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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 March 31, 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 
incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 1360 Porter Street, Dearborn, MI
    
    48124(Address of principal executive office)
    
    (Zip Code)
 (313) 565-5700
  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
    
    7,696,204




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##### 



PagePart I.
    
    Financial Information:Item 1.
    
    Financial StatementsThe following condensed consolidated financial statements
of Dearborn Bancorp, Inc. and its subsidiary included in
this report are:Report of Independent Registered Public Accounting Firm
    
    
    3Condensed Consolidated Balance Sheets  March 31, 2009,
December 31, 2008 and March 31, 2008
    
    
    4Condensed Consolidated Statements of Operations  For the
Three Months Months Ended March 31, 2009 and 2008
    
    
    5Condensed Consolidated Statements of Comprehensive Income
 For the Three Months Ended March 31, 2009 and 2008
    
    
    6Condensed Consolidated Statements of Cash Flows  For the
Three Months Ended March 31, 2009 and 2008
    
    
    7Notes to Condensed Consolidated Financial Statements
    
    
    9-20Item 2.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    21-37Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    39-41Item 4.
    
    Controls and Procedures
    
    
    42Part II.
    
    Other Information:Pursuant to SEC rules and regulations, the following
item(s) are included with the Form 10-Q Report:Item 6.
    
    Exhibits and Reports on Form 8-K
    
    
    44Pursuant 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 1A.
    
    Risk FactorsItem 2.
    
    Changes in Securities and Use of ProceedsItem 3.
    
    Defaults upon Senior SecuritiesItem 4.
    
    Submission of Matters to a Vote of Security HoldersItem 5.
    
    Other InformationSIGNATURES
    
    
    
    
    45EX-31.1EX-31.2EX-32.1EX-32.2
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DEARBORN BANCORP, INC. AND SUBSIDIARY
 
 CONSOLIDATED BALANCE SHEETS (unaudited)
 (Dollars, in thousands)
    
    03/31/09
    
    
    12/31/08
    
    
    03/31/08ASSETSCash and cash equivalentsCash and due from banks
    
    $
    11,881
    
    
    $
    11,671
    
    
    $
    12,736Federal funds sold
    
    
    6,841
    
    
    
    4,455
    
    
    
    1,958Interest bearing deposits with banks
    
    
    53,262
    
    
    
    36,876
    
    
    
    105Total cash and cash equivalents
    
    
    71,984
    
    
    
    53,002
    
    
    
    14,799Mortgage loans held for sale
    
    
    3,009
    
    
    
    1,834
    
    
    
    282Investment securities, available for sale
    
    
    45,368
    
    
    
    84,148
    
    
    
    8,921Federal Home Loan Bank stock
    
    
    3,614
    
    
    
    3,614
    
    
    
    3,540LoansLoans
    
    
    900,055
    
    
    
    933,269
    
    
    
    947,927Allowance for loan losses
    
    
    (18,632
    )
    
    
    (14,452
    )
    
    
    (10,749
    )Net loans
    
    
    881,423
    
    
    
    918,817
    
    
    
    937,178Premises and equipment, net
    
    
    21,001
    
    
    
    21,272
    
    
    
    22,546Real estate owned
    
    
    14,624
    
    
    
    9,657
    
    
    
    6,183Goodwill
    
    
    
    
    
    
    
    
    
    
    34,028Other intangible assets
    
    
    4,394
    
    
    
    4,592
    
    
    
    10,810Accrued interest receivable
    
    
    3,920
    
    
    
    3,499
    
    
    
    4,134Other assets
    
    
    24,407
    
    
    
    21,483
    
    
    
    5,208Total assets
    
    $
    1,073,744
    
    
    $
    1,121,918
    
    
    $
    1,047,629LIABILITIESDepositsNon-interest bearing deposits
    
    $
    80,624
    
    
    $
    81,317
    
    
    $
    80,725Interest bearing deposits
    
    
    826,955
    
    
    
    857,078
    
    
    
    688,492Total deposits
    
    
    907,579
    
    
    
    938,395
    
    
    
    769,217Other liabilitiesFederal funds purchased
    
    
    
    
    
    
    
    
    
    
    56,480Securities sold under agreements to repurchase
    
    
    2,268
    
    
    
    2,461
    
    
    
    275Federal Home Loan Bank advances
    
    
    54,955
    
    
    
    65,019
    
    
    
    70,795Accrued interest payable
    
    
    1,372
    
    
    
    1,695
    
    
    
    2,548Other liabilities
    
    
    606
    
    
    
    1,037
    
    
    
    1,017Subordinated debentures
    
    
    10,000
    
    
    
    10,000
    
    
    
    10,000Total liabilities
    
    
    976,780
    
    
    
    1,018,607
    
    
    
    910,332STOCKHOLDERS EQUITYCommon stock
 20,000,000 shares authorized,
7,696,204 shares at 03/31/09, 7,696,204
shares at
12/31/08; and 8,106,413 shares at 03/31/08
    
    
    131,825
    
    
    
    131,784
    
    
    
    133,332Retained earnings (accumulated deficit)
    
    
    (34,923
    )
    
    
    (28,675
    )
    
    
    3,926Accumulated other comprehensive income
    
    
    62
    
    
    
    202
    
    
    
    39Total stockholders equity
    
    
    96,964
    
    
    
    103,311
    
    
    
    137,297Total liabilities and stockholders equity
    
    $
    1,073,744
    
    
    $
    1,121,918
    
    
    $
    1,047,629
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DEARBORN BANCORP, INC. AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
 Three Months Ended
    
    
    Three Months Ended(In thousands, except share and per share data)
    
    03/31/09
    
    
    03/31/08Interest incomeInterest on loans
    
    $
    13,810
    
    
    $
    16,174Interest on securities, available for sale
    
    
    256
    
    
    
    108Interest on federal funds
    
    
    6
    
    
    
    16Interest on deposits with banks
    
    
    94
    
    
    
    1Total interest income
    
    
    14,166
    
    
    
    16,299Interest expenseInterest on deposits
    
    
    5,998
    
    
    
    7,028Interest on other borrowings
    
    
    546
    
    
    
    993Interest on subordinated debentures
    
    
    105
    
    
    
