
    104
    
    
    
    
    
    
    
    104
    
    
    
    Total securities, available for sale
    
    $
    45,964
    
    
    $
    
    
    
    $
    45,964
    
    
    $
    
 20




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##### Table of Contents



E.
    
    Fair Value of Assets and Liabilities ( cont)Impaired loans and other real estate owned
 Fair value adjustments for impaired and non-accrual loans typically occur when there is
evidence of impairment. Loans are designated as impaired when, in the judgment of
management based on current information and events, it is probable that all amounts due
according to the contractual terms of the loan agreement will not be collected. The
measurement of loss associated with impaired loans can be based on either the observable
market price of the loan or the fair value of the collateral. The Company measures fair
value based on the value of the collateral securing the loans. Collateral may be in the form
of real estate or personal property including equipment and inventory. The value of the
collateral is determined based on internal estimates as well as third party appraisals or
non-binding broker quotes. These measurements were classified as Level 3. The fair value of
the Companys other real estate owned is determined using Level 3 inputs, which include
current and prior appraisals and estimated costs to sell.
 The following table presents the fair value measurements of the Corporations assets and
liabilities recognized in the accompanying balance sheet measured at fair value on a
non-recurring basis and the level within the fair value hierarchy in which the fair value
measurements fall at June 30, 2010 and December 31, 2009 (in thousands):
 Quoted Prices in
    
    
    Significant Other
    
    
    SignificantActive Markets for
    
    
    Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    InputsAt 6/30/2010
    
    Fair Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Impaired loans (collateral dependent)
    
    $
    64,432
    
    
    $
    
    
    
    $
    
    
    
    $
    64,432Other real estate
    
    $
    11,176
    
    
    $
    
    
    
    $
    
    
    
    $
    11,176
 Quoted Prices in
    
    
    Significant Other
    
    
    SignificantActive Markets for
    
    
    Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    InputsAt 12/31/2009
    
    Fair Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Impaired loans (collateral dependent)
    
    $
    60,905
    
    
    $
    
    
    
    $
    
    
    
    $
    60,905Other real estate
    
    $
    7,601
    
    
    $
    
    
    
    $
    
    
    
    $
    7,601
 21




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##### Table of Contents



E.
    
    Fair Value of Assets and Liabilities ( cont)The carrying amounts and estimated fair value of principal financial assets and liabilities
were as follows (in thousands):
 At June 30, 2010
    
    
    At December 31, 2009Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    ValueAssets:Cash and cash equivalents
    
    $
    74,201
    
    
    $
    74,201
    
    
    $
    77,497
    
    
    $
    77,497Mortgage loans held for sale
    
    
    1,169
    
    
    
    1,186
    
    
    
    1,129
    
    
    
    1,146Securities available for sale
    
    
    46,171
    
    
    
    46,171
    
    
    
    45,964
    
    
    
    45,964Securities held to maturity
    
    
    336
    
    
    
    378
    
    
    
    336
    
    
    
    336Federal Home Loan Bank Stock
    
    
    3,698
    
    
    
    3,698
    
    
    
    3,698
    
    
    
    3,698Loans, net
    
    
    783,032
    
    
    
    780,204
    
    
    
    833,136
    
    
    
    829,122Accrued interest receivable
    
    
    3,181
    
    
    
    3,181
    
    
    
    3,562
    
    
    
    3,562Liabilities:Deposits
    
    
    827,664
    
    
    
    828,241
    
    
    
    867,955
    
    
    
    871,177Federal Home Loan Bank
advances
    
    
    63,799
    
    
    
    64,318
    
    
    
    63,855
    
    
    
    64,275Subordinated debentures
    
    
    10,000
    
    
    
    4,081
    
    
    
    10,000
    
    
    
    4,081Accrued interest payable
    
    
    941
    
    
    
    941
    
    
    
    1,046
    
    
    
    1,046
 Fair Value of Financial Instruments
 The following methods and assumptions were used by the Corporation in estimating its fair
value disclosure for financial instruments:
 Cash and Cash Equivalents, Securities Sold Under Agreements to Repurchase,
Interest-bearing Deposits and Federal Home Loan Bank Stock
 The carrying amount approximates fair value.
 Held-to-maturity Securities
 Fair value is based on quoted market prices, if available. If a quoted market price is not
available, fair value is estimated using quoted market prices for similar securities.
 Loans Held for Sale
 Fair value is based upon the quoted price for the sale of those loans.
 Loans
 The fair value of loans is estimated by discounting the future cash flows using the market
rates at which similar loans would be made to borrowers with similar credit ratings and for
the same remaining maturities. Loans with similar characteristics were aggregated for
purposes of the calculations. The carrying amount of accrued interest approximates its fair
value.
 22




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##### Table of Contents



E.
    
    Fair Value of Assets and Liabilities ( cont)Deposits
 Deposits include demand deposits, savings accounts, NOW accounts and certain money market
deposits. The carrying amount approximates fair value. The fair value of fixed-maturity
time deposits is estimated using a discounted cash flow calculation that applies the rates
currently offered for deposits of similar remaining maturities.
 Interest Receivable and Interest Payable
 The carrying amount approximates fair value.
 Federal Home Loan Bank Advances
 Rates currently available to the Corporation for debt with similar terms and remaining
maturities are used to estimate the fair value of existing debt. Fair value of long-term
debt is based on quoted market prices or dealer quotes for the identical liability when
traded as an asset in an active market. If a quoted market price is not available, an
expected present value technique is used to estimate fair value.
 Subordinated Debentures
 Rates currently available to the Corporation for debt with similar terms and remaining
maturities are used to estimate the fair value of existing debt.
 Commitments to Originate Loans, Forward Sale Commitments, Letters of Credit and Lines of
Credit
 The fair value of commitments to originate loans is estimated using the fees currently
charged to enter into similar agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the counterparties. For fixed-rate loan
commitments, fair value also considers the difference between current levels of interest
rates and the committed rates. The fair value of forward sale commitments is estimated
based on current market prices for loans of similar terms and credit quality. The fair
values of letters of credit and lines of credit are based on fees currently charged for
similar agreements or on the estimated cost to terminate or otherwise settle the obligations
with the counterparties at the reporting date. The fair value of such arrangements are not
considered material to this presentation.
 F.
    
    Capital and Operating Matters
 Stockholders equity at June 30, 2010 was $29,963,000 compared to $41,945,000 as of December
31, 2009, a decrease of $11,982,000 or 29%. The decrease was due to the net loss during the
period.
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##### Table of Contents



F.
    
    Capital and Operating Matters (cont)
 Based on the respective regulatory capital ratios, the Bank is considered to be
undercapitalized at June 30, 2010 and December 31, 2009.
 The following is a presentation of the Corporations and Banks regulatory capital ratios
(in thousands):
 MinimumTo Be Well CapitalizedMinimum for Capital
    
    
    Under Prompt CorrectiveActual
    
    
    Adequacy Purposes
    
    
    Action ProvisionsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioAs of June 30, 2010Total capital
(to risk weighted assets)Consolidated
    
    
    49,861
    
    
    
    6.26
    %
    
    
    63,693
    
    
    
    8.00
    %
    
    
    N/A
    
    
    
    N/ABank
    
    
    48,241
    
    
    
    6.07
    %
    
    
    63,540
    
    
    
    8.00
    %
    
    
    79,425
    
    
    
    10.00
    %Tier 1 capital
(to risk weighted assets)Consolidated
    
    
    39,641
    
    
    
    4.98
    %
    
    
    31,846
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/ABank
    
    
    38,046
    
    
    
    4.79
    %
    
    
    31,770
    
    
    
    4.00
    %
    
    
    47,655
    
    
    
    6.00
    %Tier 1 capital
(to average assets)Consolidated
    
    
    39,641
    
    
    
    4.11
    %
    
    
    38,545
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/ABank
    
    
    38,046
    
    
    
    3.96
    %
    
    
    38,462
    
    
    
    4.00
    %
    
    
    48,078
    
    
    
    5.00
    %As of December 31, 2009Total capital
(to risk weighted assets)Consolidated
    
    
    63,043
    
    
    
    7.39
    %
    
    
    68,264
    
    
    
    8.00
    %
    
    
    N/A
    
    
    
    N/ABank
    
    
    61,169
    
    
    
    7.19
    %
    
    
    68,105
    
    
    
    8.00
    %
    
    
    85,132
    
    
    
    10.00
    %Tier 1 capital (to risk weighted assets)Consolidated
    
    
    52,080
    
    
    
    6.10
    %
    
    
    34,132
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/ABank
    
    
    50,225
    
    
    
    5.90
    %
    
    
    34,053
    
    
    
    4.00
    %
    
    
    51,079
    
    
    
    6.00
    %Tier 1 capital
(to average assets)Consolidated
    
    
    52,080
    
    
    
    4.98
    %
    
    
    41,838
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/ABank
    
    
    50,225
    
    
    
    4.81
    %
    
    
    41,776
    
    
    
    4.00
    %
    
    
    52,220
    
    
    
    5.00
    %
 24




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##### Table of Contents



F.
    