    225Total interest expense
    
    
    6,649
    
    
    
    8,246Net interest income
    
    
    7,517
    
    
    
    8,053Provision for loan losses
    
    
    10,727
    
    
    
    886Net interest income (loss) after provision for loan losses
    
    
    (3,210
    )
    
    
    7,167Non-interest incomeService charges on deposit accounts
    
    
    355
    
    
    
    380Fees for other services to customers
    
    
    25
    
    
    
    39Gain on the sale of loans
    
    
    56
    
    
    
    53Gain on the sale of securities, available for sale
    
    
    195
    
    
    
    Gain (loss) on the sale of real estate owned
    
    
    29
    
    
    
    (235
    )Write-down on real estate owned
    
    
    (354
    )
    
    
    (200
    )Loss on the sale of real estate owned
    
    
    (100
    )
    
    
    Other income
    
    
    122
    
    
    
    74Total non-interest income
    
    
    328
    
    
    
    111Non-interest expensesSalaries and employee benefits
    
    
    3,290
    
    
    
    3,209Occupancy and equipment expense
    
    
    934
    
    
    
    913Intangible expense
    
    
    198
    
    
    
    323FDIC assessment
    
    
    348
    
    
    
    174Advertising and marketing
    
    
    70
    
    
    
    123Stationery and supplies
    
    
    111
    
    
    
    133Professional services
    
    
    191
    
    
    
    226Data processing
    
    
    228
    
    
    
    225Defaulted loan expense
    
    
    761
    
    
    
    435Other operating expenses
    
    
    380
    
    
    
    477Total non-interest expenses
    
    
    6,511
    
    
    
    6,238Income (loss) before income tax provision
    
    
    (9,393
    )
    
    
    1,040Income tax provision
    
    
    (3,144
    )
    
    
    364Net income (loss)
    
    
    ($6,249
    )
    
    $
    676Per share data:Net income (loss)- basic
    
    
    ($0.81
    )
    
    $
    0.08Net income (loss)- diluted
    
    
    ($0.81
    )
    
    $
    0.08Weighted average number of shares outstanding  basic
    
    
    7,696,204
    
    
    
    8,139,721Weighted average number of shares outstanding  diluted
    
    
    7,696,204
    
    
    
    8,198,676
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DEARBORN BANCORP, INC. AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)
 Three Months Ended
    
    
    Three Months Ended(In thousands)
    
    03/31/09
    
    
    03/31/08Net income (loss)
    
    
    ($6,249
    )
    
    $
    676Other comprehensive income (loss), net of taxUnrealized gains on securitiesUnrealized holding gains arising during period
    
    
    (407
    )
    
    
    29Less: reclassification adjustment for gains
included
in net income
    
    
    195
    
    
    
    Tax effects
    
    
    72
    
    
    
    (10
    )Other comprehensive income (loss)
    
    
    (140
    )
    
    
    19Comprehensive income (loss)
    
    
    ($6,389
    )
    
    $
    695
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DEARBORN BANCORP, INC. AND SUBSIDIARY
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Three Months Ended(In thousands)
    
    3/31/2009
    
    
    3/31/2008Cash flows from operating activitiesInterest and fees received
    
    $
    13,745
    
    
    $
    15,981Interest paid
    
    
    (6,972
    )
    
    
    (8,866
    )Proceeds from sale of mortgages held for sale
    
    
    6,990
    
    
    
    5,526Origination of mortgages held for sale
    
    
    (8,062
    )
    
    
    (5,135
    )Taxes paid (refunded)
    
    
    
    
    
    
    219Proceeds from the sale of real estate owned
    
    
    2,891
    
    
    
    2,891Cash paid to suppliers and employees
    
    
    (7,219
    )
    
    
    (5,620
    )Net cash provided by operating activities
    
    
    1,373
    
    
    
    4,996Cash flows from investing activitiesProceeds from the sale of securities available for sale
    
    
    10,230
    
    
    
    3,850Proceeds from calls, maturities and repayments of
of securities available for sale
    
    
    49,014
    
    
    
    23Purchases of securities available for sale
    
    
    (20,709
    )
    
    
    (3,807
    )Purchase of Federal Home Loan Bank stock
    
    
    
    
    
    
    (1,468
    )Increase in loans, net of payments received
    
    
    20,211
    
    
    
    613Purchases of property and equipment
    
    
    (64
    )
    
    
    (113
    )Net cash paid in Fidelity acquisition
    
    
    
    
    
    
    Net cash provided by (used in) investing activities
    
    
    58,682
    
    
    
    (902
    )Cash flows from financing activitiesNet increase (decrease) in non-interest bearing deposits
    
    
    (693
    )
    
    
    (2,869
    )Net increase (decrease) in interest bearing deposits
    
    
    (30,123
    )
    
    
    (50,541
    )Decrease in other borrowings
    
    
    (193
    )
    
    
    (205
    )Net increase (decrease) in federal funds payable
    
    
    
    
    
    
    26,380Proceeds from Federal Home Loan Bank advances
    
    
    (10,064
    )
    
    
    29,425Purchase of common stock
    
    
    
    
    
    
    (967
    )Net cash provided by (used in) financing activities
    
    
    (41,073
    )
    
    
    1,223Increase in cash and cash equivalents
    
    
    18,982
    
    
    
    5,317Cash and cash equivalents at the beginning of the period
    
    
    53,002
    
    
    
    9,482Cash and cash equivalents at the end of the period
    
    $
    71,984
    
    
    $
    14,799
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Three Months Ended(In thousands)
    
    3/31/2009
    
    
    3/31/2008Reconciliation of net income to net cash provided by operating activitiesNet income (loss)
    
    
    ($6,249
    )
    
    $
    676Adjustments to reconcile net income to net cash
provided by operating activitiesProvision for loan losses
    
    
    10,727
    
    
    
    886Depreciation and amortization expense
    
    
    335
    
    
    
    349Restricted stock award expense
    
    
    22
    
    
    
    14Stock option expense
    
    
    19
    
    
    
    6Accretion of discount on investment securities
    
    
    33
    
    
    
    (55
    )Amortization of premium on investment securities
    
    
    
    
    
    
    Amortization of intangible assets
    
    
    198
    
    
    