    Capital and Operating Matters (cont)
 The capital ratios disclosed in the middle column of the table above are minimum
requirements. Due to our financial condition, the Bank entered into a formal enforcement
action (Consent Order) with the Federal Deposit Insurance Corporation (FDIC) and the
Office of Financial and Insurance Regulation for the State of Michigan (OFIR)
which conveys specific actions needed to address certain findings from their
examination and to address our current financial condition. We entered into the Consent
Order on February 12, 2010 that includes a capital directive, which requires the Bank to
have and maintain its level of tier 1 capital as a percentage of total assets (capital
ratio) at a minimum of 9% and its level of qualifying total capital as a percentage of
risk-weighted assets (total risk-based capital ratio) at a minimum of 12%. These ratios are
in excess of the statutory minimums to be well-capitalized.
 Applicable federal prompt corrective action regulations provide five classifications,
including well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized. Based on its regulatory capital ratios,
the Bank is undercapitalized at June 30, 2010. Undercapitalized institutions are subject to
close monitoring by their federal bank regulator, restrictions on asset growth and
expansion, and other significantly greater regulatory restrictions than apply to
well-capitalized or adequately capitalized institutions.
 The Corporation needs to raise sufficient capital during 2010 to return the Bank to
well-capitalized status. Management is considering various sources of capital and estimates
the need to raise approximately $50 million to be in compliance with its Consent Order with
the FDIC and OFIR. Given the current economic environment, there can be no assurance the
Corporation will be able to raise the estimated capital needed. Additionally, if real
estate values in the Corporations market area continue to decline, this will negatively
impact the loan portfolio and values of other real estate owned. Additional declines in
real estate values would result in the need for additional provision expense resulting in
increased losses and further reducing the Corporations and the Banks capital.
 Failure to meet minimum capital requirements can initiate certain mandatory, and possibly
discretionary, action by the regulators that, if undertaken, could have a direct material
effect on the Corporations financial statements and raise substantial doubt about the
Corporations ability to continue as a going concern.
 25




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##### Table of Contents



G.
    
    Consent Order and Federal Reserve Bank AgreementConsent Order
 Due to our financial condition, the Federal Deposit Insurance Corporation (FDIC) and the
Office of Financial and Insurance Regulation for the State of Michigan (OFIR) required
that our Board of Directors sign a formal enforcement action (Consent Order) with the FDIC
and OFIR which conveys specific actions needed to address certain findings from their
examination and to address our current financial condition. We entered into the Consent
Order on February 12, 2010, which contains a list of requirements that are to be met by
specific dates. Certain requirements are listed below:
 Completion of a senior management study by an independent consultant
 Plans for the reduction of delinquencies and classified assets
 Plans for lending and collection policies
 Plans for the reduction of loan concentrations
 The revision and implementation of a comprehensive strategic plan
 The revision of its Liquidity Plan and the submission of weekly liquidity reports to the
FDIC and OFIR
 The Consent Order also includes a capital directive, which requires the Bank to have and
maintain its level of tier 1 capital as a percentage of total assets (capital ratio) at a
minimum of 9% and its level of qualifying total capital as a percentage of risk-weighted
assets (total risk-based capital ratio) at a minimum of 12% . These ratios are in excess of
the statutory minimums to be well-capitalized. At June 30, 2010, the Banks capital ratio
was 3.96% and the Banks total risk-based capital ratio was 6.07%.
 Additionally, the Bank is prohibited from declaring or paying any cash dividends without
prior written consent of the FDIC.
 As a result of the loss recorded during 2009, the capitalization status of the Bank declined
from well capitalized to undercapitalized. As a result of the decline in the Banks
capitalization level, the Bank is limited in its utilization of brokered deposits. The Bank
is also restricted in the setting of deposit interest rates. Additionally, there are
limitations in the borrowing terms and capacity with the Federal Reserve Bank. The Bank
submitted a Capital Restoration Plan (CRP) to the FDIC and OFIR on December 15, 2009, due
to our undercapitalized status based on our September 30, 2009 regulatory report of
condition and income. An amended CRP was submitted to the FDIC and OFIR on May 18,
2010.
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##### Table of Contents



Federal Reserve Board Agreement
 On June 15, 2010, Dearborn Bancorp, Inc. entered into a written agreement with the
Federal Reserve Bank of Chicago (the FRB). The FRB Agreement prohibits Dearborn Bancorp,
Inc. and the Bank from taking any of the following actions without the FRBs prior written
approval: (i) declaring or paying any dividends; (ii) taking dividends from the Bank; (iii)
making any distributions of interest, principal or other sums on Dearborn Bancorps
subordinated debentures; (iv) incurring, increasing or guaranteeing any debt; or (v)
repurchasing or redeeming any shares of its stock.
 Under the FRB Agreement, Dearborn Bancorp: must submit a written capital plan to the FRB by
August 15, 2010 to maintain sufficient capital, on a consolidated basis. The plan shall, at
a minimum, include: (a) the Companys current and future capital requirements in compliance
with FRB Regulation Y and the applicable capital adequacy guidelines for the Bank issued by
the FDIC; (b) the adequacy of the Banks capital, taking into account the volume of
classified credits, concentrations of credit, Allowance for Loan Losses, current and
projected growth, and projected retained earnings; (c) the source and timing of additional
funds necessary to fulfill the Companys and Banks future capital requirements; (d)
supervisory requests for additional capital at the Bank or the requirements of any
supervisory action imposed on the Bank by the FDIC; and (e) the requirements of FRB
Regulation Y that Dearborn Bancorp serve as a source of strength to the Bank.
 27




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28




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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
  29




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##### 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 centerDecember 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
 30




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31




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32




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##### Table of Contents



Net Interest Income
 2010 Compared to 2009.
 Average Balances, Interest Rates and Yields.
  33




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##### Table of Contents



Three months ended June 30, 2010
    
    
    Three months ended June 30, 2009Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average(In thousands)
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateAssetsInterest-bearing deposits with banks
    
    $
    74,471
    
    
    $
    64
    
    
    
    0.34
    %
    
    $
    51,839
    
    
    $
    103
    
    
    
    0.80
    %Federal funds sold
    
    
    57
    
    
    
    0
    
    
    
    0.00
    %
    
    
    8,026
    
    
    
    6
    
    
    
    0.30
    %Securities, available for sale
    
    
    46,282
    
    
    
    157
    
    
    
    1.36
    %
    
    
    46,310
    
    
    
    178
    
    
    
    1.54
    %Loans
    
    
    801,464
    
    
    
    11,536
    
    
    
    5.77
    %
    
    
    898,739
    
    
    
    13,286
    
    
    
    5.93
    %Sub-total earning assets
    
    
    922,274
    
    
    
    11,757
    
    
    
    5.11
    %
    
    
    1,004,914
    
    
    
    13,573
    
    
    
    5.42
    %Other assets
    
    
    41,345
    
    
    
    
    
    
    
    
    
    
    
    62,037Total assets
    
    $
    963,619
    
    
    
    
    
    
    
    
    
    
    $
    1,066,951Liabilities and stockholders equityInterest bearing deposits
    
    $
    754,155
    
    
    $
    2,925
    
    
    
    1.56
    %
    
    $
    816,083
    
    
    $
    5,458
    
    
    
    2.68
    %Other borrowings
    
    
    73,800
    
    
    
    376
    
    
    
    2.04
    %
    
    
    68,951
    
    
    
    578
    
    
    
    3.36
    %Sub-total interest bearing liabilities
    
    
    827,955
    
    
    
    3,301
    
    
    
    1.60
    %
    
    
    885,034
    
    
    
    6,036
    
    
    
    2.74
    %Non-interest bearing deposits
    
    
    89,846
    
    
    
    
    
    
    
    
    
    
    
    82,304Other liabilities
    
    
    1,704
    
    
    
    
    
    
    
    
    
    
    
    2,159Stockholders equity
    
    
    44,114
    
    
    
    
    
    
    
    
    
    
    
    97,454Total liabilities and stockholders
equity
    
    $
    963,619
    
    
    
    
    
    
    
    
    
    
    $
    1,066,951Net interest income
    
    
    
    
    
    $
    8,456
    
    
    
    
    
    
    
    
    
    
    $
    7,537Net interest rate spread
    
    
    
    
    
    
    
    
    
    
    3.51
    %
    
    
    
    
    
    
    
    
    
    
    2.68
    %Net interest margin on earning assets
    
    
    
    
    
    
    
    
    
    
    3.68
    %
    
    
    
    
    
    
    
    
    
    
    3.01
    %
 34




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##### Table of Contents



Six months ended June 30, 2010
    
    
    Six months ended June 30, 2009Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average(In thousands)
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateAssetsInterest-bearing deposits with banks
    
    $
    69,904
    
    
    $
    101
    
    
    
    0.29
    %
    
    $
    48,562
    
    
    $
    197
    
    
    
    0.82
    %Federal funds sold
    
    
    88
    
    
    
    1
    
    
    
    2.29
    %
    
    
    7,616
    
    
    
    12
    
    
    
    0.32
    %Securities, available for sale
    
    
    49,908
    
    
    
    325
    
    
    