    323(Increase) Decrease in mortgages held for sale
    
    
    (1,175
    )
    
    
    1,034Increase in interest receivable
    
    
    (421
    )
    
    
    (318
    )Decrease in interest payable
    
    
    (323
    )
    
    
    (639
    )(Increase) decrease in real estate owned
    
    
    1,489
    
    
    
    2,926(Increase) decrease in other assets
    
    
    (2,851
    )
    
    
    465Decrease in other liabilities
    
    
    (431
    )
    
    
    (671
    )Net cash provided by operating activities
    
    $
    1,373
    
    
    $
    4,996Supplemental noncash disclosures:Transfers from loans to real estate owned
    
    $
    6,456
    
    
    $
    2,790
 
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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 March 31, 2009 and
2008, and December 31, 2008 and for the three period ended March 31, 2009 and 2008 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
consolidated condensed balance sheet of the Corporation as of December 31, 2008 has been
derived from the audited consolidated balance sheet as of that date. The operating results
for the three month period ended March 31, 2009 are not necessarily indicative of results
of operations for the entire year.The condensed consolidated financial statements as of March 31, 2009 and 2008, and for the
three month ended March 31, 2009 and 2008 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 2008 Annual Report to
Stockholders on Form 10-K.Certain of the Corporations accounting policies are important to the portrayal of the
Corporations financial condition, since they require management to make difficult, complex
or subjective judgments, some of which may relate to matters that are inherently uncertain.
Estimates associated with these policies are susceptible to material changes as a result
of changes in facts and circumstances. Facts and circumstances which could affect these
material judgments include, but without limitation, changes in interest rates, in the
performance of the economy or in the financial condition of borrowers. Management believes
that its critical accounting policies include determining the allowance for loan losses and
determining the fair value of securities and other financial instruments and assessing
other than temporary impairments of securities.
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A.
    
    Accounting and Reporting Policies (cont)Income Per ShareBasic income per share is net income divided by the weighted average number of common shares
outstanding during the period. Diluted income per share includes the dilutive effect of
additional potential common shares issuable under stock options. Income per share is
restated for all stock splits and dividends through the date of issue of the financial
statements.Factors in the basic and diluted income per share calculation follow (in thousands, except
share and per share data):
 Three Months Ended3/31/2009
    
    
    3/31/2008BasicNet income (loss)
    
    
    ($6,249
    )
    
    $
    676Weighted average common shares
    
    
    7,696,204
    
    
    
    8,139,721Basic earnings per common share
    
    
    ($0.81
    )
    
    $
    0.08DilutedNet income (loss)
    
    
    ($6,249
    )
    
    $
    676Weighted average common shares outstanding
for basic earnings per common share
    
    
    7,696,204
    
    
    
    8,139,721Add: Dilutive effects of assumed exercise
of stock options
    
    
    
    
    
    
    58,955Average shares and dilutive potential common shares
    
    
    7,696,204
    
    
    
    8,198,676Dilutive earnings per common share
    
    
    ($0.81
    )
    
    $
    0.08
 Stock options for 619,742 and 80,788 shares of common stock were not considered in computing
diluted earnings per common share for the three months ended March 31, 2009 and 2008,
respectively, because they were antidilutive. All share and per share amounts have been
adjusted for stock dividends.
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A.
    
    Accounting and Reporting Policies (cont)Effect of Newly Issued Accounting StandardsSFAS No. 141 (revised 2007), Business CombinationsThe objective of this Statement is to improve the relevance, representational faithfulness
and comparability of the information that a reporting entity provides in its financial
reports about a business combination and its effects. This Statement introduces new
accounting concepts, and several of these changes have the potential to generate greater
earnings volatility, in connection with and after an acquisition. Some of the more
significant changes include:
 1.
    
    Transaction costs and restructuring charges will now be expensed.2.
    
    The accounting for certain assets acquired and liabilities assumed will change
significantly. The most significant to the Company being that allowance for loan losses at
acquisition date will be eliminated.3.
    
    Contingent consideration will be measured at fair value until settled.4.
    
    Equity issued in an acquisition will be valued at the closing date, as opposed to the
announcement date.5.
    
    Material adjustments made to the initial acquisition will be recorded back to the
acquisition date.
 The adoption of this statement did not have a material impact on the Corporations
consolidated financial statements.SFAS No. 160, Noncontrolling Interests in Consolidated Financial StatementsAn Amendment of
ARB No. 51This statement amends ARB 51 to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It
clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated financial
statements. Before this statement was issued, limited guidance existed for reporting
noncontrolling interests. As a result, considerable diversity in practice existed.
Socalled minority interests were reported in the consolidated statement of financial
position as liabilities or in the mezzanine section between liabilities and equity. This
statement improves comparability by eliminating that diversity. The adoption of this
statement did not have a material impact on the Corporations consolidated financial
statements.
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A.
    
    Accounting and Reporting Policies (cont)SFAS No. 161, Disclosures About Derivative Instruments and Hedging ActivitiesAn Amendment
FASB Statement No. 133This Statement was issued in March 2008 and amends and expands the disclosure requirements
of SFAS No. 133 to provide greater transparency about (i) how and why an entity uses
derivative instruments, (ii) how derivative instruments and related hedge items are
accounted for under SFAS No. 133 and its related interpretations and (iii) how derivative
instruments and related hedged items affect an entitys financial position, results of
operations and cash flows. To meet those objectives, SFAS No. 161 requires qualitative
disclosures about objectives and strategies for using derivatives, quantitative disclosures
about fair value amounts of gains and losses on derivative instruments and disclosures about
credit-risk-related contingent features in derivative agreements.The adoption of this statement did not have a material impact on the Corporations consolidated financial
statements.FASB Staff Position (FSP) FAS 141(R)-1, Accounting for Assets Acquired and Liabilities
Assumed in a Business Combination That Arise from ContingenciesThis FSP amends and clarifies FAS 141(R), Business Combinations, regarding the initial
recognition and measurement, subsequent measurement and accounting and disclosure of assets
and liabilities arising from contingencies in a business combination. This FSP eliminates
the distinction between contractual and noncontractual contingencies discussed in FAS
141(R), specifies whether contingencies should be measured at fair value or in accordance
with FAS 5, provides application guidance on subsequent accounting for assets acquired and
liabilities assumed in a business combination that arise from contingencies and establishes
new disclosure requirements. This FSP is effective for assets or liabilities arising from
contingencies in business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December 15, 2008. The
adoption of this staff position did not have a material impact on the Corporations
consolidated financial statements.
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A.
    