    1.31
    %
    
    
    56,874
    
    
    
    434
    
    
    
    1.54
    %Loans
    
    
    814,275
    
    
    
    23,314
    
    
    
    5.77
    %
    
    
    909,413
    
    
    
    27,096
    
    
    
    6.01
    %Sub-total earning assets
    
    
    934,175
    
    
    
    23,741
    
    
    
    5.12
    %
    
    
    1,022,465
    
    
    
    27,739
    
    
    
    5.47
    %Other assets
    
    
    34,552
    
    
    
    
    
    
    
    
    
    
    
    60,961Total assets
    
    $
    968,727
    
    
    
    
    
    
    
    
    
    
    $
    1,083,426Liabilities and stockholders equityInterest bearing deposits
    
    $
    761,906
    
    
    $
    6,468
    
    
    
    1.71
    %
    
    $
    828,981
    
    
    $
    11,456
    
    
    
    2.79
    %Other borrowings
    
    
    73,814
    
    
    
    762
    
    
    
    2.08
    %
    
    
    71,127
    
    
    
    1,229
    
    
    
    3.48
    %Sub-total interest bearing liabilities
    
    
    835,720
    
    
    
    7,230
    
    
    
    1.74
    %
    
    
    900,108
    
    
    
    12,685
    
    
    
    2.84
    %Non-interest bearing deposits
    
    
    87,093
    
    
    
    
    
    
    
    
    
    
    
    80,009Other liabilities
    
    
    2,072
    
    
    
    
    
    
    
    
    
    
    
    2,072Stockholders equity
    
    
    43,842
    
    
    
    
    
    
    
    
    
    
    
    101,237Total liabilities and stockholders
equity
    
    $
    968,727
    
    
    
    
    
    
    
    
    
    
    $
    1,083,426Net interest income
    
    
    
    
    
    $
    16,511
    
    
    
    
    
    
    
    
    
    
    $
    15,054Net interest rate spread
    
    
    
    
    
    
    
    
    
    
    3.38
    %
    
    
    
    
    
    
    
    
    
    
    2.63
    %Net interest margin on earning assets
    
    
    
    
    
    
    
    
    
    
    3.56
    %
    
    
    
    
    
    
    
    
    
    
    2.97
    %
 Rate/Volume Analysis.
 35




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##### Table of Contents



Three Months Ended June 30, 2010/2009
    
    
    Six Months Ended June 30, 2010/2009Change 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
    
    $
    20
    
    
    
    (59
    )
    
    
    ($39
    )
    
    $
    32
    
    
    
    ($128
    )
    
    
    ($96
    )Federal funds sold
    
    
    
    
    
    
    (6
    )
    
    
    (6
    )
    
    
    (86
    )
    
    
    75
    
    
    
    (11
    )Investment securities, available for sale
    
    
    
    
    
    
    (21
    )
    
    
    (21
    )
    
    
    (48
    )
    
    
    (61
    )
    
    
    (109
    )Loans
    
    
    (1,399
    )
    
    
    (351
    )
    
    
    (1,750
    )
    
    
    (2,716
    )
    
    
    (1,066
    )
    
    
    (3,782
    )Total earning assets
    
    
    ($1,379
    )
    
    
    ($437
    )
    
    
    ($1,816
    )
    
    
    ($2,818
    )
    
    
    ($1,180
    )
    
    
    ($3,998
    )LiabilitiesInterest bearing deposits
    
    
    ($234
    )
    
    
    (2,299
    )
    
    
    ($2,533
    )
    
    
    ($533
    )
    
    
    ($4,455
    )
    
    
    ($4,988
    )Other borrowings
    
    
    25
    
    
    
    (227
    )
    
    
    (202
    )
    
    
    32
    
    
    
    (499
    )
    
    
    (467
    )Total interest bearing liabilities
    
    
    ($209
    )
    
    
    ($2,526
    )
    
    
    ($2,735
    )
    
    
    ($501
    )
    
    
    ($4,954
    )
    
    
    ($5,455
    )Net interest income
    
    
    
    
    
    
    
    
    
    $
    919
    
    
    
    
    
    
    
    
    
    
    $
    1,457Net interest rate spread
    
    
    
    
    
    
    
    
    
    
    0.83
    %
    
    
    
    
    
    
    
    
    
    
    0.75
    %Net interest margin on earning assets
    
    
    
    
    
    
    
    
    
    
    0.67
    %
    
    
    
    
    
    
    
    
    
    
    0.60
    %
 Provision for Loan Losses
 2010 Compared to 2009.
   36




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##### Table of Contents



Non-interest Income (Loss)
 2010 Compared to 2009.
  Non-interest Expense
 2010 Compared to 2009.
 37




---



##### Table of Contents



Income Tax Provision
 2010 Compared to 2009.
 38




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##### Table of Contents



Comparison of Financial Condition at June 30, 2010 and December 31, 2009
 Assets.
 Interest bearing deposits with banks.
 Mortgage Loans Held for Sale.
 Securities  Available for Sale.
  Federal Home Loan Bank Stock.
 Loans.
 39




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##### Table of Contents



6/30/10
    
    
    12/31/09
    
    
    06/30/09Consumer loans
    
    $
    28,017
    
    
    $
    29,386
    
    
    $
    30,270Commercial, financial, & other
    
    
    134,199
    
    
    
    144,630
    
    
    
    157,438Land development loans  residential property
    
    
    29,233
    
    
    
    38,472
    
    
    
    48,454Land development loans  non residential property
    
    
    9,427
    
    
    
    11,644
    
    
    
    13,405Commercial real estate construction  residential property
    
    
    11,060
    
    
    
    13,287
    
    
    
    13,125Commercial real estate construction  non residential
property
    
    
    17,935
    
    
    
    20,061
    
    
    
    22,518Commercial real estate mortgages
    
    
    511,265
    
    
    
    531,156
    
    
    
    549,275Residential real estate mortgages
    
    
    41,896
    
    
    
    44,500
    
    
    
    48,083783,032
    
    
    
    833,136
    
    
    
    882,568Allowance for loan losses
    
    
    (31,574
    )
    
    
    (35,125
    )
    
    
    (22,422
    )Total loans
    
    $
    751,458
    
    
    $
    798,011
    
    
    $
    860,146
  6/30/10
    
    
    12/31/09
    
    
    06/30/09Troubled debt restructuring
    
    $
    38,530
    
    
    $
    59,420
    
    
    $
    46,714Over 90 days past due and still accruing
    
    
    
    
    
    
    
    
    
    
    Non-accrual loans
    
    
    75,146
    
    
    
    49,341
    
    
    
    57,610Total non-performing loans
    
    
    113,676
    
    
    
    108,761
    
    
    
    104,324Real estate owned
    
    
    23,976
    
    
    
    23,435
    
    
    
    17,434Other repossessed assets
    
    
    
    
    
    
    
    
    
    
    Other non-performing assets
    
    
    23,976
    
    
    
    23,435
    
    
    
    17,434Total non-performing assets
    
    $
    137,652
    
    
    $
    132,196
    
    
    $
    121,758
  Number ofLoans
    
    
    BalanceConsumer loans
    
    
    16
    
    
    $
    1,051Commercial, financial, & other
    
    
    46
    
    
    
    14,134Land development loans  residential property
    
    
    19
    
    
    
    17,001Land development loans  non residential property
    
    
    1
    
    
    
    1,319Commercial real estate construction  residential property
    
    
    10
    
    
    
    8,213Commercial real estate construction  non residential property
    
    
    1
    
    
    
    333Commercial real estate mortgages
    
    
    65
    
    
    
    30,530Residential real estate mortgages
    
    
    13
    
    
    
    2,565Total non-accrual loans
    
    
    171
    
    
    $
    75,146
  40




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##### Table of Contents



Number of Loans
    
    
    BalanceConsumer Loans
    
    
    4
    
    
    $
    393Commercial Loans
    
    
    16
    
    
    
    7,355Land Development  Residential
    
    
    9
    
    
    
    11,328Commercial Construction Loans  Residential
    
    
    2
    
    
    
    4,037Commercial Construction Loans  Non Residential
    
    
    1
    
    
    
    333Commercial Mortgage Loans
    
    
    30
    
    
    
    18,563Residential Mortgages Loans
    
    
    4
    
    
    
    786Totals
    
    
    66
    
    
    $
    42,796
    41




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Allowance for Loan Losses.
   42




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##### Table of Contents



Six Months Ended
    
    
    Year Ended
    
    
    Six Months Ended06/30/10
    
    
    12/31/09
    
    
    06/30/09Balance, beginning of year
    
    $
    35,125
    
    
    $
    14,452
    
    
    $
    14,452Charge-offs:Consumer loans
    
    
    419
    
    
    
    1,154
    
    
    
    539Commercial, financial & other
    
    
    2,725
    
    
    
    4,878
    
    
    
    2,490Land development loans  residential property
    
    
    7,185
    
    
    
    9,441
    
    
    
    5,308Land development loans  non residential property
    
    
    300
    
    
    
    4,364
    
    
    
    2,356Commercial real estate construction  residential property
    
    
    1,712
    
    
    