    Accounting and Reporting Policies (cont)FSP FAS 157-4Determining Fair Value When the Volume and Level of Activity for The Asset or
Liability Have Significantly Decreased and Identifying Transactions That Are Not OrderlyThis FSP, issued on April 9, 2009, provides additional guidance for estimating fair value in
accordance with FASB Statement No. 157, Fair Value Measurements,when the volume and level
of activity for the asset or liability have significantly decreased. This FSP also includes
guidance on identifying circumstances that indicate a transaction is not orderly. Even if
there has been a significant decrease in the volume and level of activity regardless of
valuation technique, the objective of a fair value measurement remains the same. Fair value
is the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction (that is, not a forced liquidation or distressed sale) between market
participants at the measurement date under current market conditions. This FSP is effective
for interim reporting periods ending after June 15, 2009, with early adoption permitted for
periods ending after March 15, 2009 only if FSP FAS 115-2 and FAS 124-2 and FSP FAS 107-1
and APG 28-1 are adopted concurrently. This FSP does not require disclosures for earlier
periods presented for comparative purposes at initial adoption. The adoption of this staff
position is not expected to have a material impact on the Corporations consolidated
financial statements.FSP No. 115-2 and FAS 124-2Recognition and Presentation of Other-Than-Temporary
ImpairmentsIssued on April 9, 2009, this FSP amends FASB Statement No. 107, Disclosures about Fair
Value of Financial Instrumentsand APB Opinion No. 28, Interim Financial Reporting,to
require disclosures about fair value of financial instruments for interim reporting periods
of publicly traded companies as well as in annual financial statements. This FSP is
effective for interim reporting periods ending after June 15, 2009, with early adoption
permitted for periods ending after March 15, 2009 only if FSP FAS 157-4 and FSP FAS 107-1
and APG 28-1 are adopted concurrently. This FSP does not require disclosures for earlier
periods presented for comparative purposes at initial adoption. The adoption of this staff
position is not expected to have a material impact on the Corporations consolidated
financial statements.
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A.
    
    Accounting and Reporting Policies (cont)FSP No. 107-1 and APG 28-1Interim Disclosures about Fair Value of Financial InstrumentsThis FSP issued on April 9, 2009 amends the other-than-temporary guidance in U.S. generally
accepted accounting principles for debt securities to make the guidance more operational and
to improve the presentation and disclosure of other-than-temporary impairments on debt and
equity securities in the financial statements. This FSP does not amend existing recognition
and measurement guidance related to other-than-temporary impairments of equity securities
and does not require disclosures for earlier periods presented for comparative purposes at
initial adoption. Effective for interim reporting periods ending after June 15, 2009, early
adoption is permitted for periods ending after March 15, 2009 only if FSP FAS 157-4 and FSP
FAS 115-2 and FAS 124-2 are adopted concurrently. The adoption of this staff position is
not expected to have a material impact on the Corporations consolidated financial
statements.
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B.
    
    Securities Available For SaleThe amortized cost and fair value of securities available for sale are as follows (in
thousands):
 March 31, 2009Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueUS Government sponsored entity securities
    
    $
    28,627
    
    
    $
    37
    
    
    
    ($7
    )
    
    $
    28,657Corporate bonds
    
    
    15,180
    
    
    
    43
    
    
    
    (18
    )
    
    
    15,205Municipal securities
    
    
    1,302
    
    
    
    33
    
    
    
    
    
    
    
    1,335Mortgage backed securities
    
    
    165
    
    
    
    6
    
    
    
    
    
    
    
    171Totals
    
    $
    45,274
    
    
    $
    119
    
    
    
    ($25
    )
    
    $
    45,368
 December 31, 2008Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueUS Government sponsored entity 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
    
    $
    4,096
    
    
    $
    4,114Due in one year through five years
    
    
    40,733
    
    
    
    40,797Due in greater than five years
    
    
    280
    
    
    
    286Mortgage backed securities
    
    
    165
    
    
    
    171Totals
    
    $
    45,274
    
    
    $
    45,368
 15




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##### Table of Contents



B.
    
    Securities Available for Sale (cont)The entire portfolio has a net unrealized gain of $94,000 at March 31, 2009. Securities
with unrealized losses at March 31, 2009, aggregated by investment category are as follows
(in thousands):
 Less than one year
    
    
    One year or more
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedInvestment category
    
    Value
    
    
    Loss
    
    
    Value
    
    
    Loss
    
    
    Value
    
    
    LossUS Government sponsored
entity securities
    
    
    
    
    
    
    
    
    
    $
    7,273
    
    
    $
    7
    
    
    $
    7,273
    
    
    $
    7Corporate bonds
    
    
    
    
    
    
    
    
    
    
    7,125
    
    
    
    18
    
    
    
    7,125
    
    
    
    18Total temporarily impaired
    
    $
    
    
    
    $
    
    
    
    $
    14,398
    
    
    $
    25
    
    
    $
    14,398
    
    
    $
    25
   16




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##### Table of Contents



C.
    
    LoansThe aggregate balance in impaired loans are as follows (in thousands):
 03/31/09
    
    
    12/31/08
    
    
    03/31/08Impaired loans with no allocated allowance for loan
losses
    
    $
    95,499
    
    
    $
    71,961
    
    
    $
    121,778Impaired loans with allocated allowance for loan losses
    
    
    12,600
    
    
    
    26,908
    
    
    
    17,340Total
    
    $
    108,099
    
    
    $
    98,869
    
    
    $
    139,118Amount of the allowance for loan loss allocated
    
    $
    4,915
    
    
    $
    5,273
    
    
    $
    1,719
 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 was no option activity during the first quarter of 2009. For the options outstanding
at March 31, 2009, the range of exercise prices was $4.18 to $14.65 per share with a
weighted-average remaining contractual term of 2.8 years. At March 31, 2009, 360,398
options were exercisable at weighted average exercise price of $8.65 per share. There were
no options exercised during the quarter. There was no intrinsic value at March 31, 2009.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.D.
    