    1,471
    
    
    
    1,176Commercial real estate construction  non residential
property
    
    
    36
    
    
    
    1,981
    
    
    
    430Commercial real estate mortgages
    
    
    3,023
    
    
    
    6,919
    
    
    
    3,708Residential real estate mortgages
    
    
    221
    
    
    
    701
    
    
    
    621Recoveries:Consumer loans
    
    
    33
    
    
    
    176
    
    
    
    11Commercial, financial & other
    
    
    61
    
    
    
    339
    
    
    
    189Land development loans  residential property
    
    
    14
    
    
    
    107
    
    
    
    28Commercial real estate construction  residential property
    
    
    1
    
    
    
    
    
    
    
    Commercial real estate mortgages
    
    
    18
    
    
    
    61
    
    
    
    26Residential real estate mortgages
    
    
    40
    
    
    
    36
    
    
    
    7Net charge-offs (recoveries)
    
    
    15,454
    
    
    
    30,190
    
    
    
    16,367Provision for loan losses
    
    
    11,903
    
    
    
    50,863
    
    
    
    24,337Balance, end of period
    
    $
    31,574
    
    
    $
    35,125
    
    
    $
    22,422Allowance to total loans
    
    
    4.03
    %
    
    
    4.22
    %
    
    
    2.54
    %Allowance to nonperforming assets
    
    
    27.78
    %
    
    
    32.30
    %
    
    
    21.49
    %Net charge-offs to average loans
    
    
    1.90
    %
    
    
    3.40
    %
    
    
    1.80
    %
 Premises and Equipment.
 Other Real Estate.
 Number ofProperty Type
    
    Properties
    
    
    AmountSingle Family Homes
    
    
    31
    
    
    $
    2,880Condominium
    
    
    1
    
    
    
    727Vacant Land
    
    
    19
    
    
    
    8,489Commercial
    
    
    7
    
    
    
    6,208Office/Retail
    
    
    8
    
    
    
    5,672Total
    
    
    66
    
    
    $
    23,976
  Accrued Interest Receivable.
 43




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##### Table of Contents



Other Assets
 Deposits.
 06/30/10
    
    
    12/31/09
    
    
    06/30/09Non-interest bearing:Demand
    
    $
    91,447
    
    
    $
    83,873
    
    
    $
    83,752Interest bearing:Checking
    
    $
    79,195
    
    
    $
    83,087
    
    
    $
    106,669Money market
    
    
    57,476
    
    
    
    52,412
    
    
    
    72,394Savings
    
    
    43,343
    
    
    
    43,343
    
    
    
    52,017Time, under $100,000
    
    
    287,761
    
    
    
    301,829
    
    
    
    221,980Time, $100,000 and over
    
    
    268,442
    
    
    
    303,411
    
    
    
    276,355736,217
    
    
    
    784,082
    
    
    
    729,415Total deposits
    
    $
    827,664
    
    
    $
    867,955
    
    
    $
    813,167
     44




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##### Table of Contents



06/30/10
    
    
    12/31/09
    
    
    06/30/09Interest bearing checking
    
    $
    2,819
    
    
    $
    2,715
    
    
    $
    2,577Time, $100,000 and over
    
    
    3,672
    
    
    
    4,366
    
    
    
    15,326Total municipal deposits
    
    $
    6,491
    
    
    $
    7,081
    
    
    $
    17,903
 Federal Home Loan Bank Advances
 Accrued Interest Payable
 Other Liabilities
 Subordinated Debentures .
 Capital
  45




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##### Table of Contents



46




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##### Table of Contents



PART I
 FINANCIAL INFORMATION
  Interest Rate Sensitivity Analysis.
   47




---



##### Table of Contents



Interest Rate Sensitivity Period1-90
    
    
    91-365
    
    
    1-5
    
    
    Over(In thousands)
    
    Days
    
    
    Days
    
    
    Years
    
    
    5 Years
    
    
    TotalEarning assetsFederal funds sold
    
    $
    57
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    57Interest bearing deposits with Banks
    
    
    67,056
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67,056Mortgage loans held for sale
    
    
    1,169
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,169Securities available for sale
    
    
    
    
    
    
    5,116
    
    
    
    41,055
    
    
    
    
    
    
    
    46,171Federal Home Loan Bank stock
    
    
    3,698
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,698Total loans, net of non-accrual
    
    
    148,097
    
    
    
    114,587
    
    
    
    414,889
    
    
    
    30,313
    
    
    
    707,886Total earning assets
    
    
    220,077
    
    
    
    119,703
    
    
    
    455,944
    
    
    
    30,313
    
    
    
    826,037Interest bearing liabilitiesTotal interest bearing deposits
    
    
    386,016
    
    
    
    234,026
    
    
    
    115,908
    
    
    
    267
    
    
    
    736,217Federal Home Loan Bank advances
    
    
    34,083
    
    
    
    19,500
    
    
    
    10,216
    
    
    
    
    
    
    
    63,799Other Borrowings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Subordinated debentures
    
    
    10,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,000Total interest bearing liabilities
    
    
    430,099
    
    
    
    253,526
    
    
    
    126,124
    
    
    
    267
    
    
    
    810,016Net asset (liability) funding gap
    
    
    (210,022
    )
    
    
    (133,823
    )
    
    
    329,820
    
    
    
    30,046
    
    
    $
    16,021Cumulative net asset (liability) funding gap
    
    
    ($210,022
    )
    
    
    ($343,845
    )
    
    
    ($14,025
    )
    
    $
    16,021
 48




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##### Table of Contents



Liquidity.
    49




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##### Table of Contents



Payments Due By PeriodLess Than 1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    Over 5 Years
    
    
    TotalCertificates of deposit
    
    $
    440,029
    
    
    $
    114,237
    
    
    $
    1,671
    
    
    $
    267
    
    
    $
    556,204Long-term borrowings
    
    
    53,584
    
    
    
    10,215
    
    
    
    
    
    
    
    
    
    
    
    63,799Lease commitments
    
    
    675
    
    
    
    653
    
    
    
    286
    
    
    
    
    
    
    
    1,614Subordinated debentures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,000
    
    
    
    10,000Totals
    
    $
    494,288
    
    
    $
    125,105
    
    
    $
    1,957
    
    
    $
    10,267
    
    
    $
    631,617
  Amount Of Commitment Expiration Per PeriodLess Than 1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    Over 5 Years
    
    
    TotalUnused loan commitments
    
    $
    28,026
    
    
    $
    6,617
    
    
    $
    5,793
    
    
    $
    7,911
    
    
    $
    48,347Standby letters of credit
    
    
    448
    
    
    
    1,500
    
    
    
    
    
    
    
    
    
    
    
    1,948Totals
    
    $
    28,474
    
    
    $
    8,117
    
    
    $
    5,793
    
    
    $
    7,911
    
    
    $
    50,295
 50




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##### Table of Contents



Item 4. Controls and Procedures
 Disclosure Controls and Procedures 
 Internal Controls Over Financial Reporting
 51




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##### Table of Contents



PART II    OTHER INFORMATION
 ITEM 1A. RISK FACTORS
  Risks Related to Our Business
 We are subject to restrictions and conditions of a Consent Order issued by the FDIC and OFIR, and
an FRB Written Agreement. We have incurred and expect to continue to incur significant additional
regulatory compliance expense in connection with these enforcement actions, Failure to comply with
the Consent Order or the FRB Written Agreement could result in additional enforcement action
against us, including the imposition of further operating restrictions and monetary penalties.
  
    
    Completion of a senior management study by an independent consultant
    
    Plans for the reduction of delinquencies and classified assets
    
    Plans for lending and collection policies
    
    Plans for the reduction of loan concentrations
    
    The revision and implementation of a comprehensive strategic plan
    
    The revision of its Liquidity Plan and the submission of weekly liquidity
reports to the FDIC and OFIR
 52




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##### Table of Contents



ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
  Total For
    
    Total Against
    
    Total Abstain5,970,651
    
    161,163
    
    169,504
  Nominee
    
    Total For
    
    
    Total Against
    
    Total AbstainMargaret I Campbell
    
    
    2,890,605
    
    
    0
    
    43,947John E. Demmer
    
    
    2,763,082
    
    
    0
    
    171,470Michael V. Dorian Jr.
    
    
    2,891,227
    
    
    0
    
    41,248Donald G. Karcher
    
    
    2,895,561
    
    
    0
    
    38,991
 ITEM 6. EXHIBITS
 Exhibit 31.1
    
    CEO Certification. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.Exhibit 31.2
    
    CFO Certification. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.Exhibit 32.1
    
    CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.Exhibit 32.2
    
    CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 53




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##### Table of Contents



SIGNATURES
  Dearborn Bancorp, Inc.
        (Registrant)/s/ John E. DemmerJohn E. DemmerChairman/s/ Michael J. RossMichael J. RossPresident and Chief Executive Officer/s/ Jeffrey L. KarafaJeffrey L. KarafaTreasurer and Chief Financial Officer   54




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##### Table of Contents



Exhibit Index
 Exhibit
    
    Description31.1
    
    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.
 55