    Incentive Stock Plans (cont)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
 17




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##### Table of Contents



the day of grant. At March 31, 2009, there were 205,662 stock options outstanding with a
weighted average exercise price of $5.89. At March 31, 2009, 67,877 stock options were
vested fully.The Corporation recognized stock option compensation expense of $19,000 during the three
months ended March 31, 2009. Compensation cost of $69,000 and $62,000 is expected to be
recognized during 2009 and 2010, 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 March 31, 2009, there were 52,016
shares of restricted stock outstanding.The Corporation recognized restricted stock compensation expense of $22,000 during the three
months ended March 31, 2009. Compensation cost of $75,000 and $62,000 is expected to be
recognized during 2009 and 2010, respectively.E.
    
    Fair Value of Assets and LiabilitiesEffective January 1, 2008, the Corporation adopted Statement of Financial Accounting
Standards No. 157, Fair Value Measurements (SFAS 157). SFAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about fair value
measurements. SFAS 157 has been applied prospectively as of the beginning of 2008.SFAS 157 defines fair value 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. SFAS 157 also establishes a fair value hierarchy 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 liabilitiesLevel 2 
    
    Observable inputs other than Level 1 prices, such as quoted prices for similar
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 liabilitiesLevel 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
 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.
 18




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##### Table of Contents



Securities available for saleFair 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 SFAS 157 fair value hierarchy in which the fair
value measurements fall at March 31, 2009 and December 31, 2008 (in thousands):
 Quoted Prices in
    
    Significant Other
    
    SignificantActive Markets for
    
    Observable
    
    UnobservableIdentical Assets
    
    Inputs
    
    InputsAt 3/31/2009
    
    Fair Value
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Securities,
available for sale
    
    $
    45,368
    
    
    $
    
    
    
    $
    45,368
    
    
    $
    
 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
    
    
    $
    
 19




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##### Table of Contents



E.
    
    Fair Value of Assets and Liabilities (cont)Impaired loans and other real estate ownedFair 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 SFAS 157 fair value hierarchy in which the fair
value measurements fall at March 31, 2009 and December 31, 2008 (in thousands):
 Quoted Prices in
    
    Significant Other
    
    SignificantActive Markets for
    
    Observable
    
    UnobservableIdentical Assets
    
    Inputs
    
    InputsAt 3/31/2009
    
    Fair Value
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Loans
    
    $
    11,461
    
    
    $
    
    
    
    $
    
    
    
    $
    11,461Real estate owned
    
    
    14,624
    
    
    
    
    
    
    
    
    
    
    
    14,624
 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
    
    
    $
    
    
    
    $
    
    
    
    $
    41,907
 20




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##### Table of Contents



Three Months
    
    
    
    
    
    
    Three MonthsEnded
    
    
    Year Ended
    
    
    Ended03/31/09
    
    
    12/31/08
    
    
    03/31/08Balance, beginning of year
    
    $
    14,452
    
    
    $
    10,617
    
    
    $
    10,617Charge-offs:Consumer loans
    
    
    116
    
    
    
    318
    
    
    
    99Commercial, financial & other
    
    
    1,108
    
    
    
    4,304
    
    
    
    635Land development loans  residential property
    
    
    2,881
    
    
    
    1,777
    
    
    
    6Land development loans  non residential property
    
    
    197
    
    
    
    
    
    
    
    Commercial real estate construction  residential property
    
    
    64
    
    
    
    1,635
    
    
    
    Commercial real estate construction  non residential
property
    
    
    176
    
    
    
    192
    
    
    
    Commercial real estate mortgages
    
    
    2,113
    
    
    
    2,446
    
    
    
    Residential real estate mortgages
    
    
    25
    
    
    
    296
    
    
    
    26Recoveries:Consumer loans
    
    
    3
    
    
    
    19
    
    
    
    7Commercial, financial & other
    
    
    105
    
    
    
    117
    
    
    
    4Land development loans  residential property
    
    
    
    
    
    
    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
    
    
    25
    
    
    
    21
    
    
    
    1Residential real estate mortgages
    
    
    
    
    
    
    4
    
    
    
    Net charge-offs (recoveries)
    
    
    6,547
    
    
    
    10,771
    
    
    
    754Provision for loan losses
    
    
    10,727
    
    
    
    14,606
    
    
    
    886Balance, end of period
    
    $
    18,632
    
    
    $
    14,452
    
    
    $
    10,749
 21




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##### Table of Contents



PART I    FINANCIAL INFORMATION
 
 ITEM 2.  
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
    22




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##### 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 compliance
services for financial institutions
 23




---



##### Table of Contents



Date Opened
    
    Location
    
    Type of officeFebruary 1994
    
    22290 Michigan Avenue
Dearborn, Michigan 48123
    
    Full service retail branch with ATM
Regional lending centerDecember 1995
    
    24935 West Warren Avenue
Dearborn Heights, Michigan 48127
    
    Full service retail branchAugust 1997
    
    44623 Five Mile Road
Plymouth, Michigan 48170
    
    Full service retail branch with ATMMay 2001
    
    1325 North Canton Center Road
Canton, Michigan 48187
    
    Full service retail branch with ATMDecember 2001
    
    45000 River Ridge Drive
Clinton Township, Michigan 48038
    
    Regional lending centerNovember 2002
    
    19100 Hall Road
Clinton Township, Michigan 48038
    
    Full service retail branch with ATMFebruary 2003
    
    12820 Fort Street
Southgate, Michigan 48195
    
    Full service retail branch with ATMMay 2003
    
    3201 University Drive, Suite 180

Auburn Hills, Michigan 48326
    
    Full service retail branchOctober 2004
    
    450 East Michigan Avenue
Saline, MI 48176
    
    Full service retail branch with ATMOctober 2004
    
    250 West Eisenhower Parkway
Ann Arbor, MI 48103
    
    Full service retail branch with ATM
Regional lending centerOctober 2004
    
    2180 West Stadium Blvd. 

Ann Arbor, MI 48103
    
    Full service retail branch with ATMDecember 2004
    
    1360 Porter Street
Dearborn, MI 48123
    
    Loan production office
Regional lending centerJanuary 2007
    
    1040 E. Maple 

Birmingham, MI 48009
    
    Full service retail branch with ATM
Regional lending centerJanuary 2007
    
    3681 W. Maple 

Birmingham, MI 48301
    
    Full service retail branch with ATMJanuary 2007
    
    30700 Telegraph
Bingham Farms, MI 48025
    
    Full service retail branch with ATMJanuary 2007
    
    20000 Twelve Mile Road
Southfield, MI 48076
    
    Full service retail branch with ATMApril 2007
    
    7755 23 Mile Road
Shelby Township, MI 48075
    
    Full service retail branch with ATM
 
 24




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##### Table of Contents



25




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##### Table of Contents



Results of Operations
  Net Interest Income
 2009 Compared to 2008.
 Average Balances, Interest Rates and Yields.
 26




---



##### Table of Contents



Three months ended March 31, 2009
    
    
    Three months ended March 31, 2008Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average(In thousands)
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateAssetsInterest bearing deposits with banks
    
    $
    45,249
    
    
    $
    94
    
    
    
    0.84
    %
    
    $
    180
    
    
    $
    1
    
    
    
    2.25
    %Federal funds sold
    
    
    6,643
    
    
    
    6
    
    
    
    0.37
    %
    
    
    2,051
    
    
    
    16
    
    
    
    3.16
    %Securities, available for sale
    
    
    67,465
    
    
    
    256
    
    
    
    1.54
    %
    
    
    11,946
    
    
    
    108
    
    
    
    3.67
    %Loans
    
    
    920,254
    
    
    
    13,810
    
    
    
    6.09
    %
    
    
    947,407
    
    
    
    16,174
    
    
    
    6.92
    %Sub-total earning assets
    
    
    1,039,611
    
    
    
    14,166
    
    
    
    5.53
    %
    
    
    961,584
    
    
    
    16,299
    
    
    
    6.87
    %Other assets
    
    
    59,947
    
    
    
    
    
    
    
    
    
    
    
    82,455Total assets
    
    $
    1,099,558
    
    
    
    
    
    
    
    
    
    
    $
    1,044,039Liabilities and stockholders equityInterest bearing deposits
    
    $
    842,023
    
    
    $
    5,998
    
    
    
    2.89
    %
    
    $
    706,231
    
    
    $
    7,028
    
    
    
    4.04
    %Other borrowings
    
    
    73,326
    
    
    
    651
    
    
    
    3.60
    %
    
    
    112,593
    
    
    
    1,218
    
    
    
    4.39
    %Sub-total interest bearing liabilities
    
    
    915,349
    
    
    
    6,649
    
    
    
    2.95
    %
    
    
    818,824
    
    
    
    8,246
    
    
    
    4.08
    %Non-interest bearing deposits
    
    
    78,090
    
    
    
    
    
    
    
    
    
    
    
    82,856Other liabilities
    
    
    1,821
    
    
    
    
    
    
    
    
    
    
    
    4,283Stockholders equity
    
    
    104,298
    
    
    
    
    
    
    
    
    
    
    
    138,076Total liabilities and stockholders
equity
    
    $
    1,099,558
    
    
    
    
    
    
    
    
    
    
    $
    1,044,039Net interest income
    
    
    
    
    
    $
    7,517
    
    
    
    
    
    
    
    
    
    
    $
    8,053Net interest rate spread
    
    
    
    
    
    
    
    
    
    
    2.58
    %
    
    
    
    
    
    
    
    
    
    
    2.79
    %Net interest margin on earning assets
    
    
    
    
    
    
    
    
    
    
    2.93
    %
    
    
    
    
    
    
    
    
    
    
    3.40
    %
 27




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##### Table of Contents



Rate/Volume Analysis.
 Three Months Ended March 31, 2009/2008Average
    
    
    Average
    
    
    Net(In thousands)
    
    Balance
    
    
    Rate
    
    
    ChangeAssetsInterest bearing deposits with banks
    
    $
    94
    
    
    
    ($1
    )
    
    $
    93Federal funds sold
    
    
    4
    
    
    
    (14
    )
    
    
    (10
    )Investment securities, available for sale
    
    
    211
    
    
    
    (63
    )
    
    
    148Loans
    
    
    (391
    )
    
    
    (1,973
    )
    
    
    (2,364
    )Total earning assets
    
    
    ($83
    )
    
    
    ($2,050
    )
    
    
    ($2,133
    )LiabilitiesInterest bearing deposits
    
    $
    984
    
    
    
    ($2,014
    )
    
    
    ($1,030
    )Other borrowings
    
    
    (347
    )
    
    
    (220
    )
    
    
    (567
    )Total interest bearing liabilities
    
    $
    637
    
    
    
    ($2,234
    )
    
    
    ($1,597
    )Net interest income
    
    
    
    
    
    
    
    
    
    
    ($536
    )Net interest rate spread
    
    
    
    
    
    
    
    
    
    
    (0.21
    %)Net interest margin on earning assets
    
    
    
    
    
    
    
    
    
    
    (0.46
    %)
 Provision for Loan Losses
 2009 Compared to 2008.
  28




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##### Table of Contents



Non-interest Income
 2009 Compared to 2008.
  Non-interest Expense
 2009 Compared to 2008.
  Income Tax Provision
 2009 Compared to 2008.
 29




---



##### Table of Contents



Comparison of Financial Condition at March 31, 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.
 30




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##### Table of Contents



Loans.
 03/31/09
    
    
    12/31/08
    
    
    03/31/08Consumer loans
    
    $
    31,000
    
    
    $
    31,864
    
    
    $
    34,494Commercial, financial, & other
    
    
    161,138
    
    
    
    164,740
    
    
    
    169,659Land development loans  residential property
    
    
    50,028
    
    
    
    54,323
    
    
    
    61,638Land development loans  non residential property
    
    
    15,914
    
    
    
    16,094
    
    
    
    16,372Commercial real estate construction  residential property
    
    
    15,687
    
    
    
    17,296
    
    
    
    26,004Commercial real estate construction  non residential
property
    
    
    25,716
    
    
    
    25,322
    
    
    
    38,885Commercial real estate mortgages
    
    
    548,692
    
    
    
    571,204
    
    
    
    543,778Residential real estate mortgages
    
    
    51,880
    
    
    
    52,426
    
    
    
    57,097900,055
    
    
    
    933,269
    
    
    
    947,927Allowance for loan losses
    
    
    (18,632
    )
    
    
    (14,452
    )
    
    
    (10,749
    )$
    881,423
    
    
    $
    918,817
    
    
    $
    937,178
  03/31/09
    
    
    12/31/08
    
    
    03/31/08Troubled debt restructuring
    
    
    19,506
    
    
    
    17,765
    
    
    
    8,710Over 90 days past due and still accruing
    
    
    
    
    
    
    450
    
    
    
    9,257Non-accrual loans
    
    
    55,148
    
    
    
    51,708
    
    
    
    17,406Total non-performing loans
    
    
    74,654
    
    
    
    69,923
    
    
    
    35,373Real estate owned
    
    
    11,737
    
    
    
    9,657
    
    
    
    6,183Real estate in redemption
    
    
    2,887
    
    
    
    
    
    
    
    Other repossessed assets
    
    
    
    
    
    
    
    
    
    
    Other non-performing assets
    
    
    14,624
    
    
    
    9,657
    
    
    
    6,183Total non-performing assets
    
    $
    89,278
    
    
    $
    79,580
    
    
    $
    41,556
 31




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##### Table of Contents



Number ofLoans
    
    
    BalanceConsumer loans
    
    
    12
    
    
    $
    1,128Commercial, financial, & other
    
    
    38
    
    
    
    5,669Land development loans  residential property
    
    
    12
    
    
    
    11,541Land development loans  non residential property
    
    
    2
    
    
    
    7,041Commercial real estate construction  residential property
    
    
    8
    
    
    
    3,957Commercial real estate construction  non residential property
    
    
    3
    
    
    
    6,719Commercial real estate mortgages
    
    
    36
    
    
    
    18,112Residential real estate mortgages
    
    
    13
    
    
    
    981Total non-accrual loans
    
    
    124
    
    
    $
    55,148
  
 Allowance for Loan Losses.
 
  32




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##### Table of Contents



Three Months Ended
    
    
    Year Ended
    
    
    Three Months Ended03/31/09
    
    
    12/31/08
    
    
    03/31/08Balance, beginning of year
    
    $
    14,452
    
    
    $
    10,617
    
    
    $
    10,617Charge-offs:Consumer loans
    
    
    116
    
    
    
    318
    
    
    
    99Commercial, financial & other
    
    
    1,108
    
    
    
    4,304
    
    
    
    635Land development loans  residential property
    
    
    2,881
    
    
    
    1,777
    
    
    
    6Land development loans  non residential property
    
    
    197
    
    
    
    
    
    
    
    Commercial real estate construction  residential property
    
    
    64
    
    
    
    1,635
    
    
    
    Commercial real estate construction  non residential
property
    
    
    176
    
    
    
    192
    
    
    
    Commercial real estate mortgages
    
    
    2,113
    
    
    
    2,446
    
    
    
    Residential real estate mortgages
    
    
    25
    
    
    
    296
    
    
    
    26Recoveries:Consumer loans
    
    
    3
    
    
    
    19
    
    
    
    7Commercial, financial & other
    
    
    105
    
    
    
    117
    
    
    
    4Land development loans  residential property
    
    
    
    
    
    
    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
    
    
    25
    
    
    
    21
    
    
    
    1Residential real estate mortgages
    
    
    
    
    
    
    4
    
    
    
    Net charge-offs (recoveries)
    
    
    6,547
    
    
    
    10,771
    
    
    
    754Provision for loan losses
    
    
    10,727
    
    
    
    14,606
    
    
    
    886Balance, end of period
    
    $
    18,632
    
    
    $
    14,452
    
    
    $
    10,749Allowance to total loans
    
    
    2.07
    %
    
    
    1.55
    %
    
    
    1.13
    %Allowance to nonperforming assets
    
    
    20.87
    %
    
    
    18.16
    %
    
    
    25.87
    %Net charge-offs to average loans
    
    
    0.71
    %
    
    
    1.14
    %
    
    
    0.08
    %
 Premises and Equipment.
 33




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##### Table of Contents



Other Real Estate
 Number ofProperty Type
    
    Properties
    
    
    AmountSingle Family Homes
    
    
    39
    
    
    $
    5,606Condominium
    
    
    2
    
    
    
    1,065Vacant Land
    
    
    7
    
    
    
    4,698Commercial
    
    
    4
    
    
    
    1,341Office/Retail
    
    
    3
    
    
    
    1,914Total
    
    
    55
    
    
    $
    14,624
  Other intangible assets.
 GrossCarrying
    
    
    AccumulatedAmount
    
    
    AmortizationCore deposit intangible from acquisition of:Bank of Washtenaw
    
    $
    264
    
    
    $
    11Fidelity Financial Corporation of Michigan
    
    
    2,493
    
    
    
    104Total core deposit intangible
    
    $
    2,757
    
    
    $
    115Borrower relationship intangible from acquisition of :Bank of Washtenaw
    
    $
    318
    
    
    $
    14Fidelity Financial Corporation of Michigan
    
    
    1,517
    
    
    
    69Total borrower relationship intangible
    
    $
    1,835
    
    
    $
    83Total intangible assets
    
    $
    4,592
    
    
    $
    198
  34




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##### Table of Contents



Accrued Interest Receivable.
 Other Assets
 35




---



##### Table of Contents



Deposits.
 03/31/09
    
    
    12/31/08
    
    
    03/31/08Non-interest bearing:Demand
    
    $
    80,624
    
    
    $
    81,317
    
    
    $
    80,725Interest bearing:Checking
    
    $
    96,491
    
    
    $
    103,774
    
    
    $
    66,782Money market
    
    
    171,426
    
    
    
    163,611
    
    
    
    98,733Savings
    
    
    56,389
    
    
    
    54,164
    
    
    
    53,986Time, under $100,000
    
    
    215,508
    
    
    
    211,109
    
    
    
    165,840Time, $100,000 and over
    
    
    287,141
    
    
    
    324,420
    
    
    
    303,151826,955
    
    
    
    857,078
    
    
    
    688,492Total deposits
    
    $
    907,579
    
    
    $
    938,395
    
    
    $
    769,217
   03/31/09
    
    
    12/31/08
    
    
    03/31/08Interest bearing checking
    
    $
    3,990
    
    
    $
    4,283
    
    
    $
    2,043Time, $100,000 and over
    
    
    25,015
    
    
    
    38,999
    
    
    
    116,772Total municipal deposits
    
    $
    29,005
    
    
    $
    43,282
    
    
    $
    118,815
  36




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##### Table of Contents



Federal Funds Purchased
 Securities Sold Under Agreement to Repurchase
 Federal Home Loan Bank Advances
 Accrued Interest Payable
 Other Liabilities
 Subordinated Debentures .
 37




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##### Table of Contents



Capital
   MinimumTo Be Well CapitalizedMinimum for Capital
    
    Under Prompt CorrectiveActual
    
    Adequacy Purposes
    
    Action ProvisionsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioAs of March 31, 2009Total capital
(to risk weighted assets)Consolidated
    
    
    99,414
    
    
    
    10.49
    %
    
    
    75,785
    
    
    
    8.00
    %
    
    
    N/A
    
    
    
    N/ABank
    
    
    97,279
    
    
    
    10.29
    %
    
    
    75,620
    
    
    
    8.00
    %
    
    
    94,525
    
    
    
    10.00
    %Tier 1 capital
(to risk weighted assets)Consolidated
    
    
    87,575
    
    
    
    9.23
    %
    
    
    37,933
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/ABank
    
    
    85,440
    
    
    
    9.04
    %
    
    
    37,810
    
    
    
    4.00
    %
    
    
    56,715
    
    
    
    6.00
    %Tier 1 capital
(to average assets)Consolidated
    
    
    87,575
    
    
    
    8.10
    %
    
    
    43,263
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/ABank
    
    
    85,440
    
    
    
    7.93
    %
    
    
    43,122
    
    
    
    4.00
    %
    
    
    53,902
    
    
    
    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
    %
  38




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##### Table of Contents



PART I    FINANCIAL INFORMATION
 
 ITEM 3.  
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
 Interest Rate Sensitivity Analysis.
   39




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##### Table of Contents



Interest Rate Sensitivity Period1-90
    
    
    91-365
    
    
    1-5
    
    
    Over(In thousands)
    
    Days
    
    
    Days
    
    
    Years
    
    
    5 Years
    
    
    TotalEarning assetsFederal funds sold
    
    $
    6,841
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    6,841Interest bearing deposits with
Banks
    
    
    28,083
    
    
    
    19,742
    
    
    
    5,437
    
    
    
    
    
    
    
    53,262Mortgage loans held for sale
    
    
    3,009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,009Securities available for sale
    
    
    2,000
    
    
    
    2,114
    
    
    
    40,968
    
    
    
    286
    
    
    
    45,368Federal Home Loan Bank stock
    
    
    3,614
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,614Total loans, net of non-accrual
    
    
    209,044
    
    
    
    92,525
    
    
    
    505,952
    
    
    
    40,567
    
    
    
    848,088Total earning assets
    
    
    252,591
    
    
    
    114,381
    
    
    
    552,357
    
    
    
    40,853
    
    
    
    960,182Interest bearing liabilitiesTotal interest bearing deposits
    
    
    428,892
    
    
    
    366,961
    
    
    
    30,843
    
    
    
    259
    
    
    
    826,955Federal Home Loan Bank advances
    
    
    
    
    
    
    25,000
    
    
    
    29,955
    
    
    
    
    
    
    
    54,955Other Borrowings
    
    
    2,268
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,268Subordinated debentures
    
    
    10,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,000Total interest bearing liabilities
    
    
    441,160
    
    
    
    391,961
    
    
    
    60,798
    
    
    
    259
    
    
    
    894,178Net asset (liability) funding gap
    
    
    (188,569
    )
    
    
    (277,580
    )
    
    
    491,559
    
    
    
    40,594
    
    
    $
    66,004Cumulative net asset (liability)
funding gap
    
    
    ($188,569
    )
    
    
    ($466,149
    )
    
    $
    25,410
    
    
    $
    66,004
 40




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##### Table of Contents



Liquidity.
   41




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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
    
    $
    2,268
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    2,268Certificates of deposit
    
    
    471,546
    
    
    
    23,595
    
    
    
    7,248
    
    
    
    259
    
    
    
    502,648Long-term borrowings
    
    
    25,000
    
    
    
    19,684
    
    
    
    10,271
    
    
    
    
    
    
    
    54,955Lease commitments
    
    
    784
    
    
    
    894
    
    
    
    110
    
    
    
    
    
    
    
    1,788Subordinated debentures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,000
    
    
    
    10,000Totals
    
    $
    499,598
    
    
    $
    44,173
    
    
    $
    17,629
    
    
    $
    10,259
    
    
    $
    571,659Unused Loan Commitments and Letters of CreditAmount Of Commitment Expiration Per PeriodLess Than
    
    
    1-3
    
    
    3-5
    
    
    Over 51 Year
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    TotalUnused loan commitments
    
    $
    75,449
    
    
    $
    7,475
    
    
    $
    8,481
    
    
    $
    11,955
    
    
    $
    103,360Standby letters of credit
    
    
    1,518
    
    
    
    327
    
    
    
    2,000
    
    
    
    
    
    
    
    3,845Totals
    
    $
    76,967
    
    
    $
    7,802
    
    
    $
    10,481
    
    
    $
    11,955
    
    
    $
    107,205
 42




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##### Table of Contents



Item 4. Controls and Procedures
 Disclosure Controls and Procedures 
 Internal Controls Over Financial Reporting
 43




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##### Table of Contents



PART II    OTHER INFORMATION
 
  (a)
    
    Exhibits
 Exhibit 31.1
    
    CEO Certification. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.Exhibit 31.2
    
    CFO Certification. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.Exhibit 32.1
    
    CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.Exhibit 32.2
    
    CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 (b)
    
    A Form 8-K Report, dated January 20, 2009 was filed during the quarter ended March 31, 2009.
 44




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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  45